RGUS REGI US Inc (CE)

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

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

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

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

REGI, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

1) NATURE OF OPERATIONS

REGI U.S., Inc. (“we”, “our”, the “Company”, “REGI”) has been engaged in the business of developing and building improved axial vane-type rotary devices for civilian, commercial and government applications with the marketing and intellectual rights in the U.S. Effective February 17, 2017 REGI purchased the worldwide marketing and intellectual rights, other than in the U.S., from Reg Technologies, Inc. (“Reg Tech”), a British Columbia company.

REGI formed a wholly owned subsidiary, Rad Max Technologies, Inc., on April 10, 2007 in the State of Washington.

2) SIGNFICANT ACCOUNTING POLICIES

Basis of Presentation

This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States.

Principles of consolidation

These financial statements include the accounts of the Company, its wholly owned subsidiary RadMax Technologies, Inc., and its previously wholly owned subsidiary Rand Energy Group Inc. (“Rand”).

All significant inter-company balances and transactions have been eliminated upon consolidation.

Investment in associates

Investments in which the Company has the ability to exert significant influence but does not have control are accounted for using the equity method whereby the original cost of the investment is adjusted annually for the Company’s share of earnings, losses and dividends during the current year.

The Company entered into a Mutual Accord and Purchase Agreement on March 7, 2018, to sell all its interest in Minewest Silver & Gold Inc. (“Minewest”), a British Columbia company, in exchange for settlement of its outstanding debt of $7,217 to Minewest. The Company completed the final transfer of mining rights and Claim titles to Minewest on August 13, 2018.

Risks and uncertainties

The Company operates in an emerging industry that is subject to market acceptance and technological change. The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure.

Cash and cash equivalents

For the purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less when acquired to be cash equivalents.

REGI, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

Revenue Recognition

The Company accounts for revenue in accordance with Accounting Standards Codification (ASC) Topic 606: Revenue from Contracts with Customers. Revenue is recognized using the following five-step model: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company applies this model when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Under Topic 606, a performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. The Company’s contracts with customers typically contain a single performance obligation. A contract’s transaction price is recognized as revenue when, or as, the performance obligation is satisfied.

The Company considers the contractual consideration payable by the customer when determining the transaction price of each contract. Revenue is recorded net of charges for certain sales incentives and discounts, and applicable state and local sales taxes, which represent components of the transaction price. Charges are estimated upon shipment of the product based on contractual terms, and actual charges typically do not vary materially from our estimates. Shipping estimates are determined by utilizing shipping costs provided by the various service providers websites based on number of packages, weight and destination. Shipping costs are included in the cost of goods sold as the revenue is captured in total sales.

The Company receives payments from customers based on the terms established in the Company’s contracts. When amounts are billed before a performance obligation has been satisfied, they are included in deferred revenue.

Performance obligations for product sales are satisfied as of a point in time. Revenue is recognized when control of the product transfers to the customer, generally upon product shipment. Performance obligations for site support and engineering services are satisfied over-time if the customer receives the benefits as we perform work and we have a contractual right to payment. Revenue recognized on an over-time basis is based on costs incurred to date relative to milestones and total estimated costs at completion to measure progress.

The Company product revenue includes compressors and expanders. The Company also provides direct site support and engineering services to customers, such as repair and upgrade of its products. During the year ended April 30, 2019, the Company’s revenue was $60,000 from sale of prototypes.

During the six months ended October 31, 2019, revenue was earned from contract with two customers. As of October 31, 2019, the Company had a deferred revenue balance of $22,500 from these customers related to deliverables in progress at that date.

Furniture and equipment

Property and equipment are stated at cost, which includes the acquisition price and any direct costs to bring the asset into use at its intended location, less accumulated amortization.

Depreciation of property and equipment is calculated using the straight-line method to write off the cost, net of any estimated residual value, over their estimated useful lives of the assets as follows: Office equipment 5 years and electronic equipment 3 years.

Fair value of financial instruments

The carrying values of cash and cash equivalents, amounts due to related parties and accounts payable approximate their fair values because of the short-term maturity of these financial instruments.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

Fair value measurements

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.

When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date.

Derivative instruments

The Company has financing arrangements that contain freestanding derivative instruments or hybrid instruments that contained embedded derivative features. In accordance with U.S. GAAP, derivative instruments and hybrid instruments are recognized as either assets or liabilities in the Company’s balance sheet and are measured at fair value with gains or losses recognized in earnings depending on the nature of the derivative or hybrid instruments. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recognized at fair value with changes in fair value recognized as either a gain or loss in earnings if they can be reliably measured. When the fair value of embedded derivative features cannot be reliably measured, the Company measures and reports the entire hybrid instrument at fair value with changes in fair value recognized as either a gain or loss in earnings. The Company determines the fair value of derivative instruments and hybrid instruments based on available market data using a Binomial model, giving consideration to all of the rights and obligations of each instrument and precluding the use of “blockage” discounts or premiums in determining the fair value of a large block of financial instruments. Fair value under these conditions does not necessarily represent fair value determined using valuation standards that give consideration to blockage discounts and other factors that may be considered by market participants in establishing fair value.

Interest Rate Risk

The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities.

Credit Risk

The Company’s financial asset that is exposed to credit risk consists primarily of cash. To manage the risk, cash is placed with major financial institutions.

Currency Risk

The Company’s functional currency is the US dollar and the reporting currency is the US dollar.

Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in US dollars. The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

For reporting purposes assets and liabilities with Canadian dollar as functional currency are translated into US dollar at the period end rates of exchange, and the results of the operations are translated at average rates of exchange for the period. The resulting translation adjustments are included the Company’s consolidated statements of operations and comprehensive loss and stated in US dollars.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

Income taxes

Deferred income taxes are reported for timing differences between items of income or expense reported in the consolidated financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for tax losses and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.

Basic and diluted net loss per share

Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible debt using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

Stock-based compensation

The Company accounts for stock-based compensation in accordance with FASB ASC 718 which establishes the accounting treatment for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of FASB ASC 718, measurement of the value of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. Non-employee stock-based compensation is granted at the Board of Director’s discretion to award select consultants for exceptional performance. Prior to issuance of the awards, the Company is not under any obligation to issue the stock options. The award vests over a specified period determined by the Company’s Board of Directors. The measurement date of the grant is also the date of the award. The fair value of options is expensed ratably during the specified vesting period.

The Company estimates the fair value of employee stock option awards on the date of grant using a Black-Scholes valuation model which requires management to make certain assumptions regarding: (i) the expected volatility in the market price of the Company’s common stock; (ii) dividend yield; (iii) risk-free interest rates; and (iv) the period of time employees are expected to hold the award prior to exercised (referred to as the expected holding period). The expected volatility under this valuation model is based on the current and historical implied volatilities of the Company’s common stock. The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities ranging from one month to five years. The expected holding period of the awards granted is estimated using the historical exercise behavior of employees. In addition, the Company estimates the expected impact of forfeited awards and recognize stock-based compensation cost only for those awards expected to vest. The Company utilizes historical experience to estimate projected forfeitures. If actual forfeitures are materially different from estimates, stock-based compensation expense could be significantly different from what we have recorded in the current period. The cumulative effect on current and prior periods of a change in the estimated forfeiture rate is recognized as compensation cost in the period of the revision.

The Company has adopted ASC 2018-07 for non-employee stock-based compensation.

Stock Granted to Employees and Non-Employees in Lieu of Cash Payments

The Company periodically issues shares of its common stock in lieu of cash payments to certain consultants, vendors and employees. The Company follows financial accounting standards that require the measurement of the value of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management assumptions and estimates relate to long-lived asset impairments and stock-based compensation valuation. Actual results could differ from these estimates and assumptions and could have a material effect on the Company’s reported financial position and results of operations.

Research and development costs

Research and development costs are expensed as incurred.

Related Parties

In accordance with ASC 850 “Related Party Disclosure”, a party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

Reclassifications

Certain reclassifications have been made to the prior year financial information to conform to the presentation used in the financial statements for the three and six months ended October 31, 2019.

New Accounting Pronouncements

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting. ASU No. 2018-07 aligns accounting for share-based payment transactions for acquiring goods and services from nonemployees with transaction with employees. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company has elected early adoption of ASC 2018-07 for non-employee stock-based compensation.

In February 2016, the FASB issued ASU 2016-02 Leases (Subtopic 842), which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The ASU is effective for the Company in the first quarter of fiscal year 2020. The Company currently holds no leases subject to ASU 2016-02.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.

3) GOING CONCERN

The Company incurred a net loss of $652,791 for the six months ended October 31, 2019 and has a working capital deficit of $1,533,851 and an accumulated deficit of $26,976,186 at October 31, 2019. These factors raise substantial doubt about the ability of the Company 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, the Company’s consolidated financial statements as of October 31, 2019 and for the six months ended 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, U.S., INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OCTOBER 31, 2019

The Company also receives interim support from related parties and plans to raise additional capital through debt and/or equity financings. There is no assurance that any of these activities will be successful. There continues to be insufficient funds to provide enough working capital to fund ongoing operations for the next twelve months.

4) EARNINGS PER SHARE

Basic Earnings Per Share (“EPS”) is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options and warrants.

The outstanding securities at October 31, 2019 and April 30, 2019 that could have a dilutive effect are as follows:

For the three and six months ended October 31, 2019 and 2018, respectively, the effect of the Company’s outstanding stock options would have been anti-dilutive and so are excluded in the diluted EPS.

5) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents and conversion notes approximate fair value due to their limited time to maturity or ability to immediately convert them to cash in the normal course. The carrying values of convertible notes is net of a discount and does not reflect fair value of similar instruments. The approximate fair value of the convertible notes and accrued interest based upon the number of shares into which the notes and accrued interest are convertible is $1,998,338 and $1,978,836 using the closing price per share of stock at October 31 and April 30, 2019, respectively.

The table below sets forth the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of October 31, 2019 and April 30, 2019, respectively, and the fair value calculation input hierarchy that the Company has determined has applied to each asset and liability category.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

Depreciation expense totaled $2,364 and $1,552 for the three months ended October 31, 2019 and 2018, respectively. Depreciation expense was $5,003 and $3,103 for the six months ended October 31, 2019 and 2018, respectively.

Accounts payable and accrued liabilities at October 31, 2019 consist of the following:

Related parties are the officers of the Company, companies with common directors or owners, and companies indirectly controlled by directors or officers of the Company. Amounts owed to directors or officers of the Company as of October 31, 2019 and April 30, 2019 are the result of consulting fees that are disclosed as director or executive compensation above, including amounts paid for benefit of the Company and represents out-of-pocket expenses that were not paid as of October 31, 2019 and April 30, 2019 respectively.

The Company does not have written agreements relating to related party advances, except as delineated in several on-demand promissory and convertible promissory notes, related parties (Note 9 and Note 11). The balances are non-interest bearing, unsecured and due on demand per verbal agreements with these related parties.

During the three months ended October 31, 2019, the Company recognized $Nil of management fees and salaries and $Nil of payroll tax expense for related parties. During the three months ended October 31, 2018, the Company recognized $57,719 of management fees and salaries and $9,563 of payroll tax expense for related parties.

During the six months ended October 31, 2019, the Company recognized $93,750 of management fees and salaries, $7,172 of payroll tax expense and $19,740 of directors fees for related parties. During the six months ended October 31, 2018, the Company recognized $125,057 of management fees and salaries and $20,719 of payroll tax expense for related parties.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

The amounts owed to related parties include accrued payroll and payroll taxes which, as of October 31, 2019 and April 30, 2019, were $358,348 and $287,425, respectively.

8) DUE TO RELATED PARTIES

Related parties are the officers of the Company, companies with common directors or owners, and include companies indirectly controlled by directors or officers of the Company.

During the three months ended October 31, 2019, changes to the amounts owed to/by related parties are as follows:

9) SECURED CONVERTIBLE PROMISSORY NOTES

THREE AND SIX MONTHS ENDED OCTOBER 31, 2018

As of October 31, 2018, REGI had outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $257,007 (net of unamortized discount of $34,903) issued to related parties and $1,117,770, (net of unamortized discount of $321,943) issued to non-related parties.

During the six months ended October 31, 2018 the Company issued Convertible Notes for service debt provided by related parties of $47,400.

The Convertible Notes are secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date with the exception of one Convertible Note of $140,278 (net of unamortized discount of $3,012) repayable nine months after issuance, bearing simple interest of 2% during the term of the note and simple interest rate of 15% after the due date.

As of October 31, 2018, $17,436, $40,800, $1,513,385, $60,000 and $100,000 of the Convertible Notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.174, $0.12, $0.10, $0.09 and $0.08 per share respectively.

The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting.

The Company determined that the conversion option was subject to a beneficial conversion feature and during the six months ended October 31, 2018 the company recorded amortization of the beneficial conversion feature of $113,692 as interest expense.

THREE AND SIX MONTHS ENDED OCTOBER 31, 2019

Non-related parties

On November 30, 2018, the Company issued a Convertible Note to Labrys Fund LP (the “Labrys Note”) in the amount of $220,000, of which $198,000 of the actual amount was received in cash proceeds by the company and the remaining $22,000 was recognized as an Original Issuance Discount, to be amortized over the life of the note. The Labrys Note was due on May 30, 2019 and bore simple interest of 12% per annum.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

The Labrys Note allowed the holder to convert outstanding debt to shares of the Company’s common stock at a price other than a fixed conversion price per share. The conversion price of the Labrys Note is 60% of the lowest traded price of the Company’s common stock during the twenty consecutive trading day period immediately preceding any conversion notice. Management has determined that these provisions cause the conversion options to require derivative liability accounting.

In connection with Labrys Note, the Company also issued 2,000,000 shares of common stock (the “Returnable Shares”) to the holder as a commitment fee, provided however, the Returnable Shares must be returned to the Company’s treasury if the Note is fully repaid prior to 180 days after the issuance date.

During the six months ended October 31, 2019, the Company issued to related parties, two secured promissory notes in the amounts of $150,000 and $75,000, respectively. See Note 11 for further discussion. The Company used $220,000 of the proceeds from the notes to pay the outstanding balance of the Labrys Note. On June 5, 2019, Labrys returned 2,000,000 shares of common stock as the Labrys Note was repaid prior to 180 days of issuance.

Between August 1 and August 24, 2019, the Company issued new convertible notes to five holders whose notes had matured with an aggregate principal balance of $168,849 plus accrued interest of $33,780. The notes mature two years from the date of issuance and have a conversion price of $0.10 per share.

On August 31, 2019, a holder elected to convert a non-related party note with a balance of $500 plus accrued interest of $100 into 6,000 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

On September 20, 2019, a holder elected to convert a non-related party note with a balance of $30,000 plus accrued interest of $6,000 into 300,000 common shares pursuant to the terms of the agreement at a conversion price of $0.12 per share.

On September 20, 2019, a holder elected to convert a non-related party note with a balance of $10,000 plus accrued interest of $2,000 into 100,000 common shares pursuant to the terms of the agreement at a conversion price of $0.12 per share.

On October 14, 2019, a holder elected to convert two non-related party notes with an aggregate balance of $3,350 plus accrued interest of $670 into 40,200 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

On October 31, 2019, a holder elected to convert a non-related party note with a balance of $1,775 plus accrued interest of $355 into 21,300 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

On October 31, 2019, a holder elected to convert a non-related party note with a balance of $2,250 plus accrued interest of $450 into 27,000 common shares pursuant to the terms of the agreement at a conversion price of $0.10 per share.

The Company determined that the conversion option of several convertible notes issued to non-related parties were subject to a beneficial conversion feature and during the six months ended October 31, 2019 the company recorded a total beneficial conversion feature of $80,376. The Company recorded amortization of the beneficial conversion feature of $46,340 as interest expense for the three months ended October 31, 2019 and $125,294 as interest expense for the six months ended October 31, 2019.

Related parties

On May 10, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

On May 15, 2019, the Company issued a convertible promissory note to a related party in consideration of $50,000. The convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

On May 24, 2019, the Company issued a new convertible note to a related party of $36,000 in consideration of accrued interest of $6,000 and a former convertible note whose principal balance of $30,000 matured on the same date. The new convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

On May 30, 2019, the Company issued a convertible promissory note of $75,000 to a related party in consideration of consulting services provided. The convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by conversion price of $0.07 per share.

On May 31, June 30 and July 31, 2019, respectively, the Company issued three convertible promissory notes to a related party with an aggregate principal balance of $14,400 in consideration of matured convertible promissory notes with a principal balance of $12,000 and accrued interest of $2,400. The new convertible promissory notes are secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.07 per share.

On August 1, 2019, the Company issued a convertible promissory note to a related party in consideration of cash proceeds of $50,000. The convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

On September 15, 2019, the Company issued a convertible promissory note to a related party in consideration of cash proceeds of $50,000. The convertible promissory note is secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The convertible promissory note is convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

On September 15, 2019, the Company issued a convertible promissory note to a related party with principal balances of $50,000 in consideration of accrued liabilities of $30,000 and reimbursable accounts payable of $20,000. The new convertible promissory note is secured against all assets of the Company, repayable two years after issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

On August 31, September 30 and October 31, 2019, respectively, the Company issued three convertible promissory notes to a related party with aggregate principal balances of $21,600 in consideration of matured convertible promissory notes with a principal balance of $18,000 and accrued interest of $3,600. The new convertible promissory notes are secured against all assets of the Company, repayable two years after issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due dates. The convertible promissory notes are convertible at any time after the original issuance date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a conversion price of $0.05 per share.

The Company determined that the conversion option of several convertible notes issued to related parties were subject to a beneficial conversion feature and during the six months ended October 31, 2019 the company recorded a total beneficial conversion feature of $35,558. The Company recorded amortization of the beneficial conversion feature of $14,970 as interest expense, related parties for the three months ended October 31, 2019 and $31,330 as interest expense, related parties for the six months ended October 31, 2019.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

At October 31, 2019, balances on the secured convertible promissory notes are as follows:

CONVERSION EQUIVALENTS

The aggregate principal and accrued interest balance due to convertible note holders is convertible at any time after the original issue date into a number of shares of the Company’s common stock, determined by dividing the amount to be converted by a weighted average conversion price.

As of October 31, 2019, the aggregate principal and accrued interest balance is convertible to common shares of the Company’s stock as follows:

10) DERIVATIVE LIABILITY

On April 18, 2018 and November 30, 2018, respectively, the Company issued two convertible notes (The Labrys Note and the First Fire Note) which contained provisions allowing holders of the notes to convert outstanding debt to shares of the Company’s common stock at a price other than a fixed conversion price per share (Note 9). Management has determined that these provisions cause the conversion options to require derivative liability accounting.

The First Fire Note contained provisions which, after 180 days from the date of issuance, called for the debt conversion exercise price to be the lower of $0.10 per share or seventy-five percent (75%) of the lowest traded price of the Company’s common stock during the twenty consecutive trade days immediately preceding the date of a conversion. Management valued that portion of derivative liability associated with the First Fire Note at fair value of the derivative at the earliest date in which the holder of the note would have been eligible to convert the note to shares of the Company’s stock. The Company utilized the assumptions in determining fair value of the initial derivative liability associated with the First Fire Note:

The Company recognized loss on initial recording of the conversion derivative liability of $106,117 and concurrently recorded an unamortized discount on the derivative liability of $150,000, to be amortized over the remaining life of the note. The unamortized discount on the derivative liability was charged to the “Capital” account.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

On November 19, 2018, the Company issued the Labrys Note, the proceeds of which paid the remaining outstanding balance of the First Fire Note. The Labrys Note contained provisions which called for the debt conversion exercise price to be sixty percent (60%) of the lowest traded price of the Company’s common stock during the twenty consecutive trade days immediately preceding the date of a conversion. The Company utilized the following assumptions in determining fair value of the initial derivative liability associated with the Labrys Note:

The Company recognized loss on initial recording of the conversion derivative liability associated with the Labrys Note in the amount of $351,870 and concurrently recorded an unamortized discount on the derivative liability of $195,000, to be amortized over the remaining life of the note. The unamortized discount on the derivative liability was charged to the “Capital” account.

At April 30, 2019, the fair value of conversion option derivative units was estimated at the period’s end using the Binomial option pricing model using the following assumptions:

Below is the detail of change in conversion option liability balance for the six months ended October 31, 2019 and year ended April 30, 2019, respectively:

11) OTHER NOTES PAYABLE

On September 25, 2018, the Company entered into a promissory note with a director of the Company’s board. The term of the agreement is five (5) years and has principal and interest payments of $445 per month. The agreement has a stated interest rate of 12% per annum.

On March 12, 2019, the Chief Executive Officer also loaned $10,000 to the Company, payable on demand and bearing simple interest at 12% per annum.

On April 23, 2019, a current member of the Company’s Board of Directors loaned $15,000 to the Company, payable on demand and being simple interest at 12% per annum.

REGI, U.S., INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

OCTOBER 31, 2019

On May 30, 2019, the Company issued to related parties, two secured promissory notes in the amounts of $150,000 and $75,000, respectively. The notes bear interest at ten percent (10%) per annum and are due and payable on May 30, 2021. The notes are secured by a General Security Agreement dated May 30, 2019. The Company used $220,000 of the proceeds from the notes to pay the balance of the Labrys note (Note 9).

On September 19, 2019, the Company executed an Equipment Finance Agreement with U.S. Bank Equipment Finance in the amount of $88,140 for purchase of a milling center. The note which bears interest at 4.47% per annum is secured by the equipment and is payable in sixty (60) monthly installments of $1,642 commencing on November 25, 2019.

At October 31, 2019, balances on the other notes payable are as follows: