REGI U S INC - Quarter Report: 2012 October (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended October 31, 2012

For the transition period ___________________to ___________________

Commission File Number 0-23920

REGI U.S., INC.

(Exact name of Small Business Issuer as specified in its charter)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (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 check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Date 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 such files).

Yes [  ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,745,965 shares of common stock with no par value outstanding as of December 17, 2012.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

REGI U.S., Inc.

(A Development Stage Company)

Consolidated Balance Sheets

(Unaudited)

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

REGI U.S., Inc.

(A Development Stage Company)

Consolidated Statements of Expenses

(Unaudited)

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

REGI U.S., Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

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

REGI U.S., Inc.

(A Development Stage Company)

Notes to Unaudited Consolidated Financial Statements

(Unaudited)

NOTE 1.   BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of REGI U.S., Inc. (“REGI”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended April 30, 2012 filed on Form 10-K with the SEC. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations for the interim period presented herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or for any future period. Notes to the unaudited consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal 2011 as reported in Form 10-K, have been omitted.

NOTE 2.   GOING CONCERN

REGI incurred net losses of $302,526 for the six months ended October 31, 2012, has a working capital deficit of $1,680,328 and an accumulated deficit of $11,473,205 at October 31, 2012. These factors raise substantial doubt about the ability of REGI 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, REGI’s consolidated financial statements as of October 31, 2012 and for the six months ended October 31, 2012 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.

REGI also receives interim support from affiliated companies and plans to raise additional capital through debt and/or equity financings. There continues to be insufficient funds to provide enough working capital to fund ongoing operations for the next twelve months. REGI may also raise additional funds through the exercise of warrants and stock options, if exercised. There is no assurance that any of these activities will be successful.

NOTE 3.   RELATED PARTIES

Amounts due to and from related parties are unsecured, non-interest bearing and due on demand except for the $24,000 promissory note described below. Related parties consist of companies controlled or significantly influenced by the President of REGI. As of October 31, 2012, there was no balance due from related parties and $1,474,499 due to related parties. As of April 30, 2012, there was no balance due from related parties and $1,544,451 due to related parties.

During the year ended April 30, 2012 the Company issued a promissory note of $24,000 for amounts previously accrued and owed to a company with common director with the Company. The promissory note bears interest rate of 6% per annum, is unsecured and due on demand. During the six months ended October 31, 2012, interest expense of $720 was recorded on the promissory note. The principal balance of the note is included as due to related parties in the consolidated balance sheet

During the six month period ended October 31, 2012, the President, CEO and director of REGI provided consulting services to REGI valued at $45,000, which were accounted for as donated capital and charged to expense during the period. The same amount was recorded in the six month period ended October 31, 2011.

During the six month period ended October 31, 2011, the former Vice President and director of REGI provided consulting services to REGI valued at $15,000, which were accounted for as donated capital and charged to expense during the period. His services were terminated during the year ended April 30, 2012 and no expense was recorded in the six month period ended October 31, 2012.

During the six month period ended October 31, 2012, the CFO, COO and director of REGI provided consulting services to REGI valued at $15,000, which were accounted for as donated capital and charged to expense during the period. The same amount was recorded in the six month period ended October 31, 2011.

REGI currently utilizes office space in a commercial business park building located in Richmond, British Columbia, Canada, a suburb of Vancouver, shared by several companies related by common officers and directors.

NOTE 4.   STOCKHOLDERS’ EQUITY

During the three month periods ended October 31, 2012 and 2011, the Company recorded aggregate stock-based compensation associated with options and warrants of $132,299 and $0, respectively. At October 31, 2012 and April 30, 2012, the Company had $219,842 and $78,997 respectively, of total unrecognized compensation cost related to non-vested stock options and warrants, which will be recognized over future periods.

The fair value of each option and warrant grant or modification during the six months ended October 31, 2012 and 2011 was determined using the Black-Scholes option pricing model and the following assumptions:

Option pricing models require the input of highly subjective assumptions including the expected price volatility. The subjective input assumptions can materially affect the fair value estimate.

On May 15, 2012, REGI modified the exercise price of 325,000 outstanding common stock options and warrants whereby the exercise price was reduced to $0.10 per share. REGI calculated the incremental increase in the fair value using the Black-Scholes option pricing model and determined it to be $5,853. $2,257 was expensed during the six months ended October 31, 2012 and the remaining amount will be expensed over the future vesting periods.

On May 15, 2012, REGI granted an aggregate of 1,158,000 common stock options for services. The options are exercisable at $0.10 per share and expire May 15, 2017. These options vest 25% upon grant, 25% 90 days after the first 25% is exercised, 25% 90 days after the second 25% are exercised and 25% 90 days after the third 25% are exercised. REGI calculated the fair value of the options using the Black-Scholes option pricing model and determined it to be $194,881. $48,720 was expensed during the six months ended October 31, 2012 and the remaining amount will be expensed over the future vesting periods.

On July 27, 2012, the Company extended the expiration date of 833,950 outstanding common stock warrants with expiration dates between July 30, 2012 and February 14, 2013 by one year and reduced their exercise price from $1.50 to $0.50. REGI calculated the incremental increase in the fair value using the Black-Scholes option pricing model and determined it to be $81,322 which was expensed in full during the six months ended October 31, 2012.

A summary of REGI’s stock option activity for the six months ended October 31, 2012 is as follows:

At October 31, 2012, the exercise price and the weighted average remaining contractual life of the outstanding options were $0.10 and 4.22 years, respectively. The intrinsic value of “in the money” exercisable options at October 31, 2012 was $17,600.

At April 30, 2012, the range of exercise prices and the weighted average remaining contractual life of the outstanding options was $0.20 to $0.50 per share and 1.83 years, respectively. The intrinsic value of “in the money” exercisable options at April 30, 2012 was zero.

A summary of REGI’s common stock warrant activity for six months ended October 31, 2012 is as follows:

At October 31, 2012, the range of exercise prices and the weighted average remaining contractual life of the outstanding warrants was $0.10 to $0.50 per share and 1.42 years, respectively. The intrinsic value of “in the money” exercisable warrants at October 31, 2012 was $1,875.

At April 30, 2012, the range of exercise prices and the weighted average remaining contractual life of the outstanding warrants was $0.25 to $1.50 per share and 1.22 years, respectively. The intrinsic value of “in the money” exercisable warrants at April 30, 2012 was zero.

During the six months ended October 31, 2012, REGI issued a consultant 52,941 common shares valued at $9,000 for services.

During the six months ended October 31, 2012, REGI sold an aggregate of 1,775,000 units for aggregate cash proceeds of $167,563, net of issuance costs of $9,937. Each unit consists of one common share and one common stock warrant. The warrants were issued on November 13, 2012, the closing date of the private placement, and are exercisable at $0.15 per share for one year from November 13, 2012.

NOTE 5.   SUBSEQUENT EVENTS

During November 2012, REGI sold an aggregate of 20,000 units for aggregate cash proceeds of $2,000. Each unit consists of one common share and one common stock warrant. The warrants are exercisable at $0.15 per share and for one year from their issuance on November 13, 2012.

On November 7, 2012, 25,000 options exercisable into the Company’ common shares at $0.10 expired without being exercised.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements.” These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth in our 10-K for the fiscal year ended April 30, 2012. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.

All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.

Nature of Business

We are a development stage company engaged in the business of developing and building an improved axial vane-type rotary engine known as the RadMax™ rotary technology (the “RadMax® Engine”), used in the design of lightweight and high efficiency engines, compressors and pumps. We have a project cost sharing agreement, whereby the development of the RadMax™ Engine will be funded equally by us and by Reg Technologies Inc. (“Reg Tech”), a public company listed for trading on the TSX Venture Exchange and on OTC.BB. Reg Tech holds approximately 11% of our issued and outstanding shares.

Plan of Operation

As we announced on November 29, 2012, the assembly for the demonstration 375 Horsepower Rotary RadMax engine has commenced at Williams & White Machine, Inc. under the direction of Paul Porter, our Chief Engineer for the RadMax design.

The plans are to assemble the RadMax engine and commence a test plan which currently includes the following:

The initial tests will be with diesel fuel and the second tests will be with natural gas as a fuel for a generator application.

Our plan of operation for the twelve months following the date of this report is to continue our research and development on the technology. During the next 12 months we are committed to expend an aggregate of $100,000 for research and development activities, to finish the tests.

As well, we anticipate spending an additional $180,000 for general and administrative expenses, including fees we will incur in complying with reporting obligations. Total expenditures over the next 12 months are therefore expected to be $15,000 per month.

Going Concern

We incurred net losses of $302,526 for the six months ended October 31, 2012, has a working capital deficit of $1,680,328 and an accumulated deficit of $11,473,205 at October 31, 2012. Further losses are expected until we enter into a licensing agreement with a manufacturer and reseller. These factors raise substantial doubt about the ability of the Company to continue as a going concern.

We may receive interim support from affiliated companies and plan to raise additional capital through debt and/or equity financings. We may also raise additional funds through the exercise of warrants and stock options, if exercised. However, there is no assurance that any of these activities will be successful.

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, 2012, 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.

Results of Operations for Six months Ending October 31, 2012 Compared to the Six months Ended October 31, 2011

We had a net loss of $302,526 during the six months ended October 31, 2012, increased by $119,300 from net loss of $183,226 during the six months ended October 31, 2011.

During the six months ended October 31, 2011 we had gain on the change in fair value of derivative liabilities $72,415. We did no have such gain during the six months ended October 31, 2012.

Research and development expenses decreased from $81,089 in six months ended October 31, 2011 to $49,227 in six months ended October 31, 2012, due to the fact that fabrication to complete the cam and actuator for the RadMax™ demonstration diesel engine model was completed during the year ended April 30, 2012, and fewer engineering hours are required during the six months ended October 31, 2012.

Total general and administrative expenses increased from $174,552 in six months ended October 31, 2011 to $252,579 in the six months ended October 31, 2012, largely due to the $132,299 we recorded for options granted and warrants and options modified during the period, which was absent during the six months ended October 31, 2011.

Other expense comparisons are as follows:

During the six months ended October 31, 2012 we recorded interest expense of $720 on promissory note issued to a related party. We did not have such promissory note or interest expense in the six months ended October 31, 2011.

We have not attained profitable operations and are dependent upon obtaining financing to pursue exploration activities. For these reasons our auditors believe that there is substantial doubt that we will be able to continue as a going concern.

Liquidity and Capital Resources

During the six months ended October 31, 2012, we financed our operations mainly through proceeds of $167,563 from the sale of common stock net of share issuance costs.

During the six months ended October 31, 2012 we had net proceeds of $69,952 returned to our affiliated companies Reg Technologies Inc. At October 31, 2012 total amount owing to related parties is $1,474,449 or 87.75% of total liabilities as of October 31, 2012. This funding was necessary with a downturn in the financial market to complete the RadMax™ Engine and place us in a position to attain profit. The balances owing to related parties are non-interest bearing, unsecured and repayable on demand. Our affiliated companies have indicated that they will not be demanding repayment of these funds during the next fiscal year.

We also plan to raise additional capital through debt and/or equity financings. We cannot provide any assurance that additional funding will be available to finance our operations on acceptable terms in order to enable us to complete our plan of operations. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue the development of our RadMax™ Engine and our business will fail.

Off-Balance Sheet Arrangements

We have no 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 is material to our stockholders.

Critical Accounting Policies

We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 of the consolidated financial statements for the six months ended October 31, 2012, attached hereto.

Contractual Obligations

We do not currently have any contractual obligations requiring any payment obligation from us.

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.

Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with participation of our Chief Executive Officer and our Chief Financial Officer as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to inadequate segregation of duties.

As used herein, “disclosure controls and procedures” mean controls and other procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

We are taking steps to enhance and improve the design of our disclosure controls. During the period covered by this interim report, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we need to appoint additional qualified personnel to address inadequate segregation of duties, and adopt sufficient written policies and procedures for accounting and financial reporting. These remediation efforts are largely dependent upon securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected.

There were no changes in our internal control over financial reporting during the quarter ended October 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

We are not a party to any pending legal proceeding. Management is not aware of any threatened litigation, claims or assessments.

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

From May 1, 2012 to the date of this report, we issued a consultant 52,941 common shares valued at $9,000 for services.

From May 1, 2012 to the date of this report, we sold an aggregate of 1,795,000 units for gross cash proceeds of $167,563, net of issuance costs of $9,937. Each unit consists of one common share and one common stock warrant. The warrants were issued on November 13, 2012, the closing date of the private placement, and are exercisable at $0.15 per share for one year from November 13, 2012.

None.

Not applicable.

None.

* filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

December 17, 2012