<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 January 31, 1999
[ ] 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
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 V6X 2W8
---------------------------------------------------------
(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 March 8, 1999 - 9,348,300 shares
of common stock, no par value.
<PAGE>
INDEX
PART I -- Financial Information Page
Item 1. Financial statements............................................ 2
Balance Sheets as of January 31, 1999 and 1998 (Unaudited)............... 3
Statements of Operations for the nine months ended January 31, 1999
and 1998 (Unaudited).................................................... 4
Statements of Cash Flows for the nine months ended January 31, 1999
and 1998 (Unaudited).................................................... 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition.............................. 6-8
PART II -- Other Information............................................. 9
Signatures............................................................... 10
-1-
<PAGE>
PART I Financial Information
Item 1. Financial statements (Unaudited)
-2-
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
(expressed in U.S. dollars)
(Unaudited)
January 31,
--------------------------
1999 1998
$ $
Assets
Current Assets
Cash 1,889 55,105
Accounts receivable - 799
-------- --------
1,889 55,904
Intangible Assets 408,376 429,093
-------- --------
410,265 484,997
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 99,835 45,845
Accrued liabilities 8,375 -
Due to affiliates 187,145 61,986
-------- --------
295,355 107,831
-------- --------
Convertible Debentures 50,000 50,000
-------- --------
Stockholders' Equity
Common Stock, 20,000,000 shares authorized
without par value; 9,348,300 and
9,107,300 shares issued and outstanding
respectively. 3,901,447 3,644,151
Deficit Accumulated during the
Development Stage (3,836,537) (3,316,985)
---------- ----------
64,910 327,166
---------- ----------
410,265 484,997
========== ==========
-3-
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
(expressed in U.S. dollars)
(Unaudited)
Nine months ended
January 31,
----------------------
1999 1998
$ $
Revenues - -
--------- ---------
Administrative Expenses
Bank charges 711 801
Foreign exchange (112) 51
Interest on debentures 4,713 2,734
Investor relations and consulting 89,046 55,157
Office, rent and telephone 10,753 7,134
Professional fees 16,239 21,585
Transfer agent and regulatory fees 18,009 11,229
Less: interest and other income - (1,683)
--------- ---------
139,359 97,008
--------- ---------
Research and Development Expenses
Amortization 19,635 5,977
Market development - 106,436
Project management 22,500 22,500
Project overhead 11,945 22,781
Prototype design and construction 33,100 23,299
Royalties 18,000 9,000
Technical consulting 63,000 65,569
Technical reports - 5,000
Travel 1,963 8,828
--------- ---------
170,143 269,390
--------- ---------
Net Loss 309,502 366,398
========= =========
Net Loss Per Share .03 .04
========= =========
Weighted Average Shares Outstanding 9,260,000 8,430,000
========= =========
-4-
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
(expressed in U.S. dollars)
(Unaudited)
Nine months ended
January 31,
---------------------
1999 1998
$ $
Cash Flows to Operating Activities
Net loss (309,502) (366,398)
Adjustments to reconcile net loss to cash
Amortization 19,635 5,977
Common stock issued for services 71,046 100,000
Change in non-cash working capital items
Increase in accounts payable and accrued liabilities 35,431 (79,405)
-------- --------
Net Cash Used by Operating Activities (183,390) (339,826)
-------- --------
Cash Flows from (to) Financing Activities
Increase in convertible debenture - 50,000
Increase in common stock - 439,000
Increase in advances from affiliate 188,226 10,930
Increase (decrease) in loan from officer - (7,200)
-------- --------
Net Cash Provided by Financing Activities 188,226 492,730
-------- --------
Cash Flows to Investing Activity
(Increase) in patents (4,116) (99,018)
-------- --------
Net Cash Used by Investing Activity (4,116) (99,018)
-------- --------
Increase in cash 720 53,886
Cash - beginning of period 1,169 1,219
-------- --------
Cash - end of period 1,889 55,105
======== ========
Non-cash Financing Activities
100,000 shares issued for investor relations
services pursuant to performance stock
plans at a value of $0.71 71,046 -
400,000 shares issued for AVFS rights
at a value of $0.72 per share - 288,251
100,000 shares issued for market
development pursuant to a performance
stock plan at a value of $1.00 per share - 100,000
50,000 shares issued to settle a liability
at a value of $0.50 per share - 25,000
-------- --------
71,046 413,251
======== ========
Interest paid 338 2,734
Taxes paid - -
-5-
<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 November 1, 1998 to March 8, 1999
Pursuant to a News Release dated December 29, 1998, the Company announced
that Reg Technologies Inc. ("Reg"), the Company's majority shareholder, and the
Company signed a cooperative and license agreement with Global Aircraft
Corporation to develop and commercialize the Rand Cam(TM) diesel engine for
aviation applications. The license agreement is subject to Global obtaining NASA
Small Business Innovative Research Phase I and Phase II contracts for
development of a Rand Cam(TM) diesel aircraft engine. Global received a Phase I
contract in the amount of $70,000.00 US and work on the project was initiated by
January 4, 1999. The Phase I funds will be used to test the Rand Cam 125 HP
Diesel engine currently being developed in the Company's Detroit facilities and
to evaluate its potential for aviation applications. The Phase I funds will also
permit the Company and Global to prepare a preliminary design of a 225 - 250 HP
engine to be developed in the Phase II project. The Phase I project will also
include the preparation of the proposal for the Phase II project which could
provide up to $600,000.00 US for development of the Rand Cam(TM) Diesel Aircraft
Engine.
Patrick Badgley, the Company's Vice President of Research & Development for the
Rand Cam(TM) project will work with Global & Embry Riddle Aeronautical
University of Dayton Beach, Florida to test the 125 H.P. diesel engine to
determine its performance under various load conditions and evaluate its
suitability for aviation applications. The specific type of data to be acquired
will include torque, horsepower, and fuel consumption at various RPM, engine
temperature, acoustic and vibration signatures, and analysis of engine exhaust
products.
During the project period, the Global - REGI team will develop a preliminary
design for a 225 -250 H.P Rand Cam(TM) diesel aircraft engine that will meet
NASA AGATE requirements for a high performance 21st century General Aviation
Aircraft capable of cruising at 250 MPH and at altitudes up to 25,000 MSL. Based
on successful funding of the SBIR NASA Phase II contact, Global and the Company
will receive $600,000.00 US for a two-year research program to develop and
commercialize the new aircraft engine and will open up other sources of NASA
technical support, at no cost to the Company, in the areas of advanced composite
materials and coatings, near net shape material casting, high temperature
lubrication, bearings and seals; and high altitude and anechoic testing
facilities. These resources will be extremely valuable in advancing the
technology required to make the Rand Cam(TM) diesel engine superior and unique
in performance and reliability.
Reg and the Company will grant to Global Aircraft a world wide license for
aviation applications of the Rand Cam(TM) concept as follows:
. The Company will receive a royalty of 5% on all sales of Rand Cam(TM)
aviation products under this license.
. The Company will receive 50% of all royalties and payments on sublicense
agreements after Global has first received reimbursement for all development
and certification costs and secondly the Company has received five million
dollars (US $5,000,000.00) in payment for the rights to sublicense under this
agreement.
. All sublicense agreements shall be approved by the Company and Global.
-6-
<PAGE>
. The Company will provide all technical support for design, fabrication, and
testing of prototype engines and products for aviation applications at no
cost to Global. Global will fund the fabrication, research and development
testing, and FAA certification of all prototype and production products.
. Global will be responsible for all costs related to start-up of production
and all manufacturing costs. The Company will provide technical support of
manufacturing and product service for all licensed products on a cost
reimbursable basis with such costs to be reimbursed quarterly.
. In return for the Company's technical support for development of Rand Cam(TM)
aviation applications, Global agrees to share funding in the amount of 30% of
all funds Global receives, subsequent to the SBIR Phase I contract, from NASA
or other government sources, unless government restrictions limit third party
participation. In case of such funding limitations, the Company will receive
the maximum funds permitted by the government.
Global Aircraft Corporation is currently engaged in the development of an all
composite light airplane for the General Aviation market and the development and
marketing of composite propellers for light airplanes. The Global QCS Composite
Propeller is more efficient than conventional wooden or metal propellers and
produces less than half as much noise. Global is a major participant in the
NASA Advanced General Aviation Transportation Experiments Program (AGATE) and
has been highly successful in the NASA SBIR and STTR research programs. Since
1994, Global has received eight NASA SBIR contracts and three NASA Small
Business Technology Transfer Research (STTR) contracts. Global is currently
commercializing three of the products developed under these NASA programs.
On January 4, 1999, the Company announced that it had received confirmation
that Ford Motor Company's Advanced Vehicle Technology department has approved
budgeted resources for 1999 to further evaluate the Rand Cam(TM) oil pump for
use in automobile transmissions. The Company will supply the test hardware for
evaluation, a set of drawings for the hardware with production intent tolerance
material requirements, and answer any issues that may arise during the
evaluation. Ford will evaluate the functional, manufacturing, and cost aspects
of the Rand Cam(TM) oil pump for production intent.
The oil pump testing to date indicates the following:
. The Rand Cam(TM) oil pump is up to 20% more efficient in volumetric
performance than the current oil pumps used today in automobile
transmissions.
. The Rand Cam(TM) oil pump was much quieter at all speeds and pressures than
the existing pumps.
. The Rand Cam(TM) oil pump was designed with four separate pumping chambers
resulting in increased performance and fuel economy while decreasing cooling
requirements - all highly desirable attributes.
The Ford program is designed to evaluate a production intent Rand Cam(TM)
Automobile Transmission oil pump during 1999.
By News Release dated February 15, 1999 the Company announced that pursuant
to a private placement of 500,000 units at a price of $2.00 per unit completed
in 1995, the warrants forming part of the units were exercisable at a price of
$2.50 per share, initially expiring on August 16, 1998 and extended to February
16, 1999. Due to the current market price of the common stock of the Company,
the Board of Directors has elected to extend the term of the warrants for an
additional six months. Accordingly, the 500,000 warrants are now exercisable on
or before August 16, 1999 at a price of $2.50 per share.
Discussion on Y2K issue
In recognition of the Year 2000 risk for information systems, computers,
equipment and products using date sensitive software, the Company has retained a
consultant to assess the risk to the Company, both internally and externally.
However, the Company does not anticipate that its operations will be materially
affected. In the unlikely event that the Company's computers are not Year 2000
compliant, the consultant will remedy any deficiencies.
-7-
<PAGE>
The Company is monitoring the Year 2000 compliance by external parties to whom
the Company may be dependent, primarily its bank, suppliers and accountants.
The Company is unable to assess the potential damage that may be caused if
external parties are unable to resolve their Year 2000 compliance. If it
appears that any external party to whom the Company is dependent will be unable
to resolve its Year 2000 issue prior to December 31, 1999, the Company has
designated personnel to be responsible for developing a contingency plan to
minimize the risk of business interruption of the Company.
To mitigate any risk to the Company from external parties, the Company has made
every effort to ensure that all current financial, legal and administrative
information on the Company is maintained by the Company, both on paper and on
the Company's computers.
It is not expected that any material costs will be incurred in addressing the
Year 2000 compliance for the Company.
Results of operations for the nine months ended January 31, 1999 compared to the
nine months ended January 31, 1998
There were no revenues from product licensing during the periods.
The net loss in 1999 decreased by $57,000 to $310,000 compared to $367,000 in
1998. Only one full time consultant was hired for investor relations activities
during the period which totalled $18,000 for both 1999 and 1998 and 100,000
shares were issued to various consultants for investor relations and advertising
with a value of $71,000 during 1999 as compared to $37,157 incurred in outside
consulting in 1998. The Company has cost sharing arrangements with other
affiliated companies to keep overall overhead costs to a minimum with rent and
telephone at a quarterly cost of $3,500.
Basic ongoing research and development activities took place during 1999. Paul
LaMarche and Patrick Badgley undertook the majority of development activities
and were paid technical consulting fees totalling $63,000. The low costs for
research and development is due to more cost effective prototype construction
activity than in previous periods. The Company did not undertake any market
development work during 1999 as compared to $106,000 in 1998.
Liquidity
During the nine months ended January 31, 1999, the Company's operations were
financed through advances from its parent company Rand Energy Group Inc.
("RAND") and other affiliated companies totalling $188,000. Rand periodically
sells small quantities of common stock of the Company into the open market and
advances the proceeds to the Company as needed. It is the intention of the
Company to raise additional funds by way of private placement to pay back the
affiliate loans and to fund ongoing working capital shortfall and ongoing
operations over the next twelve months.
Unexercised stock options and warrants, if exercised, could raise $1,163,000 of
additional funds.
The Company continues to finance its operations through funding from RAND and
other affiliated companies. The Company also has a cost sharing arrangement with
RAND for ongoing research and development of the RC/DC Engine. The Company is
solely responsible for ongoing development of the recently acquired world-wide
rights (except Canada) to the Air/Vapor Flow System.
The Company's ability to pay debts as they become due and to finance future
overhead and development is contingent upon, receiving funds from RAND which is
dependent upon the ability to sell shares it owns of the Company into the market
or raising additional equity financing through a private placement.
-8-
<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
27.1 - Financial Data Schedule
-9-
<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: March 1, 1999
By: /s/ John G. Robertson
-----------------------------
John G. Robertson, President
(Principal Executive Officer)
By: /s/ Jennifer Lorette
-----------------------------
Jennifer Lorette, Chief
Financial Officer
(Principal Financial Officer)
-10-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,737
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 462,134
<DEPRECIATION> 53,758
<TOTAL-ASSETS> 410,265
<CURRENT-LIABILITIES> 295,355
<BONDS> 50,000
0
0
<COMMON> 3,901,447
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 410,265
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (304,789)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,713
<INCOME-PRETAX> (309,502)
<INCOME-TAX> 0
<INCOME-CONTINUING> (309,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309,502)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
