<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission File No. 0-23920
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REGI U.S., INC.
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(Exact name of small business issuer as specified in its charter)
OREGON 91-1580146
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
185-10751 SHELLBRIDGE WAY, RICHMOND, BC. CANADA V6X 2W8
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(Address of principal executive offices)
(604) 278-5996
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: As of September 30, 1997 - 8,373,300
shares of common stock, no par value.
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<TABLE>
<CAPTION>
INDEX
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PART I -- FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial statements.............................................................................. 2
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Balance Sheets as of July 31, 1997 and 1996 (unaudited)................................................... 3
Statements of Operations for the three months ended July 31, 1997 and 1996 (unaudited).................... 4
Statements of Cash Flows for the three months ended July 31, 1997 and 1996 (unaudited).................... 5
Notes to the Financial Statements......................................................................... 6-8
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition............. 9
- ------- -------------------------------------------------------------------------------------
PART II -- OTHER INFORMATION............................................................................... 10
Signatures................................................................................................. 11
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<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial statements (Unaudited)
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<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
July 31, 1997 and 1996
(expressed in U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
$ $
Assets
<S> <C> <C>
Current Assets
Cash 16,945 213
Fixed Assets (Note 3) 2,396 7,347
Intangible Assets (Note 3) 108,145 40,761
---------- ---------
127,486 48,321
========== =========
<CAPTION>
Liabilities and Stockholders' Deficit
<S> <C> <C>
Current Liabilities
Accounts payable 116,312 98,226
Accrued liabilities 33,500 -
Loan payable - officer - 12,000
Due to affiliates 65,066 208,469
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214,878 318,695
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Convertible Debenture (Note 5) 50,000 -
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Stockholders' Deficit
Common Stock (Note 4), 20,000,000 shares
authorized without par value; 8,223,300
and 7,716,100 shares issued and
outstanding respectively. 2,889,065 2,328,900
Deficit Accumulated during the
Development Stage (3,026,457) (2,599,274)
---------- ----------
(137,392) (270,374)
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127,486 48,321
========== =========
</TABLE>
Commitments and Contingency Liabilities (Note 7)
(The accompanying notes are an integral
part of the financial statements)
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<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
(expressed in U.S. dollars)
(unaudited)
<TABLE>
<CAPTION>
Accumulated Three months ended
During the July 31,
Development
Stage 1997 1996
$ $ $
<S> <C> <C> <C>
Revenues - - -
--------- --------- ---------
Administrative Expenses
Advertising 132,589 - 3,245
Bank charges 3,687 144 155
Foreign exchange 2,989 163 (89)
Office, rent and telephone 78,118 2,599 9,138
Professional fees 235,428 5,776 23,426
Stockholder and investor relations 250,677 21,642 20,846
Transfer agent and regulatory fees 37,832 907 167
Travel 5,423 - -
Less: interest and other income (14,757) (1,000) -
--------- --------- ---------
731,986 30,231 56,888
--------- --------- ---------
Research and Development Expenses
Intellectual property 257,000 - -
Amortization of capital assets 19,743 2,065 1,891
Market development 86,346 - 3,250
Professional fees 73,904 - -
Project management 137,500 7,500 7,500
Project overhead 116,837 7,814 6,628
Prototype design and construction 1,144,061 8,374 38,830
Technical consulting 124,809 9,000 23,480
Technical reports 17,120 - 1,000
Technical salaries 174,636 5,169 12,056
Travel 142,515 5,717 7,348
--------- --------- ---------
2,294,471 45,639 101,983
--------- --------- ---------
Net Loss 3,026,457 75,870 158,871
========= ========= =========
Net Loss Per Share (.01) (.02)
========= =========
Weighted Average Shares Outstanding 8,140,000 7,665,900
========= =========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
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<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
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<CAPTION>
Three months ended
July 31,
1997 1996
$ $
<S> <C> <C>
Cash Flows to Operating Activities
Net loss (75,870) (158,871)
Adjustments to reconcile
net loss to cash
Amortization 2,065 1,891
Change in non-cash working capital items
Increase in accounts payable and accrued liabilities 361 23,157
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Net Cash Used by Operating Activities (73,444) (138,823)
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Cash Flows from (to) Financing Activities
Increase in convertible debenture 50,000 -
Increase in common stock 5,000 36,300
Increase in advances from affiliate 64,010 91,719
Increase (decrease) in loan from officer (7,200) 12,000
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Net Cash Provided by Financing Activities 111,810 140,019
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Cash Flows to Investing Activity
(Increase) in patents (22,640) (8,751)
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Net Cash Used by Investing Activity (22,640) (8,751)
------- --------
Increase (decrease) in cash 15,726 (2,555)
Cash - beginning of period 1,219 2,768
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Cash - end of period 16,945 213
======= ========
Non-cash Financing Activity
50,000 shares issued for AVFS rights
at a deemed value of $.843 per share 42,165 -
======= ========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
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<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 1997
(expressed in U.S. dollars)
(unaudited)
1. Development Stage Company
The Company was incorporated in the State of Oregon, U.S.A. on July 27,
1992 and is in the business of developing and commercially exploiting an
improved axial vane type rotary engine known as the Rand Cam/Direct Charge
Engine ("The Engine"). The world-wide marketing and intellectual rights,
other than the U.S., are held by Rand Energy Group Inc. ("REGI") which
controls the Company. The Company owns the U.S. marketing and intellectual
rights and has a project cost sharing agreement, whereby it will fund 50%
of the further development of The Engine and REGI will fund 50%.
In a development stage company, management devotes most of its activities
to establishing a new business. Planned principle activities have not yet
produced significant revenue. The ability of the Company to emerge from the
development stage with respect to its planned principle business activity
is dependent upon its successful efforts to raise additional equity
financing and develop the market for its products.
The Company plans to raise additional funds through a convertible debenture
issue and a private placement. A total of $50,000 has been raised to date
pursuant to a $500,000 convertible debenture issue and a total of $263,500
has been raised subsequent to July 31, 1997 pursuant to a private placement
offering of 500,000 shares at $1.00 per share.
2. Acquisition of Rights, Title and Interest
(a) On August 20, 1992 the Company acquired the U.S. rights to the
original Rand Cam-Engine from REGI by issuing 5,700,000 shares at a
deemed value of $0.01 per share. REGI will receive a 5% net profit
royalty. The $57,000 deemed value has been expensed as research and
development in 1995.
(b) Pursuant to an agreement with Brian Cherry (a director) dated July 30,
1992 and amended November 23, 1992 and April 13, 1993, the Company
acquired the U.S. rights to the improved axial vane rotary engine
known as the Rand Cam/Direct Charge Engine. On November 9, 1993, in
consideration for the transferred technology, Mr. Cherry was issued
100,000 shares of Reg Technologies Inc. ("REG") (a public company
owning 51% of REGI) with a deemed value of $200,000 and will receive a
1% net profit royalty. The deemed value of $200,000 was treated as an
expense paid by REG on behalf of the Company and treated as an inter-
company loan. The $200,000 deemed value of intellectual property has
been expensed as research and development in 1995.
(c) Pursuant to a letter of understanding dated December 13, 1993 between
the Company, REGI and REG (collectively called the grantors) and West
Virginia University Research Corporation ("WVURC"), the grantors have
agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licences, royalties or
income derived from the patented technology.
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<TABLE>
<CAPTION>
3. (a) Fixed Assets 1997 1996
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 16,048 13,652 2,396 7,347
======= ====== ======= ======
(b) Intangible Assets
Patents - the Engine 58,183 6,091 52,092 40,761
- AVFS ((c) below) 56,053 - 56,053 -
------- ----- ------- ------
114,236 6,091 108,145 40,761
======= ===== ======= ======
</TABLE>
(c) On June 22, 1997 the Company acquired the U.S. rights to an
Air/Vapour Fuel System "AVFS". The Company paid $13,500 and 50,000
shares at a deemed value of $42,165. Upon submission of a patent
application and successful testing of the System, a further $36,500
and 150,000 shares are to be paid. The Company will pay to the
inventor 8.5% on net sales derived from the system. On September 22,
1997 the Company issued 150,000 shares at a deemed value of
$112,500.
4. Common Stock
(a) Warrants outstanding
A total of 361,000 shares are reserved for the exercise of warrants
at $2.00 per share expiring August 15, 1997 and $2.50 per share
expiring August 16, 1998.
(b) Stock option activity
<TABLE>
<CAPTION>
April 30, July 31, Expiry
1997 Price Exercised 1997 Date
# $ # #
<S> <C> <C> <C> <C>
50,000 0.10 50,000 -
178,000 1.00 - 178,000 October 29, 1998
30,000 1.00 - 30,000 September 15, 1997
75,000 1.00 - 75,000 February 9, 1999
5,000 1.00 - 5,000 October 29, 1999
5,000 1.00 - 5,000 September 8, 2000
350,000 1.00 - 350,000 January 3, 2001
------- ------ -------
693,000 - 50,000 643,000
======= ====== =======
</TABLE>
5. Convertible Debenture
The Company has offered a three year, 8 3/4% interest, convertible
debenture to raise $500,000, of which $50,000 has been raised to date. The
8 3/4% interest is paid annually and the debenture is convertible into
common shares at $1.25, $1.50 and $1.75 in years one, two and three,
respectively. In the event the shares are trading below $2.00 per share
during any consecutive ten trading days during the last month of the third
year, the convertible debenture will be exercisable at 20% below the said
ten-day average. The maturity date is June 15, 2000.
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<PAGE>
6. Related Party Transactions
(a) A project management fee of $7,500 was paid to a company controlled by
the president of the Company and is included in research and
development expenses.
(b) Rent and secretarial fees of $1,500 was paid to a company controlled
by the president of the Company and are included in research and
development expenses.
(c) A technical salary of $5,169 was paid to an officer and director and
is included in research and development expenses.
(d) An administrative fee of $1,500 was paid to an officer and director
and is included in research and development expenses.
(e) The amounts owing to affiliates are unsecured, non-interest bearing
and have no fixed terms of repayment.
7. Commitments and Contingent Liabilities
(a) See Note 2 - royalty commitments in connection with the Rand
Cam/Direct Charge Engine.
(b) The Company is committed to pay project management fees and rent and
secretarial fees totalling $36,000 per annum to a Company controlled
by the president of the Company.
(c) The Company has reserved 361,000 shares for the conversion of warrants
and 643,000 shares for the exercise of stock options.
(d) The Company is committed to fund 50% of the further development of the
Engine.
(e) The Company is committed to issue 50,000 shares to settle $25,000 of
debt.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion
- -----------------------
The Company was incorporated in the State of Oregon, U.S.A. on July 27, 1992 and
is in the business of developing and commercially exploiting an improved axial
vane type rotary engine known as the Rand Cam/Direct Charge Engine ("The
Engine"), which is a variation of the original Rand-Cam Engine. The world-wide
marketing and intellectual rights, other than the U.S., are held by Rand Energy
Group Inc. ("REGI") which controls the Company. The Company owns the U.S.
marketing and intellectual rights and has a project cost sharing agreement,
effective May 1, 1993, whereby it will fund 50% of the further development of
The Engine and REGI will fund 50%.
In a development stage company, management devotes most of its activities to
establishing a new business. Planned principle activities have not yet produced
significant revenue. The ability of the Company to emerge from the development
stage with respect to its planned principle business activity is dependent upon
its successful efforts to raise additional equity financing and develop the
market for its products.
Progress Report from May 1, 1997 to September 23, 1997
- ------------------------------------------------------
On July 17, 1997 several proof of concept tests to fire the Rand Cam(TM) Scooter
Engine were successfully completed. The engine parts were inspected and found to
be in excellent condition after the series of tests. Additional tests will be
run in the future.
Several meetings with potential joint venture or licensees were concluded in
July resulting in positive interest in its Rand Cam(TM) compressor and pump
applications. Negotiations to work on their applications are now taking place.
The company's objective is to sign several joint venture or license agreements
with large end users for its Rand Cam(TM) design during fiscal 1998.
During fiscal 1998, the Company plans to raise $500,000 through a three year,
8 3/4% interest, convertible debenture, of which $50,000 has been raised to
date. The 8 3/4% interest is paid annually and the debenture is convertible into
common shares at $1.25, $1.50 and $1.75 in years one, two and three,
respectively. In the event the shares are trading below $2.00 per share during
ten consecutive trading days during the last month of the third year, the
convertible debenture will be exercisable at 20% below the said ten-day average.
The maturity date is June 15, 2000.
The Company has received $263,500 pursuant to a private placement offering of
500,000 shares at $1.00 per share. Management expects the balance of funds to be
received in October, 1997.
The Company will use these funds to pay down accounts payable and to complete
the development of the Rand Cam(TM) Compressor and Diesel Engine prototypes for
demonstration purposes to potential license and/or joint venture companies.
Results of operations for the three months ended July 31, 1997 compared to the
- ------------------------------------------------------------------------------
three months ended July 31, 1996
- --------------------------------
There were no revenues from product licensing during the periods.
The net loss in 1997 decreased by $83,000 to $76,000 compared to $159,000 in
1996. The decreased net loss in 1997 was due to administrative expenses which
decreased by $27,000 to $30,000 as compared to $57,000 in 1996. The major
components of this decrease was due to a decrease in office, rent and telephone
by $7,000 to $3,000 as compared to $10,000 in 1996; professional fees decreased
by $18,000 to $5,000 as compared to $23,000 in 1996. During 1997, research and
development costs decreased by $56,000 to $46,000 compared to $102,000 in 1996.
The decrease was due to more cost effective prototype construction activity
during 1997 as compared to extensive completion of prototypes in 1996. Prototype
costs decreased by $30,000 to $8,000 compared to $38,000 in 1996.
Liquidity
- ---------
During the three months ended July 31, 1997, the Company financed its operations
from proceeds from a convertible debenture whereby the Company received $50,000.
During the period the Company received $5,000 and issued 50,000 shares at $.10
per share pursuant to options exercised.
The Company repaid a loan of $7,200 owing to the President of the Company.
The Company's financial resources, including an opening cash balance as at July
31, 1997 of $1,219, totalled $120,229. Cash used, as a result of the net loss
for the period, totalled $73,444, after adjustments to reconcile net loss to
cash. During the period the Company spent $22,640 on patent protection costs.
After the above cash outflows the Company was left with $16,945 as at July 31,
1997. These funds, together with the planned convertible debenture issue of
$500,000 and $500,000 private placement, will be used for further development of
the Rand Cam(TM) Engine, pay off accounts payable totalling $124,812, repay
loans from affiliates totalling $65,066 and to provide working capital.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: September 30, 1997 REGI U.S., INC.
By: /s/ JOHN G. ROBERTSON
--------------------------------
John G. Robertson, President
(Principal Executive Officer)
By: /s/ JENNIFER LORETTE
--------------------------------
Jennifer Lorette,
Chief Financial Officer
(Principal Financial Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 16,945
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,945
<PP&E> 110,541
<DEPRECIATION> 19,743
<TOTAL-ASSETS> 127,486
<CURRENT-LIABILITIES> 214,878
<BONDS> 50,000
0
0
<COMMON> 2,889,065
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 127,486
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 86,652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (86,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86,652)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
