Item
1. Financial Statements
REGI
U.S., Inc.
Consolidated
Balance Sheets
(Unaudited)
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|
January
31, 2016
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|
|
April
30, 2015
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|
ASSETS
|
|
|
|
|
|
|
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Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
88
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
88
|
|
|
$
|
491
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
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Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
188,763
|
|
|
$
|
185,230
|
|
Due to related parties
|
|
|
1,924,429
|
|
|
|
1,791,680
|
|
Total Current Liabilities
|
|
|
2,113,192
|
|
|
|
1,976,910
|
|
|
|
|
|
|
|
|
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Stockholders’ Deficit:
|
|
|
|
|
|
|
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Common stock, 100,000,000 shares authorized, no par value,32,779,298 shares issued and outstanding
|
|
|
10,840,946
|
|
|
|
10,750,946
|
|
Accumulated deficit
|
|
|
(12,954,050
|
)
|
|
|
(12,727,365
|
)
|
Total Stockholders’ Deficit
|
|
|
(2,113,104
|
)
|
|
|
(1,976,419
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
88
|
|
|
$
|
491
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
REGI
U.S., Inc.
Consolidated
Statements of Expenses
(Unaudited)
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|
Three Months Ended
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|
Nine Months Ended
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|
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January 31,
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January 31,
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2016
|
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2015
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2016
|
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2015
|
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Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
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|
$
|
44,550
|
|
|
$
|
67,234
|
|
|
$
|
178,150
|
|
|
$
|
283,328
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|
Research and development
|
|
|
1,110
|
|
|
|
25,886
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|
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47,455
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|
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47,824
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Loss from Operations:
|
|
|
(45,660
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)
|
|
|
(93,120
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)
|
|
|
(225,605
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)
|
|
|
(331,152
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)
|
|
|
|
|
|
|
|
|
|
|
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Other Income (Expense):
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|
|
|
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|
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|
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|
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|
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Interest expense
|
|
|
(360
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)
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|
|
(360
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)
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|
|
(1,080
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)
|
|
|
(1,080
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss
|
|
$
|
(46,020
|
)
|
|
$
|
(93,480
|
)
|
|
$
|
(226,685
|
)
|
|
$
|
(332,232
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net loss per share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Weighted average shares outstanding – basic and diluted
|
|
|
32,779,298
|
|
|
|
32,779,298
|
|
|
|
32,779,298
|
|
|
|
32,774,393
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
REGI
U.S., Inc.
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Nine
Months Ended
January 31
,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(226,685
|
)
|
|
$
|
(332,232
|
)
|
Adjustments to reconcile loss to net cash used in operating
activities:
|
|
|
|
|
|
|
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|
Donated services
|
|
|
90,000
|
|
|
|
90,000
|
|
Options and warrants issued for service
|
|
|
-
|
|
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68,285
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
1,080
|
|
|
|
1,080
|
|
Accounts payable and accrued liabilities
|
|
|
3,533
|
|
|
|
(56,914
|
)
|
Net cash used in operating activities
|
|
|
(132,072
|
)
|
|
|
(229,781
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
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|
Advances from related parties
|
|
|
131,669
|
|
|
|
216,506
|
|
Proceeds from the sale of common stock
|
|
|
-
|
|
|
|
12,197
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|
Net cash provided by financing activities
|
|
|
131,669
|
|
|
|
228,703
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(403
|
)
|
|
|
(1,078
|
)
|
Cash and cash equivalents, beginning
of period
|
|
|
491
|
|
|
|
1,876
|
|
Cash and cash equivalents, end of period
|
|
$
|
88
|
|
|
$
|
798
|
|
|
|
|
|
|
|
|
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Supplemental Disclosures:
|
|
|
|
|
|
|
|
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Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements.
REGI
U.S., Inc.
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE
1. BASIS OF PRESENTATION
The
accompanying unaudited interim financial statements of REGI U.S., Inc. (“REGI”) have been prepared in accordance with
accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission,
and should be read in conjunction with the audited financial statements and notes thereto for the year ended April 30, 2015 filed
on Form 10-K with the SEC. In the opinion of management, the accompanying unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the
results of operations for the interim period presented herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year or for any future period. Notes to the unaudited consolidated financial
statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for
fiscal 2015 as reported in Form 10-K, have been omitted.
NOTE
2. GOING CONCERN
REGI
incurred net loss of $226,685 for the nine months ended January 31, 2016 and has a working capital deficit of $2,113,104 and an
accumulated deficit of $12,954,050 at January 31, 2016. These factors raise substantial doubt about the ability of REGI to continue
as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of
this uncertainty. As a result, REGI’s unaudited consolidated financial statements as of January 31, 2016 and for the nine
months then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business.
REGI
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.
REGI may also raise additional funds through the exercise of warrants and stock options, if exercised. There is no assurance that
any of these activities will be successful.
NOTE
3. RELATED PARTIES
Amounts
due from related parties are unsecured, non-interest bearing and due on demand. Related parties consist of the President of REGI
and companies controlled or significantly influenced by the President of REGI. As of January 31, 2016, there was $1,924,429 due
to related parties. As of April 30, 2015, there was $1,791,680 due to related parties.
During
the nine month period ended January 31, 2016, the President, CEO and director of REGI provided consulting services to REGI valued
at $67,500, which were accounted for as donated capital and charged to expense during the period. The same amount was recorded
in the nine month period ended January 31, 2015.
During
the nine month period ended January 31, 2016, the CFO, COO and director of REGI provided consulting services to REGI valued at
$22,500, which were accounted for as donated capital and charged to expense during the period. The same amount was recorded in
the nine month period ended January 31, 2015.
During
each of nine month periods ended January 31, 2016 and 2015, management fees of $22,500 were accrued to a company having a common
director.
During
the year ended April 30, 2012, the Company issued a promissory note of $24,000 for amounts previously accrued and owed to a company
with common director with the Company. The promissory note bears interest rate of 6% per annum, is unsecured and due on demand.
During the nine months ended January 31, 2016 and 2015, there was no change to the principal amount of the promissory note and
interest expense of $1,080 was recorded each year. The principal balance of the note is included as due to related parties in
the consolidated balance sheet.
REGI
currently utilizes office space in a commercial business park building located in Richmond, British Columbia, Canada, a suburb
of Vancouver, shared by several companies related by common officers and directors. REGI does not pay rent for this office space.
NOTE
4. STOCKHOLDERS’ EQUITY
a)
Common Stock Options and Warrants
REGI
has a 2000 Stock Option Plan to issue up to 2,500,000 shares to certain key directors and employees.
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 REGI 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”.
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|
|
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, REGI adopted its 2007 Stock Option Plan to issue up to 2,000,000 shares to certain key directors and employees.
Pursuant to the 2007 plan, REGI has granted stock options to certain directors and employees.
All
options granted 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 periods ended January 31, 2016 and 2015, the Company recorded aggregate stock-based compensation associated with
options and warrants of $Nil and $68,285, respectively. At January 31, 2016, the Company had $344,019 of total unrecognized compensation
cost related to non-vested stock options and warrants, which will be recognized over future periods.
The
fair value of each option and warrant grant or modification during the nine months ended January 31, 2015 was determined using
the Black-Scholes option pricing model and the following assumptions. There was no option or warrant grant or modification during
the nine months ended January 31, 2016.
|
|
Nine Months Ended January 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
-
|
|
|
|
0.01%
- 0.05%
|
|
Expected life
|
|
|
-
|
|
|
|
0.06-0.57
|
|
Annualized volatility
|
|
|
-
|
|
|
|
139.83%
- 182.47%
|
|
Expected dividends
|
|
|
-
|
|
|
|
-
|
|
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.
A
summary of REGI’s stock option activity for the nine months ended January 31, 2016 is as follows:
|
|
Nine Months
Ended
January 31, 2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
Outstanding at beginning of period
|
|
|
2,488,000
|
|
|
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
0.10
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
2,438,000
|
|
|
|
0.15
|
|
Exercisable at end of period
|
|
|
609,500
|
|
|
$
|
0.15
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
$
|
-
|
|
At
January 31, 2016, the range of exercise prices and the weighted average remaining contractual life of the outstanding options
was $0.10 to $0.20 per share and 1.78 years, respectively. The intrinsic value of “in the money” exercisable options
at January 31, 2016 was $Nil.
A
summary of REGI’s common stock warrant activity for the nine months ended January 31, 2016 is as follows:
|
|
Nine Months
Ended
January 31, 2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at beginning of period
|
|
|
1,709,333
|
|
|
|
0.19
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(1,509,333
|
)
|
|
|
0.19
|
|
Outstanding at end of period
|
|
|
200,000
|
|
|
|
0.25
|
|
Exercisable at end of period
|
|
|
200,000
|
|
|
$
|
0.25
|
|
At
January 31, 2016, the exercise price and the weighted average remaining contractual life of the outstanding warrants was $0.25
per share and 1.09 years, respectively. The intrinsic value of “in the money” exercisable warrants at January 31,
2016 was $Nil.
NOTE
5. COMMITMENTS
Pursuant
to a letter of understanding dated December 13, 1993 between REGI, Rand and Reg (collectively called the grantors) and West Virginia
University Research Corporation (“WVURC”), the grantors have agreed that WVURC shall own 5% of all patented technology
with regards to RC/DC Engine technology and will receive 5% of all net profits from sales, licenses, royalties or income derived
from the patented technology. To date, no sales have been accrued and no royalties have been accrued or paid.
Pursuant
to an agreement dated August 20, 1992, REGI acquired the U.S. rights to the original RC/DC Engine from Rand. REGI will pay Rand
and the original owner a net profit royalty of 5% and 1%, respectively. To date no sales have been accrued and no royalties have
been accrued or paid.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements.” These statements,
identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,”
“expect” and similar expressions include our expectations and objectives regarding our future financial position,
operating results and business strategy. These statements reflect the current views of management with respect to future events
and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry
results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include
those set forth in our 10-K for the fiscal year ended April 30, 2015. We do not intend to update the forward- looking information
to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review
the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly
our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
All
dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
Nature
of Business
We
are a development stage company engaged in the business of developing and building an improved axial vane-type rotary engine known
as the RadMax™ rotary technology (the “RadMax® Engine”), used in the design of lightweight and high efficiency
engines, compressors and pumps. We have a project cost sharing agreement, whereby the development of the RadMax™ Engine
will be funded equally by us and by Reg Technologies Inc. (“Reg Tech”), a public company listed for trading on the
TSX Venture Exchange and on OTC.BB. Reg Tech holds approximately 10.17% of our issued and outstanding shares.
Recent
Development
On
June 1, 2015 we announced that Paul Porter, our chief mechanical engineer, was preparing test facilities for the 375hp diesel
engine. He would populate the engine with the new seals and prepare it for full spin testing. This phase of testing should be
the final set of tests prior to placing the engine on a dynamometer. The dynamometer testing would allow us to document friction,
fuel efficiency, net horsepower and emissions.
On
September 1, 2015 we announced that the prototype was being assembled, and would be spin tested when assembly was complete. After
spin testing, the engine would need to be tested on a dynameter in order to begin the fine tuning of the combustion and determine
the horsepower produced.
On
October 2, 2015 we announce that several parties had expressed interest this year in working with REGI to develop prototypes that
meet their future needs. Preliminary designs have begun to outline physical requirements for several sizes of prototype engines.
The ranges of interest were from 165 horsepower down to 5 horsepower. The end use varied from propulsion for land air and sea
to power generation for land air and sea. NDA’s had been signed to allow REGI to share data with the appropriate parties,
so they could begin estimates based on size and weight for their application. REGI had provided cost estimates for preparation
and testing of the prototypes. The programs all include accelerated prototype development and production using state-of-the-art
methods to minimize time and development costs. The information provided would be used to request budget money in the near future.
On
November 10, 2015 we announced that additional testing on the 375 horsepower diesel engine would be completed in Spokane, Washington.
The engine was transported to Spokane Washington and was being prepared for spin testing at various RPMs with full lubrication
and cooling in preparation for combustion testing.
Going
Concern
REGI
incurred net loss of $226,685 for the nine months ended January 31, 2016 and has a working capital deficit of $2,113,104 and an
accumulated deficit of $12,954,050 at January 31, 2016. Further losses are expected until we enter into a licensing agreement
with a manufacturer and reseller. These factors raise substantial doubt about the ability of the Company to continue as a going
concern.
We
may receive interim support from affiliated companies and plan to raise additional capital through debt and/or equity financings.
We may also raise additional funds through the exercise of warrants and stock options, if exercised. However, there is no assurance
that any of these activities will be successful.
Due
to the uncertainty of our ability to generate sufficient revenues from our operating activities and/or to obtain the necessary
financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, in their
report on our financial statements for the year ended April 30, 2015, our registered independent auditors included additional
comments indicating concerns about our ability to continue as a going concern. Our financial statements contain additional note
disclosures describing the circumstances that led to this disclosure by our registered independent auditors. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Results
of Operations for the Nine Months Ended January 31, 2016 Compared to the Nine Months Ended January 31, 2015
We
had a net loss of $226,685 during the nine months ended January 31, 2016, a decrease from net loss of $332,232 during the nine
months ended January 31, 2015.
Research
and development has been consistently at $47,455 in the nine months ended January 31, 2016 and $47,824 in the nine months ended
January 31, 2015.
General
and administrative expenses decreased to $178,150 in the nine months ended January 31, 2016 from $283,328 in 2015. Our non-cash,
option and warrants based expenses decreased from $68,285 in the nine months ended January 31, 2015 to $Nil in the nine months
ended January 31, 2016.
Other
general and administrative expense comparisons are as follows:
|
●
|
Professional
fees including legal, accounting, audit and auditors’ review expenses decreased
to $17,798 during the nine months ended January 31, 2016 from $23,474 in the nine months
ended January 31, 2015, as our transaction volume decreased from 2015 to 2016;
|
|
|
|
|
●
|
Office
and administrative expenses decreased from $67,940 during the nine months ended January
31, 2015 to $39,833 during the nine months ended January 31, 2016;
|
|
|
|
|
●
|
Transfer
agent and filing fees decreased from $10,075 in 2015 decreased to $8,019 in 2016, as
we had fewer equity transactions in 2016;
|
|
|
|
|
●
|
Consulting
and management fees were consistent at $112,500, of which $90,000 was donated services
for the nine months ended January 31, 2015 and 2016;
|
|
|
|
|
●
|
Technology
related travel expense of $1,054 in 2015 decreased to $Nil in 2016.
|
During
the nine months ended January 31, 2015 and 2016, we recorded interest expense of $1,080 on a promissory note issued to a related
party.
We
have not attained profitable operations and are dependent upon obtaining financing to pursue exploration activities. For these
reasons our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Results
of Operations for the Three Months Ended January 31, 2016 Compared to the Three Months Ended January 31, 2015
Our
net losses decreased from $93,480 during the three months ended January 31, 2015, to net losses of $46,020 during the three months
ended January 31, 2016.
Research
and development expenses decreased from $25,886 during the three months ended January 31, 2015 to $1,110 during the three months
ended January 31, 2016, as we had limited funds in the current period.
General
and administrative expenses decreased from $67,234 in the three months ended January 31, 2015 to $44,550 in the three months ended
January 31, 2016.
General
and administrative expense comparisons are as follows:
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Professional
fees including legal, accounting, audit and auditors’ review expenses decreased
to $5,000 during the three months ended January 31, 2016 from $6,022 in the three months
ended January 31, 2015, as our transaction volume decreased from 2015 to 2016;
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Office
and administrative expenses decreased from $21,033 during the three months ended January
31, 2015 to $2,290 during the three months ended January 31, 2016;
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Transfer
agent and filing fees decreased from $1,625 in 2015 decreased to $Nil in 2016;
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Consulting
and management fees were consistent at $37,500 for the three months ended January 31,
2015 and 2016;
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Technology
related travel expense of $1,054 in 2015 decreased to $Nil in 2016.
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During
the three months ended January 31, 2015 and the three months ended January 31, 2016, we recorded interest expense of $360 on a
promissory note issued to a related party.
We
have not attained profitable operations and are dependent upon obtaining financing to pursue exploration activities. For these
reasons our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Liquidity
and Capital Resources
During
the nine months ended January 31, 2016, we financed our operations mainly through advances from related parties of $131,669.
At
January 31, 2016 total amount owing to related parties is $1,924,429 or 91.07% of total liabilities as of January 31, 2016. This
funding was necessary with a downturn in the financial market to complete the RadMax™ Engine and place us in a position
to attain profit. The balances owing to related parties are non-interest bearing, unsecured and repayable on demand. Our affiliated
companies have indicated that they will not be demanding repayment of these funds during the next fiscal year.
We
also plan to raise additional capital through debt and/or equity financings. We cannot provide any assurance that additional funding
will be available to finance our operations on acceptable terms in order to enable us to complete our plan of operations. There
are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing.
If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue the
development of our RadMax™ Engine and our business will fail.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to our stockholders.
Critical
Accounting Policies
We
have identified certain accounting policies that are most important to the portrayal of our current financial condition and results
of operations. Our significant accounting policies are disclosed in Note 1 of the consolidated financial statements for the nine
months ended January 31, 2016, attached hereto.
Contractual
Obligations
We
do not currently have any contractual obligations requiring any payment obligation from us.