Notes to Consolidated Financial Statements

(Unaudited)

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. No revenue has been derived to date from REGI’s principal operations of research and development.

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

Effective February 17, 2017 REGI purchased all of Reg Tech’s assets including all rights to the technology with the issuance of 51,757,119 shares of REGI’s common stock.

Asset Purchase Agreement

On September 16, 2016, REGI entered into an asset purchase agreement (the “APA”) with Reg Tech, a public company whose common stock was listed on TSX Venture Exchange to purchase all of the assets of Reg Tech, a company with a common director and CEO with REGI with the issuance of 46,173,916 unregistered common shares of our Company. The APA was amended on February 14, 2017 to increase the consideration shares to an aggregate of 51,757,119 unregistered common shares of our Company and to amend the list of the assets purchased. The shares are issued as of the date of this report. The transaction was closed on February 17, 2017 upon TSX Venture Exchange approval.

The transaction is accounted for as a reverse merger recapitalization wherein Reg Tech is considered to be the accounting acquirer. The prior year results of operations and cash flows are those of Reg Tech for all periods presented.

Upon closing of the asset purchase agreement, all assets of Reg Tech except GST receivable were transferred from Reg Tech to REGI. In addition, upon closing of the APA, all assets, liabilities, and equity instruments of REGI were incorporated into the surviving company. The net adjustment to additional paid in capital for the asset purchase was a decrease of $1,243,757. The net cash received from the reverse merger was $10,753.

The following table summarizes the assets and liabilities of REGI U.S. on February 17, 2017:

The following table summarizes the assets and liabilities of Reg Tech on February 17, 2017 that were not assumed in the transaction:

Principles of consolidation

The accompanying unaudited interim consolidated financial statements of REGI have been prepared in accordance with accounting principles generally accepted in the United States of America, and should be read in conjunction with the audited financial statements and notes thereto for the year ended April 30, 2017 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 2017 as reported in the Form 10-K, have been omitted.

These financial statements include the accounts of the Company, its wholly owned subsidiary RadMax Technologies, Inc., and its 51% owned subsidiary Rand Energy Group Inc. (“Rand”), which ownership was purchased from Reg Tech effective February 17, 2017.

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.

As part of the APA the Company purchased from Reg Tech and owns 26.1% of equity interest in Minewest Silver and Gold Inc. (“Minewest”), a British Columbia company. Minewest owns a 70% interest subject to a 10% Net Profits Interest in mining property in British Columbia. As at the date of the asset purchase and the date of this report, Minewest is inactive due to lack of funding. As a result, the assets were impaired and no transactions are recorded for Minewest during the year ended April 30, 2017 or the six months ended October 31, 2017.

Property 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 2 years. Depreciation of office equipment is included in general and administrative expenses; depreciation of research equipment is included in research and development expense. During the six months ended October 31, 2017 depreciation of $2,670 was recorded on the research equipment and $80 was recorded on office furniture.

Recent accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

The Company incurred net losses of $939,021 for the six months ended October 31, 2017 and has a working capital deficit of $276,996 and an accumulated deficit of $21,997,191 at October 31, 2017. 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, 2017 and for the six months ended October 31, 2017 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.

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.

As of October 31, 2017, REGI has outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $924,546 (net of unamortized discount of $36,640) issued to related parties and $861,288 (net of unamortized discount of $642,801) issued to non-related parties. As of April 30, 2017, REGI has outstanding Convertible Notes of $877,449 (net of unamortized discount of $9,888) issued to related parties and $636,539 (net of unamortized discount of $12,944) issued to non-related parties.

During the six months ended October 31, 2017, the Company issued Convertible Notes for cash proceeds of $770,849, settled accounts payable from previous years of $17,436, service debt provided by related parties of $52,000, and service debt provided by non-related parties of $81,721 of which $62,600 was finders’ fee for cash based Convertible Notes recorded as discount to these Convertible Notes. $7,384 of the $62,600 debt discount was amortized and recorded as financing charge during the six months ended October 31, 2017. 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. During the six months ended October 31, 2017 $14,152 of the Convertible Notes were redeemed with cash payment. During the six months ended October 31, 2017 $60,000 of the Convertible Notes were reclassified from non-related party to related party as a debt holder became a director of the Company.

As of October 31, 2017, $755,185, $17,436, $50,000, $1,462,654, $60,000 and $120,000 of the promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.755, $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, 2017 the Company recorded a total beneficial conversion feature of $691,197, and amortization of the beneficial conversion feature of $89,805 as interest expense.

Amounts due to related parties are unsecured, non-interest bearing and due on demand. Related parties consist of the directors and officers and a former director of REGI and companies controlled or significantly influenced by these parties. As of October 31, 2017, there was $80,443 due to related parties. As of April 30, 2017, there was $77,560 due to related parties.

On January 6, 2017, the Company’s annual and special meeting of stockholders approved the amendment to the Company’s articles that increased the authorized common shares from 100,000,000 to 150,000,000.

During the six months ended October 31, 2017 related party convertible promissory notes of $38,152 and accrued interest of $2,180 were converted into a total of 403,323 shares of REGI’s common stock at $0.10 per share.

During the six months ended October 31, 2017 non-related party convertible promissory notes of $3,848 and accrued interest of $623 were converted into a total of 55,892 shares of REGI’s common stock at $0.08 per share.

During the six months ended October 31, 2017 the Company issued 155,000 shares of its common stock for options exercised at $0.10 per share for a total proceed of $15,500. Among the 155,000 shares of common stock, 55,000 shares were issued to a related party.

During the six months ended October 31, 2017 the Company issued 350,000 shares of its common stock for services provided by the directors, officers and consultants of the Company with the total value recorded at $59,500 based on the market trading price of the issuance date.

Treasury Shares

At October 31, 2017 and April 30, 2017, Rand Energy owned 827,731 shares of the Company’s common stock which were deducted from the total shares outstanding. These shares were distributed to shareholders in November, 2017.

On August 12, 2016, REGI granted an aggregate of 3,700,000 common stock options for services. These options vest upon grant, expire on July 20, 2021 and are exercisable at the following prices:

On January 1, 2017, REGI granted an aggregate of 3,500,000 common stock options for services. These options vest upon grant, expire on January 1, 2022 and are exercisable at the following prices:

A summary of REGI’s stock option activities for the six months ended October 31, 2017 and the year ended April 30, 2017 are as follows:

The weighted average remaining contractual life of the options was 3.52 and 3.61 years at October 31, 2017 and April 30, 2017 respectively.

At October 31, 2017 and April 30, 2017, the Company had $Nil and $28,740 of total unrecognized compensation cost related to non-vested stock options and warrants, respectively. The intrinsic value of “in the money” exercisable options at October 31, 2017 and April 30, 2017 was $170,000 and $145,580, respectively.

Pursuant to a letter of understanding dated December 13, 1993 between REGI, Rand and Reg (collectively called the grantors) and West Virginia University Research Corporation (“WVURC”), the grantors have agreed that WVURC shall own 5% of all patented technology with regards to RC/DC Engine technology and will receive 5% of all net profits from sales, licenses, royalties or income derived from the patented technology. To date, no sales have been accrued and no royalties have been accrued or paid.

Pursuant to an agreement dated August 20, 1992, REGI acquired the U.S. rights to the original RC/DC Engine from Rand. REGI will pay Rand and the original owner a net profit royalty of 5% and 1%, respectively. To date no sales have been accrued and no royalties have been accrued or paid.

Subsequent to October 31, 2017, convertible loans of $27,147 were issued. 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. The promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.10 per share.

Subsequent to October 31, 2017, 729,904 and 88,059 shares of the Company’s common stock were issued for convertible promissory notes at $0.10 and $0.12 per share, respectively.

On November 2, 2017 the Company issued 3,172,269 shares of its common stock to Rand Energy. These shares together with the 827,721 shares of common stock initially owned by Rand Energy and recorded as the Company’s treasury shares, were transferred to the 49% shareholders of Rand Energy, as consideration for purchase of all of their 49% interest in Rand Energy, resulting in the Company owing 100% equity interest of Rand Energy.