NOTE 2 – MANAGEMENT PLANS
The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced
negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Since inception, the Company has focused on developing
and implementing its business plan. The Company believes that its existing cash resources will not be sufficient to sustain
operations during the next twelve months. The Company currently needs to generate revenue in order to sustain its operations. In
the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain
financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to
existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be
obtained on terms acceptable to the Company, the Company would be unable to execute upon the business plan or pay costs and expenses as
they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations.
The Company’s current monetization model
is to derive revenues from levels of subscription revenue paid monthly, service fees, transaction fees and in some cases revenue sharing
with banking and distribution partners. As these bases of revenues grow, the Company expects to generate additional revenue to support
operations.
The Covid-19 pandemic caused a significant economic slowdown that
adversely affected the demand for services. While the Company expects this matter to negatively impact its results of operations,
cash flow and financial position, the related financial impact cannot be reasonably estimated at this time.
As of May 17, 2021,
the Company has a cash position of approximately $3,570,000. Based upon the current cash position and the Company’s planned
expense run rate, management believes the Company has funds currently to finance its operations through January 2022.
NOTE 3 – IMPAIRMENT OF LONG-LIVED ASSETS
On January 1, 2021, REGO entered into a
Purchase of Business Agreement (“Agreement”) with Chore Check, LLC pursuant to which it purchased the assets of Chore
Check, LLC, consisting primarily of a software application, valued at $111,817, fair value. The consideration for the acquisition
consisted of the issuance of an option to purchase 100,000 shares of the Company’s common stock, with an exercise price of
$0.90, vesting immediately and with a term of three years.
Long-lived assets are
tested for impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value is
less than the carrying value. Long-lived assets are considered impaired if the carrying value exceeds its fair value. We determined
that the carrying value of the asset acquired from Chore Check, LLC exceeded its fair value and have recorded an impairment loss
in the amount of $111,817 as of March 31, 2021, which is included in general and administrative expenses.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES
As of March 31, 2021 and December 31, 2020,
the Company owed the Chief Executive Officer, who is also a more than 5% beneficial owner, a total of $167,227 and $184,507,
consisting of $127,692 and $78,462 in unpaid salary and consulting fees to a company owned by the Chief Executive Officer of $39,535 and $106,045.
Additionally as of March 31, 2021 and December
31, 2020, the Company owed the son of a more than 5% beneficial owner, Chief Executive Officer, President and Board member, $31,549 and
$21,549, pursuant to a consulting agreement.
As of March 31, 2021 and December 31, 2020, the
Company owed the Chief Financial Officer $30,603 and $83,648 in unpaid salary.
NOTE 5 – PAYCHECK PROTECTION PROGRAM LOAN PAYABLE
During April 2020, the Company
received $2,000 from the Emergency Injury Disaster Loan program and $79,500 from the Paycheck Protection Program. The Company has spent
all of the proceeds under these programs for payroll related expenses.
In accordance
with FASB ASC 470, Debt, the Company has recorded the loans as a current liability in the amount of $81,500. The Company will
record derecognition of the liability in accordance with FASB ASC 405-20, Liabilities-Extinguishment of Liabilities, when
either (1) the loan is, in part or wholly, forgiven and the Company has been legally released or (2) the Company pays off the loan.
On January 28, 2021, the Company received notification from the
lender that its Paycheck Protection Program loan had been forgiven in full by the Small Business Administration in the amount of
$79,500, and that no further payments were required. Therefore the Paycheck Protection Program loan was recognized as forgiveness of
debt.
Additionally, the Economic Injury Disaster Loan of $2,000 ($1,000 per
employee) does not require repayment and was also recognized as forgiveness of debt.
NOTE 6 – LOANS PAYABLE
Loans payable as of March 31, 2021 and December
31, 2020 were $42,600. Interest accrued on the loans at 0% and 10% was $3,040 and $2,790 as of March 31, 2021 and December 31, 2020. Interest
expense related to these loans payable was $251 and $1,450 for the three months ended March 31, 2021 and 2020.
NOTE 7 – 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On March 6, 2015, the Company, pursuant to a Securities
Purchase Agreement (the “Purchase Agreement”), issued $2,000,000 aggregate principal amount of its 10% Secured Convertible
Promissory Notes due March 5, 2016 (the “Notes”) to certain stockholders. On May 11, 2015, the Company issued an
additional $940,000 of Notes to stockholders. The maturity dates of the Notes have been extended most recently from September
6, 2019 to October 31, 2021, with the consent of the Note holders.
The Notes are convertible by the holders, at any
time, into shares of the Company’s Series B Preferred Stock at a conversion price of $90.00 per share, subject to adjustment for
stock splits, stock dividends and similar transactions with respect to the Series B Preferred Stock only. Each share of Series
B Preferred Stock is currently convertible into 100 shares of the Company’s common stock at a current conversion price of $0.90
per share, subject to anti-dilution adjustment as described in the Certificate of Designation of the Series B Preferred Stock. In
addition, pursuant to the terms of a Security Agreement entered into on May 11, 2015 by and among the Company, the Note holders and a
collateral agent acting on behalf of the Note holders (the “Security Agreement”), the Notes are secured by a lien against
substantially all of the Company’s business assets. Pursuant to the Purchase Agreement, the Company also granted piggyback
registration rights to the holders of the Series B Preferred Stock upon a conversion of the Notes.
The Notes are recorded as a current liability
as of March 31, 2021 and December 31, 2020 in the amount of $3,116,357. Interest accrued on the Notes was $1,933,277 and $1,855,368
as of March 31, 2021 and December 31, 2020. Interest expense related to these
Notes payable was $77,909 and $70,329 for the three months ended March 31, 2021 and March 30, 2020.
NOTE 8 – NOTES PAYABLE – STOCKHOLDERS
During
the three months ended March 31, 2021 and 2020, the Company issued $100,000 and $0 aggregate principal amount of its notes payable -
stockholders with no formal repayment terms and 10% interest. This loan also included an option to purchase 100,000 shares of the
Company’s common stock. The option was valued at $74,518 fair value, using the Black-Scholes option pricing model to calculate
the grant-date fair value of the option, with the following assumptions: no dividend yield, expected volatility of 124.3%,
risk free interest rate of 0.11% and expected life of 2 years. The relative fair value of the option of $42,699 was
recorded as a discount to the loan payable in accordance with
FASB ASC 835-30-25, Recognition, and was accreted over the term of the note payable for financial statement
purposes. The loan payable was repaid in full, plus interest, on March 2, 2021 and the full amount of the discount was accreted to
interest expense.
These notes payable are recorded as a current
liability as of March 31, 2021 and December 31, 2020 in the amount of $1,095,000. Interest accrued on the notes, as of March
31, 2021 and December 31, 2020 was $196,030 and $115,917. Interest expense including accretion of discount was $155,205 and
$61,522 for the three months ended March 31, 2021 and 2020.
NOTE 9 – 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On August 26, 2016, the Company, pursuant to a
Securities Purchase Agreement, issued $600,000 aggregate principal amount of its 4.0% Secured Convertible Promissory Notes due June 30,
2019 (the “New Secured Notes”) to certain accredited investors (“investors”). The Company issued additional
New Secured Notes during 2016, 2017, 2018, 2019 and 2020.
The New Secured Notes are convertible by the holders,
at any time, into shares of the Company’s authorized Series C Cumulative Convertible Preferred Stock (“Series C Preferred
Stock”) at a conversion price of $90.00 per share, subject to adjustment for stock splits, stock dividends and similar transactions
with respect to the Series C Preferred Stock only. Each share of Series C Preferred Stock is currently convertible into 100 shares
of the Company’s common stock at a current conversion price of $0.90 per share, subject to full ratchet anti-dilution adjustment
for one year and weighted average anti-dilution adjustment thereafter, as described in the Certificate of Designation of the Series C
Preferred Stock. Upon a liquidation event, the Company shall first pay to the holders of the Series C Preferred Stock,
on a pari passu basis with the holders of the Company’s outstanding Series A Preferred Stock and Series B Preferred Stock, an amount
per share equal to 700% of the conversion price (i.e., $630.00 per share of Series C Preferred Stock), plus all accrued and unpaid dividends
on each share of Series C Preferred Stock (the “Series C Preference Amount”). The Series C Preference Amount shall be
paid prior and in preference to payment of any amounts to the Common Stock. After the payment of all preferential amounts required
to be paid to the holders of shares of Series C Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and any additional
senior preferred stock, the Series C Preferred Stock participates in further distributions subject to an aggregate cap of seven and one-half
times (7.5x) the original issue price thereof, plus all accrued and unpaid dividends.
The maturity dates of the New Secured Notes were
extended by the investors to October 31, 2021.
During the three months ended March 31, 2021,
the Company issued $2,425,000 aggregate principal amount of its New Secured Notes to certain investors.
The New Secured Notes are recorded as a current
liability in the amount of $11,919,250 as of March 31, 2021 and $9,494,250 as of December 31, 2020. Interest accrued on the
New Secured Notes was $1,119,679 and $1,019,180 as of March 31, 2021 and December 31, 2020. Interest expense related to these
notes payable was $100,499 and $74,323 for the three months ended March 31, 2021 and 2020.
NOTE 10 – INCOME TAXES
Income tax expense was $0 for the three months
ended March 31, 2021 and 2020.
As of January 1, 2021, the Company had no
unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2021 related to unrecognized tax
benefits. There has been no change in unrecognized tax benefits during the three months ended March 31, 2021, and there was no accrual
for uncertain tax positions as of March 31, 2021. Tax years from 2017 through 2020 remain subject to examination by major tax jurisdictions.
There is no income tax benefit for the losses for the three months
ended March 31, 2021 and 2020, since management has determined that the realization of the net tax deferred asset is not assured and has
created a valuation allowance for the entire amount of such benefits.
NOTE 11 – CONVERTIBLE PREFERRED STOCK
Rego Payment Architectures, Inc. Series A Preferred Stock
The Series A Preferred Stock has a preference
in liquidation equal to two times its original issue price, or $20,470,000, to be paid out of assets available for distribution prior
to holders of common stock and thereafter participates with the holders of common stock in any remaining proceeds subject to an aggregate
cap of 2.5 times its original issue price. The Series A Preferred Stockholders may cast the number of votes equal to the number of whole
shares of common stock into which the shares of Series A Preferred Stock can be converted. The Series A Preferred Stock also
contains customary approval rights with respect to certain matters. The Series A Preferred Stock accrues dividends at the rate
of 8% per annum or $8.00 per Series A Preferred Share.
The conversion price of Series A Preferred Stock
is currently $0.90 per share. The Series A Preferred Stock is subject to mandatory conversion if certain registration or related requirements
are satisfied and the average closing price of the Rego’s common stock exceeds 2.5 times the conversion price over a period of twenty
consecutive trading days.
On January 1, 2021, upon adoption of FASB ASU
No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts
in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,
the Company reclassified the embedded derivative value of the beneficial conversion feature of the Series A Preferred Stock issued in
January 2014 valued at $3,481,050 as of December 31, 2020, to retained earnings. The Company also reclassified the embedded derivative
value of the beneficial conversion feature of the Series A Preferred Stock issued in April 2014 valued at $5,349,800 as of December 31,
2020, to accumulated deficit.
During the three months ended March 31,
2021, certain shareholders of the Series A Preferred Stock converted 5,500 shares of the Series A Preferred Stock into 611,111
shares of the Company’s common stock.
Rego Payment Architectures, Inc. Series B Preferred Stock
The Series B Preferred Stock is pari passu with
the Series A Preferred Stock and has a preference in liquidation equal to two times its original issue price, or $5,108,040, to be paid
out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common stock
in any remaining proceeds subject to an aggregate cap of 2.5 times its original issue price. The Series B Preferred Stockholders may cast
the number of votes equal to the number of whole shares of common stock into which the shares of Series B Preferred Stock can be converted. The
Series B Preferred Stock also contains customary approval rights with respect to certain matters. The Series B Preferred Stock
accrues dividends at the rate of 8% per annum.
The conversion price of the Series B Preferred
Stock is currently $0.90 per share. The Series B Preferred Stock is subject to mandatory conversion if certain registration or related
requirements are satisfied and the average closing price of the Company’s common stock exceeds 2.5 times the conversion price over
a period of twenty consecutive trading days.
On January 1, 2021, upon adoption of FASB
ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –
Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity, the Company reclassified the embedded derivative liability relative to the beneficial conversion feature of the
Series B Preferred Stock issued in October 2014 valued at $2,156,728 as of December 31, 2020, to accumulated deficit.
Rego Payment Architectures, Inc. Series C Preferred Stock
In August 2016, Rego authorized 150,000 shares
of Rego’s Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”). As of March 31, 2021,
none of the Series C Preferred Stock was issued or outstanding. After the date of issuance of Series C Preferred Stock, dividends
at the rate of $7.20 per share will begin accruing and will be cumulative. The Series C Preferred Stock is pari passu with the Series
A Preferred Stock and Series B Preferred Stock and has a preference in liquidation equal to seven times its original issue price to be
paid out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common
stock in any remaining proceeds subject to an aggregate cap of 7.5 times its original issue price. The Series C Preferred Stockholders
may cast the number of votes equal to the number of whole shares of common stock into which the shares of Series C Preferred Stock can
be converted. The Series C Preferred Stock also contains customary approval rights with respect to certain matters. There
are no outstanding Series C Preferred Shares, therefore the current per annum dividend per share is $0.
As of March 31, 2020, the value of the cumulative
8% dividends for all Rego preferred stock was $7,414,024 Such dividends will be paid when and if declared payable by Rego’s
board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC 260-10-45-11, the Company
has recorded these accrued dividends as a current liability.
ZS Series A Preferred Stock
In November 2018, ZS pursuant to a Securities
Purchase Agreement (the “ZS Series A Purchase Agreement”), issued in a private placement to an accredited investor, 83,334
units at an original issue price of $3 per unit (the “ZS Original Series A Issue Price”), which includes one share of ZS’
Series A Cumulative Convertible Preferred Stock (the “ZS Series A Preferred Stock”) and one warrant to purchase one share
of ZS’ common stock with an exercise price of $3.00 per share expiring in three years (the “Series A Warrants”). ZS
raised $250,000 with respect to this transaction. Dividends on the ZS Series A Preferred Stock accrue at a rate of 8% per annum and are
cumulative. The ZS Series A Preferred Stock has a preference in liquidation equal to two times the ZS Original Series A Issue
Price to be paid out of assets available for distribution prior to holders of ZS common stock and thereafter participates with the holders
of ZS common stock in any remaining proceeds subject to an aggregate cap of 2.5 times the ZS Original Series A Issue Price. The ZS Series
A Preferred Stockholders may cast the number of votes equal to the number of whole shares of ZS common stock into which the shares of
ZS Series A Preferred Stock can be converted.
As of March 31, 2021, the value of the cumulative
8% dividends for ZS preferred stock was $48,333. Such dividends will be paid when and if declared payable by the ZS’
board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC 260-10-45-11, the Company
has recorded these accrued dividends as a current liability.
NOTE 12 – STOCKHOLDERS’ EQUITY
The Company entered into a financial
advisory agreement in November 2018 whereby generally the Company will pay the financial advisor a success fee equal to 6% of the capital
committed in a capital transaction involving the sale of the Company.
Issuance of Restricted Shares
A restricted stock award (“RSA”) is
an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of
option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot
transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock,
are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s
restricted stock awards generally vest over a period of one year. The Company expenses the cost of the restricted stock awards, which
is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions
lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s
common stock on the grant date.
During the three months ended March 31, 2021,
the Company issued 150,000 shares of the Company’s common stock with a value of $0.90 at the time of issuance, with a fair value
of $135,000, to a vendor in settlement of $135,000 of accounts payable.
During the three months ended March 31, 2021,
the Company issued a Board Member and the Chief Financial Officer 400,000 shares of the Company’s common stock each, with an aggregate
fair value of $920,000 upon the launch of the Mazoola app. The Chief Exectuive Officer, who is also a Board Member, received 500,000 shares
of the Company’s common stock, with an aggregate fair value of $575,000.
During the three months ended March 31, 2021,
the Company issued the Chief Executive Officer, who is also a Board Member, 500,000 shares of the Company’s common stock each, with
an aggregate fair value of $435,000 upon raising $2,000,000.
During the three months ended March 31, 2021,
an employee exercised an option to purchase 80,000 shares of the Company’s common stock at $0.25 per share or $20,000.
NOTE 13 – STOCK OPTIONS AND WARRANTS
During 2008, the Board of Directors (“Board”)
of the Company adopted the 2008 Equity Incentive Plan (“2008 Plan”) that was approved by the stockholders. Under the
2008 Plan, the Company was authorized to grant options to purchase up to 25,000,000 shares of common stock to any officer, other
employee or director of, or any consultant or other independent contractor who provides services to the Company. The 2008 Plan was
intended to permit stock options granted to employees under the 2008 Plan to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2008 Plan,
which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”). As
of March 31, 2021, options to purchase 1,825,000 shares of common stock have been issued and are unexercised, and 0 shares are available
for grants under the 2008 Plan. The 2008 Plan expired on March 3, 2019.
During 2013, the Board adopted the 2013 Equity
Incentive Plan (“2013 Plan”), which was approved by stockholders at the 2013 annual meeting of stockholders. Under
the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based
awards of up to an aggregate of 5,000,000 shares of common stock to any officer, employee, director or consultant. The 2013
Plan is intended to permit stock options granted to employees under the 2013 Plan to qualify as Incentive Stock Options. All
options granted under the 2013 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be Non-Statutory Stock
Options. As of March 31, 2021, under the 2013 Plan grants of restricted stock and options to purchase 4,887,500 shares of common
stock have been issued and are unexercised, and 32,500 shares of common stock remain available for grants under the 2013
Plan.
The 2013 Plan is administered by the Board or
its compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific
terms of each grant, including the vesting thereof, subject to the terms of the 2013 Plan. In connection with Incentive Stock Options,
the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or
110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).
Prior to January 1, 2014, volatility in all instances
presented is the Company’s estimate of volatility that is based on the volatility of other public companies that are in closely
related industries to the Company. Beginning January 1, 2014, volatility in all instances presented is the Company’s
estimate of volatility that is based on the historical volatility of the Company’s common stock.
The following table presents the weighted-average
assumptions used to estimate the fair values of the stock options granted by REGO during the three months ended March 31, 2021:
|
Risk Free Interest Rate
|
|
|
0.3
|
%
|
|
Expected Volatility
|
|
|
149.1
|
%
|
|
Expected Life (in years)
|
|
|
3.8
|
|
|
Dividend Yield
|
|
|
0
|
%
|
|
Weighted average estimated fair value of options
during the period
|
|
$
|
0.79
|
|
During
the three months ended March 31, 2021, the Company issued options to purchase 1,837,500 shares of the Company’s common stock
to various consultants and employees. The options were valued at
$1,417,624 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the
options. The fair value of options was expensed immediately. The Company also issued an
option to purchase 100,000 shares of the Company’s common stock to Chore Check, LLC with a fair value of $111,817. The
$111,817 was capitalized as fixed assets and subsequently deemed to be impaired in full and expensed (Note 3).
The following table summarizes the activities for REGO’s stock
options for the three months ended March 31, 2021:
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance, December 31, 2020
|
|
|
10,012,500
|
|
|
$
|
0.50
|
|
|
|
2.5
|
|
|
$
|
8,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,937,500
|
|
|
|
0.74
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(80,000
|
)
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(75,000
|
)
|
|
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
11,795,000
|
|
|
$
|
0.57
|
|
|
|
2.5
|
|
|
$
|
3,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
11,795,000
|
|
|
$
|
0.57
|
|
|
|
2.5
|
|
|
$
|
3,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
11,795,000
|
|
|
$
|
0.57
|
|
|
|
2.5
|
|
|
$
|
3,499
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the closing stock price of $0.83 for REGO’s common stock on March 31, 2021.
|
For the three months ended March 31, 2021 and
2020, Rego expensed $1,417,624 and $25,663 with respect to options.
As of March 31, 2021, there was $0 of unrecognized
compensation cost related to outstanding stock options. The difference, if any, between the stock options exercisable at March 31,
2021 and the stock options exercisable and expected to vest relates to management’s estimate of options expected to vest in the
future.
The following table summarizes the activities
for REGO’s warrants for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance, December 31, 2020
|
|
|
3,375,000
|
|
|
$
|
0.90
|
|
|
|
1.1
|
|
|
$
|
1,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(175,000
|
)
|
|
|
0.90
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
3,200,000
|
|
|
$
|
0.90
|
|
|
|
1.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
3,200,000
|
|
|
$
|
0.90
|
|
|
|
1.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
3,200,000
|
|
|
$
|
0.90
|
|
|
|
1.0
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $0.83 for Rego’s common stock on March 31, 2021.
|
All warrants were vested on the date of grant.
The following table summarizes the activities
for ZS’s stock options for the three months ended March 31, 2021:
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance, December 31, 2020
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
3.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the value of $4.00 for ZS’s common stock on March 31, 2021.
|
For the three months ended March 31, 2021 and 2020, ZS expensed $0
with respect to options.
The following table summarizes the activities
for ZS’s warrants for the three months ended March 31, 2021:
|
|
|
Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance, December 31, 2020
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
0.9
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
0.6
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
0.6
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
0.6
|
|
|
$
|
83
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the value of $4.00 for ZS’s common stock on March 31, 2021.
|
For the three months ended March 31, 2021 and
2020, ZS expensed $0 with respect to warrants.
The following table summarizes the activities
for ZCS’s stock options for the three months ended March 31, 2021:
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2020
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
3.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2021 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
1,600,000
|
|
|
$
|
5.00
|
|
|
|
2.7
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the value of $0.01 for ZCS’s common stock on March 31, 2021.
|
For the three months ended March 31, 2021 and
2020, ZCS expensed $0 with respect to options.
NOTE 14 – NONCONTROLLING INTERESTS
Losses incurred by the noncontrolling interests
for the three months ended March 31, 2021 and 2020 were $101 and $257.
NOTE 15 – OPERATING LEASES
For the three months ended March 31, 2021 and
2020, total rent expense under leases amounted to $761 and $10,347. The Company has elected not to recognize right-of-use assets
and lease liabilities arising from short-term leases. The Company has no long-term lease obligations as of March 31, 2021.
NOTE 16 – SUBSEQUENT
EVENTS
On April 29, 2021, the Company issued a consultant, an option to purchase
20,000 shares of the Company’s common stock with an exercise price of $0.90 and a term of 2 years with a fair value of $10,432 for
marketing services.
On May 7, 2021, the Company issued a new member of the Board of Advisors
an option to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.035 and a term of 2 years with a fair
value of $63,325.
Also on May 7, 2021 the Board of Directors approved the issuance of
600,000 shares of the Company’s common stock to the Chief Executive Officer, for raising an additional $2 million.
From April 1, 2021 through May 17, 2021, the Company received $2,345,000
through the issuance of our 4% secured convertible notes payable-stockholders.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Rego Payment Architectures,
Inc. (the “Company,” “we”, or “us”) was incorporated in Delaware on February 11, 2008 under the name
Chimera International Group, Inc. On April 4, 2008, we amended our certificate of incorporation and changed our name to Moggle,
Inc. On August 22, 2011, we filed a Certificate of Ownership with the Secretary of State of Delaware, pursuant to which
the Company’s newly-formed wholly-owned subsidiary, Virtual Piggy Incorporated was merged into and with the Company (the “Merger”).
In connection with the Merger and in accordance with Section 253 of the Delaware General Corporation Law, the name of the Company was
changed from “Moggle, Inc.” to “Virtual Piggy, Inc.” On February 28, 2017, we amended our certificate of
incorporation and changed our name to Rego Payment Architectures, Inc. Our principal offices are located at 325 Sentry Parkway, Suite
200, Blue Bell , PA 19422 and our telephone number is (267) 465-7530.
As of the date of this
report, we have not generated significant revenues. Our initial business plan was to develop an online game platform to allow
game companies to create, monetize and distribute massive multiplayer online games (MMOG). The Company technology was the monetization
component of this overall software platform (our “Platform”). During 2010, we analyzed the market potential for an expanded
Company solution and decided to concentrate our efforts on the delivery of a full-featured Company solution that was not restricted to
online gaming. The expanded Company solution is designed to provide a complete online solution for families and parents to teach their
children about financial management and spending on gaming, retail, music and entertainment. In late 2013, we rebranded our Company product
under the name “Oink®”. In March 2016, we discontinued our prior Oink product offering.
Our current focus is monetizing the MazoolaSM Digital
Wallet Platform in the Financial Technology (“FinTech”) industry through white label, licensing and partnership agreements. We
are have successfully launched the MazoolaSM App and are focused on improving and monetizing the existing Platform and
App that will act as the foundation for the strategic alignment with the FinTech industry. The FinTech industry is composed
primarily of startup companies that use software to provide financial services more efficiently and less costly than traditional financial
service companies. With our Children’s Online Privacy Protection Act (“COPPA”) and GDPRkidsTM Trustmark
compliant technology as an added feature, we believe we may have better market success.
Strategic Outlook
We believe that the virtual
goods market and the FinTech industry will continue to grow over the long term. Within the market and industry, we intend to
provide services to allow transactions with children in compliance with COPPA and similar international privacy laws. We believe
that this particular opportunity is relatively untapped and intend to be a leading provider of online transactions for children.
Sustained spending on
technology, our ability to raise additional financing, our ability to successfully implement technology partnerships or joint ventures,
the continued growth of the FinTech industry, and compliance with regulatory and reporting requirements are all external conditions that
may affect our ability to execute our business plan. In addition, the FinTech industry is intensely competitive, and most participants
have longer operating histories, significantly greater financial, technical, marketing, customer service and other resources, and greater
name recognition. In addition, certain potential customers, particularly large organizations, may view our small size and limited
financial resources as a negative even if they prefer our offering to those of our competitors.
Our goal, moving forward is to enable both incumbent
and new FinTech participants, as well as key verticals with a large base of ‘family accounts,’ to provide their consumers
with safe and empowering youth money management and financial literacy content and tools via the mobile payment platform.
While some of the Rego Platform can be easily
duplicated/commoditized, such as the app skin, APIs to retailers, APIs to financial infrastructure and cloud storage, we believe that
defending our market position rests on three factors:
|
|
1.
|
The ability to define data control settings from parent to child.
|
Our approach to this opportunity uses
a master account to dictate purchase rules to sub-accounts via a hierarchical architecture. This approach adheres to data flow and privacy
policy requirements specifically outlined for COPPA compliance. We believe other approaches based on machine learning, or other artificial
intelligence methodologies are potentially viable alternatives but are likely too costly, do not meet current compliance timelines, and
may defy the core of COPPA’s “opt-in” parameters. There is considerable room for next-generation automation techniques
to be layered on Rego’s hierarchical approach. Given its current stability and scalability metrics, the Rego Platform strongly features
these advances in its technical development roadmap without compromising any of its current data control performance.
|
|
2.
|
The ability to (mis)attribute the child’s transaction and personal identification.
|
Rego has solved this issue by masking
user data and maintaining separate identity and financial data flows. As a result, Rego can verify the age of the internet user throught
the transaction lifecycle on its Platform. Authenticating and validating the identity of the actual user on the internet is one of the
more difficult cybersecurity challenges. Current approaches are mainly not for commercial use; however, there is investment in commercial
innovation in this area. Rego’s data control features and its (mis)attribution approach are inextricably linked and a key to its
scalability and extensibility.
|
|
3.
|
The ability to disseminate transactional data on minors while remaining COPPA and GDPR compliant.
|
The highest value data will be that
which shows the most nuanced detail afforded under current regulations. Without extreme data control features, such as in the Rego Platform,
any lesser data precision will be less valuable.
These three factors are all supported by Rego’s patented technology.
Currently, we are targeting established brands
with large family-focused account bases — including banks, telecommunication companies, faith-based organizations, media distributors,
mobile device Original Equipment Manufacturers (“OEMs”), and merchants.
We have launched our MazoolaSM app. We plan to develop
additional enhancements to the app and develop a web based platform, which is expected to be completed in the third quarter of 2021.
In addition to expanding the existing payment solution to a growing
US and global customer base, management believes there is robust demand for:
1) A digital ecosystem for children
embedded within a marketplace of service offerings, delivered via in-house technology and through third party integrations (“super
app”). The inherent fenced design and systems architecture of the MazoolaTM digital wallet aligns well with the overall purpose
and approach of a “super app”— to offer a wide array of services within a controlled environment on mobile operating
systems, such as iOS and Android.
2) Expanded in-application service modules such as investments,
charitable giving, and financial literacy, as well as, the inclusion of new marketplaces, health centers, and logistic/inventory management
systems.
3) Predictive analytic products and services
based on REGO’s anonymized data collection techniques.
4) A two-sided platform of the REGO offering,
MazoolaPay, which is currently in later stage development. This provides a way for retailers to offer families a compliant payment
offering when engaging in e-commerce transactions.
Within this model, the
Company is incorporating licensing fees. This should enable the Company to begin creating shareholder value above and beyond
consumer transaction fees. As our service grows, we intend to hire additional information technology staff to maintain our product offerings
and develop new products to increase our market share.
We believe that our near-term
success will depend particularly on our ability to develop customer awareness and confidence in our service. Since we have
extremely limited capital resources, we will need to closely manage our expenses and conserve our cash by continually monitoring any increase
in expenses and reducing or eliminating unnecessary expenditures. Our prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early stage of development, particularly given that we operate in new and rapidly evolving
markets, that we have limited financial resources, and face an uncertain economic environment. We may not be successful in addressing
such risks and difficulties.
Results of Operations
Comparison of the Three Months Ended March
31, 2021 and 2020
The following discussion
analyzes our results of operations for the three months ended March 31, 2021 and 2020. The following information should be considered
together with our condensed financial statements for such period and the accompanying notes thereto.
Net Revenue
We have not generated significant revenue since
our inception. For the three months ended March 31, 2021 and 2020 we generated revenues of $533 and $0.
Net Loss
For the three months ended March 31, 2021 and
2020, we had a net loss of $4,645,801 and $746,792.
Transaction Expense
Transaction expense for the three months
ended March 31, 2021 was $37,314 compared to $0 for the three months ended March 31, 2020. These are transactional charges primarily
for the operation of the MazoolaSM app, but also the Chore Check app.
Sales and Marketing
Sales and marketing expenses for the three months
ended March 31, 2021 were $457,016 compared to $6,833 for the three months ended March 31, 2020, an increase of $450,183. This resulted
from the issuance of options to consultants involved with the marketing of the MazoolaSM app prior to its launch on February
8, 2021.
Product Development
Product development expenses were $830,358 and
$73,620 for the three months ended March 31, 2021 and 2020, an increase of $756,738. The Company continued the process to complete
the development of the MazoolaSM app prior to its launch and then began developing further enhancements to the app to increase
its marketability.
General and Administrative Expenses
General and administrative expenses
increased $2,610,242 to $3,068,957 for the three months ended March 31, 2021 from $458,715 for the three months ended March 31,
2020. This resulted from the Company issuing shares of common stock and options to Board members, officers and consultants, an
increase of approximately $2,565,000 compared to $87,000 for the three months ended March 31, 2020. Additionally impairment of the
Chore Check, LLC assets of $112,000 contributed to the increase.
Interest Expense
During the three months ended March 31, 2021,
the Company incurred interest expense of $334,440, compared to $207,624 for the three months ended March 31, 2020, an increase of $128,616.
The increase in interest expense relates to additional debt outstanding.
Forgiveness of Debt
During the three months ended March 31,
2021, the Company had $79,500 of debt forgiven compared to $0 for the three months ended March 31, 2020. On January 28, 2021, the
Company received notification that the Paycheck Protection Plan loan was forgiven in full by the Small Business Administration and
therefore $79,500 was recognized as forgiveness of debt during the three months ended March 31, 2021.
Additionally, the Economic Injury Disaster Loan of $2,000 ($1,000 per
employee) does not require repayment and was also recognized as forgiveness of debt.
Liquidity and Capital Resources
As of May 17, 2021
we had cash on hand of approximately $3,570,000.
Net cash used in operating
activities increased $476,174 to $859,489 for the three months ended March 31, 2021 as compared to $383,315 for the three months ended
March 31, 2020. The increase resulted primarily from the increased development costs to launch the MazoolaSM app
and continue enhancements to increase its marketability.
Net cash provided by
financing activities increased to $2,445,000 for the three months ended March 31, 2021 from $0 for
the three months ended March 31, 2020. Cash provided by financing activities during the three months ended March 31, 2021,
consisted of convertible notes payable to provide capital to continue operations.
As we have not realized
significant revenues since our inception, we have financed our operations through offerings of debt and equity securities. We
do not currently maintain a line of credit or term loan with any commercial bank or other financial institution.
Since our
inception, we have focused on developing and implementing our business plan. We believe that our existing cash resources
will not be sufficient to sustain our operations during the next twelve months. We currently need to generate
sufficient revenues to support our cost structure to enable us to pay ongoing costs and expenses as they are incurred,
finance enhancements to our Platform, and execute the business plan. If we cannot generate sufficient revenue
to fund our business plan, we intend to seek to raise such financing through the sale of debt and/or equity
securities. The issuance of additional equity would result in dilution to existing shareholders. The issuance of
convertible debt may also result in dilution to existing stockholders. If we are unable to obtain additional funds when they
are needed or if such funds cannot be obtained on terms acceptable to us, we will be unable to execute upon the business plan
or pay costs and expenses as they are incurred, which would have a material, adverse effect on our business, financial condition and
results of operations. See Note 2, to our consolidated financial statements included in this Form 10-Q.
Even if we are successful
in generating sufficient revenue or in raising sufficient capital in order to complete the Platform, our ability to continue in business
as a viable going concern can only be achieved when our revenues reach a level that sustains our business operations. We do
not project that significant revenue will be developed until the fourth quarter of 2021. There can be no assurance that we will raise
sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan. Moreover there can be no assurance
that even if the Platform is fully developed and successfully launched, that we will generate revenues sufficient to fund our operations. In
either such situation, we may not be able to continue our operations and our business might fail.
Based upon the current
cash position and the Company’s planned expense run rate, management believes the Company will not be able to finance its operations
beyond January 2022.
The foregoing forward-looking
information was prepared by us in good faith based upon assumptions that we believe to be reasonable. No assurance can be given, however,
regarding the attainability of the projections or the reliability of the assumptions on which they are based. The projections are subject
to the uncertainties inherent in any attempt to predict the results of our operations, especially where new products and services are
involved. Certain of the assumptions used will inevitably not materialize and unanticipated events will occur. Actual results of operations
are, therefore, likely to vary from the projections and such variations may be material and adverse to us. Accordingly, no assurance can
be given that such results will be achieved. Moreover due to changes in technology, new product announcements, competitive pressures,
system design and/or other specifications we may be required to change the current plans.
Off-Balance Sheet Arrangements
As of March 31, 2021,
we do not have any off-balance sheet arrangements.
Critical Accounting
Policies
Our financial statements
are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete
summary of these policies is included in Note 1 of the Notes to Financial Statements included in the Company’s Form 10-K for
the year ended December 31, 2020. We have identified below the accounting policies that are of particular importance in the presentation
of our financial position, results of operations and cash flows and which require the application of significant judgment by management.
Stock-based Compensation
We have adopted the fair
value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 718. In
addition, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB
107”), which provides supplemental FASB ASC 718 application guidance based on the views of the SEC. Under FASB ASC 718, compensation
cost recognized includes compensation cost for all share-based payments granted, based on the grant date fair value estimated in accordance
with the provisions of FASB ASC 718.
We have used the Black-Scholes
option-pricing model to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the
most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount
of time from the grant date until the options are exercised or expire).
All issuances of stock
options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for
based on the fair value of the equity instruments issued. Non-employee equity based payments that do not vest immediately upon
grant are recorded as an expense over the vesting period.
Revenue Recognition
In accordance with FASB ASC 606, Revenue from Contracts with Customers,
the Company recognizes revenue when it satisfies performance obligations, by transferring promised goods or services to customers, in an
amount that reflects the consideration to which the Company expects to be entitled in exchange for fulfilling those performance obligations.
Recently Issued Accounting
Pronouncements
Recently issued accounting
pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report.