The accompanying financial statements for REGI
U.S., Inc. (the “Company”) have been prepared by management in accordance with accounting principles generally accepted
in the United States of America. These interim consolidated financial statements, which are the responsibility of management, are
unaudited and have not been reviewed by the Company’s auditors. Management believes the consolidated financial statements
are free of material misstatement and present fairly, in all material respects, the financial position of the Company as at July
31, 2017 and the results of its operations and its cash flows for the three months ended July 31, 2017.
Notes to Consolidated Financial Statements
(Unaudited)
REGI U.S., Inc. (“we”,
“our”, the “Company”, “REGI”) has been engaged in the business of developing and building improved
axial vane-type rotary devices for civilian, commercial and government applications with the marketing and intellectual rights
in the U.S. Effective February 17, 2017 REGI purchased the worldwide marketing and intellectual rights, other than in the U.S.,
from Reg Technologies, Inc. (“Reg Tech”), a British Columbia company. No revenue has been derived to date and REGI’s
planned principal operations have not commenced.
REGI formed a wholly-owned subsidiary,
Rad Max Technologies, Inc., on April 10, 2007 in the State of Washington.
Effective February 17, 2017 REGI purchased
all of Reg Tech’s assets including all rights to the technology with the issuance of 51,757,119 shares of REGI’s common
stock.
Asset Purchase Agreement
On September 16, 2016, REGI entered
into an asset purchase agreement (the “APA”) with Reg Tech, a public company whose common stock was listed on TSX Venture
Exchange to purchase all of the assets of Reg Tech, a company with a common director and CEO with REGI with the issuance of 46,173,916
unregistered common shares of our Company. The APA was amended on February 14, 2017 to increase the consideration shares to an
aggregate of 51,757,119 unregistered common shares of our Company and to amend the list of the assets purchased. The shares are
issued as of the date of this report. The Amended APA is attached as an exhibit to this report. The transaction was closed on February
17, 2017 upon TSX Venture Exchange approval.
The transaction is accounted for as
a reverse merger recapitalization wherein Reg Tech is considered to be the accounting acquirer. The prior year results of operations
and cash flows are those of Reg Tech for all periods presented.
Upon closing of the asset purchase
agreement, all assets of Reg Tech except GST receivable were transferred from Reg Tech to REGI. In addition, upon closing of the
APA, all assets, liabilities, and equity instruments of REGI were incorporated into the surviving company. The net adjustment to
additional paid in capital for the asset purchase was a decrease of $1,243,757. The net cash received from the reverse merger was
$10,753.
The following table summarizes the
assets and liabilities of REGI U.S. on February 17, 2017:
Cash
|
|
$
|
10,753
|
|
Prepaid
|
|
|
2,000
|
|
Furniture and equipment, net
|
|
|
15,477
|
|
Accounts payable and accrued liabilities
|
|
|
(217,043
|
)
|
Due to related parties
|
|
|
(843,703
|
)
|
Convertible promissory notes
|
|
|
(351,586
|
)
|
Convertible promissory notes – related parties
|
|
|
(118,874
|
)
|
Net assets
|
|
$
|
(1,502,976
|
)
|
The following table summarizes the
assets and liabilities of Reg Tech on February 17, 2017 that were not assumed in the transaction:
Accounts payable and accrued liabilities
|
|
$
|
(86,736
|
)
|
Due to related parties
|
|
|
(172,483
|
)
|
Net Liabilities
|
|
$
|
(259,219
|
)
|
2.
|
Significant Accounting Policies
|
Principles of consolidation
The accompanying unaudited interim
consolidated financial statements of REGI have been prepared in accordance with accounting principles generally accepted in the
United States of America, and should be read in conjunction with the audited financial statements and notes thereto for the year
ended April 30, 2017 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 2017 as reported in the Form 10-K, have been omitted.
These financial statements include
the accounts of the Company, its wholly owned subsidiary RadMax Technologies, Inc., and its 51% owned subsidiary Rand Energy Group
Inc. (“Rand”), which ownership was purchased from Reg Tech effective February 17, 2017.
All significant inter-company balances
and transactions have been eliminated upon consolidation.
Investment in associates
Investments in which the Company has
the ability to exert significant influence but does not have control are accounted for using the equity method whereby the original
cost of the investment is adjusted annually for the Company’s share of earnings, losses and dividends during the current
year.
As part of the APA the Company purchased
from Reg Tech and owns 26.1% of equity interest in Minewest Silver and Gold Inc. (“Minewest”), a British Columbia company.
Minewest owns a 70% interest subject to a 10% Net Profits Interest in mining property in British Columbia. As at the date of the
asset purchase and the date of this report, Minewest is inactive due to lack of funding. As a result, the assets were impaired
and no transactions are recorded for Minewest during the year ended April 30, 2017 or the three months ended July 31, 2017.
Property, plant and equipment
Property and equipment are stated
at cost, which includes the acquisition price and any direct costs to bring the asset into use at its intended location, less accumulated
amortization.
Depreciation of property and equipment
is calculated using the straight-line method to write off the cost, net of any estimated residual value, over their estimated useful
lives of the assets as follows: Office equipment 5 years and electronic equipment 2 years. Depreciation of office equipment is
included in general and administrative expenses; Depreciation of research equipment is included in research and development expense.
During the three months ended July, 2017 depreciation of $1,198 was recorded on the research equipment.
Recent accounting pronouncements
The Company has implemented all new
accounting pronouncements that are in effect and that may impact its financial statements. The Company does not believe that there
are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or
results of operations.
The Company incurred net losses of
$390,552 for the three months ended July 31, 2017 and has a working capital deficit of $62,544 and an accumulated deficit of $21,448,722
at July 31, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty. As a result, the Company’s
consolidated financial statements as of July 31, 2017 and for the year 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.
The Company also receives interim
support from related parties and plans to raise additional capital through debt and/or equity financings. There is no assurance
that any of these activities will be successful. There continues to be insufficient funds to provide enough working capital to
fund ongoing operations for the next twelve months.
4.
|
|
Secured Convertible Promissory Notes
|
As of July 31, 2017, REGI has outstanding
senior secured convertible promissory notes (the “Convertible Notes”) of $880,254 (net of unamortized discount of $29,432)
issued to related parties and $732,921 (net of unamortized discount of $324,548) issued to non-related parties. As of April 30,
2017, REGI has outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $877,449 (net of
unamortized discount of $9,888) issued to related parties and $636,539 (net of unamortized discount of $12,944) issued to non-related
parties.
During the three months ended July
31, 2017, the Company issued convertible notes for cash proceeds of $370,000, service debt provided by non-related parties of $37,986,
and service debt provided by related parties of $37,500. The Convertible Notes are secured against all assets of the Company, repayable
two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20%
after the due date. As of April 30, 2017, $755,185, $55,500, $949,121, $60,000 and $132,500 of the promissory notes are convertible
at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.755, $0.12, $0.10, $0.09
and $0.08 per share respectively.
The Company analyzed the conversion
option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined
that the instrument does not qualify for derivative accounting.
The Company determined that the conversion
option was subject to a beneficial conversion feature and during the three months ended July 31, 2017 the Company recorded a total
beneficial conversion feature of $344,284, and amortization of the beneficial conversion feature of $13,137 as interest expense.
Amounts due to related parties are
unsecured, non-interest bearing and due on demand. Related parties consist of the directors and officers and a former director
of REGI and companies controlled or significantly influenced by these parties. As of July 31, 2017, there was $105,614 due to related
parties. As of April 30, 2017, there was $77,560 due to related parties.
On January 6, 2017, the Company’s
annual and special meeting of stockholders approved the amendment to the Company’s articles that increased the authorized
common shares from 100,000,000 to 150,000,000.
During the three months ended July
31, 2017 related party convertible promissory notes of $15,152 and accrued interest of $830 were converted into a total of 159,822
shares of REGI’s common stock at $0.10 per share.
During the three months ended July
31, 2017 the Company issued 155,000 shares of its common stock for options exercised at $0.10 per share.
During the three months ended July
31, 2017 the Company issued 350,000 shares of its common stock for services provided by the directors, officers and consultants
of the Company with the total value recorded at $59,500 based on the market trading price of the issuance date.
On September 16, 2016, the Company
entered into the APA with Reg Tech to purchase all of the assets of Reg Tech. An aggregate of 51,757,119 unregistered common shares
of our company were issued as consideration for the asset purchase.
During the year ended April 30, 2017
related party convertible promissory note of $30,000 and its accrued interest of $1,405 were converted into 314,050 shares REGI’s
common stock at $0.10 per share.
Treasury Shares
At July 31, 2017 and April 30, 2017,
Rand Energy owned 827,731 shares of the Company’s common stock which have been deducted from the total shares outstanding.
|
b)
|
Common Stock Options and Warrants
|
On August 12, 2016, REGI granted an
aggregate of 3,700,000 common stock options for services. These options vest upon grant, expire on July 20, 2021 and are exercisable
at the following prices:
Options
|
|
|
Exercise price
|
|
|
900,000
|
|
|
$
|
0.10
|
|
|
600,000
|
|
|
$
|
0.20
|
|
|
550,000
|
|
|
$
|
0.35
|
|
|
450,000
|
|
|
$
|
0.50
|
|
|
350,000
|
|
|
$
|
0.75
|
|
|
350,000
|
|
|
$
|
1.00
|
|
|
250,000
|
|
|
$
|
1.25
|
|
|
250,000
|
|
|
$
|
1.50
|
|
|
3,700,000
|
|
|
|
|
|
On January 1, 2017, REGI granted an
aggregate of 3,500,000 common stock options for services. These options vest upon grant, expire on January 1, 2022 and are exercisable
at the following prices:
Options
|
|
|
Exercise price
|
|
|
2,500,000
|
|
|
$
|
0.10
|
|
|
300,000
|
|
|
$
|
0.20
|
|
|
300,000
|
|
|
$
|
0.35
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
100,000
|
|
|
$
|
0.75
|
|
|
3,500,000
|
|
|
|
|
|
A summary of REGI’s stock option
activities for the three months ended July 31, 2017 and the year ended April 30, 2017 are as follows:
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
July 31, 2017
|
|
|
April 30, 2017
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Outstanding at beginning of period
|
|
|
9,138,000
|
|
|
$
|
0.31
|
|
|
|
1,938,000
|
|
|
$
|
0.15
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
7,200,000
|
|
|
|
0.36
|
|
Exercised
|
|
|
(155,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(803,000
|
)
|
|
|
0.10
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at end of period
|
|
|
8,180,000
|
|
|
|
0.35
|
|
|
|
9,138,000
|
|
|
|
0.31
|
|
Exercisable at end of period
|
|
|
7,445,000
|
|
|
$
|
0.35
|
|
|
|
7,684,500
|
|
|
$
|
0.34
|
|
The weighted average remaining contractual
life of the options was 3.38 and 3.61 years at July 31, 2017 and April 30, 2017 respectively.
At July 31, 2017 and April 30, 2017,
the Company had $Nil and $28,740 of total unrecognized compensation cost related to non-vested stock options and warrants, respectively.
The intrinsic value of “in the money” exercisable options at July 31, 2017 and April 30, 2017 was $272,000 and $145,580,
respectively.
There was no warrant activity during
the three months ended July 31, 2017. A summary of REGI’s common stock warrant activity for the year ended April 30, 2017
is as follows:
|
|
Year Ended
|
|
|
|
April 30, 2017
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at beginning of period
|
|
|
200,000
|
|
|
$
|
0.25
|
|
Expired
|
|
|
(200,000
|
)
|
|
|
0.25
|
|
Outstanding at end of period
|
|
|
-
|
|
|
|
-
|
|
Exercisable at end of period
|
|
|
-
|
|
|
$
|
-
|
|
At July 31, 2017 and April 30, 2017,
there were no warrants outstanding.
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.
Subsequent to July 31, 2017, convertible
loans of $549,866 were issued. The convertible notes are secured against all assets of the Company, repayable two years after the
issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date.
The promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common
stocks at $0.10 per share.
Subsequent to July 31, 2017, 55,892
and 243,501 shares of the Company’s common stock were issued for convertible promissory notes at $0.08 and $0.10 per share,
respectively, and $8,652 was repaid for convertible loan redemption.
On November 2, 2017 the Company issued
3,172,269 shares of its common stock to Rand Energy. These shares together with the 827,721 shares of common stock initially owned
by Rand Energy and recorded as the Company’s treasury shares, were transferred to the 49% shareholders of Rand Energy, as
consideration for purchase of all of their 49% interest in Rand Energy, resulting in the Company owing 100% equity interest of
Rand Energy.