<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 October 31, 1997
----------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from ___________________ to _________________
Commission File No. 0-23920
-----------
REGI U.S., INC.
----------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oregon 91-1580146
------ ----------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
185-10751 Shellbridge Way, Richmond, BC. Canada V6X2W8
--------------------------------------------------------
(Address of principal executive offices)
(604) 278-5996
----------------
(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 December 12, 1997 - 8,901,300
shares of common stock, no par value.
<PAGE>
<TABLE>
<CAPTION>
INDEX
- ------------------------------------------------------------------------------------------------------------
PART I -- Financial Information Page
<S> <C>
Item 1. Financial statements............................................................................. 2
- ------ --------------------
Balance Sheets as of October 31, 1997 and 1996 (unaudited)................................................ 3
Statements of Operations for the six months ended October 31, 1997 and 1996 (unaudited)................... 4
Statements of Cash Flows for the six months ended October 31, 1997 and 1996 (unaudited)................... 5
Statements of Stockholders Equity from April 30, 1997 to October 31, 1997 and to December 12, 1997........ 6
Notes to the Financial Statements....................................................................... 7-9
Item 2. Management Discussion and Analysis of Results of Operations and Financial Condition............ 10-11
- ------- -----------------------------------------------------------------------------------
PART II -- Other Information.............................................................................. 12
Signatures................................................................................................ 13
</TABLE>
- 1 -
<PAGE>
PART I Financial Information
Item 1. Financial statements (Unaudited)
- ------- --------------------------------
- 2 -
<PAGE>
REGI U.S., INC.
(A Development Stage Company)
Balance Sheets
As of October 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
$ $
Assets
<S> <C> <C>
Current Assets
Cash 168,126 23,634
Due from affiliate - 54,357
---------- ----------
168,126 77,991
Fixed Assets (Note 3) 1,059 6,009
Intangible Assets (Note 3) 258,700 44,787
---------- ----------
427,885 128,787
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 68,400 99,023
Accrued liabilities 25,000 -
Due to affiliates 30,886 -
---------- ----------
124,286 99,023
---------- ----------
Convertible Debenture (Note 4) 50,000 -
---------- ----------
Commitments and Contingency Liabilities (Note 6)
Stockholders' Equity
Common Stock (Note 5), 20,000,000 shares authorized without
par value; 8,523,300 and 7,901,300 shares issued and
outstanding respectively. 3,151,565 2,616,700
Paid for but unissued - (1997 - 328,000 shares; 1996 - 88,333 shares) 328,000 132,500
Deficit Accumulated during the Development Stage (3,225,966) (2,719,436)
---------- ----------
253,599 29,764
---------- ----------
427,885 128,787
========== ==========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
- 3 -
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
For the six months ended October 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
$ $
<S> <C> <C>
Revenues - -
--------- ---------
Administrative Expenses
Advertising 12,706 3,680
Bank charges 257 552
Foreign exchange 164 1,270
Interest on debentures 1,640 -
Office, rent and telephone 6,276 13,249
Professional fees 2,454 59,679
Stockholder and investor relations 32,658 60,623
Transfer agent and regulatory fees 5,766 5,898
Less: interest and other income (1,406) (553)
--------- ---------
60,515 144,398
--------- ---------
Research and Development Expenses
Amortization 4,158 3,840
Market development (Note 5) 100,000 4,000
Professional fees - 1,330
Project management 15,000 15,000
Project overhead 13,773 12,776
Prototype design and construction 23,521 30,503
Royalties 3,000 -
Technical consulting 41,934 25,858
Technical reports 5,000 1,001
Technical salaries - 25,457
Travel 8,478 14,870
--------- ---------
214,864 134,635
--------- ---------
Net Loss 275,379 279,033
========= =========
Net Loss Per Share (.03) (.03)
========= =========
Weighted Average Shares Outstanding 8,254,000 7,739,700
========= =========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
- 4 -
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
For the six months ended October 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
$ $
<S> <C> <C>
Cash Flows to Operating Activities
Net loss (275,379) (279,033)
Adjustments to reconcile
net loss to cash
Amortization 4,158 3,840
Common stock issued for services 100,000 -
Change in non-cash working capital items
Increase (decrease) in accounts payable and accrued liabilities (56,051) 23,954
---------- ----------
Net Cash Used by Operating Activities (227,272) (251,239)
---------- ----------
Cash Flows from (to) Financing Activities
Convertible debenture proceeds 50,000 -
Increase in common stock 105,000 324,100
Increase in subscriptions for common stock 328,000 132,500
Increase (decrease) in advances from affiliate (20,170) (171,107)
Decrease in loan from officer (7,200) -
---------- ----------
Net Cash Provided by Financing Activities 455,630 285,493
---------- ----------
Cash Flows to Investing Activity
(Increase) in patents (61,451) (13,388)
---------- ----------
Net Cash Used by Investing Activity (61,451) (13,388)
---------- ----------
Increase in cash during the period 166,907 20,866
Cash - beginning of period 1,219 2,768
---------- ----------
Cash - end of period 168,126 23,634
========== ==========
Non-cash Financing Activities
200,000 shares issued for a AVFS rights
at a deemed value of $.7733 per share 154,665 -
50,000 shares issued for market development
pursuant to a performance stock plan at a
deemed value of $1.00 per share 50,000 -
50,000 shares to be Issued for market
development pursuant to a performance
stock plan at a deemed value of $1.00 per share 50,000 -
---------- ----------
254,665 -
========== ==========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
- 5 -
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
From April 30, 1997 to October 31, 1997 and to December 12, 1997
(unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the
Shares Amount Development Stage
# $ $
<S> <C> <C> <C>
Balance - April 30, 1997 8,123,300 2,841,900 (2,950,587)
Stock Issued for cash pursuant to
options exercised at $0.10 per share 50,000 5,000 -
a units offering at $1.00 per unit 100,000 100,000 -
Stock issued for acquisition for AVFS rights
at a deemed value of $.7733 per share 200,000 154,665 -
Stock issued for market development pursuant
to a performance stock plan issued at a
deemed value of $1.00 per share 50,000 50,000 -
Net loss for the period - - (275,379)
--------- --------- ----------
Balance - October 31, 1997 8,523,300 3,151,565 (3,225,966)
Stock issued for cash pursuant to a
units offering at $1.00 per unit 328,000 328,000 -
Stock issued to settle an accrued liability
at a deemed value of $0.50 per share 50,000 25,000 -
--------- --------- ----------
Balance - December 12, 1997 8,901,300 3,504,565 (3,225,966)
========= ========= ==========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
- 6 -
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
October 31, 1997 and 1996
(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.
During the six months ended October 31, 1997, the Company has raised
additional funds through a convertible debenture issue and a private
placement. A total of $50,000 has been raised pursuant to a convertible
debenture issue and a total of $428,000 has been raised pursuant to a
units offering of 428,000 units at $1.00 per unit. Each unit contains one
common share and one warrant to acquire one additional share at $1.00
during the first year and $1.25 during the second year.
2. Fixed Assets
<TABLE>
<CAPTION>
1997 1996
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 16,048 14,989 1,059 6,009
====== ====== ===== =====
</TABLE>
3. Intangible Assets
<TABLE>
<CAPTION>
1997 1996
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Patents - Rand Cam/Direct Charge Engine 60,494 6,847 53,647 44,787
AVFS rights and patents 205,053 - 205,053 -
------- ----- ------- ------
265,547 6,847 258,700 44,787
======= ===== ======= ======
</TABLE>
(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 Brain 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.
- 7 -
<PAGE>
3. Intangible Assets (continued)
(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, licenses, royalties or income derived from the patented
technology.
(d) On June 22, 1997 the Company acquired the U.S. rights to an
Air/Vapour Fuel System "AVFS". The Company has paid $50,000 and
200,000 shares at a deemed value of $154,665. The Company will pay
to the inventor 8.5% on net sales derived from the system. The
Company holds an option to acquire the worldwide rights to the AVFS
by issuing a further 200,000 shares.
4. Convertible Debenture
The Company offered a three year, 8 3/4% interest, convertible debenture
to raise $500,000, of which $50,000 was raised. 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.
5. Common Stock
(a) Warrants outstanding
A total of 361,000 shares are reserved for the exercise of warrants
at $2.50 per share expiring August 16, 1998 and a total of 428,000
shares are reserved for the exercise of warrants of $1.00 per share
expiring in November, 1998 and $1.25 per share expiring in
November, 1999.
(b) Stock option activity
<TABLE>
<CAPTION>
April 30, Price Exercised (E) October 31, Expiry
1997 $ Lapsed (L) 1997 Date
# # #
<S> <C> <C> <C> <C>
50,000 0.10 50,000 (E) -
178,000 1.00 - 178,000 October 29, 1998
30,000 1.00 30,000 (E) - 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 - 80,000 613,000
========= =========== ==========
</TABLE>
(c) Other stock commitments
(i) The Company received $428,000 by way of a units offering at
$1.00 per share. The Company issued 100,000 units during
the current period and has issued 328,000 units
subsequently.
(ii) The Company settled an accrued liability of $25,000 by
issuing 50,000 shares as agreed at $0.50 per share.
(iii) The Company is committed to issue 50,000 shares at $1.00
per share pursuant to a performance stock plan for services
rendered during October.
(iv) See Note 3(d) for shares reserved for a property
acquisition option agreement.
- 8 -
<PAGE>
6. Commitments and Contingent Liabilities
(a) See Note 3 - 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) See Note 5.
(d) The Company is committed to fund 50% of the further development of
the Engine and AVFS.
- 9 -
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------------
Operations
- ----------
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(TM)/Direct Charge Engine ("The
Engine"), which is a variation of the original Rand Cam(TM) Engine. The
worldwide 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 December 12, 1997
- -----------------------------------------------------
On May 22, 1997, the Company announced that Paul Lamarche has reported that a
successful Diesel Engine Compressor Test was completed on May 21, 1997.
This test gave us 45 PSI at 450 RPM and 75 PSI at 700 RPM. The total motoring
time was approximately 1 1/2 hours. This gave the engine time to warm up to
approximately 125 degrees. All parts in the engine were stable before and after
the test.
The next step is to further seal the combustion chamber. At that time we will
decide whether to start the engine on gasoline or continue to tighten-up the
combustion chamber to reach the required amount of compression to run on diesel
which is 140 PSI and up. This will take approximately 2 1/2 weeks to complete.
On June 24, 1997, the Company announced that an agreement had been signed with
John Weston, the inventor of the Air/Vapour Flow System, herein "AVFS", to
acquire the US rights to his invention.
The principal objective of the invention is to provide a process for operating a
gasoline or like fuel engine to eliminate unburned liquid fuel in its exhaust
therefore greatly reducing the harmful carbon monoxide emissions that pollute
the atmosphere. Another objective of this invention is to increase fuel economy
by the efficient method of burning vaporized gas.
On September 2, 1997, the Company announced that the latest test results for its
AVFS reduced hydrocarbon (HC) emissions by 75% and carbon monoxide (CO) by more
than 50% compared to a standard carburetor.
The Company has acquired the device, which can more than cut in half the
hydrocarbon and carbon monoxide emissions produced by internal combustion
engines. The device provides the engine with vaporized fuel rather than liquid
gasoline, causing it to run cleaner. The system runs without a carburetor, fuel
injector or fuel pump.
Our latest test show that our technology permits gasoline engines to run much
cleaner, significantly reducing hydrocarbon and carbon monoxide pollution. In
addition, our AVFS is relatively simple to manufacture. We are capable of
taking it to the mass production stage in a year.
First applications will be in the area of small internal combustion engines
powering lawn mowers, weed eaters, and similar devices. Such engines are a
major source of air pollution created by excess exhaust emissions. Future
applications will be in the area of internal combustion engines powering
automobiles, trucks and buses.
On November 3, 1997, the Company announced that testing on the Diesel engine has
recommenced after several modifications.
. 145 PSI has been achieved which should be sufficient compression to fire
up the diesel.
. Added a 471, GM blower, a super charger to increase the compression.
. The hardware components are in excellent condition.
The compression will be increased by properly adjusting the pre-design spacers.
The modifications of the test fixture will be completed by this week, and
testing will resume on the Diesel engine.
On November 20, 1997, the Company announced that Ford Motor Company has approved
a budget for developing a program to test and build a Rand Cam(TM) oil pump
prototype for their new automotive transmission.
The Company's engineer, Paul Lamarche, has received the specifications from Ford
to fabricate a transmission oil pump to test the efficiency of the Rand Cam(TM)
cycle.
- 10 -
<PAGE>
The major advantage of our Rand Cam(TM) design are the small size, ability to
have multiple pressures in one pump and being able to turn off one half of the
pump when a predetermined RPM has been achieved to save on fuel consumption.
The prototype for testing is scheduled to be completed in early 1998 and will be
optimized on the test stand at the Ford lab which will certify all data.
On November 21, 1997, the Company announced the latest results for the AVFS.
The device consistently showed significant advantages over a conventional fuel
system in closely controlled tests.
The Company's AVFS "provided a meaningful decrease in pollution and increase in
fuel efficiency versus a typical fuel system usually installed on small
four-cycle engines," said Patrick Badgley the Company's Vice President in charge
of research and development.
"Our AVFS provides the engine with completely vaporized fuel, versus partially
liquid fuel obtained from conventional fuel systems," Badgley continued.
"Simply put, this results in cleaner, more efficient burn."
In tests conducted using a Kawasaki 1400 Watt, single cylinder, four-cycle
electrical generator engine, the AVFS reduced hydrocarbons (HC) up to 74%,
reduced carbon monoxide (CO) up to 44% and reduced fuel consumption by as much
as 30% according to Badgley. Tests were conducted at Adiabatics, Inc., IN based
advanced engine research facility.
The Company expects that automotive manufacturers will also consider the
technology as well because the AVFS:
. May be an answer to one of the worlds most serious pollution problems.
. Is simple and inexpensive to manufacture, replace and maintain.
. Is easily retrofitted on today's internal combustion engines.
. Could result in manufacturing cost savings for internal combustion
engines.
. Could lengthen the life of an internal combustion engine.
The Company has received $428,000 pursuant to a units offering of 428,000 units
at $1.00 per unit. Each unit contains one common share and one warrant to
acquire one additional share at $1.00 per share during the first year and $1.25
during the second year.
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 prototype for
demonstration purposes to potential license and/or joint venture companies.
Results of operations for the six months ended October 31, 1997 compared to the
- -------------------------------------------------------------------------------
six months ended October 31, 1996
- ---------------------------------
There were no revenues from product licensing during the periods.
The net loss in 1997 was comparable to the net loss in 1996. Administrative
expenses decreased by $84,000 to $60,000 as compared to $144,000 in 1996. The
major components of this decrease was due to a decrease in office, rent and
telephone by $7,000 to $6,000 as compared to $13,000 in 1996; professional fees
decreased by $57,000 to $2,000 as compared to $59,000 in 1996. During 1997,
research and development costs increased by $103,000 to $238,000 compared to
$135,000 in 1996. The increase was due to $100,000 paid for market development
during September and October 1997 paid for with shares pursuant to a performance
stock plan.
Liquidity
- ---------
During the six months ended October 31, 1997, the Company financed its
operations from proceeds from a convertible debenture whereby the Company
received $50,000. The Company received $5,000 and issued 50,000 shares at $.10
per share pursuant to options exercised. The Company received $428,000 and
issued 428,000 shares pursuant to a units offering at $1.00 per unit.
The Company repaid a loan of $7,200 owing to the President of the Company and
$20,170 owing to the Company's majority shareholder.
The Company's financial resources, including an opening cash balance as at
April 30, 1997 of $1,219, totalled $484,219. Cash used, as a result of the net
loss for the period, totalled $227,272, after adjustments to reconcile net loss
to cash. During the period the Company spent $61,451 on patent protection costs
and cash payments for acquisition of the AVFS. After the above cash outflows
the Company was left with $168,126 as of October 31, 1997. These funds will be
used for further development of the Rand Cam(TM) Engine, the AVFs and to pay
down accounts payable totalling $68,400.
- 11 -
<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
- ------- ----------------------------------------------------
The Annual Meeting of Shareholders was held on October 9, 1997 at which
meeting John Robertson and Brian Cherry were elected directors.
Item 5. Other Information
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
None
- 12 -
<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: December 12, 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)
- 13 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-1-1997
<PERIOD-END> OCT-31-1997
<CASH> 168,126
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 168,126
<PP&E> 259,759
<DEPRECIATION> 21,836
<TOTAL-ASSETS> 427,885
<CURRENT-LIABILITIES> 124,286
<BONDS> 50,000
0
0
<COMMON> 3,479,565
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 427,885
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 269,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,640
<INCOME-PRETAX> (275,379)
<INCOME-TAX> 0
<INCOME-CONTINUING> (275,379)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (275,379)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
