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Insights from Recent Presentation & Funding Update
A lot of inquiries have been received since our recent video presentation on various topics. I feel communication and clarity would best be accomplished by responding to all shareholders regarding these questions.
I understand the frustration felt by shareholders over the current market conditions which has brought about mixed messaging in the marketplace. This has been exasperated by our recently announced funding requirement brought about by our present operating cash deficiency in allowing us to strive for a positive cash flow position in our operations. I need to reiterate that by reaching 2500 lbs of thru put in one 8-hour shift we will be achieving our initial objective of 5000 lbs for Module 1 with the addition of a second 8-hour shift. This will be a duplication of what we have already done in the current 8-hour shift as no further scale up of our process is required beyond the logistics of material handling, etc. To accomplish this, we need operating capital for additional personnel, feedstock and chemicals to give us the staying power to manage the 90-120 day payment schedule from refiners for our product.
When I mentioned that the Company is not considering a consolidation of shares at this time it was in reference to a roll back of shares. Many companies wish to reduce the number of outstanding shares this way. For example, if a company had 100 million outstanding shares and the share price was $0.10 a 5 to 1 share roll back would reduce the outstanding shares to 20 million. If a shareholder owned 1 million shares pre roll back the net value of the position would be $100,000. The rationale behind the roll back is the share price should now remain at $0.50 thus leaving a shareholders equity position the same at $100,000 (200,000 shares @ $0.50). This usually does not happen as the share price usually drifts down unless there is a strategic business rationale for doing so.
In our recently announced Rights Offering the 2 for 1 consolidation results in the same number of outstanding shares as before the Rights Offering. If the offering is fully subscribed the outstanding shares will temporarily double because of the CDN $0.0075 right exercise to 790 million shares but return to approximately 395 million shares with the 2 for 1 consolidation after the close of the Offering.
The basic premise behind a Rights Offering is that existing shareholders participate in the funding with no additional share dilution to the Company. Unfortunately shareholders not fully participating in the Rights Offering will be diluted 50% of their unexercised shares. Shareholders that do participate in the Rights Offering have the option if they choose to request additional rights at CDN ¾ of one cent ($0.0075) from the remaining pool of unexercised rights that will be available from the shareholders that have not participated.
I mentioned that our operating capital shortfall could only be resolved in three ways. Our first option is an equity raise (such as a private placement but this cannot be done at a price below $0.05 due to regulatory restrictions). The second option is a predatory loan debt instrument that would not be in the best interests of shareholders. The final option is a Rights Offering. All funding avenues were considered and evaluated, and a Rights Offering is the only viable option to us at this time. A price of ¾ of one cent was determined to be sufficient to give the Company the operating capital required (approximately $3M) to scale up to 5000 lbs per day and allow us the window to overcome the 90-120 day receivable timeline.
As already mentioned, currently we are hampered in our ability to operate at increased capacities by our lack of an adequate working capital facility. This working capital deficiency doesn’t allow us to purchase the quantity of feedstock required to operate Module One at the capacity it is capable of. The proceeds of the Rights Offering provides this working capital for us to meet our production objectives.
We have been asked about our relationships with refiners. As with any potential commercial business transaction, especially with new technologies and its related implications, due diligence is undertaken by both parties. As such, we have NDA’s in place with more than one large refiner and are presently working closely with them as well as with other commercial interests. Nothing further can be communicated at this time until disclosures are agreed to by both parties and in a format acceptable to each, especially in the revelation of competitive issues to the industry.
There has been several inquires as to the use of proceeds from our funding initiatives. Since the 2022 Rights Offering, we have also raised $4.8M in additional funding through convertible debentures. $1.9M of the 2022 Rights offering was used for required debt repayments that saved the company interest expenses
Our spending for the development of the catalytic converter business has used almost $3.7M of these funds on the pilot plant and Module 1. As discussed previously, Module 1 has incurred 4 major issues and the direct costs associated with these issues are as follows. The heating system upgrade cost $400K, the bulk loader with modifications cost $120K, the reactor manufacturing failure cost $75K and the pump limitations cost us $40K. These direct costs were unanticipated and do not include the indirect costs associated with down time and the delays in fixing these issues due to the sourcing and scheduling of the necessary independent tradespeople needed to repair/fabricate the various mechanical, electrical, and plumbing items. We would obviously have preferred to not have incurred these issues, but this is not unusual in the process of building a system that is the first of its kind. There are simply no prior design parameters to fall back on or professional engineering consultants to rely on when approaching a project such as ours.
SG&A costs, including the Vancouver research facility, are approximately $2.6M since the 2022 Rights Offering. In addition, we have also contributed almost $1M to fund Iron Bull and the Cehegin Iron Ore Project during this time.
I stress that this new Rights Offering is the final hurdle that Regenx requires to meet the operational needs to reach 5000lbs/day of throughput, and to overcome the refineries unfavourable payment terms, allowing us the time to move into a positive cash position. In addition, its important to note that as we begin to show a history of revenue generation typical operating lines with traditional funding institutions will become available to us for growth and expansion needs.
I have had many calls where shareholders have expressed their frustration with the timeline roll out and unexpected expenses that have occurred during our plant mobilization but have enthusiastically expressed their support for the company and what has been accomplished to date. I want to express my appreciation to all our shareholders for the unwavering support shown throughout this whole process. We are very close to realizing the merits of our technology journey and look forward to the recognition and value that will be forthcoming as a result.
Greg Pendura
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