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 quarterly period ended January 31, 2008
[ ] 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) |
#240-11780 Hammersmith Way
Richmond, BC V7A 5E9 Canada
(Address of Principal
Executive Offices)
(604) 278-5996
Issuer's Telephone
Number
_____________________________________________________________
(Former
Name, former address and former fiscal year, 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 registrant 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:
March 11, 2008
Common – 27,920,824 shares
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
THIS QUARTERLY REPORT ON FORM 10-QSB, INCLUDING THE EXHIBITS HERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS “ANTICIPATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FORECASTS,” “PLANS,” “FUTURE,” “STRATEGY,” OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE DESCRIBED IN “RISK FACTORS” IN OUR APRIL 30, 2007 FORM 10-KSB. WE ASSUME NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements of REGI U.S., Inc. (“we,” “us,” “our,” and “REGI”) as of January 31, 2008 and for the nine months ended January 31, 2008 and January 31, 2007 are attached hereto. Our consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
It is the opinion of management that the interim consolidated financial statements for the nine months ended January 31, 2008 and January 31, 2007 includes all adjustments necessary in order to ensure that the financial statements are not misleading. These statements reflect all adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. Except where noted, these interim consolidated financial statements follow the same accounting policies and methods of their application as the Company’s April 30, 2007 annual consolidated financial statements, as amended by our 10-KSB/A. All adjustments are of a normal recurring nature. It is suggested that these interim consolidated financial statements be read in conjunction with the Company’s April 30, 2007 annual consolidated financial statements.
Operating results for the nine months ended January 31, 2008 are not necessarily indicative of the results that can be expected for the year ending April 30, 2008.
REGI U.S. Inc.
(A Development Stage Company)
Interim
Financial Statements
January 31, 2008
(Unaudited)
REGI U.S., Inc.
(A Development Stage Company)
Interim Financial Statements
January 31, 2008
(Expressed in U.S. dollars)
(Unaudited)
| Index | |
| Consolidated Balance Sheets | F-1 |
| Consolidated Statements of Operations | F-2 |
| Consolidated Statements of Cash Flows | F-3 |
| Notes to the Consolidated Financial Statements | F-4 |
REGI U.S., Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. dollars)
(Unaudited)
| January 31, | April 30, | |||||
| 2008 | 2007 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | 20,448 | 163,909 | ||||
| Prepaid expenses | – | 41,648 | ||||
| Total Assets | 20,448 | 205,557 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||
| Current Liabilities | ||||||
| Accounts payable and accrued liabilities | 116,741 | 65,449 | ||||
| Due to related parties (Note 4(a)) | 90,013 | 248,253 | ||||
| Total Liabilities | 206,754 | 313,702 | ||||
| Stockholders’ Deficit | ||||||
| Common Stock (Note 3): | ||||||
| 100,000,000 shares authorized without par value; 27,853,491 shares issued and | ||||||
| outstanding (April 30, 2007 - 26,919,208 shares) | 6,768,144 | 5,892,176 | ||||
| Additional Paid-in Capital | 2,321,919 | 2,085,256 | ||||
| Subscriptions Received | 32,870 | 259,027 | ||||
| Donated Capital (Note 4) | 960,000 | 847,500 | ||||
| Deficit Accumulated During the Development Stage | (10,269,239 | ) | (9,192,104 | ) | ||
| Total Stockholders’ Deficit | (186,306 | ) | (108,145 | ) | ||
| Total Liabilities and Stockholders’ Deficit | 20,448 | 205,557 | ||||
| Commitments (Note 5) |
| Approved by the Directors: | |
| “John Robertson” | |
| John Robertson - Director | |
| “Jennifer Lorette” | |
| Jennifer Lorette - Director |
(The Accompanying Notes are an Integral Part of the Consolidated
Financial Statements)
F-1
REGI U.S., Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in U.S. dollars)
(Unaudited)
| From | |||||||||||||||
| July 27,1992 | For the | For the | |||||||||||||
| (Date of Inception) | Three Months Ended | Nine Months Ended | |||||||||||||
| to January 31, | January 31, | January 31, | |||||||||||||
| 2008 | 2008 | 2007 | 2008 | 2007 | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Expenses | |||||||||||||||
| Amortization | 130,533 | – | – | – | – | ||||||||||
| General and administrative (Notes 3(c)) | 6,199,666 | 151,429 | 468,589 | 975,566 | 838,088 | ||||||||||
| Impairment loss | 72,823 | – | – | – | – | ||||||||||
| Research and development | 4,055,868 | 41,594 | 21,029 | 101,569 | 131,308 | ||||||||||
| Operating Loss | 10,458,890 | 193,023 | 489,618 | 1,077,135 | 969,396 | ||||||||||
| Other Income | |||||||||||||||
| Accounts payable written-off | 189,651 | – | – | – | – | ||||||||||
| Net Loss for the Period | 10,269,239 | 193,023 | 489,618 | 1,077,135 | 969,396 | ||||||||||
| Loss Per Share | (0.01 | ) | (0.02 | ) | (0.04 | ) | (0.04 | ) | |||||||
| Weighted Average Number of Common Shares | |||||||||||||||
| outstanding | 27,786,000 | 26,134,000 | 27,467,000 | 25,993,000 | |||||||||||
(The Accompanying Notes are an Integral Part of the Consolidated
Financial Statements)
F-2
REGI U.S., Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
| From | |||||||||
| July 27, 1992 | |||||||||
| (Date of Inception) | For the Nine Months Ended | ||||||||
| to January 31, | January 31, | ||||||||
| 2008 | 2008 | 2007 | |||||||
| $ | $ | $ | |||||||
| Operating Activities | |||||||||
| Net loss | (10,269,239 | ) | (1,077,135 | ) | (969,396 | ) | |||
| Adjustments to reconcile net loss to net cash used | |||||||||
| in operating activities | |||||||||
| Accounts payable written-off | (189,651 | ) | – | – | |||||
| Amortization | 130,533 | – | – | ||||||
| Impairment loss | 72,823 | – | – | ||||||
| Stock-based compensation (Note 3(a)) | 760,513 | 236,663 | 92,262 | ||||||
| Amortization of deferred compensation | 373,795 | – | 1,000 | ||||||
| Donated services | 960,000 | 112,500 | 112,500 | ||||||
| Intellectual property written-off | 578,509 | – | – | ||||||
| Shares issued for services (Note 3(c)) | 77,550 | 30,050 | – | ||||||
| Changes in operating assets and liabilities | |||||||||
| Accounts receivable | (3,000 | ) | – | 2,779 | |||||
| Prepaid expenses | – | 29,148 | 70,001 | ||||||
| Accounts payable and accrued liabilities | 314,548 | 51,292 | (21,315 | ) | |||||
| Cash Used in Operating Activities | (7,193,619 | ) | (617,482 | ) | (712,169 | ) | |||
| Investing Activities | |||||||||
| Patent protection costs | (38,197 | ) | – | – | |||||
| Purchase of property, plant and equipment | (198,419 | ) | – | – | |||||
| Cash Used in Investing Activities | (236,616 | ) | – | – | |||||
| Financing Activities | |||||||||
| Advance from (repayments to) related parties | 395,410 | (140,690 | ) | 244,810 | |||||
| Proceeds from convertible debenture | 5,000 | – | – | ||||||
| Proceeds from the sale of common stock | 7,017,403 | 581,841 | 241,350 | ||||||
| Subscriptions received | 32,870 | 32,870 | – | ||||||
| Cash Provided by Financing Activities | 7,450,683 | 474,021 | 486,160 | ||||||
| Increase (Decrease) In Cash | 20,448 | (143,461 | ) | (226,009 | ) | ||||
| Cash – Beginning of Period | – | 163,909 | 240,137 | ||||||
| Cash - End of Period | 20,448 | 20,448 | 14,128 | ||||||
| Non-Cash Investing and Financing Activities | |||||||||
| Warrants issued for equity line of credit | 1,561,406 | – | 1,561,406 | ||||||
| Shares issued to settle debt | 496,000 | – | – | ||||||
| Shares issued for convertible debenture | 5,000 | – | – | ||||||
| Shares issued for intellectual property | 345,251 | – | – | ||||||
| Shares issued for services | 77,550 | 17,550 | 60,000 | ||||||
| Consulting services reflected as donated capital | 960,000 | 112,500 | 112,500 | ||||||
| Affiliate’s shares issued for intellectual property | 200,000 | – | – | ||||||
| Supplemental Disclosures | |||||||||
| Interest paid | – | – | – | ||||||
| Income tax paid | – | – | – | ||||||
(The Accompanying Notes are an Integral Part of the Consolidated
Financial Statements)
F-3
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 1. | INTERIM REPORTING |
| The accompanying unaudited interim consolidated 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the fiscal year ended April 30, 2007, as filed with the United States Securities and Exchange Commission. |
|
| The results of operations for the nine-month period ended January 31, 2008 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”) in the U.S. The world-wide marketing and intellectual rights, other than in the U.S., are held by Reg Technologies, Inc. (“Reg”), a major shareholder, which owns 12% of the Company’s issued, and outstanding, stock and controls the Company by way of a voting trust arrangement. 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 Reg will fund 50%. |
|
| The Company formed a wholly-owned subsidiary, Rad Max Technologies, Inc. (“Rad Max”) on April 10, 2007 in the State of Washington. Rad Max hopes to win military contracts for custom versions of the RC/DC Engine. The accounts of the subsidiary are incorporated in the accounts of the Company as at January 31, 2008. All inter- company balances have been eliminated upon consolidation. |
|
| 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 accumulated losses of $10,269,239 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 Energy Group Inc. (“Rand”), a private company with officers and directors in common with the Company. Further, Rand owns approximately 10% of the shares of the Company, and may 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. The Company has an equity line of credit whereby the investor agreed to purchase up to $10,000,000 of the Company’s common stock. (See Note 3(e)). 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. |
F-4
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 3. | 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. |
|||
| The Company records stock-based compensation in accordance with SFAS No. 123R “Share Based Payments”, using the fair value method. |
|||
| All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued. |
|||
| All options granted by the Company under the 2000 Plan have the following vesting schedule: |
|||
| (i) | Up to 25% of the option, may be exercised at any time during the term of the option, such initial exercise is referred to as the “First Exercise”. |
||
| (ii) | The second 25% of the option may be exercised at any time after 90 days from the date of First Exercise; such second exercise is referred to as the “Second Exercise”. |
||
| (iii) | The third 25% of the option may be exercised at any time after 90 days from the date of Second Exercise; such third exercise is referred to as the “Third Exercise”. |
||
| (iv) | The fourth and final 25% of the option may be exercised at any time after 90 days from the date of the Third Exercise. |
||
| (v) | The options expire 60 months from the date of grant. |
||
On April 12, 2007, the Company approved a new 2007 Stock Option Plan to issue up to 2,000,000 shares to certain key directors and employees. Pursuant to the Plan, the Company has granted stock options to certain directors and employees.
All options granted by the Company under the 2007 Plan have the following vesting schedule:
| (i) | Up to 25% of the option may be exercised 90 days after the grant of the option. |
|
| (ii) | The second 25% of the option may be exercised at any time after 1 year and 90 days after the grant of the option. |
|
| (iii) | The third 25% of the option may be exercised at any time after 2 years and 90 days after the grant of the option. |
|
| (iv) | The fourth and final 25% of the option may be exercised at any time after 3 years and 90 days after the grant of the option. |
|
| (v) | The options expire 60 months from the date of grant. |
During the nine-month period ended January 31, 2008, the Company recorded stock-based compensation of $236,663 as general and administrative expense.
Option pricing models require the input of highly subjective assumptions including the expected price volatility. The subjective input assumptions can materially affect the fair value estimate.
F-5
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 3. | COMMON STOCK (Continued) |
|
| (a) | Stock Option Plan (Continued) |
|
| The following table summarizes the continuity of the Company’s stock options: |
||
| Weighted | |||||||
| average | |||||||
| Shares | exercise price | ||||||
| # | $ | ||||||
| Outstanding, April 30, 2006 | 1,175,750 | 0.37 | |||||
| Granted | 1,375,000 | 1.32 | |||||
| Exercised | (662,250 | ) | 0.22 | ||||
| Outstanding, April 30, 2007 | 1,888,500 | 1.12 | |||||
| Granted | 25,000 | 1.30 | |||||
| Exercised | (53,000 | ) | 0.81 | ||||
| Outstanding, January 31, 2008 | 1,860,500 | 1.13 |
Additional information regarding options outstanding and exercisable as at January 31, 2008, is as follows:
Options Outstanding
| WTD. AVG | |||||||||||||
| Aggregate | Remaining | ||||||||||||
| Exercise | Shares Under | Intrinsic | Contractual | ||||||||||
| Expiry Date | Price | Option | Value | Life (in years) | |||||||||
| $ | # | $ | # | ||||||||||
| September 10, 2008 | 0.25 | 150,000 | 82,500 | 0.61 | |||||||||
| December 2, 2008 | 0.35 | 100,000 | 45,000 | 0.84 | |||||||||
| May 10, 2009 | 0.20 | 75,000 | 45,000 | 1.27 | |||||||||
| September 30, 2009 | 0.35 | 37,500 | 16,875 | 1.67 | |||||||||
| May 27, 2010 | 0.45 | 50,000 | 17,500 | 2.32 | |||||||||
| April 21, 2011 | 2.20 | 75,000 | – | 3.22 | |||||||||
| June 29, 2011 | 2.09 | 25,000 | – | 3.41 | |||||||||
| November 1, 2011 | 1.37 | 125,000 | – | 3.75 | |||||||||
| January 30, 2012 | 1.30 | 200,000 | – | 4.00 | |||||||||
| April 12, 2012 | 1.30 | 998,000 | – | 4.20 | |||||||||
| November 7, 2012 | 1.30 | 25,000 | – | 4.77 | |||||||||
| Options outstanding | 1,860,500 | 206,875 | 3.42 |
Options Exercisable
| WTD. AVG | |||||||||||||
| Aggregate | Remaining | ||||||||||||
| Exercise | Shares Under | Intrinsic | Contractual | ||||||||||
| Expiry Date | Price | Option | Value | Life (in years) | |||||||||
| $ | # | $ | # | ||||||||||
| September 10, 2008 | 0.25 | 150,000 | 82,500 | 0.61 | |||||||||
| December 2, 2008 | 0.35 | 100,000 | 45,000 | 0.84 | |||||||||
| May 10, 2009 | 0.20 | 75,000 | 45,000 | 1.27 | |||||||||
| September 30, 2009 | 0.35 | 37,500 | 16,875 | 1.67 | |||||||||
| May 27, 2010 | 0.45 | 12,500 | 4,375 | 2.32 | |||||||||
| April 21, 2011 | 2.20 | 18,750 | – | 3.22 | |||||||||
| June 29, 2011 | 2.09 | 6,250 | – | 3.41 | |||||||||
| November 1, 2011 | 1.37 | 31,250 | – | 3.75 | |||||||||
| January 30, 2012 | 1.30 | 50,000 | – | 4.00 | |||||||||
| April 12, 2012 | 1.30 | 229,250 | – | 4.20 | |||||||||
| Options exercisable | 710,500 | 193,750 | 2.43 |
F-6
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 3. | COMMON STOCK (Continued) |
|
| (a) | Stock Option Plan (Continued) |
|
| At January 31, 2008, the Company had $1,165,577 of total unrecognized compensation cost related to non- vested stock options held by employees, which will be recognized over the vesting period. A summary of the status of the Company’s non-vested stock options as of January 31, 2008, and changes during the nine- month period ended January 31, 2008, is presented below: |
||
| Weighted-Average | |||||||
| Grant-Date | |||||||
| Non-vested stock options | Stock Options | Fair Value | |||||
| # | $ | ||||||
| Non-vested at May 1, 2007 | 1,383,250 | 0.90 | |||||
| Granted | 25,000 | 1.30 | |||||
| Vested | (258,250 | ) | 0.84 | ||||
| Non-vested at January 31, 2008 | 1,150,000 | 0.92 |
| (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, and amended in June 2004. On April 27, 2007, the Company further amended the Plan so that the term of the Plan is extended to the twentieth anniversary of the effective date. |
||
| (c) | Non-Cash Consideration |
|
| During the year ended April 30, 2007, the Company entered into a Financial Advisory Agreement valued at $120,000 for services to be rendered over a one-year period. Part of this agreement stated that $60,000 was to be paid by issuance of the Company’s shares of common stock. At the date of this obligation, 29,000 shares were issued when the value of the Company’s stock was $2.07 per share. During the nine-month period ended January 31, 2008, the Company charged $12,500 (2006 – $27,500) to operations for the pro- rata portion of services performed. |
||
| During the nine-month period ended January 31, 2008, a consultant exercised 27,000 stock options with a fair value of $35,100 for services rendered. 50% was charged to Research and Development and the other 50% charged to a related party as per the agreement. (See Notes 2 and 3(h)). |
||
| (d) | Share Purchase Warrants |
|
| The following table summarizes the continuity of the Company’s warrants: |
| Weighted average | |||||||
| Number of | exercise price | ||||||
| Shares | $ | ||||||
| Balance, April 30, 2006 | 750,000 | 0.80 | |||||
| Exercised | (255,833 | ) | 0.80 | ||||
| Exercised | (13,000 | ) | 1.00 | ||||
| Issued | 2,252,000 | 1.03 | |||||
| Balance, April 30, 2007 | 2,733,167 | 1.02 | |||||
| Issued | 1,462,950 | 1.28 | |||||
| Exercised | (98,333 | ) | 0.97 | ||||
| Expired | (226,667 | ) | 1.00 | ||||
| Cancelled | (640,000 | ) | 1.00 | ||||
| Balance, January 31, 2008 | 3,231,117 | 1.15 |
F-7
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 3. | COMMON STOCK (Continued) |
At January 31, 2008, the following share purchase warrants were outstanding:
| Exercise | January 31, | April 30, | ||||||||
| Expiry Date | Price | 2008 | 2007 | |||||||
| $ | # | # | ||||||||
| November 30, 2007 | 1.00 | – | 252,500 | |||||||
| April 26, 2008 | 1.00 | 229,167 | 241,667 | |||||||
| October 15, 2009 | 1.50 | 40,000 | – | |||||||
| November 17, 2011 | 1.00 | 2,059,000 | 2,119,000 | |||||||
| February 21, 2012 | 1.50 | 120,000 | 120,000 | |||||||
| July 30, 2012 | 1.50 | 579,950 | – | |||||||
| October 4, 2012 | 1.50 | 32,000 | – | |||||||
| November 7, 2012 | 1.50 | 76,000 | – | |||||||
| December 17, 2012 | 1.50 | 95,000 | – | |||||||
| Warrants outstanding | 3,231,117 | 2,733,167 |
| (e) | On November 17, 2006, the Company entered into a Securities Purchase Agreement (“equity line of credit”), whereby an investor agreed to purchase up to $10,000,000 of the Company’s common stock over a term of 36 months at the Company’s discretion. Each purchase will be for a minimum of $150,000 and up to a maximum of the lessor of $750,000, or 200% of the average weighted volume for the Company’s common stock for the 20 trading days prior to the date of purchase. Each purchase will be at a 15% discount to the market price of the Company’s common stock over the 10 trading days prior to the purchase. |
|
| In connection with the equity line of credit, the Company issued to the investor a warrant (“Investor warrant”) to purchase 1,000,000 shares of the Company’s common stock at $1.30 per share (the “Exercise Price”) for five years, and to an agent a warrant (”Placement warrant”) to purchase 640,000 shares of the Company’s common stock at $1.30 per share for five years. If the Company fails to register the shares issuable upon the exercise of the Investor or Placement warrant, the holder is entitled to exercise the warrant and receive, for no consideration, a certificate equal to the number of shares obtained by subtracting the Exercise Price of the warrant for the volume weighted average price on the trading day immediately preceding the date of such election and multiplying that amount by the number of shares issuable upon the exercise of the warrant. On October 31, 2007, the 640,000 Placement warrants issued to the agent were cancelled and 640,000 warrants were issued to other parties with the same terms and conditions as the original Placement warrants. |
||
| The Company filed an SB-2 Registration Statement with the United States Securities and Exchange Commission that was declared effective February 9, 2007, to register shares of common stock potentially issuable under this equity line of credit (6,160,000 shares) and the related warrants (1,640,000 shares). |
||
| Pursuant to the agreement, if the Company issues any common stock, or rights to acquire common stock at a price less than the Exercise Price, the Exercise Price will be adjusted to the lower price. In addition, the number of shares issuable will be increased such that the aggregate exercise price after adjustment is equal to the aggregate exercise price prior to adjustment. |
||
| Subsequent to the issuance of the warrants, the Company completed an equity financing at $1 per share. The issuance of the Company’s common shares lowered the Exercise Price of the Investor warrants to $1 and increased the number of shares issuable upon exercise of the warrants to 2,132,000 shares, of which 73,000 have been exercised. The Company recognized the change in fair value of the warrants of $222,681 as share issuance costs. |
||
| The Company has determined that, in accordance with SFAS 133, “Accounting for Derivative Instruments and Fair Value Hedges”, the warrants are not derivative instruments and, accordingly, guidance in EITF 00- 19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”, relating to net cash settlement versus net share settlement should be followed. The contract permits the Company to settle in unregistered shares, the Company has a sufficient number of unissued authorized shares available to settle the contract, and there is an explicit limit on the number of shares to be delivered in a share settlement. As the issuance of shares and, thus, the modification of the exercise price is wholly under the control of the Company and the Company has the ability to control net-settlement, these warrants have been classified as equity and their fair value of $1,338,725 has been recognized as share issuance costs. |
F-8
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 3. | COMMON STOCK (Continued) |
|
| (f) | During the nine-month period ended January 31, 2008, the Company issued 13,500 shares at $0.25 per share upon the exercise of stock options for proceeds of $3,375. |
|
| (g) | During the nine-month period ended January 31, 2008, the Company issued 12,500 shares at $0.35 per share upon the exercise of stock options for proceeds of $4,375. |
|
| (h) | During the nine-month period ended January 31, 2008, the Company issued 27,000 shares at $1.30 per share upon the exercise of stock options for services rendered with a fair value of $35,100. |
|
| (i) | During the nine-month period ended January 31, 2008, the Company issued 85,833 shares at $1 per share upon the exercise of warrants for proceeds of $85,833. |
|
| (j) | During the nine-month period ended January 31, 2008, the Company issued 12,500 shares at $0.80 per share upon the exercise of warrants for proceeds of $10,000. |
|
| (k) | During the nine-month period ended January 31, 2008, the Company issued 782,950 shares at $1 per share pursuant to a private placement for cash proceeds of $737,285, net of issue costs of $45,665. Each share consists of one Class A share and one warrant. Each warrant enables the holder to purchase one additional share at an exercise price of $1.50 per share for five years after closing date. |
|
| (l) | During the nine-month period ended January 31, 2008, the Company increased its number of authorized shares without per value to 100,000,000. |
|
| 4. | RELATED PARTY TRANSACTIONS |
|
| (a) | Amounts due to related parties are unsecured, non-interest bearing and due on demand. Related parties consist of companies controlled or significantly influenced by the President of the Company. |
|
| (b) | The Company entered into an agreement with a professional law firm (the “Law Firm”) in which a partner of the firm is an Officer and Director of the Company. The Company agreed to pay a cash fee equal to 5% of any financings with parties introduced to the Company by the Law Firm. The Company also agreed to pay an equity fee equal to 5% of the equity issued by the Company to parties introduced by the Law Firm, in the form of options, warrants or common stock. During the nine-month period ended January 31, 2008, fees in the aggregate of $30,668 (2007 - $87,911) for legal services have been paid to the Law Firm. |
|
| (c) | During the nine-month period ended January 31, 2008, the value of consulting services of $67,500 (2007 - $67,500) was contributed by the President, CEO and Director of the Company, charged to operations and treated as donated capital. |
|
| (d) | During the nine-month period January 31, 2008, the value of consulting services of $22,500 (2007 - $22,500) was contributed by the Vice President and Director of the Company, charged to operations and treated as donated capital. |
|
| (e) | During the nine-month period ended January 31, 2008, the value of consulting services of $22,500 (2007 - $22,500) was contributed by the CFO, COO and Director of the Company, charged to operations and treated as donated capital. |
|
| (f) | During the nine-month period ended January 31, 2008, project management fees of $22,500 (2007 - $22,500) were paid to a company having common officers and directors. |
|
| 5. | COMMITMENTS |
|
| (a) | Pursuant to a letter of understanding dated December 13, 1993 between the Company, 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, licences, royalties or income derived from the patented technology. |
|
| (b) | Pursuant to an agreement dated August 20, 1992, the Company acquired the U.S. rights to the original RC/DC Engine from Rand. The Company will pay Rand and the original owner a net profit royalty of 5% and 1%, respectively. |
|
| (c) | The Company is committed to fund 50% of the further development of the RC/DC Engine. |
|
| (d) | The Company entered into an agreement with a professional law firm (the “Law Firm”) in which a partner of the firm is an Officer and Director of the Company. The Company agreed to pay a cash fee equal to 5% of any financings with parties introduced to the Company by the Law Firm. The Company also agreed to pay an equity fee equal to 5% of the equity issued by the Company to parties introduced by the Law Firm, in the form of options, warrants or common stock. (See Note 4(b)) |
|
F-9
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(Expressed in U.S. dollars)
(Unaudited)
| 6. | RECENT ACCOUNTING PRONOUNCEMENTS |
| In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements. |
|
| In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements Liabilities – an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations. |
F-10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company was organized under the laws of the State of Oregon on July 27, 1992. The Company is developing for commercialization an improved axial vane type rotary engine known as the Rand Cam™/RadMax® rotary technology used in the design of lightweight and high efficiency engines, compressors and pumps. The RadMax® engine has only two moving parts, the vanes (up to 12) and the rotor, compared to the 40 moving parts in a simple four-cylinder piston engine. This design makes it possible to produce up to 24 continuous power impulses per one rotation that is vibration-free and extremely quiet. The RadMax® engine also has multi-fuel capabilities allowing it to operate on fuels including gasoline, natural gas, hydrogen, propane and diesel. REGI U.S., Inc. and its parent company, Reg Technologies Inc., are currently designing and testing prototype RadMax® diesel engines, compressors and pumps intended for aviation, automotive, industrial processes and military applications.
The Company formed a wholly-owned subsidiary, Rad Max Technologies, Inc. (“Rad Max”) on April 10, 2007 in the State of Washington. Rad Max hopes to win military contracts for custom versions of the RC/DC Engine. The accounts of the subsidiary are incorporated in the accounts of the Company as at January 31, 2008.
The world-wide marketing and intellectual rights, other than the U.S., are held by Rand Energy Group Inc. 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 Rand Cam™ Engine and Rand Energy Group Inc. will fund 50%. REGI U.S., Inc. is a development stage company. 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 $186,306 and has accumulated losses of $10,269,239 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.
Progress Report from November 1, 2007 to February 29, 2008
Corporate
CEO (Company Executives Online) Clips, a series of one to two minute corporate profiles on North American companies, featured REGI U.S. Inc and Reg Technologies, Inc. on the BUSINESS NEWS NETWORK which aired January 14 to January 20, 2008, throughout BNN’s prime weekly schedule and throughout the weekend. Our CEO Clips segment was also aired on the FOX BUSINESS NEWS NETWORK running Tuesday, January 29 to Tuesday, February 5, 2008, airing throughout the Fox Business News Network’s daytime prime time schedule.
The clip focused on building brand awareness for REGI and the Company’s RadMax® technology.
The clip can also be viewed online via the following links: www.b-tv.com/i/videos/BNNRegiUS.wmv and http://www.b-tv.com/i/videos/foxregius.wmv . In addition, it is posted on Yahoo Finance Canada, MSN Finance, Stockhouse.com., and at www.ceoclips.com
Plan of Operations
The following contains forward-looking statements relating to revenues, expenditures and sufficiency of capital resources. Actual results may differ from those projected in the forward-looking statements for a number of reasons, including those described in this quarterly report.
The financial statements for the nine months ended January 31, 2008 have been prepared assuming that the Company will continue as a going-concern. As discussed in note 2 to the financial statements, the Company has no revenues and limited capital, which together raise substantial doubt about its ability to continue as a going-concern. Management’s plans in regard to these matters are also described in note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company plans to raise funds through loans from Rand Energy Group Inc. (“Rand”), a private company with officers and directors in common with the Company. Further, Rand owns approximately 10% of the shares of the Company as of January 31, 2008, and may 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. The Company has an equity line of credit whereby the investor agreed to purchase up to $10,000,000 of the Company’s common stock. (See Note 3(e) to our financial statements). The Company may also raise additional funds through the exercise of warrants and stock options, if exercised.
We have been successful in the past in acquiring capital through the issuance of shares of our Common Stock, and through advances from related parties.
We anticipate that our cash requirements for the next twelve months ending January 31, 2009 will remain consistent with those for the previous twelve months.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations”. This statement replaces SFAS 141 and defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. SFAS 141R also requires the acquirer to recognize contingent consideration at the acquisition date, measured at its fair value at that date. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's financial statements.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements Liabilities – an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
Results of operations for the nine months ended January 31, 2008 (“2008”) compared to the nine months ended January 31, 2007 (“2007”)
There were no revenues from product licensing during the periods.
The net loss in 2008 increased by $107,739 to $1,077,135 compared to $969,396 in 2007. Administrative expenses increased by $137,478 to $975,566 from $838,088 in 2007. The single largest expense was an increase in stock-based compensation of $144,401 for consulting services rendered.
Research and development expenses decreased by $29,739 to $101,569 in 2008 compared to $131,308 in 2007.
Liquidity
During the nine months ended January 31, 2008, we financed our operations mainly from proceeds from the issuance of common stock in the amount of $581,841 and $32,870 from common stock subscribed.
As at January 31, 2008, we had a working capital deficit of $186,306. Working capital is not adequate to meet development costs for the next twelve months. The Company plans to raise funds through loans from Rand Energy Group Inc. (“Rand”), a private company with officers and directors in common with the Company. Further, Rand owns approximately 10% of the shares of the Company, having an approximate current market value of $2,226,733 as at January 31, 2008, and may 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. These amounts would be non-interest bearing, unsecured and repayable on demand. The Company has an equity line of credit whereby the investor agreed to purchase up to $10,000,000 of the Company’s common stock. 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.
Off-balance sheet arrangements
There were 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.
Item 3. Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including the President, and the Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” [as defined in the Exchange Act Rule 13a-15(e)] as of the end of the period covered by this report. Based upon the evaluation of the effectiveness of the disclosure controls and procedures as of the end of the period covered by this annual report, our officers concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have also concluded that, as of such date, the disclosure controls and procedures were effective at the reasonable assurance level with respect to such disclosure controls and procedures being designed to ensure that information relating to the Registrant required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, and not absolute assurance, of achieving the desired control objectives, and management necessarily was required to apply its judgement in evaluating the cost-benefit relationship of possible controls and procedures.
There was no significant change in our internal control over financial reporting that occurred during the nine-months ended January 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Nor were there any significant deficiencies or material weaknesses in our internal controls requiring corrective actions.
Extension of Compliance Date for Management’s Report on Internal Control Over Financial Reporting
The Company is a non-accelerated filer as defined in Rule 12b-2 of the Act. On September 21, 2005, the Securities and Exchange Commission extended the compliance dates for non-accelerated filers concerning the provisions of Exchange Act Rule 13a-15(d) or 15d-15(d), whichever applies, requiring an evaluation of changes to internal control over financial reporting requirements with respect to the company’s first periodic report due after the first annual report that must include management’s report on internal control over financial reporting. A company that is a non-accelerated filer must begin to comply with these requirements for its first fiscal year ending on or after July 15, 2007. In addition, the compliance period
was extended to the amended portion of the introductory language in paragraph 4 of the certification required by Exchange Act Rules 13a-14(a) and 15d-14(a) that refers to the certifying officers’ responsibility for establishing and maintaining internal control over financial reporting for the company, as well as paragraph 4(b). The amended language must be provided in the first annual report required to contain management’s internal control report and in all periodic reports filed thereafter. The extended compliance dates also apply to the amendments of Exchange Act Rules 13a-15(a) and 15d-15(a) relating to the maintenance of internal control over financial reporting.
Under the internal control reporting provisions of the Act, Management will be responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Item 3A(T). Controls and Procedures
Not applicable.
PART II Other Information
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Set forth below is information regarding the issuance and sales of our securities without registration during the nine months ended January 31, 2008. No such sales involved the use of an underwriter. See Note 3 to our financial statements for the nine-month period ended January 31, 2008 for more information on recent sales of unregistered securities.
| (a) |
During the nine-month period ended January 31, 2008, the Company issued 85,833 shares at $1 per share upon the exercise of warrants for proceeds of $85,833. The issuance of these shares was exempt from registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Each certificate representing securities issued to the investors in this private placement bears a legend restricting transfer. | |
| (b) |
During the nine-month period ended January 31, 2008, the Company issued 12,500 shares at $0.80 per share upon the exercise of warrants for proceeds of $10,000. The issuance of these shares was exempt from registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Each certificate representing securities issued to the investors in this private placement bears a legend restricting transfer. | |
| (c) |
During the nine-month period ended January 31, 2008, the Company issued 782,950 shares at $1 per share pursuant to a private placement for cash proceeds of $737,285, net of issue costs of $45,665. Each share consists of one Class A share of common stock and one common share purchase warrant. Each warrant enables the holder to purchase one additional share at an exercise price of $1.50 per share for five years after closing date. The issuance of these shares was exempt from registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Each certificate representing securities issued to the investors in this private |
placement bears a legend restricting transfer. In addition, if the exemptions under Rule 506 under and Section 4(2) of the Act are not available, $70,000 of the sales to non-U.S. residents were exempt pursuant to Regulation S under the Act.
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
Exhibits:
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: March 13, 2008 | REGI U.S., INC. | |
| By: | /s/ John G. Robertson | |
| John G. Robertson, President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ James Vandeberg | |
| James Vandeberg, Chief Operating Officer and | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |