Quarterly Report (10-q)

Date : 12/16/2019 @ 11:21AM
Source : Edgar (US Regulatory)
Stock : REGI US Inc (QB) (RGUS)
Quote : 0.071  0.0 (0.00%) @ 9:20PM

Quarterly Report (10-q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

[X] Quarterly Report Pursuant to Section 13 Or 15(d) Of The Securities Exchange Act of 1934

 

For the quarterly period ended October 31, 2019

 

[  ] Transition Report Under Section 13 Or 15(d) Of The Securities Exchange Act of 1934

 

For the transition period ________ to ________

 

COMMISSION FILE NUMBER 000-23920

 

REGI, U.S., INC.

(Exact name of small business issuer as specified in its charter)

  

OREGON   91-1580146

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

7520 N Market St., #10, Spokane, WA

 

99217

(Address of principal executive office)   (Postal Code)

 

(509) 474-1040

(Issuer’s telephone number)

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
Common Stock,   RGUS   OTCQB

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Yes [X] No [  ]

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post filed). Yes [X] No [  ]

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “Accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

  Large Accelerated Filer [  ]   Accelerated Filer [  ]  
  Non-Accelerated Filer [X]   Smaller Reporting Company [X]  
  Emerging Growth Company [  ]      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of December 3, 2019, there were 115,838,601 shares of registrant’s common stock, no par value, issued and outstanding.

 

 

 

     
 

 

NOTE 1 - Contents

 

PART I - FINANCIAL INFORMATION 3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION. 25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28
ITEM 4. CONTROLS AND PROCEDURES 28
PART II - OTHER INFORMATION 28
ITEM 1. LEGAL PROCEEDINGS. 28
ITEM 1A. RISK FACTORS. 28
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES. 28
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 30
ITEM 4. MINE SAFETY DISCOSURES. 30
ITEM 5. OTHER INFORMATION. 30
ITEM 6. EXHIBITS 31

 

     
 

 

PART I - FINANCIAL INFORMATION

 

REGI U.S., INC.

CONSOLIDATED BALANCE SHEETS

 

    October 31, 2019
(Unaudited)
    April 30, 2019  
ASSETS                
CURRENT ASSETS:                
Cash and cash equivalents   $ 325,446     $ 19,044  
Accounts receivable     6,250       10,000  
Prepaid expenses     16,540       8,683  
Other receivables, net of allowance for uncollectible accounts     4,675       4,675  
TOTAL CURRENT ASSETS     352,911       42,402  
Furniture and equipment, net     104,105       20,968  
TOTAL ASSETS   $ 457,016     $ 63,370  
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
CURRENT LIABILITIES:                
Accounts payable and accrued liabilities   $ 888,833     $ 769,454  
Due to related parties     53,099       53,099  
Deferred revenue     22,500       25,000  
Derivative liability, net of unamortized discount of $Nil and $59,368, respectively     -       306,696  
Convertible promissory notes, current portion - net of unamortized discount of $25,600 and $160,065, respectively     877,672       1,087,613  
Other notes payable, current portion     44,658       25,000  
TOTAL CURRENT LIABILITIES     1,886,762       2,266,862  
LONG-TERM LIABILITIES:                
Convertible promissory notes – long term portion, net of unamortized discount of $99,347 and $5,570, respectively     742,446       415,792  
Other notes payable, long term portion     309,821       15,969  
TOTAL LONG-TERM LIABILITIES     1,052,267       431,761  
TOTAL LIABILITIES     2,939,027       2,698,623  
COMMITMENTS AND CONTINGENCIES     -       -  
STOCKHOLDERS’ EQUITY (DEFICIT)                
Common Stock, no par value; unlimited shares authorized; 110,568,908 and 108,911,309 shares issued and outstanding, respectively     24,537,335       24,091,017  
Returnable shares issued Nil and 2,000,000 shares, respectively     -       (114,000 )
Shares to be issued     264,830       19,117  
Accumulated deficit     (26,976,186 )     (26,323,395 )
Accumulated other comprehensive loss     (362,775 )     (362,775 )
TOTAL REGI US, Inc. stockholders’ deficit     (2,536,796 )     (2,690,036 )
Non-controlling interest     54,783       54,783  
TOTAL STOCKHOLDERS’ DEFICIT     (2,482,013 )     (2,635,253 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 457,016     $ 63,370  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Page 3 of 32
 

 

REGI U.S., INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

 

    Three months ended October 31,     Six months ended October 31,  
    2019     2018     2019     2018  
TOTAL REVENUE FROM SALES   $ -     $ 40,000     $ 25,000     $ 40,000  
                                 
OPERATING EXPENSE                                
Accounting and legal     17,654       25,233       47,854       45,954  
Consulting and management     1,253       69,623       163,274       166,537  
Stockholder relations     11,479       16,733       55,206       37,343  
Depreciation and amortization     2,364       1,552       5,003       3,103  
Stock-based compensation     149,877       -       197,961       -  
General and administrative expenses     29,793       8,290       53,674       30,015  
Research and development     62,091       121,050       191,709       241,408  
TOTAL OPERATING EXPENSES     274,511       242,481       714,681       524,360  
LOSS FROM OPERATIONS     (274,511 )     (202,481 )     (689,681 )     (484,360 )
OTHER INCOME (EXPENSE)                                
Interest expense     (30,136 )     (162,115 )     (63,197 )     (315,178 )
Interest expense, related party     (25,477 )     -       (49,985 )     -  
Amortization of derivative and debt discount     (61,311 )     -       (177,094 )     -  
Gain on settlement of debt     -       7,217       -       7,217  
Gain on change in fair value of derivative liability     -       -       327,166       -  
Miscellaneous revenue     -       15,000       -       15,000  
TOTAL OTHER INCOME (EXPENSE)     (116,924 )     (139,898 )     36,890       (292,961 )
NET LOSS   $ (391,435 )   $ (342,379 )   $ (652,791 )   $ (777,321 )
Loss per share – basic and diluted   $ (0.004 )   $ (0.003 )   $ (0.006 )   $ (0.008 )
Weighted average number of common shares outstanding – basic and diluted     108,348,304       100,991,028       108,033,606       100,391,218  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Page 4 of 32
 

 

REGI U.S., INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the six months ended October 31, 2019 and 2018

 

    Common shares     Capital     Returnable shares     Shares to be issued     Retained deficit     Accumulated Other Comprehensive loss     Total
Stockholders’ Deficit
    Non-
controlling interest
    Total  
Balance at April 30, 2018     99,698,583     $ 22,956,578     $ -     $ -     $ (24,063,399 )   $ (358,675 )   $ (1,465,496 )   $ 54,783     $ (1,410,713 )
Net loss                     -       -       (434,942 )             (434,942 )             (434,942 )
Shares issued for debt conversion     129,672       12,963       -       -                       12,963               12,963  
Beneficial conversion feature             5,850       -       -                       5,850               5,850  
Balance at July 31, 2018     99,828,255     $ 22,975,391     $ -     $ -     $ (24,498,341 )   $ (358,675 )   $ (1,881,625 )   $ 54,783     $ (1,826,842 )
Net loss     -       -       -       -       (342,379 )     -       (342,379 )     -       (342,379 )
Shares issued for debt conversion     737,189       63,275       -       -       -       -       63,275       -       63,275  
Shares issued for debt conversion, related parties     1,200,000       120,000       -       -       -       -       120,000       -       120,000  
Balance at October 31, 2018     101,765,444     $ 23,158,666     $ -     $ -     $ (24,840,720 )   $ (358,675 )   $ (2,040,729 )   $ 54,783     $ (1,985,946 )
                                                                         
Balance at April 30, 2019     108,911,309     $ 24,091,017     $ (114,000 )   $ 19,117     $ (26,323,395 )   $ (362,775 )   $ (2,690,036 )     54,783     $ (2,635,253 )
Net loss     -       -       -       -       (261,356 )     -       (261,356 )     -       (261,356 )
Share based compensation     -       48,084       -       -       -       -       48,084       -       48,084  
Shares issued for common shares and warrants     -       -       -       20,000       -       -       20,000       -       20,000  
Shares issued for debt conversion     156,432       24,566       -       -       -       -       24,566       -       24,566  
Beneficial conversion feature     -       30,000       -       -       -       -       30,000       -       30,000  
Shares to be issued     251,167       19,117       -       (8,737 )     -       -       10,380       -       10,380  
Returnable shares cancelled     (2,000,000 )     (114,000 )     114,000       -       -       -       -       -       -  
Balance at July 31, 2019     107,318,908     $ 24,098,784     $ -     $ 30,380     $ (26,584,751 )   $ (362,775 )   $ (2,818,362 )     54,783     $ (2,763,579 )
Net loss     -       -       -       -       (391,435 )     -       (391,435 )     -       (391,435 )
Share based compensation     -       149,877       -       -       -       -       149,877       -       149,877  
Shares issued for common shares and warrants     2,400,000       120,000               264,830       -       -       384,830       -       384,830  
Shares issued for debt conversion     550,000       63,000       -       (30,380 )     -       -       32,620       -       32,620  
Shares issued for accrued liabilities     300,000       19,740       -       -       -       -       19,740       -       19,740  
Beneficial conversion feature     -       85,934       -       -       -       -       85,934       -       85,934  
Balance at October 31, 2019     110,568,908     $ 24,537,335     $ -     $ 264,830     $ (26,976,186 )   $ (362,775 )   $ (2,536,796 )   $ 54,783     $ (2,482,013 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Page 5 of 32
 

 

REGI U.S., INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

    For the six months ended  
    October 31, 2019     October 31, 2018  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (652,791 )   $ (777,321 )
Adjustments to reconcile net loss to cash used by operating activities                
Amortization of debt discount and promissory note fees     177,094       225,199  
Change in fair value of derivative liability     (327,166 )        
Gain recognized on donated equipment     -       (15,000 )
Depreciation     5,003       3,103  
Share based compensation     197,961          
Convertible promissory notes issued for services             16,357  
Convertible promissory notes, related party issued for services     75,000       79,332  
Changes in operating assets and liabilities:                
Prepaid expenses     (7,857 )     7,776  
Accounts receivable and other current assets     3,750       -  
Accounts payable, accrued interest and other accrued liabilities     162,938       287,171  
Accrued interest     89,601       -  
Deferred revenue     (2,500 )     -  
Due to related parties     -       (11,539 )
Net cash used by operating activities     (278,968 )     (184,922 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds (repayment) from promissory note, related party     225,370       (492 )
Proceeds from subscription of common stock     260,000       -  
Proceeds from sales of common stock and warrants     120,000       -  
Proceeds from issuance of convertible promissory notes     -       90,000  
Repayment of convertible promissory notes     (220,000 )     -  
Proceeds from issuance of convertible promissory notes, related party     200,000       -  
Net cash provided by financing activities     585,370       89,508  
Net increase (decrease) in cash and cash equivalents     306,402       (95,414 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     19,044       111,823  
CASH AND CASH EQUIVALENTS AT END OF PERIOD   $ 325,446     $ 16,409  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                
Cash payments for:                
Interest   $ 360     $ -  
Taxes   $ -     $ -  
                 
NON-CASH FINANCING AND INVESTING ACTIVITIES:                
Shares issued for conversion of promissory notes   $ 87,566     $ 170,491  
Shares issued (returned) from security deposit     (114,000 )     -  
Discount on promissory notes for beneficial conversion features     115,934       5,850  
Purchase of equipment with note payable     88,140       -  
Accounts payable and accrued liabilities settled with convertible notes     63,500       25,746  
Shares issued for accrued liabilities     19,740       -  
Shares to be issued settled with common shares     19,117       -  
Convertible notes settled with shares to be issued   $ 4,830     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Page 6 of 32
 

 

REGI, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

 

1) NATURE OF OPERATIONS

 

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.

 

REGI formed a wholly owned subsidiary, Rad Max Technologies, Inc., on April 10, 2007 in the State of Washington.

 

2) SIGNFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States.

 

Principles of consolidation

 

These financial statements include the accounts of the Company, its wholly owned subsidiary RadMax Technologies, Inc., and its previously wholly owned subsidiary Rand Energy Group Inc. (“Rand”).

 

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.

 

The Company entered into a Mutual Accord and Purchase Agreement on March 7, 2018, to sell all its interest in Minewest Silver & Gold Inc. (“Minewest”), a British Columbia company, in exchange for settlement of its outstanding debt of $7,217 to Minewest. The Company completed the final transfer of mining rights and Claim titles to Minewest on August 13, 2018.

 

Risks and uncertainties

 

The Company operates in an emerging industry that is subject to market acceptance and technological change. The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure.

 

Cash and cash equivalents

 

For the purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents.

 

Page 7 of 32
 

 

REGI, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

 

 

Revenue Recognition

 

The Company accounts for revenue in accordance with Accounting Standards Codification (ASC) Topic 606: Revenue from Contracts with Customers. Revenue is recognized using the following five-step model: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company applies this model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

 

Under Topic 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. The Company’s contracts with customers typically contain a single performance obligation. A contract’s transaction price is recognized as revenue when, or as, the performance obligation is satisfied.

 

The Company considers the contractual consideration payable by the customer when determining the transaction price of each contract. Revenue is recorded net of charges for certain sales incentives and discounts, and applicable state and local sales taxes, which represent components of the transaction price. Charges are estimated upon shipment of the product based on contractual terms, and actual charges typically do not vary materially from our estimates. Shipping estimates are determined by utilizing shipping costs provided by the various service providers websites based on number of packages, weight and destination. Shipping costs are included in the cost of goods sold as the revenue is captured in total sales.

 

The Company receives payments from customers based on the terms established in the Company’s contracts. When amounts are billed before a performance obligation has been satisfied, they are included in deferred revenue.

 

Performance obligations for product sales are satisfied as of a point in time. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment. Performance obligations for site support and engineering services are satisfied over-time if the customer receives the benefits as we perform work and we have a contractual right to payment. Revenue recognized on an over-time basis is based on costs incurred to date relative to milestones and total estimated costs at completion to measure progress.

 

The Company product revenue includes compressors and expanders. The Company also provides direct site support and engineering services to customers, such as repair and upgrade of its products. During the year ended April 30, 2019, the Company’s revenue was $60,000 from sale of prototypes.

 

During the six months ended October 31, 2019, revenue was earned from contract with two customers. As of October 31, 2019, the Company had a deferred revenue balance of $22,500 from these customers related to deliverables in progress at that date.

 

Furniture 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 3 years.

 

Fair value of financial instruments

 

The carrying values of cash and cash equivalents, amounts due to related parties and accounts payable approximate their fair values because of the short-term maturity of these financial instruments.

 

Page 8 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

Fair value measurements

 

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.

 

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.

 

Derivative instruments

 

The Company has financing arrangements that contain freestanding derivative instruments or hybrid instruments that contained embedded derivative features. In accordance with U.S. GAAP, derivative instruments and hybrid instruments are recognized as either assets or liabilities in the Company’s balance sheet and are measured at fair value with gains or losses recognized in earnings depending on the nature of the derivative or hybrid instruments. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recognized at fair value with changes in fair value recognized as either a gain or loss in earnings if they can be reliably measured. When the fair value of embedded derivative features cannot be reliably measured, the Company measures and reports the entire hybrid instrument at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using a Binomial model, giving consideration to all of the rights and obligations of each instrument and precluding the use of “blockage” discounts or premiums in determining the fair value of a large block of financial instruments. Fair value under these conditions does not necessarily represent fair value determined using valuation standards that give consideration to blockage discounts and other factors that may be considered by market participants in establishing fair value.

 

Interest Rate Risk

 

The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities.

 

Credit Risk

 

The Company’s financial asset that is exposed to credit risk consists primarily of cash. To manage the risk, cash is placed with major financial institutions.

 

Currency Risk

 

The Company’s functional currency is the US dollar and the reporting currency is the US dollar.

 

Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in US dollars. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

 

For reporting purposes assets and liabilities with Canadian dollar as functional currency are translated into US dollar at the period end rates of exchange, and the results of the operations are translated at average rates of exchange for the period. The resulting translation adjustments are included the Company’s consolidated statements of operations and comprehensive loss and stated in US dollars.

 

Page 9 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

Income taxes

 

Deferred income taxes are reported for timing differences between items of income or expense reported in the consolidated financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for tax losses and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

 

Basic and diluted net loss per share

 

Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible debt using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

Stock-based compensation

 

The Company accounts for stock-based compensation in accordance with FASB ASC 718 which establishes the accounting treatment for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of FASB ASC 718, measurement of the value of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Non-employee stock-based compensation is granted at the Board of Director’s discretion to award select consultants for exceptional performance. Prior to issuance of the awards, the Company is not under any obligation to issue the stock options. The award vests over a specified period determined by the Company’s Board of Directors. The measurement date of the grant is also the date of the award. The fair value of options is expensed ratably during the specified vesting period.

 

The Company estimates the fair value of employee stock option awards on the date of grant using a Black-Scholes valuation model which requires management to make certain assumptions regarding: (i) the expected volatility in the market price of the Company’s common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercised (referred to as the expected holding period). The expected volatility under this valuation model is based on the current and historical implied volatilities of the Company’s common stock. The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities ranging from one month to five years. The expected holding period of the awards granted is estimated using the historical exercise behavior of employees. In addition, the Company estimates the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest. The Company utilizes historical experience to estimate projected forfeitures. If actual forfeitures are materially different from estimates, stock-based compensation expense could be significantly different from what we have recorded in the current period. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in the period of the revision.

 

The Company has adopted ASC 2018-07 for non-employee stock-based compensation.

 

Stock Granted to Employees and Non-Employees in Lieu of Cash Payments

 

The Company periodically issues shares of its common stock in lieu of cash payments to certain consultants, vendors and employees. The Company follows financial accounting standards that require the measurement of the value of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.

 

Page 10 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

Use of estimates

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management assumptions and estimates relate to long-lived asset impairments and stock-based compensation valuation. Actual results could differ from these estimates and assumptions and could have a material effect on the Company’s reported financial position and results of operations.

 

Research and development costs

 

Research and development costs are expensed as incurred.

 

Related Parties

 

In accordance with ASC 850 “Related Party Disclosure”, a party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

 

Reclassifications

 

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements for the three and six months ended October 31, 2019.

 

New Accounting Pronouncements

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 aligns accounting for share-based payment transactions for acquiring goods and services from nonemployees with transaction with employees. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has elected early adoption of ASC 2018-07 for non-employee stock-based compensation.

 

In February 2016, the FASB issued ASU 2016-02 Leases (Subtopic 842), which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The ASU is effective for the Company in the first quarter of fiscal year 2020. The Company currently holds no leases subject to ASU 2016-02.

 

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

 

3) GOING CONCERN

 

The Company incurred a net loss of $652,791 for the six months ended October 31, 2019 and has a working capital deficit of $1,533,851 and an accumulated deficit of $26,976,186 at October 31, 2019. 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 October 31, 2019 and for the six months 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.

 

Page 11 of 32
 

 

REGI, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

 

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) EARNINGS PER SHARE

 

Basic Earnings Per Share (“EPS”) is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and warrants.

 

The outstanding securities at October 31, 2019 and April 30, 2019 that could have a dilutive effect are as follows:

 

    October 31, 2019     April 30, 2019  
Stock options     10,225,000       8,200,000  
Warrants     7,742,860       -  
Convertible notes and accrued interest, non-related parties     14,326,238       19,520,948  
Convertible notes and accrued interest, related parties     12,678,325       5,881,314  
TOTAL POSSIBLE DILUTIVE SHARES     44,972,423       33,602,262  

 

For the three and six months ended October 31, 2019 and 2018, respectively, the effect of the Company’s outstanding stock options would have been anti-dilutive and so are excluded in the diluted EPS.

 

5) FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The carrying values of cash and cash equivalents and conversion notes approximate fair value due to their limited time to maturity or ability to immediately convert them to cash in the normal course. The carrying values of convertible notes is net of a discount and does not reflect fair value of similar instruments. The approximate fair value of the convertible notes and accrued interest based upon the number of shares into which the notes and accrued interest are convertible is $1,998,338 and $1,978,836 using the closing price per share of stock at October 31 and April 30, 2019, respectively.

 

The table below sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of October 31, 2019 and April 30, 2019, respectively, and the fair value calculation input hierarchy that the Company has determined has applied to each asset and liability category.

 

    October 31, 2019     April 30, 2019     Input Hierarchy Level
Liabilities:                    
Conversion option derivative   $ Nil     $ 306,696     Level 3

 

Page 12 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

6) PROPERTY AND EQUIPMENT

 

Property and equipment at October 31, 2019 and April 30, 2019 consists of the following:

 

    October 31, 2019     April 30, 2019  
Equipment   $ 110,180     $ 22,040  
Furniture and fixtures     14,213       14,213  
      124,393       36,253  
Less accumulated depreciation     (20,288 )     (15,285 )
TOTAL PROPERTY AND EQUIPMENT   $ 104,105     $ 20,968  

 

Depreciation expense totaled $2,364 and $1,552 for the three months ended October 31, 2019 and 2018, respectively. Depreciation expense was $5,003 and $3,103 for the six months ended October 31, 2019 and 2018, respectively.

 

7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities at April 30, 2019 consist of the following:

 

    Related party     Non-related party     Total  
Accounts payable   $ 96,721     $ 46,029     $ 142,750  
Interest payable     33,641       168,726       202,367  
Other accrued liabilities     287,425       136,912       424,337  
    $ 417,787     $ 351,667     $ 769,454  

 

Accounts payable and accrued liabilities at October 31, 2019 consist of the following:

 

    Related party     Non-related party     Total  
Accounts payable   $ 111,293     $ 17,007     $ 128,300  
Interest payable     84,276       146,272       230,548  
Other accrued liabilities     358,348       171,637       529,985  
    $ 553,917     $ 334,916     $ 888,833  

 

Related parties are the officers of the Company, companies with common directors or owners, and companies indirectly controlled by directors or officers of the Company. Amounts owed to directors or officers of the Company as of October 31, 2019 and April 30, 2019 are the result of consulting fees that are disclosed as director or executive compensation above, including amounts paid for benefit of the Company and represents out-of-pocket expenses that were not paid as of October 31, 2019 and April 30, 2019 respectively.

 

The Company does not have written agreements relating to related party advances, except as delineated in several on-demand promissory and convertible promissory notes, related parties (Note 9 and Note 11). The balances are non-interest bearing, unsecured and due on demand per verbal agreements with these related parties.

 

During the three months ended October 31, 2019, the Company recognized $Nil of management fees and salaries and $Nil of payroll tax expense for related parties. During the three months ended October 31, 2018, the Company recognized $57,719 of management fees and salaries and $9,563 of payroll tax expense for related parties.

 

During the six months ended October 31, 2019, the Company recognized $93,750 of management fees and salaries, $7,172 of payroll tax expense and $19,740 of directors fees for related parties. During the six months ended October 31, 2018, the Company recognized $125,057 of management fees and salaries and $20,719 of payroll tax expense for related parties.

 

Page 13 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

The amounts owed to related parties include accrued payroll and payroll taxes which, as of October 31, 2019 and April 30, 2019, were $358,348 and $287,425, respectively.

 

8) DUE TO RELATED PARTIES

 

Related parties are the officers of the Company, companies with common directors or owners, and include companies indirectly controlled by directors or officers of the Company.

 

During the three months ended October 31, 2019, changes to the amounts owed to/by related parties are as follows:

 

    April 30, 2019     (Repayment)/Loan     October 31, 2019  
Due to Minewest   $ -     $          -     $ -  
Due from Linux Gold Corp.     (191 )     -       (191 )
Due to IAS Energy, Inc.     7,431       -       7,431  
Due to Information Highway, Inc.     18,792       -       18,792  
Due to Teryl Resources Corp.     27,067       -       27,067  
Total   $ 53,099     $ -     $ 53,099  

 

9) SECURED CONVERTIBLE PROMISSORY NOTES

 

THREE AND SIX MONTHS ENDED OCTOBER 31, 2018

 

As of October 31, 2018, REGI had outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $257,007 (net of unamortized discount of $34,903) issued to related parties and $1,117,770, (net of unamortized discount of $321,943) issued to non-related parties.

 

During the six months ended October 31, 2018 the Company issued Convertible Notes for service debt provided by related parties of $47,400.

 

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 with the exception of one Convertible Note of $140,278 (net of unamortized discount of $3,012) repayable nine months after issuance, bearing simple interest of 2% during the term of the note and simple interest rate of 15% after the due date.

 

As of October 31, 2018, $17,436, $40,800, $1,513,385, $60,000 and $100,000 of the Convertible Notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.174, $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 six months ended October 31, 2018 the company recorded amortization of the beneficial conversion feature of $113,692 as interest expense.

 

THREE AND SIX MONTHS ENDED OCTOBER 31, 2019

 

Non-related parties

 

On November 30, 2018, the Company issued a Convertible Note to Labrys Fund LP (the “Labrys Note”) in the amount of $220,000, of which $198,000 of the actual amount was received in cash proceeds by the company and the remaining $22,000 was recognized as an Original Issuance Discount, to be amortized over the life of the note. The Labrys Note was due on May 30, 2019 and bore simple interest of 12% per annum.

 

Page 14 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

The Labrys Note allowed the holder to convert outstanding debt to shares of the Company’s common stock at a price other than a fixed conversion price per share. The conversion price of the Labrys Note is 60% of the lowest traded price of the Company’s common stock during the twenty consecutive trading day period immediately preceding any conversion notice. Management has determined that these provisions cause the conversion options to require derivative liability accounting.

 

In connection with Labrys Note, the Company also issued 2,000,000 shares of common stock (the “Returnable Shares”) to the holder as a commitment fee, provided however, the Returnable Shares must be returned to the Company’s treasury if the Note is fully repaid prior to 180 days after the issuance date.

 

During the six months ended October 31, 2019, the Company issued to related parties, two secured promissory notes in the amounts of $150,000 and $75,000, respectively. See Note 11 for further discussion. The Company used $220,000 of the proceeds from the notes to pay the outstanding balance of the Labrys Note. On June 5, 2019, Labrys returned 2,000,000 shares of common stock as the Labrys Note was repaid prior to 180 days of issuance.

 

Between August 1 and August 24, 2019, the Company issued new convertible notes to five holders whose notes had matured with an aggregate principal balance of $168,849 plus accrued interest of $33,780. The notes mature two years from the date of issuance and have a conversion price of $0.10 per share.

 

On August 31, 2019, a holder elected to convert a non-related party note with a balance of $500 plus accrued interest of $100 into 6,000 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

On September 20, 2019, a holder elected to convert a non-related party note with a balance of $30,000 plus accrued interest of $6,000 into 300,000 common shares pursuant to the terms of the agreement at a conversion price of $0.12 per share.

 

On September 20, 2019, a holder elected to convert a non-related party note with a balance of $10,000 plus accrued interest of $2,000 into 100,000 common shares pursuant to the terms of the agreement at a conversion price of $0.12 per share.

 

On October 14, 2019, a holder elected to convert two non-related party notes with an aggregate balance of $3,350 plus accrued interest of $670 into 40,200 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

On October 31, 2019, a holder elected to convert a non-related party note with a balance of $1,775 plus accrued interest of $355 into 21,300 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

On October 31, 2019, a holder elected to convert a non-related party note with a balance of $2,250 plus accrued interest of $450 into 27,000 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

The Company determined that the conversion option of several convertible notes issued to non-related parties were subject to a beneficial conversion feature and during the six months ended October 31, 2019 the company recorded a total beneficial conversion feature of $80,376. The Company recorded amortization of the beneficial conversion feature of $46,340 as interest expense for the three months ended October 31, 2019 and $125,294 as interest expense for the six months ended October 31, 2019.

 

Related parties

 

On May 10, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 15, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 24, 2019, the Company issued a new convertible note to a related party of $36,000 in consideration of accrued interest of $6,000 and a former convertible note whose principal balance of $30,000 matured on the same date. The new convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

Page 15 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

On May 30, 2019, the Company issued a convertible promissory note of $75,000 to a related party in consideration of consulting services provided. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 31, June 30 and July 31, 2019, respectively, the Company issued three convertible promissory notes to a related party with an aggregate principal balance of $14,400 in consideration of matured convertible promissory notes with a principal balance of $12,000 and accrued interest of $2,400. The new convertible promissory 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 dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.07 per share.

 

On August 1, 2019, the Company issued a convertible promissory note to a related party in consideration of cash proceeds of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

 

On September 15, 2019, the Company issued a convertible promissory note to a related party in consideration of cash proceeds of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

 

On September 15, 2019, the Company issued a convertible promissory note to a related party with principal balances of $50,000 in consideration of accrued liabilities of $30,000 and reimbursable accounts payable of $20,000. The new convertible promissory note is secured against all assets of the Company, repayable two years after issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

 

On August 31, September 30 and October 31, 2019, respectively, the Company issued three convertible promissory notes to a related party with aggregate principal balances of $21,600 in consideration of matured convertible promissory notes with a principal balance of $18,000 and accrued interest of $3,600. The new convertible promissory notes are secured against all assets of the Company, repayable two years after issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

 

The Company determined that the conversion option of several convertible notes issued to related parties were subject to a beneficial conversion feature and during the six months ended October 31, 2019 the company recorded a total beneficial conversion feature of $35,558. The Company recorded amortization of the beneficial conversion feature of $14,970 as interest expense, related parties for the three months ended October 31, 2019 and $31,330 as interest expense, related parties for the six months ended October 31, 2019.

 

Page 16 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

At October 31, 2019, balances on the secured convertible promissory notes are as follows:

 

    Principal balance     Unamortized discount of beneficial conversion feature     Net  
Related parties   $ 782,083     $ (35,619 )   $ 746,464  
Non-related parties     962,982       (89,328 )     873,654  
      1,745,065       (124,947 )     1,620,118  
Less current portion     (903,272 )     25,600       (877,672 )
Convertible promissory note-long term portion   $ 841,793     $ (99,347 )   $ 742,446  

 

CONVERSION EQUIVALENTS

 

The aggregate principal and accrued interest balance due to convertible note holders is convertible at any time after the original issue date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a weighted average conversion price.

 

As of October 31, 2019, the aggregate principal and accrued interest balance is convertible to common shares of the Company’s stock as follows:

 

    Principal     Interest     Total     Average conversion price     Conversion equivalents  
Related parties   $ 782,083     $ 73,075     $ 855,158     $ 0.0675       12,678,325  
Non-related parties     962,982       146,272       1,109,254       0.0774       14,326,238  
    $ 1,745,065     $ 219,347     $ 1,964,412     $ 0.0727       27,004,563  

 

10) DERIVATIVE LIABILITY

 

On April 18, 2018 and November 30, 2018, respectively, the Company issued two convertible notes (The Labrys Note and the First Fire Note) which contained provisions allowing holders of the notes to convert outstanding debt to shares of the Company’s common stock at a price other than a fixed conversion price per share (Note 9). Management has determined that these provisions cause the conversion options to require derivative liability accounting.

 

The First Fire Note contained provisions which, after 180 days from the date of issuance, called for the debt conversion exercise price to be the lower of $0.10 per share or seventy-five percent (75%) of the lowest traded price of the Company’s common stock during the twenty consecutive trade days immediately preceding the date of a conversion. Management valued that portion of derivative liability associated with the First Fire Note at fair value of the derivative at the earliest date in which the holder of the note would have been eligible to convert the note to shares of the Company’s stock. The Company utilized the assumptions in determining fair value of the initial derivative liability associated with the First Fire Note:

 

Stock price   $ 0.0675  
Conversion price     0.045075  
Expected volatility     122.25 %
Expected term (years)     0.337  
Risk free rate     2.28 %
Fair value of conversion option derivative units   $ 106,117  

 

The Company recognized loss on initial recording of the conversion derivative liability of $106,117 and concurrently recorded an unamortized discount on the derivative liability of $150,000, to be amortized over the remaining life of the note. The unamortized discount on the derivative liability was charged to the “Capital” account.

 

Page 17 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

On November 19, 2018, the Company issued the Labrys Note, the proceeds of which paid the remaining outstanding balance of the First Fire Note. The Labrys Note contained provisions which called for the debt conversion exercise price to be sixty percent (60%) of the lowest traded price of the Company’s common stock during the twenty consecutive trade days immediately preceding the date of a conversion. The Company utilized the following assumptions in determining fair value of the initial derivative liability associated with the Labrys Note:

 

Stock price   $ 0.0569  
Conversion price     0.024  
Expected volatility     167.6 %
Expected term (years)     0.5  
Risk free rate     2.52 %
Fair value of conversion option derivative units   $ 351,870  

 

The Company recognized loss on initial recording of the conversion derivative liability associated with the Labrys Note in the amount of $351,870 and concurrently recorded an unamortized discount on the derivative liability of $195,000, to be amortized over the remaining life of the note. The unamortized discount on the derivative liability was charged to the “Capital” account.

 

At April 30, 2019, the fair value of conversion option derivative units was estimated at the period’s end using the Binomial option pricing model using the following assumptions:

 

Stock price   $ 0.0779  
Conversion price     0.032  
Expected volatility     28.68 %
Expected term (years)     0.052  
Risk free rate     2.46 %
Fair value of conversion option derivative units   $ 327,166  

 

Below is the detail of change in conversion option liability balance for the six months ended October 31, 2019 and year ended April 30, 2019, respectively:

 

    For the six months ended     For the year ended  
    October 31, 2019     April 30, 2019  
Beginning balance   $ 306,696     $ -  
Initial loss on fair value of derivative liability     -       457,986  
Initial fair value of derivative discount     -       (345,000 )
Amortization of derivative discount     20,470       310,090  
Revaluation of conversion option liability resulting from extinguishment of convertible debt     (327,166 )     (91,677 )
Net change in fair value of conversion option liability     -       (24,703 )
Ending balance   $ -     $ 306,696  

 

11) OTHER NOTES PAYABLE

 

On September 25, 2018, the Company entered into a promissory note with a director of the Company’s board. The term of the agreement is five (5) years and has principal and interest payments of $445 per month. The agreement has a stated interest rate of 12% per annum.

 

On March 12, 2019, the Chief Executive Officer also loaned $10,000 to the Company, payable on demand and bearing simple interest at 12% per annum.

 

On April 23, 2019, a current member of the Company’s Board of Directors loaned $15,000 to the Company, payable on demand and being simple interest at 12% per annum.

 

Page 18 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

On May 30, 2019, the Company issued to related parties, two secured promissory notes in the amounts of $150,000 and $75,000, respectively. The notes bear interest at ten percent (10%) per annum and are due and payable on May 30, 2021. The notes are secured by a General Security Agreement dated May 30, 2019. The Company used $220,000 of the proceeds from the notes to pay the balance of the Labrys note (Note 9).

 

On September 19, 2019, the Company executed an Equipment Finance Agreement with U.S. Bank Equipment Finance in the amount of $88,140 for purchase of a milling center. The note which bears interest at 4.47% per annum is secured by the equipment and is payable in sixty (60) monthly installments of $1,642 commencing on November 25, 2019.

 

At October 31, 2019, balances on the other notes payable are as follows:

 

    Related party     Non-related party     Current Portion     Total  
Promissory note – September 25, 2018   $ 16,339     $ -     $ (3,566 )   $ 12,773  
Demand note – April 23, 2019     15,000       -       (15,000 )     -  
Demand note – May 30, 2019     10,000       -       (10,000 )     -  
Promissory note – May 30, 2019     150,000       -       -       150,000  
Promissory note – May 30, 2019     75,000       -       -       75,000  
Equipment Finance Agreement – September 19, 2019     -       88,140       (16,092 )     72,048  
TOTAL NOTES PAYABLE   $ 266,339     $ 88,140       (44,658 )   $ 309,821  

 

At October 31, 2019, principal payments on the other notes payable are due as follows:

 

    Related party     Non-related party     Total  
Year ending October 31, 2020   $ 28,566     $ 16,092     $ 44,658  
Year ending October 31, 2021     229,024       16,826       245,849  
Year ending October 31, 2022     4,534       17,593       22,127  
Year ending October 31, 2023     4,215       18,395       22,610  
Year ending October 31, 2024     -       19,234       19,234  
TOTAL NOTES PAYABLE   $ 266,339     $ 88,140     $ 354,479  

 

12) STOCKHOLDERS’ EQUITY

 

Issuance of common stock on exercise of convertible of notes, related parties

 

During the three and six months ended October 31, 2018, convertible promissory notes, related parties of $100,000 and accrued interest of $20,000 were converted to 1,200,000 shares of the Company’s common stock at $0.10 per share.

 

During the three months ended October 31, 2019, there were no shares of common stock issued for conversion of related party convertible promissory notes.

 

Page 19 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

Issuance of common stock on exercise of convertible notes, non-related parties

 

For the six months ended October 31, 2018, convertible promissory notes, non-related party of $70,491 and accrued interest of $24,831 were converted to 866,811 shares of the Company’s common stock at $0.08 to $0.10 per share.

 

Between April 15 and April 30, 2019, several holders elected to convert certain convertible notes with balance of $5,117 including accrued interest (Note 9) into 51,167 shares of the Company’s common stock at the conversion price of $0.10 per share as per terms of the agreements.

 

Common shares issued for common stock and warrants

 

The Company received proceeds of $14,000 pursuant to the terms of a Private Placement a price of $0.07 per unit for 200,000 shares of its Common Stock and warrants to purchase an additional 200,000 shares of its common stock to an investor pursuant to a private placement of its securities. The offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.07. Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock. Warrants issued pursuant to the offering entitle the holder thereof to purchase shares of common stock for the price of $0.15 per share. The term of each warrant is for eighteen months commencing with its subscription date of June 1, 2019.

 

On August 1, 2019, the Company issued 400,000 shares of its common stock, and warrants to purchase an additional 400,000 shares of its common stock to an investor pursuant to a private placement of its securities (the “2019 Offering”). The 2019 Offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.05. Each unit consisted of one shares of common stock and one warrants to purchase an additional share of common stock. Warrants issued pursuant to the 2019 Offering entitle the holders thereof to purchase shares of common stock for the price of $0.10 per share. The term of each warrant is for eighteen months commencing with its issuance date. The Company raised a total of $20,000 to date pursuant to the 2019 Offering.

 

Common Shares Issued In Lieu of Cash for Services

 

On September 6, 2019, the Company issued 300,000 shares of its common stock in lieu of cash for services to three members of the board of directors with a fair value of $19,740 which was included the “accrued liabilities” as of April 30, 2019.

 

During the three months ended October 31, 2019 and 2018, respectively, there were no other shares of common stock issued for services.

 

Common shares issued for exercise of options

 

During the three and six months ended October 31, 2019 and 2018, respectively, there were no shares of common stock issued for exercise of options.

 

Returnable shares

 

On May 30, 2019, the Company issued to related parties, two secured promissory notes in the amounts of $150,000 and $75,000, respectively. The notes bear interest at ten percent (10%) per annum and are due and payable on May 30, 2021. The notes are secured by a General Security Agreement dated May 30, 2019. The Company used $220,000 of the proceeds from the notes to pay the balance of the Labrys note (Note 10). On June 5, 2019, Labrys returned 2,000,000 shares previously issued as collateral on its convertible promissory note.

 

13) SHARES TO BE ISSUED

 

Between May 7 and June 5, 2019, the Company issued 251,167 shares of its common stock for Shares to Be Issued with a balance of $19,117 in consideration of the proceeds from a private placement and conversion of promissory notes prior to April 30, 2019.

 

On October 15, 2019, the Company received from an investor proceeds of $10,000 pursuant to the terms of a Private Placement for sale of units for 142,860 shares of its Common Stock and warrants to purchase an additional 142,860 shares of its common stock. The offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.07. Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock. Warrants issued pursuant to the offering entitle the holder thereof to purchase shares of common stock for the price of $0.15 per share. The term of each warrant is for eighteen months commencing with its issuance date of October 15, 2019.

 

Page 20 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

On October 31, 2019, the Company received from an investor proceeds of $250,000 pursuant to the terms of a Private Placement for sales of units for 5,000,000 shares of its Common Stock and warrants to purchase an additional 5,000,000 shares of its common stock. The offering consisted of the sale of “units” of the Company’s securities at the per unit price of $0.05. Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock. Warrants issued pursuant to the offering entitle the holder thereof to purchase shares of common stock for the price of $0.10 per share. The term of each warrant is for eighteen months commencing with its subscription date of September 30, 2019.

 

On October 31, 2019, as per Note 10, a holder elected to convert a non-related party note with a balance of $2,130 including accrued interest of $355 into 21,300 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

On October 31, 2019, as per Note 10, a holder elected to convert a non-related party note with a balance of $2,700 including accrued interest of $450 into 27,000 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

 

As of October 31, 2019 and April 30, 2019, the balance of Shares to be Issued was $264,830 and $19,117, respectively.

 

14) STOCK OPTIONS

 

On August 12, 2016, the Company approved the 2016 Stock Option Plan to issue up to 5,000,000 shares to certain key directors and employees. Pursuant to the Plan, the Company has granted stock options to certain directors, consultants and employees. This Stock Option Plan was amended to issue up to 15,000,000 shares. All options granted by the Company under the 2016 Plan vested immediately.

 

The Stock Option Plan has a fixed maximum percentage of 10% of the Company’s outstanding shares that are eligible for the plan pool, whereby the number of Shares under the plan increases automatically increases as the total number of shares outstanding increase. The number of shares subject to the Stock Option Plan and any outstanding awards will be adjusted appropriately by the Board of Directors if the Company’s common stock is affected through a reorganization, merger, consolidation, recapitalization, restructuring, reclassification dividend (other than quarterly cash dividends) or other distribution, stock split, spin-off or sale of substantially all of the Company’s assets.

 

The Stock Option plan also has terms and conditions, including without limitations that the exercise price for stock options granted under the Stock Option Plan must equal the stock’s fair value, based on the closing price per share of common stock, at the time the stock option is granted. The fair value of each option award is estimated on the date of grant utilizing the Black-Scholes model and commonly utilized assumptions associated with the Black-Scholes methodology. Options granted under the Plan have a ten-year maximum term and varying vesting periods as determined by the Board.

 

On June 6, 2019, the Board of Directors authorized the grant of 500,000 options to purchase shares of common stock of the Company for services to an officer of the Company. The Company estimated the fair value of this option grants using the Black-Scholes model with the following information and assumptions:

 

Options issued     500,000  
Exercise price (Weighted average)   $ 0.935  
Stock price   $ 0.075  
Expected volatility     217.24 %
Expected term (years)     5 years  
Risk free rate     1.88 %
Fair value of options issued   $ 48,084  

 

Page 21 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

The options vest upon grant, and are exercisable at the following prices:

 

Options     Exercise price  
50,000     $ 0.10  
50,000       0.20  
25,000       0.35  
25,000       0.50  
50,000       0.75  
50,000       1.00  
125,000       1.25  
125,000       1.50  
500,000     $ 0.94  

 

The expiration date of the options is June 6, 2024. The fair value of the options is $48,084 and is recognized as stock-based compensation for the six months ended October 31, 2019. These costs are classified as management and administrative expense.

 

On October 1, 2019, REGI granted an aggregate of 625,000 common stock options to directors, employees and consultants. The Company estimated the fair value of these option grants using the Black-Scholes model with the following information and assumptions:

 

Options issued     625,000  
Exercise price (Weighted average)   $ 0.15  
Stock price   $ 0.07  
Expected volatility     217.79 %
Expected term (years)     5 years  
Risk free rate     1.51 %
Fair value of options issued   $ 61,429  

 

The options vest upon grant, and are exercisable at the following prices:

 

Options     Exercise price  
325,000     $ 0.10  
300,000       0.20  
625,000     $ 0.15  

 

The expiration date of the options is October 1, 2024. The fair value of the options is $61,429 and is recognized as stock-based compensation for the three and six months ended October 31, 2019. These costs are classified as management and administrative expense.

 

On October 2, 2019, REGI granted an aggregate of 900,000 common stock options to directors. The Company estimated the fair value of these option grants using the Black-Scholes model with the following information and assumptions:

 

Options issued     900,000  
Exercise price (Weighted average)   $ 0.15  
Stock price   $ 0.08  
Expected volatility     217.85 %
Expected term (years)     5 years  
Risk free rate     1.43 %
Fair value of options issued   $ 88,448  

 

Page 22 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

The options vest upon grant, and are exercisable at the following prices:

 

Options     Exercise price  
450,000     $ 0.10  
450,000       0.20  
900,000     $ 0.15  

 

The expiration date of the options is October 2, 2024. The fair value of the options is $88,448 and is recognized as stock-based compensation for the three and six months ended October 31, 2019. These costs are classified as management and administrative expense.

 

The following is a summary of the Company’s options issued and outstanding in conjunction with the Company’s Stock Option Plans:

 

    For the three months ended October 31,  
    2019     2018  
    Options     Price (a)     Options     Price (a)  
Beginning balance     8,700,000     $ 0.52       9,355,000     $ 0.52  
Issued     1,525,000       0.15       -       -  
Exercised     -       -       -       -  
Expired                     -       -  
Ending balance     10,225,000     $ 0.51       9,355,000     $ 0.52  
Exercisable at end of period     10,225,000     $ 0.51       9,163,750     $ 0.53  

 

    For the six months ended October 31,  
    2019     2018  
    Options     Price (a)     Options     Price (a)  
Beginning balance     8,200,000     $ 0.52       9,355,000     $ 0.52  
Issued     2,025,000       0.15       -       -  
Exercised     -       -       -       -  
Expired                     -       -  
Ending balance     10,225,000     $ 0.51       9,355,000     $ 0.52  
Exercisable at end of period     10,225,000     $ 0.51       9,163,750     $ 0.53  

 

(a) Weighted average exercise price.

 

Page 23 of 32
 

 

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

 

 

The following table summarizes additional information about the options under the Company’s Stock Option Plan as of October 31, 2019:

 

    Options outstanding and exercisable  
Date of Grant   Shares     Price     Remaining Term  
August 12, 2016     3,700,000     $ 0.52       1.72  
January 1, 2017     2,800,000       0.14       2.17  
March 1, 2017     1,200,000       0.58       3.33  
April 30, 2018     500,000       3.00       3.50  
June 6, 2019     500,000       0.94       4.60  
October 1, 2019     625,000       0.15       4.92  
October 2, 2019     900,000       0.15       4.93  
Total options     10,225,000     $ 0.51       2.74  

 

The total value of stock option awards is expensed ratably over the vesting period of the employees receiving the awards. As of October 31, 2019 and October 31, 2018, respectively, there was no unrecognized compensation cost related to stock-based options and awards.

 

The intrinsic value of exercisable options at October 31, 2019 and April 30, 2019, was $Nil and $Nil, respectively.

 

15) WARRANTS

 

The following is a summary of activity for warrants to purchase shares of the Company’s stock through October 31, 2019:

 

    Warrants     Weighted average exercise price  
Balance outstanding at April 30, 2019     -     $ -  
Issued     7,742,860       0.10  
Expired     -       -  
Balance outstanding at October 31, 2019     7,742,860     $ 0.10  

 

The Company occasionally offers to investors the sale of “units” of the Company’s securities at the specified price per unit. The units consisting of one share of common stock and one warrant to purchase an additional share of common stock. The Company does not allocate a portion of the purchase price between the shares and warrants when the “units” are purchased and records the net proceeds of the offering to its “Capital” account.

 

The composition of the Company’s warrants outstanding at October 31, 2019 is as follows:

 

Issue date   Expiration date   Warrants     Price     Remaining Term  
May 1, 2019   November 1, 2020     200,000     $ 0.15       1.01  
June 1, 2019   March 30, 2020     2,000,000       0.10       1.41  
July 10, 2019   January 10, 2021     400,000       0.10       1.20  
September 30, 2019   March 31, 2021     5,000,000       0.10       1.42  
October 15, 2019   April 15, 2021     142,860       0.15       1.46  
Total warrants         7,742,860     $ 0.10       1.39  

 

16) SUBSEQUENT EVENT

 

Management has evaluated subsequent events from the balance sheet date through the date the financial statements were available to be issued and determined that no material subsequent events exist other than the following.

 

Between November 15 and November 27, 2019, the Company issued 5,191,160 shares of its common stock for Shares to Be Issued with a balance of $264,830 in consideration of proceeds from private placements and conversion of promissory notes prior to October 31, 2019.

 

On November 25, 2019, the Company issued 78,533 shares of its common stock in lieu of cash payment for services. The value of the shares issued was $5,890, based on a price of $0.075 per share which approximates the fair value on the date of issuance.

 

Page 24 of 32
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION.

 

Caution Regarding Forward-Looking Information

 

In addition to historical information, this Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). This statement is included for the express purpose of availing the Company. of the protections of the safe harbor provisions of the PSLRA.

 

All statements contained in this Form 10-Q, other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future revenue, economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties described under Item 1A - Risk Factors beginning on page 20 below that may cause actual results to differ materially.

 

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company’s views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Nature of Business

 

We are an early stage company engaged in the business of developing and building improved axial vane-type rotary devices for civilian, commercial and government applications. We own the worldwide intellectual and marketing rights to the RadMax technology. Our vision is to develop advanced devices that reduce carbon footprint, reduce device size, weight and parts count, and increase fuel and manufacturing efficiencies. We intend to develop and market these devices in cooperation with industry and government partners. We are focused on creating new, disruptive technologies that are more efficient, compact and cost-effective than those currently available.

 

Going Concern

 

We incurred net losses of $652,791 for the six months ended October 31, 2019 and had a working capital deficit of $1,533,851 and an accumulated deficit of $26,976,186 at October 31, 2019. Further losses are expected until we enter into licensing agreements of our technologies. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

 

We may receive interim support from related parties and plan to raise additional capital through debt and/or equity financings. We may also raise additional funds when our outstanding options are exercised. However, there is no assurance that any of these activities will be realized.

 

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, 2019, 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.

 

Reports to Security Holders

 

The Registrant does not issue annual or quarterly reports to security holders other than the annual Form 10-K and quarterly Forms 10-Q as electronically filed with the SEC. Electronically filed reports may be accessed at www.sec.gov. Interested parties also may read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street NW, Washington, DC 20549. Information may be obtained on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330.

 

Page 25 of 32
 

 

PLAN OF OPERATION

 

The Company is engaged in the business of developing and commercially exploiting an improved axial vane type rotary technology known as RadMax ®.

 

Our early engineering and development work have not yet produced revenues and we have a working capital deficit. We have incurred net losses to October 31, 2019 totaling $26,976,186 and further losses are expected until we complete a licensing agreement with a manufacturer and reseller. At October 31, 2019, the Company had working capital deficiency of $1,533,851. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional funds or develop a market for our products.

 

RESULTS OF OPERATIONS

 

    For the three months ended October 31,              
    2019     2018     $ Change     % Change  
Revenue   $ -     $ 40,000     $ (40,000 )     (100.00 )%
                                 
Accounting and legal     17,654       25,233       (7,579 )     (30.0 )%
Consulting and management     1,253       69,623       (68,370 )     (98.2 )%
Stockholder relations     11,479       16,733       (5,254 )     (31.4 )%
Depreciation and amortization     2,364       1,552       812       52.3 %
Stock-based compensation     149,877       -       149,877       N/A  
General and administrative expenses     29,793       8,290       21,503       259.4 %
Research and development     62,091       121,050       (58,959 )     (48.7 )%
Other expense (income)     116,924       139,898       (22,974 )     (16.4 )%
NET LOSS   $ (391,435 )   $ (342,379 )   $ 49,056       (14.3 )%

 

    For the six months ended October 31              
    2019     2018     $ Change     % Change  
Revenue   $ 25,000     $ 40,000     $ (15,000 )     (37.50 )%
                                 
Accounting and legal     47,854       45,954       1,900       4.1 %
Consulting and management     163,274       166,537       (3,263 )     (2.0 )%
Stockholder relations     55,206       37,343       17,863       47.8 %
Depreciation and amortization     5,003       3,103       1,900       61.2 %
Stock-based compensation     197,961       -       197,961       N/A  
General and administrative expenses     53,674       30,015       23,659       78.8 %
Research and development     191,709       241,408       (49,699 )     (20.6 )%
Other expense (income)     (36,890 )     292,961       (329,851 )     (112.6 )%
NET LOSS   $ (652,791 )   $ (777,321 )   $ (124,530 )     16.0 %

 

Management continues to focus its research and development efforts and administrative support with the increased success in financing the required expenditures.

 

Page 26 of 32
 

 

Consulting and management expense for the three months ended October 31, 2019 of $1,253 decreased $68,370 as management suspended salary accrual. Similarly, research and development expense for the three months ended October 31, 2019 of $62,091 decreased $58,959 from the three months ended October 31, 2018 of $121,050.

 

For the six months ended October 31, 2019, research and development expense of $191,709 decreased $49,699 from the six months ended October 31, 2018, primarily as a result of reduction of management salary accruals during the period.

 

The Company’s basic and diluted loss per share was $0.004 for the three months ended October 31, 2019 and $0.003 for the three months ended October 31, 2018. For the six months ended October 31, 2019 and 2018, the basic and diluted loss per share was $0.006 and $0.008, respectively.

 

LIQUIDITY AND FINANCIAL CONDITION

 

WORKING CAPITAL   October 31, 2019     April 30, 2019  
Current assets   $ 352,911     $ 42,402  
Current liabilities     1,886,762       2,266,862  
Working capital deficit   $ 1,533,851     $ 2,224,460  

 

    For the six months ended  
CASH FLOWS   October 31, 2019     October 31, 2018  
Cash flow used by operating activities   $ (278,968 )   $ (184,922 )
Cash flow used by investing activities     -       -  
Cash flow provided by financing activities     585,370       89,508  
Net increase (decrease) in cash during period   $ 306,402     $ (95,414 )

 

During the six months ended October 31, 2019, the Company issued promissory notes to related parties for cash proceeds of $225,370 and received cash proceeds from convertible promissory notes promissory notes in the amount of $200,000. The Company repaid debt in the amount of $220,000 and received cash proceeds from the sale of common stock in the amount of $380,000.

 

The note balances owed to related parties are generally interest bearing, unsecured and repayable on demand. Our related parties have indicated that they will not be demanding repayment of these funds during the next fiscal year and will advance or pay expenses on behalf of the Company if further funds are needed.

 

As of October 31, 2019, the Company had a working capital deficit of $1,533,851.

 

REGI U.S., Inc. anticipates continuing to rely on sales of its debt and/or equity securities in order to continue to fund ongoing operations. Issuances of additional shares of common stock may result in dilution to the Company’s existing stockholders. There is no assurance that the Company will be able to complete any additional sales of equity securities or that it will be able arrange for other financing to fund its planned business activities.

 

The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, or ultimately to attain profitability. Potential sources of cash, or relief of demand for cash, include additional external debt, the sale of shares of the Company’s stock or alternative methods such as mergers or sale of the Company’s assets. No assurances can be given, however, that the Company will be able to obtain any of these potential sources of cash. The Company currently requires additional cash funding from outside sources to sustain existing operations and to meet current obligations and ongoing capital requirements.

 

The Company plans for the long-term continuation as a going concern include financing future operations through sales of our equity and/or debt securities.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company has no significant 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 are material to its stockholders.

 

Page 27 of 32
 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures

 

At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the President and Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange Act). Based on that evaluation, the PEO and the PFO have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective as it was determined that there were material weaknesses affecting our disclosure controls and procedures.

 

Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

PEO and PFO Certifications

 

Appearing immediately following the Signatures section of this report there are Certifications of the PEO and the PFO. The Certifications are required in accordance with Section 03 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Items of this report which you are currently reading is the information concerning the Evaluation referred to in Section 302 Certifications and this information should be read in conjunction with Section 302 Certifications for a more complete understanding of the topics presented.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes during the quarter ended October 31, 2019 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

REGI, U.S., Inc. is not a party to any material legal proceedings, and, to Management’s knowledge, no such proceedings are threatened or contemplated. No director, officer or affiliate of REGI, U.S., Inc. and no owner of record or beneficial owner of more than 5% of the Company’s securities or any associate of any such director, officer or security holder is a party adverse to REGI, U.S., Inc. or has a material interest adverse to REGI, U.S., Inc. in reference to pending litigation.

 

ITEM 1A. RISK FACTORS.

 

There have been no material changes from the risk factors as previously disclosed in the Company’s Form 10-K for the year ended April 30, 2019 which was filed with the SEC on September 11, 2019

 

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES.

 

On May 10, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

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On May 15, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 24, 2019, the Company issued a new convertible note to a related party of $36,000 in consideration of accrued interest of $6,000 and a former convertible note whose principal balance of $30,000 matured on the same date. The new convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 30, 2019, the Company issued a convertible promissory note of $75,000 to a related party in consideration of consulting services provided. The convertible promissory note is 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 convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

 

On May 31, June 30 and July 31, 2019, respectively, the Company issued three convertible promissory notes to a related party with an aggregate principal balance of $14,400 in consideration of matured convertible promissory notes with a principal balance of $12,000 and accrued interest of $2,400. The new convertible promissory 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 dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.07 per share.

 

On August 1, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000 The convertible promissory note is 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