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 |
| None |
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.
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).
| 1 |
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 | 26 |
| ITEM 4. | Controls and Procedures | 26 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 27 |
| ITEM 1A. | Risk Factors | 27 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| ITEM 3. | Defaults Upon Senior Securities | 27 |
| ITEM 4. | Mine Safety Disclosures | 27 |
| ITEM 5. | Other Information | 27 |
| ITEM 6. | Exhibits | 28 |
| SIGNATURES | 29 | |
| 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, 2021 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)
| June 30, 2022 | December 31, 2021 | |||||||
| 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 | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| CONTINGENCIES | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 195,500 preferred shares Series A authorized; 101,350 shares | ||||||||
| issued and outstanding at June 30, 2022 and 102,350 issued and | ||||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 222,222 preferred shares Series B authorized; 77,033 shares | ||||||||
| issued and outstanding at June 30, 2022 and 35,879 issued and | ||||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 300,000 preferred shares Series C authorized; 0 shares | ||||||||
| Common stock, $ .0001 par value; 230,000,000 shares authorized; | ||||||||
| 123,627,213 shares issued and outstanding at June 30, 2022 and | ||||||||
| 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 Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC AND DILUTED NET LOSS PER | ||||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| BASIC AND DILUTED WEIGHTED AVERAGE | ||||||||||||||||
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 Six Month Periods Ended June 30, 2022 and June 30, 2021
(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, 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 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||
| 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, 2020 as adjusted | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred stock into common stock | ( | ) | ( | ) | - | - | - | - | ( | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Issuance of common stock to board members and employees | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for accounts payable | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for software | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to board members and employees | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of options, cashless | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||||||||||
See the accompanying notes to the condensed consolidated financial statements
| 8 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Impairment loss | ||||||||
| Depreciation and amortization | ||||||||
| Forgiveness of debt | ( | ) | ||||||
| Decrease in assets | ||||||||
| Prepaid expenses | ||||||||
| Increase (decrease) in liabilities | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - related parties | ( | ) | ( | ) | ||||
| 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 | ||||||||
| Repayment of notes payable - stockholders | ( | ) | ||||||
| Proceeds from convertible notes payable - stockholders | ||||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE 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 year for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | ||||||||
| Accrued preferred dividends | $ | $ | ||||||
| Options issued for software | $ | $ | ||||||
| Issuance of common stock for accounts payable | $ | $ | ||||||
| Conversion of Series A Preferred stock to common stock | $ | $ | ||||||
| Adoption of new accounting principle for embedded derivative liabilities | ||||||||
| affecting accumulated deficit | $ | $ | ||||||
| Exchange of deferred revenue for | $ | $ | ||||||
| Cashless conversion of options into common stock | $ | $ | ||||||
| Exchange of note payable-stockholder and accrued interest for | $ | $ | ||||||
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. There will be levels of subscription revenue paid monthly, service fees, transaction fees and revenue sharing and licensing with banking and distribution partners.
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 six months ended June 30, 2022 and 2021.
ZOOM Payment Solutions, Inc. (“ZPS”)
ZPS (formerly Zoom Payment Solutions USA, Inc.) was incorporated in the state of Nevada on December 6, 2017. ZPS is a wholly owned subsidiary of ZS with the core focus on providing mobile payments solutions.
There were minimal operations at ZPS during the three and six months ended June 30, 2022 and 2021.
ZOOM Blockchain Solutions, Inc. (“ZBS”)
ZBS was incorporated in the state
of Delaware on April 20, 2018 as an
There were minimal operations at ZBS during the three and six months ended June 30, 2022 and 2021.
ZOOM Cloud Solutions, Inc. (“ZCS”)
ZCS (formerly Zoom Canada Solutions,
Inc.) was incorporated in the state of Delaware on April 20, 2018 as an
There were minimal operations at ZCS during the three and six months ended June 30, 2022 and 2021.
| 10 |
ZOOM Auto Solutions, Inc. (“ZAS”)
ZAS (formerly Zoom Mining Solutions) was incorporated in the State of Delaware on February 19, 2018 as a wholly owned subsidiary of ZCS. It is now a wholly owned subsidiary of ZBS.
There were minimal operations at ZAS during the three and six months ended June 30, 2022 and 2021.
The Company’s principal office is located in Blue Bell, Pennsylvania.
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 2021 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, 2021 as filed with the SEC. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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 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. This was adopted January 1, 2022 and there was no material impact to the financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of June 30, 2022, 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 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.
| 11 |
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.
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 future financial impact cannot be reasonably estimated at this time.
As of August 15, 2022, the Company has a cash position of approximately
$
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 $
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. The Company 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 $
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES
As of June
30, 2022 and December 31, 2021, the Company owed the Chief Executive Officer, who is also a more than
Additionally,
as of June 30, 2022 and December 31, 2021, the Company owed the son of a more than
As of June
30, 2022 and December 31, 2021, the Company owed the Chief Financial Officer $
NOTE 5 – LOANS PAYABLE
Loans payable
as of June 30, 2022 and December 31, 2021 were $
NOTE 6 – 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On March
6, 2015, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued $
| 12 |
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 June 30, 2022 and December 31, 2021 in the amount of $
NOTE 7 – NOTES PAYABLE – STOCKHOLDERS
These notes
payable have no formal repayment terms and $
These notes
payable are recorded as a current liability as of June 30, 2022 and December 31, 2021 in the amount of $
NOTE 8 – 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
On August
26, 2016, the Company, pursuant to a Securities Purchase Agreement, issued $
During the six months ended June 30, 2022, the
Company issued $
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 to
The New Secured Notes are recorded as a current liability in the amount of $
| 13 |
NOTE 9 – INCOME TAXES
Income tax expense was $
As of January 1, 2022, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2022 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and six months ended June 30, 2022, and there was no accrual for uncertain tax positions as of June 30, 2022. Tax years from 2018 through 2021 remain subject to examination by major tax jurisdictions.
There is no income tax benefit for the losses for the three and six months ended June 30, 2022 and 2021, 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 10 – 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 six months ended June 30, 2022, a Series A Preferred stockholder converted
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
six months ended June 30, 2022 and 2021, the Company sold
| 14 |
Rego Payment Architectures, Inc. Series C Preferred Stock
In August
2016, Rego authorized
As of June
30, 2022, 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,
As
of June 30, 2022, the value of the cumulative
NOTE 11 – STOCKHOLDERS’ EQUITY
The
Company entered into a financial advisory agreement in November 2018 whereby generally the Company will pay a financial advisor a success
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
| 15 |
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.
NOTE 12 – 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 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.
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 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.
| 16 |
The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted by REGO during the six months ended June 30, 2022:
| Risk Free Interest Rate | % | |||
| Expected Volatility | % | |||
| Expected Life (in years) | ||||
| Dividend Yield | % | |||
| Weighted average estimated fair value of options during the period | $ |
During the
six months ended June 30, 2022, the Company issued options to purchase
The following table summarizes the activities for REGO’s stock options for the six months ended June 30, 2022:
| 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, 2021 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Expired/Cancelled | ( | ) | $ | |||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 and expected to | ||||||||||||||||
| vest thereafter | $ | $ | ||||||||||||||
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the closing stock price of $ |
REGO expensed
$
As of June
30, 2022, there was $
| 17 |
The following table summarizes the activities for REGO’s warrants for the six months ended June 30, 2022:
| Weighted- | ||||||||||||||||
| Average | ||||||||||||||||
| Remaining | Aggregate | |||||||||||||||
| Weighted- | Contractual | Intrinsic | ||||||||||||||
| Number of | Average | Term | Value | |||||||||||||
| Shares | Exercise Price | (in years) | (in 000's) (1) | |||||||||||||
| Balance, December 31, 2021 | $ | $ | ||||||||||||||
| Expired/Cancelled | ( | ) | $ | - | $ | |||||||||||
| Balance, June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 and expected to | ||||||||||||||||
| vest thereafter | $ | $ | ||||||||||||||
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $ |
Rego expensed
$
All warrants were vested on the date of grant.
The following table summarizes the activities for ZS’s stock options for the six months ended June 30, 2022:
| 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, 2021 | $ | $ | ||||||||||||||
| Balance, June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 and expected to | ||||||||||||||||
| vest thereafter | $ | $ | ||||||||||||||
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the value of $ |
For the three and six months
ended June 30, 2022 and 2021, ZS expensed $
| 18 |
The following table summarizes the activities for ZCS’s stock options for the six months ended June 30, 2022:
| 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, 2021 | $ | $ | ||||||||||||||
| Balance, June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2022 and expected to | ||||||||||||||||
| vest thereafter | $ | $ | ||||||||||||||
| (1) | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the value of $ |
For the three and
NOTE 13 – NONCONTROLLING INTERESTS
Losses incurred
by the noncontrolling interests for the three and six months ended June 30, 2022 were $
NOTE 14 – OPERATING LEASES
For the
three and six months ended June 30, 2022 and 2021, total rent expense under leases amounted to $
NOTE 15 – RELATED PARTY TRANSACTIONS
On January 20, 2022, the Board Members received
cash bonuses of $
On January 26, 2022, the Board of Directors
approved a salary increase raising the Chief Executive Officer’s salary to $
On February 22, 2022, a Board member and his
son each purchased a
On April 1, 2022, the Chief Executive Officer
was paid a bonus of $
On April 7, 2022, the Chief Financial Officer
was paid a bonus of $
On
May 20, 2022 the Company issued
NOTE 16 – SUBSEQUENT EVENTS
Between July 1, 2022 and August 15, 2022, the
Company sold
In July 2022, the Company issued three consultants options to purchase
in aggregate
| 19 |
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—MazoolaR - 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” o4f 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.
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.
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 payments 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 MazoolaSM 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 MazoolaSM 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. |
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 June 30, 2022 and 2021
The following discussion analyzes our results of operations for the three months ended June 30, 2022 and 2021. 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 June 30, 2022 and 2021, we generated revenues of $253 and $740.
Net Loss
For the three months ended June 30, 2022 and 2021, we had a net loss of $2,939,035 and $3,271,565.
Transaction Expense
Transaction expense for the three months ended June 30, 2022 was $59,982 compared to $38,745 for the three months ended June 30, 2021. 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 June 30, 2022 were $581,038 compared to $166,597 for the three months ended June 30, 2021, an increase of $414,441. This resulted from a marketing plan designed to bring users to the Platform.
Product Development
Product development expenses were $663,542 and $817,558 for the three months ended June 30, 2022 and 2021, a decrease of $154,016. The Company continued the process to add further enhancement to Mazoola® app to increase its marketability.
General and Administrative Expenses
General and administrative expenses decreased $640,342 to $1,381,489 for the three months ended June 30, 2022 from $2,021,831 for the three months ended June 30, 2021. This resulted from the Company issuing shares of common stock and options to Board members, officers and consultants, an increase of approximately $1 million, during the three months ended June 30, 2021, which did not recur during the three months ended June 30, 2022. This was offset by bonuses and raises to employees of approximately $100,000 and legal fees associated with patents and valuations of approximately $380,000, during the three months ended June 30, 2022.
| 22 |
Forgiveness of Debt
During the three months ended June 30, 2022, the Company had $0 of debt forgiven compared to $13,925 for the three months ended June 30, 2021 related to vendor payables.
Interest Expense
During the three months ended June 30, 2022, the Company incurred interest expense of $254,078 compared to $241,507 for the three months ended June 30, 2021, an increase of $12,571. The increase in interest expense relates to increased levels of outstanding debt.
Comparison of the Six Months Ended June 30, 2022 and 2021
The following discussion analyzes our results of operations for the six months ended June 30, 2022 and 2021. 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 six months ended June 30, 2022 and 2021, we generated revenues of $1,650 and $1,273.
Net Loss
For the six months ended June 30, 2022 and 2021, we had a net loss of $5,218,182 and $7,917,366.
Transaction Expense
Transaction expense for the six months ended June 30, 2022 was $122,513 compared to $76,059 for the six months ended June 30, 2021. 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 six months ended June 30, 2022 were $1,217,646 compared to $623,613 for the six months ended June 30, 2021, an increase of $594,033. This resulted from a marketing plan designed to bring users to the Platform.
Product Development
Product development expenses were $1,098,908 and $1,647,916 for the six months ended June 30, 2022 and 2021, a decrease of $549,008. The Company continued the process to add further enhancement to Mazoola® app to increase its marketability.
General and Administrative Expenses
General and administrative expenses decreased $2,815,745 to $2,275,043 or the six months ended June 30, 2022 from $5,090,788 for the six months ended June 30, 2021. This resulted from the Company issuing shares of common stock and options to Board members, officers and consultants, an increase of approximately $2,200,000, and bonuses and payroll increases of approximately $200,000 during the six months ended June 30, 2021, which did not reoccur during the six months ended June 30, 2022. This was offset by legal fees associated with patents and valuations of approximately $400,000, during the six months ended June 30, 2022.
| 23 |
Forgiveness of Debt
During the six months ended June 30, 2022, the Company had $0 of debt forgiven compared to $95,425 for the six months ended June 30, 2021 which consisted of $79,500 from the Paycheck Protection Plan, $2,000 from the Economic Injury Disaster Loan, and $13,925 of vendor debt.
Interest Expense
During the six months ended June 30, 2022, the Company incurred interest expense of $506,601, compared to $575,947 for the six months ended June 30, 2021, a decrease of $69,346. The decrease in interest expense relates to the movement from the 10% Secured Promissory Notes to the 4% Secured Promissory Notes.
Liquidity and Capital Resources
As of August 15, 2022 we had cash on hand of approximately $860,000.
Net cash used in operating activities increased $986,286 to $3,341,340 for the six months ended June 30, 2022 as compared to $2,355,054 for the six months ended June 30, 2021. The increase resulted primarily from the increased marketing costs related to a Mazoola® app and increased professional fees related to a patent and trademark valuation offset by the reduction in non-cash based compensation.
Net cash used in investing activities increased to $12,253 for the six months ended June 30, 2022 from $0 for the six months ended June 30, 2021 as a result of patent expenses related to current patents.
Net cash provided by financing activities increased to $3,904,004 for the six months ended June 30, 2022 from $4,740,000 for the six months ended June 30, 2021. Cash provided by financing activities during the six months ended June 30, 2022, consisted primarily of proceeds from the sale of Series B Preferred Stock 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 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 fourth quarter of 2022. 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.
| 24 |
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 November 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 June 30, 2022, 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, 2021. 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.
| 25 |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required.
ITEM 4. CONTROLS AND PROCEDURES.
As of June 30, 2022 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 June 30, 2022, 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 June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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, 2021.
ITEM 1A. RISK FACTORS.
Not required.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three months ended June 30, 2022, the Company sold 1,556 shares of the Company’s Series B Preferred stock in a private placement to accredited investors and received proceeds of $140,000.
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.
In addition, the disclosure set forth in Part II – Item 2 above is incorporated by reference.
On August 15, 2022, Scott A. McPherson, the Company’s Chief Financial Officer and Corporate Secretary, delivered his resignation from such position, effective August 16, 2022.
On August 15, 2022, and effective August 16, 2022, the Company appointed Joseph Toczydlowski as its Chief Financial Officer.
Mr. Toczydlowski, age 53, has held various financial positions at Sculptz, Inc. since 1998, including most recently as Chief Financial Officer since April 2011. He previously served as a Senior Tax Accountant at United Refrigeration, Inc. and Arthur Andersen & Co. Mr. Toczydlowski is a Certified Public Accountant and has a B.S. in Accounting from LaSalle University.
Pursuant to an employment agreement to be effective August 16, 2022, Mr. Toczydlowski will receive an annual salary of $165,000 for the first year of employment, which will be increased to $175,000 in the second year of employment. The employment agreement has an initial term of two years and renews for successive one-year periods unless either party gives notice of intent to not renew the agreement at least 60 days prior to the renewal date. Notwithstanding the term, Mr. Toczydlowski’s employment is “at will” and is terminable at any time by either party, without further economic obligation beyond the termination date except as required by law. Mr. Toczydlowski will also receive an option to purchase 250,000 shares of the Company’s common stock upon commencement of his employment under the agreement with an exercise price of $0.90 per share, or the closing price of the Company’s common stock on the date of issuance, whichever is higher and a five year term. He will also receive an option to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.90 per share, or the closing price of the Company’s common stock on the date of issuance, whichever is higher and a five year term.
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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/ Scott McPherson | |
| Scott McPherson | ||
|
Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) |
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| Date: August 15, 2022 | ||
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