RPMT 10-Q
Rego Payment Architectures, Inc. (RPMT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
| FORM | |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from __________ to __________ | |
| Commission file number | |
| (Exact Name of Registrant as Specified in Its Charter) | ||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| (Registrant’s Telephone Number, Including Area Code) | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Indicate by check mark
whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
| 1 |
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate the number of
shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| 2 |
TABLE OF CONTENTS
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Cautionary Note Regarding Forward-Looking Statements | 4 | |
| ITEM 1. | Financial Statements | 5 |
| Condensed Consolidated Balance Sheets (Unaudited) | 6 | |
| Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | 7 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) | 8 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) | 9 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 10 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 27 |
| ITEM 4. | Controls and Procedures | 27 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 28 |
| ITEM 1A. | Risk Factors | 28 |
| ITEM 2. | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 28 |
| ITEM 3. | Defaults Upon Senior Securities | 28 |
| ITEM 4. | Mine Safety Disclosures | 28 |
| ITEM 5. | Other Information | 28 |
| ITEM 6. | Exhibits | 29 |
| SIGNATURES | 30 | |
| 3 |
PART I - FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” “contemplates,” “targets,” “could,” “would” or “should” or the negative thereof or any variation thereon or similar terminology or expressions. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.
We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, the absence of any material operating history or revenue, our ability to attract and retain qualified personnel, our ability to develop and introduce a new service and products to the market in a timely manner, market acceptance of our services and products, our limited experience in the industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, the impact of the current COVID-19 pandemic, and other risks discussed in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission (the “SEC”), and the Company’s other subsequent filings with the SEC.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. The Company has no obligation to and does not undertake to update, revise, or correct any of these forward-looking statements after the date of this report.
| 4 |
ITEM 1. FINANCIAL STATEMENTS
Rego Payment Architectures, Inc.
CONTENTS
| 5 |
Rego Payment Architectures, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Deposits | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| OTHER ASSETS | ||||||||
| Patents and trademarks, net of accumulated amortization of $ | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accounts payable and accrued expenses - related parties | ||||||||
| Loans payable | ||||||||
| 10% secured convertible notes payable - stockholders | ||||||||
| Notes payable - stockholders | ||||||||
| 4% secured convertible notes payable - stockholders | ||||||||
| Preferred stock dividend liability | ||||||||
| Common stock to be issued | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| CONTINGENCIES | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $ authorized; issued and outstanding at September 30, 2023 and outstanding at December 31, 2022 | ||||||||
| Preferred stock, $ authorized; issued and outstanding at September 30, 2023 and outstanding at December 31, 2022 | ||||||||
| - | ||||||||
| Preferred stock, $ authorized; issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Common stock, $ | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| STOCKHOLDERS' DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements.
| 6 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Transaction expense | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Product development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| NET OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Forgiveness of debt | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| ( | ) | ( | ) | ( | ) | ( | ) | |||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LESS: Accrued preferred dividends | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to noncontrolling interests | ||||||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
See the accompanying notes to the condensed consolidated financial statements.
| 7 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
For the Three and Nine Months Ended September 30, 2023 and September 30, 2022
(Unaudited)
| Preferred | Preferred | Preferred | Common | |||||||||||||||||||||||||||||||||||||||||||||
| Stock Series A | Stock Series B | Stock Series C | Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-In | Accumulated | Noncontrolling | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred Stock into common stock | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to board members and employees | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to board members and employees | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to consultants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to board members and employees | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Exercise of options | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
| Preferred | Preferred | Preferred | Common | |||||||||||||||||||||||||||||||||||||||||||||
| Stock Series A | Stock Series B | Stock Series C | Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-In | Accumulated | Noncontrolling | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of Series A Preferred stock to common stock | ( | ) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to consultants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| Sale of Series B Preferred stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to consultants | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements
| 8 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Fair value of common stock issued in exchange for services | ||||||||
| Fair value of options issued in exchange for services | ||||||||
| Depreciation and amortization | ||||||||
| (Increase) decrease in assets | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Increase (decrease) in liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - related parties | ( | ) | ||||||
| Common stock to be issued | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Investment in patents | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Exercise of options | ||||||||
| Proceeds from sale of Series B Preferred stock | ||||||||
| Proceeds from | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | ||||||||
| Accrued preferred dividends | $ | $ | ||||||
| Conversion of Series A Preferred stock to common stock | $ | $ | ||||||
See the accompanying notes to the condensed consolidated financial statements.
| 9 |
Rego Payment Architectures, Inc.
Notes to Condensed Consolidated Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
REGO Payment Architectures, Inc. (“REGO”) was incorporated in the state of Delaware on February 11, 2008.
REGO Payment Architectures, Inc. and its subsidiaries (collectively, except where the context requires, the “Company”) is a provider of consumer software that delivers a mobile payment platform —Mazoola® - a family focused mobile banking solution. Headquartered in Blue Bell, Pennsylvania, the Company maintains a portfolio of trade secrets and four US patent awards. REGO offers an all-digital financial payments platform to enable minors, particularly under 13 years old, to purchase goods and services, complete chores and learn in a secure online environment guided by parental permission, oversight, and control, while remaining Children’s Online Privacy Protection Act (“COPPA”) and General Data Protection Regulation (“GDPR”) compliant.
Management believes that building on its COPPA advantage that the future of REGO Payment Architectures, Inc. will be based on the foundational architecture of its technology platform (the “Platform”) that will allow its use across multiple financial markets where secure controlled payments are needed. The Company intends to license in each alternative field of use the ability for its partners, distributors and/or value-added resellers to private label each of the alternative markets. These partners would deploy, customize and support each implementation under their own label, but with acknowledgement of the Company’s proprietary intellectual assets as the base technology. Management believes this approach will enable the Company to reduce expenses while broadening its reach.
Revenues generated from the Platform will come from multiple sources depending on the level of service and facilities requested by the parent. The Company’s model contemplates levels of subscription revenue paid monthly, service fees, transaction fees and revenue sharing and licensing with banking and distribution partners.
The Company’s principal office is located in Blue Bell, Pennsylvania.
ZOOM Solutions, Inc. (“ZS”)
ZS (formerly Zoom Payment Solutions, Inc.) was
incorporated in the state of Delaware on February 16, 2018 as a subsidiary of REGO Payment Architectures, Inc. REGO owns
There were minimal operations at ZS during the three and nine months ended September 30, 2023 and 2022.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the financial statements and have been prepared on a consistent basis using the accounting policies described in the summary of accounting policies included in the Company’s 2022 Annual Report on Form 10-K (the “Form 10-K”). All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed, or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
| 10 |
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing to operationalize the Company’s current technology before another company develops or markets similar technology to compete with the Company.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges or Freestanding Equity – Classified Written Call Options. The amendments in this Update clarify an issuer’s accounting for modifications or exchanges of freestanding equity – classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. The Company adopted this standard effective January 1, 2022, which did not have a material impact on the Company’s consolidated financial statements and related disclosure.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of September 30, 2023, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.
NOTE 2 – MANAGEMENT PLANS
The accompanying consolidated 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 be sufficient to sustain operations on a limited basis 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 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.
As of November 14, 2023, the Company has a cash position of approximately
$
NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES
As of September
30, 2023 and December 31, 2022, the Company owed the Chief Executive Officer, who is also a more than
As of September
30, 2023 and December 31, 2022, the Company owed the Chief Financial Officer $
| 11 |
NOTE 4 – LOANS PAYABLE
Loans payable
as of September 30, 2023 and December 31, 2022 were $
NOTE 5 – 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On March
6, 2015, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued $
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 $
The Notes
are recorded as a current liability as of September 30, 2023 and December 31, 2022 in the amount of $
NOTE 6 – NOTES PAYABLE – STOCKHOLDERS
These notes
payable have no formal repayment terms and $
These notes
payable are recorded as a current liability as of September 30, 2023 and December 31, 2022 in the amount of $
NOTE 7 – 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On August
26, 2016, the Company, pursuant to a Securities Purchase Agreement, issued $
During the nine months ended September 30, 2022,
the Company issued $
| 12 |
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 $
The maturity dates of the New
Secured Notes were extended by the investors most recently to
The New
Secured Notes are recorded as a current liability in the amount of $
NOTE 8 – INCOME TAXES
Income tax expense was $
As of January 1, 2023, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2023 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and nine months ended September 30, 2023, and there was no accrual for uncertain tax positions as of September 30, 2023. Tax years from 2019 through 2022 remain subject to examination by major tax jurisdictions.
There is no income tax benefit for the losses for the three and nine months ended September 30, 2023 and 2022, 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 9 – 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 $
The conversion
price of Series A Preferred Stock is currently $
During the
nine months ended September 30, 2023, a Series A Preferred stockholder converted
| 13 |
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 $
The conversion
price of the Series B Preferred Stock is currently $
During the
nine months ended September 30, 2023 and 2022, the Company sold
Rego Payment Architectures, Inc. Series C Preferred Stock
In August
2016, Rego authorized
As of September
30, 2023, the value of the cumulative
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,
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As of September
30, 2023, the value of the cumulative
NOTE 10 – STOCKHOLDERS’ EQUITY
On September
22, 2022 the Company engaged an investment banking firm to explore a prospective sale of the Company. The Company will pay a fee equal
to
Option Amendments and Adjustments
On April
28, 2022, the Board of Directors approved amendments extending the term of certain outstanding options to purchase in the aggregate
On May 7,
2023, the Board of Directors approved amendments extending the term of certain outstanding options to purchase in the aggregate
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.
On April
11, 2023 the Company granted
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NOTE 11 – 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
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
The Company also grants stock options outside the 2013 Plan on terms determined by the Board.
In connection
with Incentive Stock Options, the exercise price of each option may not be less than
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.
| Risk Free Interest Rate | % | |||
| Expected Volatility | % | |||
| Expected Life (in years) | ||||
| Dividend Yield | % | |||
| Weighted average estimated fair value of options during the period | $ |
During the
nine months ended September 30, 2023, the Company issued options to purchase
| 16 |
| 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, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Expired/Cancelled | ( | ) | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 and expected to vest thereafter | $ | $ | ||||||||||||||
| (1) |
REGO expensed
$
As of September
30, 2023, there was $
| 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, 2022 | $ | $ | ||||||||||||||
| Balance, September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2023 and expected to vest thereafter | $ | $ | ||||||||||||||
| (1) |
For the three and nine months
ended September 30, 2023 and 2022, ZS expensed $
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NOTE 12 – NONCONTROLLING INTERESTS
Losses incurred
by the noncontrolling interests for the three and nine months ended September 30, 2023 were $
NOTE 13 – OPERATING LEASES
For the
three and nine months ended September 30, 2023 total rent expense under leases amounted to $
NOTE 14 – RELATED PARTY TRANSACTIONS
Pursuant
to the September 22, 2022 incentive awards for the successful engagement of an investment banker, the Company issued shares of Common
Stock as follows: Chairman:
Pursuant
to the October 5, 2022 incentive awards for the securing of additional investment in its Series B Preferred Stock to satisfy completion
of the $
On March
8, 2023 the following performance bonuses were earned pursuant to the securing of a commercial distribution agreement with a financial
institution software provider: 1) Shares of Common Stock: Chairman:
On March
13, 2023 the following performance bonuses were earned pursuant to the securing of a $
On April
19, 2023 the following cash bonuses were earned pursuant to the securing of an agreement with a banking FinTech provider: Chairman: $
On May 1,
2023, the Board of Directors approved a salary increase raising the Chief Executive Officer’s salary to $
On May 22,
2023 the Chief Executive Officer was paid a performance bonus pursuant to raising an additional $
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On May 30,
2023 the Chief Executive Officer was paid a performance bonus pursuant to the successful completion of platform enhancements that will
enable fractional stock transaction capability.
On May 30,
2023, the Board of Directors approved a salary increase raising the Chief Financial Officer’s salary to $
On June
26, 2023 the following performance bonuses were earned pursuant to the completion of raising an additional $
On July
14, 2023 the Chief Executive Officer was paid a performance bonus pursuant to raising additional funding via investment in Series B Preferred
Stock:
NOTE 15 – COMMON STOCK TO BE ISSUED
On September
22, 2022 the Company engaged an investment banker for advisory services to explore a prospective sale of the Company. The successful engagement
of this investment banker resulted in an incentive award of
On October
5, 2022 the Company secured additional investment in its Series B Preferred Stock to satisfy completion of the $
NOTE 16 - INVESTOR PRIVATE LINE OF CREDIT
On March 13, 2023, the Company entered into an
Investor Private Line of Credit agreement (the “LOC Agreement”) with an existing shareholder of the Company (the “Lender”).
Pursuant to this agreement, the Lender may extend unsecured loans to the Company in the amount of up to twenty million dollars ($
NOTE 17 – SUBSEQUENT EVENTS
On October 27, 2023 the Chairman and the Chief
Executive Officer were both paid a $
Between October 1, 2023 and November 14, 2023, the Company sold
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
REGO Payment Architectures, Inc. is a provider of consumer software that delivers a mobile payment platform— Mazoola® - a family focused mobile banking solution. Headquartered in Blue Bell, Pennsylvania, the Company maintains a portfolio of trade secrets and four US patent awards. REGO offers an all-digital financial payments platform to enable minors, particularly under 13 years old, to transact, complete chores and learn in a secure online environment guided by parental permission, oversight, and control, while remaining COPPA and GDPR compliant.
COPPA applies not only to websites and mobile apps. It can apply to a growing list of connected devices that is included in the Internet of Things. Some of these include toys and products that could collect personal information, such as voice recordings or geolocation information. Non-compliance with COPPA has meant substantial fines for many violators.
Management believes that by building on its COPPA compliance advantage, the future of REGO Payment Architectures, Inc. will be based on the foundational architecture of its software platform (the “Platform”) that will allow its use across multiple financial markets where secure controlled payments are needed. The Company intends to license in each alternative field of use the ability for its partners, distributors and/or value-added resellers to private label each of the alternative markets. These partners will deploy, customize and support each implementation under their own label, but with acknowledgement of the Company’s proprietary intellectual assets as the base technology. Management believes this approach will enable the Company to reduce marketing expenses while broadening its reach.
Further, California passed the California Consumer Privacy Act of 2018 (“CCPA”) on June 28, 2018. CCPA gives consumers (defined as natural citizens who are California residents) four rights relative to their personal information as follows:
| ● | the right to know, through a general privacy policy and with more specifics available upon request, what personal information a business has collected about them, where it was sourced from, what it is being used for, whether it is being disclosed or sold, and to whom it is being disclosed or sold; |
| ● | the right to “opt out” of allowing a business to sell their personal information to third parties (or, for consumers who are under 16 years old, the right not to have their personal information sold absent their, or their parent’s, opt-in); |
| ● | the right to have a business delete their personal information, with some exceptions; and |
| ● | the right to receive equal service and pricing from a business, even if they exercise their privacy rights under the CCPA. |
With respect to the evolving CCPA, the Company has designed its Platform and app to be in compliance.
Additionally, the European Parliament and Council agreed upon the General Data Protection Regulation (“GDPR”) in April 2016, to replace the Data Protection Directive 95/46/EC. This is the primary law regulating how companies protect European Union (“EU”) citizens’ personal data. GDPR became effective on May 25, 2018. Companies that fail to achieve GDPR compliance are subject to severe fines and penalties.
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GDPR requirements apply to each member state of the European Union, aiming to create more consistent protection of consumer and personal data across EU nations. Some of the key privacy and data protection requirements of the GDPR include:
| ● | Requiring the consent of subjects for data processing |
| ● | Anonymizing collected data to protect privacy |
| ● | Providing data breach notifications |
| ● | Safely handling the transfer of data across borders |
| ● | Requiring certain companies to appoint a data protection officer to oversee GDPR compliance |
In short, the handling of EU citizens’ data is mandated by GDPR using a baseline set of standards for companies that are designed to better safeguard the processing and movement of personal data. The Company has designed its Platform and app to be in compliance with GDPR, and has received the GDPRkidsTM Trustmark from PRIVO.
Revenues generated from the Platform will come from multiple sources depending on the level of service and facilities requested. There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases, revenue sharing and licensing with banking and distribution partners.
Our goal, moving forward, is to enable both incumbent and new financial technology (“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 through the transaction lifecycle on its Platform. Authenticating and validating the identity of the actual user on the internet remains 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.
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REGO addresses hard industry problems such as:
| ● | COPPA compliant technology with a key component being its ability to verify the age of an internet user |
| ● | A master and sub-account architecture with the ability to administer user-specific controls |
| ● | An advanced rules engine to provide strict automated compliance of the parental rules for each child |
| ● | Near real-time buying behavior database on minors - anonymized geolocation, age range and purchases |
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 are seeking partners that will leverage our Platform to:
Buy vs. Build: Partners can license or revenue share for their specific market or field of use a safe, compliant system, instead of building one on their own.
Safety & Security: Partners can safely engage a younger consumer segment and their families with a new family friendly peer-to-peer-payment approach. Vendors will be explicitly protected from non-compliant transactions and the underlying technology protects the privacy of the user.
Youth Financial Literacy: Partners can expand their brand story around empowerment and education of youth financial literacy while engaging their ‘future customers’ with Gen Z, a digital native population of post-millennial youth.
The REGO Mazoola® app and associated digital wallet technology is designed to enable our partners to engage families with Gen Z and Gen Alpha youths through a money management, transactional and financial literacy platform that enables young people to make smart decisions about the things they value in life — including their money, their time, their ideas and their connections. The Mazoola® app enables a new way for individual users to own and monetize their purchasing behavior that is currently unavailable to them.
In addition, we are analyzing specific components of our technology for individual monetization as well as exploring opportunities in the Business to Business (“B2B”) realm.
Other markets for potential licensed applications are:
| ● | Government social services payments where control over how benefits allowances are used is required. This is particularly necessary in some European countries where social benefits are not being used as intended by the government or where benefits are subject to fraud. |
| ● | Closed network consumer to business (C2B) and business to business (B2B). An example is school lunch programs where the consumer can make direct mobile payments to the provider’s point of sale (POS) terminal without the need to traverse the traditional merchant payment system. This reduces the cost per transaction for the vendor and provides instant non-repudiated settlement. Many school lunch programs are now provided by large catering companies. This is particularly valuable as credit card fees, transaction fees and service fees can exceed 3% in overhead costs per transaction dependent on the negotiated rate. Removing this overhead can have significant positive financial impact on profitably. It also allows the closed network to own its own behavioral use data thus obviating the need to pay a third party for the same data. |
| ● | Integration of our certified COPPA-compliant white label Family Wallet Banking-as-a-Platform into digital banking platforms. This will make the Company's family wallet available to financial institutions which will allow end-user customers of subscribing financial institutions to utilize the Company's family wallet. |
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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 September 30, 2023 and 2022
The following discussion analyzes our results of operations for the three months ended September 30, 2023 and 2022. 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 September 30, 2023 and 2022, we generated revenues of $0 and $237.
Net Loss
For the three months ended September 30, 2023 and 2022, we had a net loss of $2,443,322 and $5,122,359.
Transaction Expense
Transaction expense for the three months ended September 30, 2023 was $56,581 compared to $57,538 for the three months ended September 30, 2022. These are transactional charges primarily for the operation of the Mazoola® app, and the Chore Check app.
Sales and Marketing
Sales and marketing expenses for the three months ended September 30, 2023 were $468,115 compared to $175,606 for the three months ended September 30, 2022, an increase of $292,509. The increase is attributed to a ramp up in marketing campaigns and consultants in 2023 to increase brand awareness as compared to the three months ended September 30, 2022.
Product Development
Product development expenses were $758,614 and $458,942 for the three months ended September 30, 2023 and 2022, an increase of $299,672. The Company continued the process to add further enhancements to the Mazoola® app to increase its marketability.
General and Administrative Expenses
General and administrative expenses decreased $3,363,321 to $905,699 for the three months ended September 30, 2023 from $4,269,020 for the three months ended September 30, 2022. The decrease resulted from the Company issuing shares of common stock and options to Board members, officers and consultants during the three months ended September 30, 2022, which did not occur during the three months ended September 30, 2023.
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Interest Expense
During the three months ended September 30, 2023, the Company incurred interest expense of $254,313 and $254,313 for the three months ended September 30, 2023 and September 30, 2022. Interest expense remains materially unchanged for both periods since no new Notes were issued over the prior twelve-month period.
Dividend Accrual
Accrued preferred dividend expense increased by $302,660 to $653,656 for the three months ended September 30, 2023 compared to $350,996 for the three months ended September 30, 2022. The expense increased as a result of the additional Series B Preferred Stock sold during 2023.
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following discussion analyzes our results of operations for the nine months ended September 30, 2023 and 2022. 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 nine months ended September 30, 2023 and 2022, we generated revenues of $0 and $1,887.
Net Loss
For the nine months ended September 30, 2023 and 2022, we had a net loss of $13,994,440 and $10,340,541.
Transaction Expense
Transaction expense for the nine months ended September 30, 2023 was $171,543 compared to $180,051 for the nine months ended September 30, 2022. These are transactional charges primarily for the operation of the Mazoola® app, and the Chore Check app.
Sales and Marketing
Sales and marketing expenses for the nine months ended September 30, 2023 were $1,475,458 compared to $1,393,252 for the nine months ended September 30, 2022, an increase of $82,206. The increase is attributed to a ramp up in marketing campaigns and consultants in 2023 to increase brand awareness.
Product Development
Product development expenses were $2,051,020 and $1,557,850 for the nine months ended September 30, 2023 and 2022, an increase of $493,170. The Company continued the process to add further enhancement to Mazoola®
app to increase its marketability.
General and Administrative Expenses
General and administrative expenses increased $2,990,121 to $9,534,184 for the nine months ended September 30, 2023 from $6,544,063 for the nine months ended September 30, 2022. This increase is a result of the Company issuing bonuses as well as shares of common stock and options to Board members, officers, and consultants, an increase of approximately $2,400,000 during the nine months ended September 30, 2023 as compared to $0 during the nine months ended September 30, 2022. The Company also had increased expenditures for investment bankers and strategic consultants of approximately $550,000 in 2023.
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Interest Expense
During the nine months ended September 30, 2023, the Company incurred interest expense of $762,235 compared to $760,915 for the nine months ended September 30, 2022, an increase of $1,320. The increase in interest expense relates to the compounding interest from the new 10% Secured Promissory Notes issued in 2022.
Dividend Accrual
Accrued preferred dividend expense increased by $607,125 to $1,565,584 for the nine months ended September 30, 2023 compared to $958,459 as of September 30, 2022. The expense increased as a result of the additional Series B Preferred Stock sold during the nine months ended September 30, 2023 in the amount of $6,322,399 compared to $4,164,249 sold during the nine months ended September 30, 2022. The increase was also attributable to a prior period expense adjusted during the nine months ended September 30, 2023.
Liquidity and Capital Resources
As of November 14, 2023 we had cash on hand of approximately $7 million.
Net cash used in operating activities increased $956,628 to $5,450,002 for the nine months ended September 30, 2023 as compared to $4,484,374 for the nine months ended September 30, 2022. The increase in cash used in operating activities is related to the increase in share based compensation during the nine months ended September 30, 2023 compared to that of the same period in the prior year.
Net cash used in investing activities increased to $11,215 for the nine months ended September 30, 2023 from $10,621 for the nine months ended September 30, 2022 as a result of an increase in patents and trademarks expense.
Net cash provided by financing activities increased to $7,129,049 for the nine months ended September 30, 2023 from $4,364,249 for the nine months ended September 30, 2022. Cash provided by financing activities during the nine months ended September 30, 2023, consisted of proceeds from the sale of Series B Preferred Stock along with cash received from the exercise of options. The increase for the nine months ended September 30, 2023 is attributed to higher proceeds from the sale of Series B Preferred Stock to provide capital for the continuance of operations versus the nine months ended September 30, 2022. Additionally, unlike the nine months ended September 30, 2023, no cash was received from the exercise of options for the nine months ended September 30, 2022.
As we have not realized significant revenues since our inception, we have financed our operations through offerings of debt and equity securities. On March 13, 2023, the Company entered into a $20 million Investor Private Line of Credit (“LOC”) agreement with an existing shareholder of the Company. There have been no draws from this LOC as of September 30, 2023.
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.
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Even if we are successful in generating sufficient revenue or in raising sufficient capital in order to commercialize 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 at the earliest until the second quarter of 2024. 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 commercialized, 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 December 2024.
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 September 30, 2023, 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, 2022. 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.
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
ITEM 4. CONTROLS AND PROCEDURES.
As of September 30, 2023 we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2023, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There have been no material developments since the disclosure provided in the Company’s Form 10-K for the year ended December 31, 2022.
ITEM 1A. RISK FACTORS.
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES.
During the three months ended September 30, 2023, the Company sold 5,222 shares of the Company’s Series B Preferred Stock in a private placement to accredited investors and received proceeds of $469,900. In October and November 2023, the Company sold 1,111 shares of the Company’s Series B Preferred Stock in a private placement to accredited investors and received proceeds of $100,000.
Each of the foregoing issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. See the footnotes to the financial statements contained herein for additional detail on the applicable securities issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
The disclosure set forth in Part II – Item 2 above is incorporated by reference.
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ITEM 6. EXHIBITS
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| REGO PAYMENT ARCHITECTURES, INC. | ||
| By: | /s/ Joseph R. Toczydlowski | |
| Joseph R. Toczydlowski | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
||
| Date: November 14, 2023 | ||
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