REG TECHNOLOGIES INC.
(A Development Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
January 31, 2011
READERS’ NOTE
Responsibilities for Financial Statements
The accompanying consolidated financial statements for Reg Technologies Inc. (the “Company”) have
been prepared by management in accordance with Canadian generally accepted accounting principles.
These consolidated financial statements, which are the responsibility of management, are unaudited and
have not been reviewed by the Company’s auditors. Management believes the consolidated financial
statements are free of material misstatement and present fairly, in all material respects, the financial
position of the Company as at January 31, 2011 and the results of its operations and its cash flows for
the nine months ended January 31, 2011.
Reg Technologies Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in Canadian Dollars)
As at
As at
January 31,
April 30,
2011
2010
$
$
Assets
Current
Cash
144,168
364
GST and interest receivable
7,252
9,882
Prepaid expenses
44,898
1,416
Due from related parties (Note 8)
-
28,455
Advances to equity accounted investee (Note 6)
842,081
585,859
1,038,399
625,976
Equipment (Note 5)
1,722
3,346
Deferred exploration costs
20,522
-
Deferred acquisition costs (Note 14)
10,000
-
1,070,643
629,322
Liabilities
Current
Bank indebtedness
-
494
Accounts payable and accrued liabilities
86,693
57,861
Due to related parties (Note 8)
239,394
146,741
Income taxes payable
10,317
10,317
Share subscription payable (Note 10)
135,344
58,877
Convertible debenture (Note 11)
46,181
-
Share subscription payable – subsidiary (Note 14)
207,500
-
Financial instrument liability (Note 10)
17,941
135,816
743,370
410,106
Shareholders’ equity
Share capital (Note 4)
12,191,832
12,082,039
Subscription received (Note 4)
174,500
-
Equity component of convertible loan (Note 11)
8,485
-
Warrants (Note 4)
60,371
245,518
Contributed Surplus
2,321,484
2,133,649
Deficit
(14,429,399)
(14,241,990)
254,782
219,216
1,070,643
629,322
Nature and Continuance of Operations (Note 1)
Commitments (Note 9)
Subsequent events (Note 15)
On behalf of the Board:
“John Robertson”
Director
“Jennifer Lorette"
Director
John Robertson
Jennifer Lorette
The accompanying notes are an integral part of these consolidated financial statements.
(1)
Reg Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in Canadian Dollars)
(Unaudited)
For the three
For the three
For the nine
For the nine
months ended
Months ended
months ended
Months ended
January 31,
January 31,
January 31,
January 31,
2011
2010
2011
2010
$
$
$
$
Expenses
Amortization
504
820
1,624
2,935
Interest
3,091
-
6,999
-
Shareholder communication
3,549
32,823
18,688
51,844
Consulting fees
23,236
9,563
25,553
13,965
Foreign exchange loss (gain)
3,473
38,836
3,414
40,556
Management and directors’ fees (Note 8)
26,221
13,050
49,221
39,150
Office expenses
7,447
16,606
18,488
44,051
Professional fees (Note 8)
21,198
13,743
50,321
80,347
Research and development
19,866
27,797
65,040
98,200
Rent and utilities (Note 8)
11,443
11,233
12,229
27,562
Stock-based compensation (Note 4)
-
-
20,296
31,987
Transfer agent and filing fees
3,249
8,727
10,925
15,889
Travel and promotion
666
4,541
4,674
13,516
Wages and benefits
5,123
7,342
17,813
21,616
Loss before other items and income taxes
(129,066)
(185,081)
(305,285)
(557,813)
Other income (expense)
Gain on sale of investee’s shares (Note 6)
-
-
39,542
26,689
Unrealized gain (loss) on financial instrument liability
11,146
79,229
78,334
144,115
Net and comprehensive loss
(117,920)
(105,852)
(187,409)
(341,495)
Loss per share – basic and diluted
(0.00)
(0.00)
(0.00)
(0.01)
Weighted average number of common shares
outstanding – basic and diluted
28,830,785
25,768,959
28,562,932
25,732,271
The accompanying notes are an integral part of these consolidated financial statements.
(2)
Reg Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
(Unaudited)
For the three
For the three
For the nine
For the nine
months ended
Months ended
months ended
Months ended
January 31,
January 31,
January 31,
January 31,
2011
2010
2011
2010
$
$
$
$
Cash flows used in operating activities
Net loss
(117,920)
(105,852)
(187,409)
(341,495)
Adjustments to reconcile loss to net cash used by
operating activities:
Amortization
504
820
1,624
2,935
Accrued interest
2,091
-
4,658
-
Gain on sale of investee’s shares
-
-
-
(26,689)
Stock-based compensation
-
-
20,296
31,987
Realised gain on financial instrument liability
-
-
(39,542)
Unrealized gain on financial instrument liability
(11,146)
(79,229)
(78,334)
(144,115)
Changes in non-cash working capital items:
Bank indebtedness
-
-
(494)
-
GST and interest receivable
5,956
9,001
2,630
2,693
Prepaid expenses
(42,207)
11,858
(43,482)
(1,315)
Due from related parties
-
-
28,455
Accounts payable and accrued liabilities
(63,515)
47,294
33,836
176,131
Advances from (repayment to) related parties
90,820
-
87,653
-
(135,417)
(116,108)
(170,109)
(299,868)
Cash flows provided by (used in) investing activities
Deferred exploration cost
(20,522)
-
(20,522)
-
Deferred acquisition cost
(10,000)
-
(10,000)
-
Advances to equity accounted investee
(72,237)
(6,412)
(256,222)
7,007
Proceeds on sale of investee’s shares and warrants
-
-
76,467
26,689
(102,759)
(6,412)
(160,277)
33,696
Cash flows provided by financing activities
Subscription received by subsidiary
207,500
-
207,500
-
Bank Indebtedness
-
11,939
-
13,878
Advances from (to) related parties
-
(79)
-
140,856
Proceeds from issuance of convertible loan
-
-
50,000
-
Proceeds from share issuances, net of issuance costs
174,500
143,331
266,686
143,331
Subscription receivable
-
(45,000)
-
(45,000)
Subscription received
-
12,000
-
12,000
382,000
122,191
524,186
265,065
Increase (decrease) in cash
143,824
(329)
143,804
(1,107)
Cash, beginning
344
329
364
1,107
Cash, ending
144,168
-
144,168
-
Supplemental Disclosures
Interest paid
1,000
-
2,333
-
Income taxes paid
-
-
-
-
The accompanying notes are an integral part of these consolidated financial statements.
(3)
Reg Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders’ Equity
(Expressed in Canadian Dollars)
Equity
Component of
Total
Common
Common
Contributed
Convertible
Subscription
Shareholder
s’
Shares
Shares
Surplus
Warrants
Loan
Received
Deficit
Equity
#
$
$
$
$
$
$
$
Balance – April 30, 2008
(Restated – Note 12)
23,942,759
11,356,689
2,024,832
–
–
– (13,330,998)
50,523
Shares issued for cash
1,771,168
444,275
–
167,540
–
–
–
611,815
Stock-based compensation
–
–
90,736
–
–
–
–
90,736
Net loss
–
–
–
–
–
–
(456,090)
(456,090)
Balance – April 30, 2009
25,713,927
11,800,964
2,115,568
167,540
– (13,787,088)
296,984
–
Shares issued for cash
2,655,929
281,075
–
94,711
–
–
–
375,786
Stock-based compensation
–
–
1,348
–
–
–
–
1,348
Expiration of warrants
–
–16,733
(16,733)
–
–
–
–
Net loss
–
–
–
–
–
–
(454,902)
(454,902)
Balance – April 30, 2010
28,369,856
12,082,039
2,133,649
245,518
–
– (14,241,990)
219,216
Equity component of
–
–
–
–
8,485
–
–
8,485
convertible loan
Shares issued for warrant
460,929
109,793
–
(17,607)
–
–
–
92,186
exercise
Stock-based compensation
–
–
20,296
–
–
–
–
20,296
Expiration of warrants
–
–
167,540
(167,540)
–
–
–
–
Subscription received
–
–
–
–
–
174,500
–
174,500
Net loss
–
–
–
–
–
–
(187,409)
(187,409)
Balance – January 31, 2011 28,830,785
12,191,832
2,321,484
60,371
8,485
174,500
(14,429,399)
254,782
The accompanying notes are an integral part of these consolidated financial statements.
(4)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
1.
Nature and Continuance of Operations
Reg Technologies Inc. (“Reg Tech” or the “Company”) is a development stage company in the business
of developing and commercially exploiting an improved axial vane type rotary engine known as the
Rand CamTM/Direct Charge Engine and other RandCamTM / RadMax® applications, such as
compressors and pumps (the “Technology”). The worldwide marketing and intellectual rights, other
than in the U.S., are held by the Company, which as at January 31, 2011 owns 3.8 million shares of
REGI U.S, Inc. (“REGI”) (a U.S. public company) representing a 13% interest in REGI. REGI owns
the U.S, marketing and intellectual rights. The Company and REGI have a project cost sharing
agreement whereby these companies each fund 50% of the development of the Technology.
In a development stage company, management devotes most of its activities to establishing a new
business. Planned principal activities have not yet produced any revenues and the Company has
incurred recurring operating losses as is normal in development stage companies. The Company has
accumulated losses of $14,429,399 since inception. These factors raise substantial doubt about the
Company’s ability to continue as a going-concern. The ability of the Company to emerge from the
development stage with respect to its planned principal business activity is dependent upon its
successful efforts to raise additional equity financing, receive funding from affiliates and controlling
shareholders, and develop a market for its products.
Management is aware that material uncertainties exist, related to current economic conditions, which
could adversely affect the Company’s ability to continue to finance its activities. The Company 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 adequate working capital to fund
ongoing operations for the next twelve months. The Company may also raise additional funds though
the exercise of warrants and stock options.
There is no certainty that the Company’s efforts to raise additional capital will be successful. These
financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be necessary should the Company be
unable to continue in normal operations.
2.
Basis of accounting and principles of consolidation
These unaudited interim consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles for interim financial information using the same
accounting policies and methods of application as the audited consolidated financial statements of the
Company for the year ended April 30, 2010. These unaudited interim consolidated financial statements
do not include all the information and note disclosures required by generally accepted accounting
principles for annual financial statements of the Company and should be read in conjunction with the
audited consolidated financial statements of the Company as at April 30, 2010.
(5)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
2.
Basis of accounting and principles of consolidation (Cont’d)
In the opinion of management, all adjustments considered necessary for fair presentation have been
included in these financial statements. Interim results are not necessarily indicative of the results
expected for the fiscal year.
These financial statements include the accounts of the Company, its 100% owned subsidiary Minewest
Silver and Gold Inc. (“Minewest”) and its 51% owned subsidiary, Rand Energy Group Inc. (“Rand”),
which owns a 2.8% (April 30, 2010 – 2.8%) interest in REGI. The Company also owns a 10.6% (April
30, 2010 – 10.6%) interest in REGI. Prior to April 30, 2008, REGI was considered a controlled
subsidiary for consolidation purposes by way of control through an annually renewable voting trusts
agreement, with other affiliated companies. This trusts agreement gave the Company 50% control of
the voting shares of REGI. The agreement could be cancelled by the President of the 51% owned
subsidiary with seven days’ written notice to the affiliated companies. Effective April 30, 2008, the
voting trusts agreement was cancelled (Note 6) and consequently the investment in REGI has been
accounted for as an equity investment.
3. Financial Instruments
Foreign exchange risk
The Company is primarily exposed to currency fluctuations relative to the Canadian dollar through
expenditures that are denominated in US dollars. Also, the Company is exposed to the impact of
currency fluctuations on its monetary assets and liabilities.
The operating results and the financial position of the Company are reported in Canadian dollars.
Fluctuations in exchange rates will, consequently, have an impact upon the reported operations of the
Company and may affect the value of the Company’s assets and liabilities.
The Company currently does not enter into financial instruments to manage foreign exchange risk.
The Company is exposed to foreign currency risk through the following financial assets and liabilities
that are denominated in United States dollars:
Advances to
Equity
Accounted
Accounts
January 31, 2011
Cash
Investee
Payable
$
144,168
$
842,081
$
91,693
At January 31, 2011 with other variables unchanged, a +/-10% change in exchange rates would
increase/decrease pre-tax loss by approximately +/- $31,806.
(6)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
3. Financial Instruments (Cont’d)
Interest rate and credit risk
The Company has minimal cash balances and no interest-bearing debt. The Company has no significant
concentrations of credit risk arising from operations. The Company's current policy is to invest any
significant excess cash in investment-grade short-term deposit certificates issued by reputable financial
institutions with which it keeps its bank accounts and management believes the risk of loss to be
remote. The Company periodically monitors the investments it makes and is satisfied with the credit
ratings of its banks.
Receivables consist of goods and services tax due from the Federal Government. Management believes
that the credit risk concentration with respect to receivables is remote.
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall
due. The Company manages liquidity risk through the management of its capital structure and financial
leverage as outlined in Note 13.
Fair Value Measurement
The Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3862 “Financial Instruments
Disclosures” requires disclosure of a three-level hierarchy for fair value measurements based upon the
significance of inputs used in making fair value measurements as follows:
* Level 1 – quoted prices in active markets for identical assets or liabilities.
* Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e.: as prices) or indirectly (i.e.: derived from prices).
* Level 3 – inputs for the asset or liability that are not based on observable market data.
At January 31, 2011, the levels in the fair value hierarchy into which the Company’s financial assets and
liabilities measured and recognized in the balance sheet at fair value are categorized are as follows:
Level 1
Level 2
Cash
$
144,168
Financial instrument liability
$ 17,941
(7)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
4.
Share Capital
Authorized
50,000,000 Common shares without par value
10,000,000 Preferred shares with a $1 par value, redeemable for common shares on the basis of 1
common share for 2 preferred shares
5,000,000 Class A non-voting shares without par value. Special rights and restrictions apply.
Treasury Shares
At January 31, 2011, Rand owns 217,422 (April 30, 2010 – 217,422) shares of the Company valued at
$39,156 that have been deducted from the total shares issued and outstanding. The value of these
shares has been deducted from share capital.
Private placements
On July 31, 2008, the Company completed a private placement, whereby it issued 1,315,168 units at $0.40
per unit for proceeds of $526,067. Each unit consisted of one common share and one non-transferable
share purchase warrant, entitling the holder to acquire one additional common share for a period of one year
at $0.50 per share and at $0.60 per share in the second year. The fair value of the warrants included in the
units was estimated to be $0.115 per warrant using the Black-Scholes option pricing model using the
following assumptions: risk free interest rate of 3.10%, expected volatility of 107%, an expected life of 1
year and no expected dividends. The Company incurred finders’ fees of $22,212 in connection with this
private placement, which are included in share issuance costs.
On April 1, 2009, the Company completed a private placement, whereby it issued 456,000 units at $0.25
per unit for proceeds of $114,000. Each unit consisted of one common share and one-half non-transferable
share purchase warrant. Two one-half warrants entitle the holder to purchase one additional share of
common stock at a price of $0.35 per share for one year. The fair value of the warrants included in the units
was estimated to be $0.07 using the Black-Scholes option pricing model using the following assumptions:
risk free interest rate of 1.10%, expected volatility of 115%, an expected life of 1 year and no expected
dividends. The Company incurred finders’ fees of $6,040 in connection with this private placement, which
are included in share issuance costs.
On January 26, 2010, the Company completed a private placement, whereby it issued 1,012,596 units at
$0.15 per unit for proceeds of $151,889. Each private placement unit consisted of one common share and
share purchase warrant. Each warrant entitles the holder to purchase one additional share of common stock
at a price of $0.20 per share for one year. The fair value of the warrants included in the units was estimated
to be $0.04 using the Black-Scholes option pricing model using the following assumptions: risk free
interest rate of 1.17%, expected volatility of 97%, an expected life of 1 year and no expected dividends.
Finders’ fees of $7,050 were paid in connection with the private placement, which are included in share
issuance costs. 460,929 of the warrants were exercised during the nine months ended January 31, 2011, the
expiration of the remaining 551,667 warrants was extended to July 26, 2011. The value of the extended
warrants are recorded at $35,250 using the Black-Scholes option pricing model using the following
assumptions: risk free interest rate of 1.20%, expected volatility of 109%, an expected life of 0.50 year and
no expected dividends.
(8)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
4.
Share Capital (Cont’d)
Private placements (Cont’d)
On March 28, 2010, the Company completed a private placement, whereby it issued 1,643,333 units at
$0.15 per unit for proceeds of $246,500. Each private placement unit consisted of one common share and
share purchase warrant. Each warrant entitles the holder to purchase one additional share of common stock
at a price of $0.20 per share for one year. The fair value of the warrants included in the units was estimated
to be $0.03 using the Black-Scholes option pricing model using the following assumptions: risk free
interest rate of 0.87%, expected volatility of 99%, an expected life of 1 year and no expected dividends.
Finders’ fees of $12,068 were paid in connection with the private placement, which are included in share
issuance costs. None of the warrants were exercised and their expiration date was extended to September
24, 2011.
Stock Options
The Company has implemented a stock option plan (the “Plan”) to be administered by the Board of
Directors. Pursuant to the Plan, the Board of Directors has discretion to grant options for up to a maximum
of 10% of the issued and outstanding common shares of the Company at the date the options are granted.
The option price under each option shall be not less than the discounted market price on the grant date. The
expiry date of an option shall be set by the Board of Directors at the time the option is awarded, and shall
not be more than five years after the grant date.
These options have the following vesting schedule:
i)
Up to 25% of the option may be exercised at any time during the term of the option; such initial
exercise is referred to as the “First Exercise”.
ii)
The second 25% of the option may be exercised at any time after 90 days from the date of First
Exercise; such second exercise is referred to as the “Second Exercise”.
iii)
The third 25% of the option may be exercised at any time after 90 days from the date of Second
Exercise; such third exercise is referred to as the “Third Exercise”.
iv)
The fourth and final 25% of the option may be exercised at any time after 90 days from the date
of the Third Exercise.
v)
The options expire 60 months from the date of grant.
Options granted to consultants engaged in investor relations activities will vest in stages over a minimum of
12 months with no more than 25% of the options vesting in any three-month period.
During the nine months ended January 31, 2011, the Company recorded stock-based compensation of
$20,296 (2010 - $31,987) as a general and administrative expense.
(9)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
4.
Share Capital (Cont’d)
Stock Options (Cont’d)
On August 1, 2008, the Company granted 400,000 stock options from the Plan to employees, directors and
consultants exercisable at $0.40 per share, up to August 1, 2013. The fair value of options was estimated
using the Black-Scholes option pricing model using the following weighted average assumptions: risk free
interest rate of 1.69%, expected volatility of 134%, an expected option life of 1 - 5 years and no expected
dividends. The weighted average fair value of options granted was $0.31 per option. During the year ended
April 30, 2010 the Company recognized $nil (2009 - $43,648) as stock-based compensation in relation to
this grant, with $46,990 (2009 - $46,990) to be recognized in future accounting periods as the options
continue to vest.
On April 22, 2009, the Company granted 375,000 stock options from the Plan to two directors and a
consultant exercisable at $0.21 per share, up to April 22, 2014. The fair value of options was estimated
using the Black-Scholes option pricing model using the following weighted average assumptions: risk free
interest rate of 3.19%, expected volatility of 106%, an expected option life of 1 - 5 years and no expected
dividends. The weighted average fair value of options granted was $0.18 per option. During the year ended
April 30, 2010 the Company recognized $nil (2009 - $16,502) as stock-based compensation in relation to
this grant, with $37,419 (2009 - $37,419) to be recognized in future accounting periods as the options
continue to vest.
On April 19, 2010, the Company granted 50,000 stock options from the Plan to a consultant exercisable at
$0.21 per share, up to April 19, 2015. The fair value of options was estimated using the Black-Scholes
option pricing model using the following weighted average assumptions: risk free interest rate of 2.74%,
expected volatility of 102%, an expected option life of 5 years and no expected dividends. The weighted
average fair value of options granted was $0.11 per option. The Company recognized $1,348 as stock-based
compensation in relation to this grant, with $4,044 to be recognized in future accounting periods as the
options continue to vest.
On October 21, 2010, the Company granted 750,000 stock options from the Plan to the president of the
Company exercisable at $0.14 per share, up to October 21, 2015. The fair value of options was estimated
using the Black-Scholes option pricing model using the following weighted average assumptions: risk free
interest rate of 1.72%, expected volatility of 106%, an expected option life of 5 years and no expected
dividends. The weighted average fair value of options granted was $0.11 per option. The Company
recognized $20,296 as stock-based compensation in relation to this grant, with $60,889 to be recognized in
future accounting periods as the options continue to vest.
(10)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
4.
Share Capital (Cont’d)
The following is a summary of options activities during the nine months ended January 31, 2011 and the
year ended April 30, 2010:
Weighted
average
Number of
exercise
options
price
$
Outstanding at April 30, 2009
1,525,000
0.30
Granted
50,000
0.21
Outstanding at April 30, 2010
1,575,000
0.30
Expired
(750,000)
0.22
Granted
750,000
0.14
Outstanding at January 31, 2011
1,575,000
0.26
Weighted average fair value of options granted during the nine
months ended January 31, 2011
0.14
Stock Options (Cont’d)
The following options were outstanding at January 31, 2011:
Expiry Date
Exercise
Number
Remaining
price
of options
contractual life
(years)
$
August 1, 2013
0.40
400,000
2.51
April 22, 2014
0.21
375,000
3.23
April 19, 2015
0.21
50,000
4.22
October 21, 2015
0.14
750,000
4.72
Options Outstanding
1,575,000
Options Exercisable
393,570
(11)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
4.
Share Capital (Cont’d)
Share Purchase Warrants
The following is a summary of warrant activities during the nine months ended January 31, 2011 and year
ended April 30, 2010:
Weighted
average
Number of
exercise
warrants
price
$
Outstanding at April 30, 2009
1,543,168
0.56
Issued
2,655,929
0.20
Expired
(228,000)
0.35
Outstanding at April 30, 2010
3,971,097
0.33
Exercised
(460,929)
0.20
Expired
(1,315,168)
0.60
Outstanding at January 31, 2011
2,195,000
0.20
The following warrants were outstanding at January 31, 2011:
Expiry Date
Exercise
Number
price
of warrants
$
July 26, 2011
0.20
551,667
September 24, 2011
0.20
1,643,333
Warrants Outstanding
2,195,000
5.
Equipment
Accumulated
October 31, 2010
Cost
Amortization
Net
Computer hardware
$
7,372
$
7,126
$
246
Office furniture and equipment
8,849
7,373
1,476
Total
$
16,221
$
14,499
$
1,722
Accumulated
April 30, 2010
Cost
Amortization
Net
Computer hardware
$
7,372
$
6,829
$
543
Office furniture and equipment
8,849
6,046
2,803
Total
$
16,221
$
12,875
$
3,346
(12)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
6. Equity Accounted Investee
The Company’s investment in REGI has been reduced to $nil as the Company’s share of past losses
exceeded the carrying value of the investment in REGI.
At January 31, 2011, the Company is owed an aggregate of $842,081 (April 30, 2010 - $585,859) by REGI.
The amounts owed are unsecured, non-interest bearing and due on demand.
During the year ended April 30, 2010, the Company recognized a gain of $142,815 (2009 – gain of
$347,099) relating to the sale of 621,725 (2009 – 1,394,608) of shares of REGI by the Company and Rand.
7.
Dilution Gain
During the year ended April 30, 2008, prior to the de-consolidation, REGI issued shares to third parties.
These issuances reduced Rand’s interest in REGI, which resulted in a gain on dilution of $228,934.
8.
Related Party Transactions
At January 31, 2011, the Company is owed an aggregate of $Nil (April 30, 2010 - $28,455) by related
parties and owed an aggregate of $239,394 (April 30, 2010 - $146,741) to related parties. The amounts
owed are unsecured, non-interest bearing and due on demand. These parties are companies that the
President of the Company controls or significantly influences.
During the nine month period ended January 31, 2011, rent of $12,229 (2010 - $27,562) incurred with a
company having common officers and directors.
During the nine month period ended January 31, 2011, management fees of $22,500 (2010 - $22,500) were
accrued to a company having common officers and directors in accordance with the management agreement
dated May 1, 2007. As at January 31, 2011 an aggregate balance of $27,724 was owed to this related party
by Rand and the Company. On December 1, 2010 the management agreement was amended whereby the
related party agrees to accrue the $5,000 per month management fees, but not to be paid until the Company
is sufficiently funded for operations and not to charge interest on outstanding balances.
During the nine month period ended January 31, 2011, research and development costs of $65,040 (2010 -
$98,200) were paid to a company having common officers and directors.
During the nine month period ended January 31, 2011, administrative and management fees, included in
miscellaneous office expenses, of $9,509 (2010 - $20,250) and directors’ fees of $9,000 (2010 - $9,000)
were paid to officers, directors and companies controlled by officers and directors for services rendered.
The above transactions were in the normal course of operations and are recorded at their exchange amounts.
(13)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
9.
Commitments
a) In connection with the acquisition of Rand, the Company has the following royalty obligations:
i)
A participating royalty is to be paid based on 5% of all net profits from sales, licenses, royalties
or income derived from the patented technology, to a maximum amount of $10,000,000. The
participating royalty is to be paid in minimum annual instalments of $50,000 per year beginning
on the date the first revenues are derived from the license or sale of the patented technology.
ii)
Pursuant to a letter of understanding dated December 13, 1993, between the Company and REGI
(collectively called the grantors) and West Virginia University Research Corporation
(“WVURC”), the grantors have agreed that WVURC shall own 5% of Rand CamTM patented
technology and will receive 5% of all net profits from sales, licenses, royalties or income derived
from the patented technology.
iii)
A 1% net profit royalty will be payable to a director on all U.S. – based sales.
b) The Company is committed to fund 50% of the further development of the Rand CamTM/Direct Charge
Engine Technology.
c) On November 1, 2010, the Company entered into a lease agreement for one additional year for a total of
$13,185.
10. Financial Instrument Liability
Rand’s private sales of REGI shares
On November 9, 2009, Rand sold 238,000 units at US$0.25 per unit consisting one common share of REGI
and one share purchase warrant entitling the holder to purchase one additional share of REGI at US$0.35
per share expiring November 9, 2010.
During the year ended April 30, 2009, Rand sold 40,000 units at US$1.00 per unit consisting of one
common share of REGI and one share purchase warrant entitling the holder to purchase one additional
share of REGI at US$1.50 per share expiring May 6, 2013.
During the year ended April 30, 2009, Rand sold 1,264,933 units at US$0.25 per unit consisting of one
common share of REGI and one share purchase warrant entitling the holder to purchase one additional
share of REGI at US$0.35 per share expiring March 12, 2010.
The warrants are a derivative, and the proceeds on the sale of the units were bifurcated between the fair
value of the common shares and the share purchase warrants. During the year ended April 30, 2010 the
proceeds allocated to the warrants were $17,400 upon issuance. The fair value of the warrants at the
closing date was determined using the Black-Scholes option pricing model using the following weighted
average assumptions: risk free interest rate of 0.24%, expected volatility of 121%, an expected option life of
1 year and no expected dividends.
(14)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
10. Financial Instrument Liability (Cont’d)
Rand’s private sales of REGI shares (Cont’d)
During March, 2010, 163,000 warrants issued in March, 2009 were exercised at US$0.35 per share of REGI
shares for total proceeds of $58,877(US$57,050). These shares were transferred by Rand to the purchasers
on May 4, 2010.
On March 12, 2010, 1,101,933 warrants issued on March 12, 2009 expired, of which 894,333 warrants were
extended for one year expiring March 12, 2011. The fair value of the extended warrants on March 12, 2010
was determined using the Black-Scholes option pricing model using the following weighted average
assumptions: risk free interest rate of 0.15%, expected volatility of 117%, an expected option life of 1 year
and no expected dividends. The warrants expired subsequent to January 31, 2011.
As at January 31, 2011 the details of the share purchase warrants are as follows:
Closing date of sale
# of warrants
Exercise price
Expiry date
March 27, 2008
80,000
US$ 1.50
March 27, 2013
May 6, 2008
40,000
US$ 1.50
May 6, 2013
March 12, 2009
894,333
US$ 0.35
March 12, 2011
The fair value of the warrants as follows:
Fair value at
Fair value at
Expiry date
January 31, 2011
April 30, 2010
March 27, 2013
$
2,580
$
6,292
May 6, 2013
1,400
3,120
March 12, 2011
7,166
86,863
Total
$
11,146
$
135,816
Black-Scholes Option-Pricing Model Assumptions
The fair value of each warrant issued was calculated using the Black-Scholes option-pricing model with
the following assumptions:
January 31, 2011
April 30, 2010
Expected dividend yield
0.00%
0.00%
Expected stock price volatility
112% - 166%
98% - 115%
Risk-free interest rate
0.3% - 1.67%
0.38% - 2.42%
Expected life of warrants (years)
0.02 – 2.52
0.87 – 3.01
(15)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
10. Financial Instrument Liability (Cont’d)
Reg Tech’s private sales of REGI shares
On November 9, 2009, Reg Tech sold 280,000 units (2009 – nil units) at $0.25 per unit consisting one
common share of REGI and one share purchase warrant entitling the holder to purchase one additional
share of REGI at $0.35 per share expiring November 9, 2010.
The warrants are a derivative, and the proceeds on the sale of the units were bifurcated between the fair
value of the common shares and the share purchase warrants. The proceeds allocated to the warrants were
$21,304 (2009 - $nil) upon issuance. The fair value of the warrants at the closing date was determined
using the Black-Scholes option pricing model using the following weighted average assumptions: risk free
interest rate of 0.31%, expected volatility of 121%, an expected option life of 1 year and no expected
dividends. The 280,000 warrants expired on November 9, 2010.
During the nine months ended January 31, 2011 Reg Tech received gross proceeds of $76,467 (US$72,300)
as subscriptions for 361,500 REGI units at $0.25 per unit consisting one common share of REGI and one
share purchase warrant entitling the holder to purchase one additional share of REGI at $0.30 per share
expiring one year after the issuance date. The shares have not been transferred to the purchasers.
11. Convertible Debenture
On June 1, 2010, the Company issued a convertible debenture for total proceeds of $50,000 which bears
interests at 8% per annum payable monthly, is unsecured and due one year from date of issuance. The
unpaid amount of principal can be converted at any time at the holder’s option into shares of the Company’s
common stock at a price of $0.20 per share. The Company has the option to repay principal and accrued
interest before the due date with 30 days’ notice.
The fair value of the debt component of the convertible loan was estimated using discounted cash flow at
10% for equivalent debt without the conversion feature. The fair value of equity component was estimated
using Black-Scholes option pricing model with following assumptions: risk-free interest rate of 1.11%,
dividend of 0%, expected life of 1 year and expected volatility of 93%. The debt and equity components of
the convertible loans were then measured using the proportional or relative fair value method and were
initially recorded at $41,515 and $8,485 respectively. As at January 31, 2011, $3,819 interest has been
amortized with its debt component carried at amortized cost of $46,181. As at January 31, 2011, interest of
$2,333 has been paid to the lender.
(16)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
12. Restatement
During the year ended April 30, 2008, the Company, through its subsidiary Rand, sold 80,000 units to a
third party. Each unit consisted of one REGI share and one share purchase warrant entitling the holder to
acquire one additional common share in REGI for a period of five years at US$1.50 per share. The
warrants are a derivate financial instrument and classified as held-for-trading and initially recorded and
subsequently measured at fair value. However, in preparation of the consolidated financial statements for
the year ended April 30, 2008, the Company did not allocate any of the proceeds on this sale to the
warrants, and the warrants were not subsequently measured at fair value.
The following presents the effect of the previously issued consolidated financial statements for the year
ended April 30, 2008.
Consolidated balance sheet
2008
2008
As previously
reported
Increase
Restated
Financial instrument liability
$
-
$
56,184
$
56,184
Deficit
13,274,814
56,184
13,330,998
Consolidated statement of operations
2008
2008
As previously
Increase
reported
(Decrease)
Restated
Gain on sale of investee’s shares
$
292,149
$
(30,798)
$
261,351
Unrealized gain (loss) on financial
instrument liability
-
(25,386)
(25,386)
Net and comprehensive loss
480,145
56,184
536,329
13. Capital Management
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue
as a going concern in order to pursue the development of its technologies and to maintain a flexible
capital structure for its projects for the benefit of its stakeholders. As the Company is in the
development stage, its principal source of funds is from the issuance of common shares.
In the management of capital, the Company includes the share capital as well as cash, receivables,
related party receivables and advances to equity accounted investee.
The Company manages the capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the
capital structure, the Company may attempt to issue new shares, acquire or dispose of assets or adjust
the amount of cash and short-term investments.
(17)
Reg Technologies Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in Canadian Dollars)
For the nine months ended January 31, 2011 and 2010
13. Capital Management (Cont’d)
The Company expects its capital resources, which include a share offering and the sale of investee
shares and warrants, will be sufficient to carry its research and development plans and operations
through its current operating period.
The Company is not subject to externally imposed capital requirements and there were no changes in its
approach to capital management during the nine months ended January 31, 2011.
14. Minewest and Asset Transfer Agreement
On July 20, 2010 the Company signed an asset transfer agreement with its newly incorporated subsidiary,
Minewest, a private company incorporated in British Columbia for the purpose of acquiring and exploring
mineral properties. In accordance with the agreement the Company transfers its 100% ownership in its
undivided 50% interest subject to a 5% net smelter return in 33 mining claims situated in the Tootsee River
area in the Province of British Columbia for following consideration:
- Cash payment of $25,000 on or before August 15, 2010 (paid);
- Issuance of 8,000,000 shares of Minewest voting common shares (not issued).
Effective December 15, 2010 Minewest signed a purchase agreement with Rapitan Resources Inc.
("Rapitan"), wherein Minewest purchased 100% of Rapitan’s 25% interest in the Silverknife property for
the following consideration:
* Cash payment of $10,000 (paid);
* Issuance of 2,000,000 shares of common stocks of Minewest (not issued).
The transfer of title to the asset is subject to regulatory approval. The non-refundable payment of $10,000 is
recorded as deferred acquisition cost.
From its inception in July, 2010 to January 31, 2011 Minewest received total subscriptions of $207,500 for
2,075,000 common shares of Minewest at $0.10 per share. The shares are not issued as at January 31, 2011
or the date of this filing.
15. Subsequent Event
On February 24, 2011 the Company issued 1,994,333 units of private placement at $0.15 per unit at
$0.15 per unit consisting of one common share of the Company and one share purchase warrant
entitling the holder to purchase one additional share of common stock at a price of $0.20 for one year
from February 24, 2011.
On March 24, 2011, 1,643,333 warrants exercisable into the Company’s common share at $0.20 per share
with initial expiration date of March 28, 2011 were extended to September 24, 2011.
During February and March, 2011 Minewest raised total subscription of $7,200 for 72,000 common
shares of Minewest at $0.10 per share.
(18)