REGO PAYMENT ARCHITECTURES, INC. 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 Table of Contents
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 ofMay 16, 2022 , the Company has a cash position of approximately$1.9 million . Based upon the current cash position and the Company's planned expense run rate, management believes the Company has funds currently to finance its operations throughNovember 2022 .
NOTE 3 - IMPAIRMENT OF LONG-LIVED ASSETS
OnJanuary 1, 2021 , REGO entered into a Purchase of Business Agreement ("Agreement") withChore Check, LLC pursuant to which it purchased the assets ofChore Check, LLC , consisting primarily of a software application, valued at$111,817 , fair value. The consideration for the acquisition consisted of the issuance of an option to purchase 100,000 shares of the Company's common stock, with an exercise price of$0.90 , vesting immediately and with a term of three years. Long-lived assets are tested for impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value is less than the carrying value. Long-lived assets are considered impaired if the carrying value exceeds its fair value. The Company determined that the carrying value of the asset acquired fromChore Check, LLC exceeded its fair value and has recorded an impairment loss in the amount of$111,817 as ofMarch 31, 2021 , which was included in general and administrative expenses.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES
As of
Additionally, as ofMarch 31, 2022 andDecember 31, 2021 , the Company owed the son of a more than 5% beneficial owner, Chief Executive Officer, President and Board member,$0 and$10,349 , pursuant to a consulting agreement.
As of
NOTE 5 - LOANS PAYABLE Loans payable as ofMarch 31, 2022 andDecember 31, 2021 were$42,600 . Interest accrued on the loans at 6% and 10% was$4,536 and$3,806 as ofMarch 31, 2022 andDecember 31, 2021 . Interest expense related to these loans payable was$730 and$251 for the three months endedMarch 31, 2022 and 2021.
NOTE 6 - 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
OnMarch 6, 2015 , the Company, pursuant to a Securities Purchase Agreement (the "Purchase Agreement"), issued$2,000,000 aggregate principal amount of its 10% Secured Convertible Promissory Notes dueMarch 5, 2016 (the "Notes") to certain stockholders. OnMay 11, 2015 , the Company issued an additional$940,000 of Notes to stockholders. The maturity dates of the Notes have been extended most recently toOctober 31, 2022 , with the consent of the Note holders. 12 Table of Contents The Notes are convertible by the holders, at any time, into shares of the Company's Series B Preferred Stock at a conversion price of$90.00 per share, subject to adjustment for stock splits, stock dividends and similar transactions with respect to the Series B Preferred Stock only. Each share of Series B Preferred Stock is currently convertible into 100 shares of the Company's common stock at a current conversion price of$0.90 per share, subject to anti-dilution adjustment as described in the Certificate of Designation of the Series B Preferred Stock. In addition, pursuant to the terms of a Security Agreement entered into onMay 11, 2015 by and among the Company, the Note holders and a collateral agent acting on behalf of the Note holders (the "Security Agreement"), the Notes are secured by a lien against substantially all of the Company's business assets. Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Series B Preferred Stock upon a conversion of the Notes. The Notes are recorded as a current liability as ofMarch 31, 2022 andDecember 31, 2021 in the amount of$3,316,357 . Interest accrued on the Notes was$2,262,511 and$2,179,602 as ofMarch 31, 2022 andDecember 31, 2021 . Interest expense related to these Notes payable was$82,909 and$77,909 for the three months endedMarch 31, 2022 and 2021.
NOTE 7 - NOTES PAYABLE - STOCKHOLDERS
These notes payable have no formal repayment terms and
These notes payable are recorded as a current liability as ofMarch 31, 2022 andDecember 31, 2021 in the amount of$595,000 . Interest accrued on the notes, as ofMarch 31, 2022 andDecember 31, 2021 was$216,017 and$195,626 . Interest expense was$20,391 and$155,205 for the three monthsMarch 31, 2022 and 2021.
NOTE 8 - 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS
OnAugust 26, 2016 , the Company, pursuant to a Securities Purchase Agreement, issued$600,000 aggregate principal amount of its 4.0% Secured Convertible Promissory Notes dueJune 30, 2019 (the "New Secured Notes") to certain accredited investors ("investors"). The Company issued additional New Secured Notes during 2016, 2017, 2018, 2019 2020, 2021 and 2022.
During the three months ended
The New Secured Notes are convertible by the holders, at any time, into shares
of the Company's authorized Series C Cumulative Convertible Preferred Stock
("Series C Preferred Stock") at a conversion price of $90.00 per share, subject
to adjustment for stock splits, stock dividends and similar transactions with
respect to the Series C Preferred Stock only. Each share of Series C Preferred
Stock is currently convertible into 100 shares of the Company's common stock at
a current conversion price of $0.90 per share, subject to full ratchet
anti-dilution adjustment for one year and weighted average anti-dilution
adjustment thereafter, as described in the Certificate of Designation of the
Series C Preferred Stock. Upon a liquidation event, the Company shall first pay
to the holders of the Series C Preferred Stock, on a pari passu basis with the
holders of the Company's outstanding Series A Preferred Stock and Series B
Preferred Stock, an amount per share equal to 700% of the conversion price
(i.e., $630.00 per share of Series C Preferred Stock), plus all accrued and
unpaid dividends on each share of Series C Preferred Stock (the "Series C
Preference Amount"). The Series C Preference Amount shall be paid prior and in
preference to payment of any amounts to the Common Stock. After the payment of
all preferential amounts required to be paid to the holders of shares of Series
C Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and any
additional senior preferred stock, the Series C Preferred Stock participates in
further distributions subject to an aggregate cap of seven and one-half times
(7.5x) the original issue price thereof, plus all accrued and unpaid dividends.
The maturity dates of the New Secured Notes were extended by the investors to
The New Secured Notes are recorded as a current liability in the amount of$14,981,250 and$14,781,250 as ofMarch 31, 2022 andDecember 31, 2021 . Interest accrued on the New Secured Notes was$1,701,011 and$1,552,519 as ofMarch 31, 2022 andDecember 31, 2021 . Interest expense related to these notes payable was$148,492 and$100,449 for the three months endedMarch 31, 2022 and 2021. NOTE 9 - INCOME TAXES
Income tax expense was
13 Table of Contents As ofJanuary 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 months endedMarch 31, 2022 , and there was no accrual for uncertain tax positions as ofMarch 31, 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 months endedMarch 31, 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
The Series A Preferred Stock has a preference in liquidation equal to two times its original issue price, or$20,270,000 , to be paid out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common stock in any remaining proceeds subject to an aggregate cap of 2.5 times its original issue price. The Series A Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock can be converted. The Series A Preferred Stock also contains customary approval rights with respect to certain matters. The Series A Preferred Stock accrues dividends at the rate of 8% per annum or$8.00 per Series A Preferred Share. The conversion price of Series A Preferred Stock is currently$0.90 per share. The Series A Preferred Stock is subject to mandatory conversion if certain registration or related requirements are satisfied and the average closing price of the REGO's common stock exceeds 2.5 times the conversion price over a period of twenty consecutive trading days.
During the three months ended
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$13,586,040 as ofMarch 31, 2022 , to be paid out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common stock in any remaining proceeds subject to an aggregate cap of 2.5 times its original issue price. The Series B Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Series B Preferred Stock can be converted. The Series B Preferred Stock also contains customary approval rights with respect to certain matters. The Series B Preferred Stock accrues dividends at the rate of 8% per annum.
The conversion price of the Series B Preferred Stock is currently
During the three months endedMarch 31, 2022 and 2021, the Company sold 39,599 and 0 shares of the Company's Series B Preferred Stock in private placements to accredited investors and received proceeds of$3,564,000 and$0 .
InAugust 2016 , REGO authorized 150,000 shares of REGO's Series C Cumulative Convertible Preferred Stock ("Series C Preferred Stock"). OnAugust 23, 2021 , REGO filed with theDelaware Secretary of State an Amendment to Certificate of Designation of Preferences, Rights and Limitations of Series C Cumulative Convertible Preferred Stock, pursuant to which the amount of authorized Series C Preferred Stock was increased from 150,000 shares to 300,000 shares. As ofMarch 31, 2022 , none of the Series C Preferred Stock was issued or outstanding. After the date of issuance of Series C Preferred Stock, dividends at the rate of$7.20 per share will begin accruing and will be cumulative. The Series C Preferred Stock is pari passu with the Series A Preferred Stock and Series B Preferred Stock and has a preference in liquidation equal to seven times its original issue price to be paid out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common stock in any remaining proceeds subject to an aggregate cap of 7.5 times its original issue price. The Series C Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Series C Preferred Stock can be converted. The Series C Preferred Stock also contains customary approval rights with respect to certain matters. There are no outstanding Series C Preferred Shares, therefore the current per annum dividend per share is$0 . 14 Table of Contents
As ofMarch 31, 2022 , the value of the cumulative 8% dividends for all REGO preferred stock was$8,147,216 . Such dividends will be paid when and if declared payable by REGO's board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC 260-10-45-11, the Company has recorded these accrued dividends as a current liability. ZS Series A Preferred Stock InNovember 2018 , ZS pursuant to a Securities Purchase Agreement (the "ZS Series A Purchase Agreement"), issued in a private placement to an accredited investor, 83,334 units at an original issue price of$3 per unit (the "ZS Original Series A Issue Price"), which includes one share of ZS' Series A Cumulative Convertible Preferred Stock (the "ZS Series A Preferred Stock") and one warrant to purchase one share of ZS' common stock with an exercise price of$3.00 per share expiring in three years (the "Series A Warrants"). ZS raised$250,000 with respect to this transaction. Dividends on the ZS Series A Preferred Stock accrue at a rate of 8% per annum and are cumulative. The ZS Series A Preferred Stock has a preference in liquidation equal to two times the ZS Original Series A Issue Price to be paid out of assets available for distribution prior to holders of ZS common stock and thereafter participates with the holders of ZS common stock in any remaining proceeds subject to an aggregate cap of 2.5 times the ZS Original Series A Issue Price. The ZS Series A Preferred Stockholders may cast the number of votes equal to the number of whole shares of ZS common stock into which the shares of ZS Series A Preferred Stock can be converted. As ofMarch 31, 2022 , the value of the cumulative 8% dividends for ZS preferred stock was$68,333 . Such dividends will be paid when and if declared payable by the ZS' board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC 260-10-45-11, the Company has recorded these accrued dividends as a current liability.
NOTE 11 - STOCKHOLDERS' EQUITY
The Company entered into a financial advisory agreement inNovember 2018 whereby generally the Company will pay a financial advisor a success fee equal to 6% of the capital committed in a capital transaction involving the sale of the Company. Issuance of Restricted Shares A restricted stock award ("RSA") is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company's restricted stock awards generally vest over a period of one year. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company's common stock on the grant date.
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 25,000,000 shares of common stock to any officer, other employee or director
of, or any consultant or other independent contractor who provides services to
the Company. The 2008 Plan was intended to permit stock options granted to
employees under the 2008 Plan to qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options"). All options granted under the 2008 Plan, which are not intended to
qualify as Incentive Stock Options are deemed to be non-qualified options
("Non-Statutory Stock Options"). As of March 31, 2022 , under the 2008 Plan,
options to purchase 1,250,000 shares of common stock have been issued and are
unexercised, and no shares are available for grants under the 2008 Plan. The
2008 Plan expired on March 3, 2019 .
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During 2013, the Board adopted the 2013 Equity Incentive Plan ("2013 Plan"),
which was approved by stockholders at the 2013 annual meeting of stockholders.
Under the 2013 Plan, the Company is authorized to grant awards of stock options,
restricted stock, restricted stock units and other stock-based awards of up to
an aggregate of 5,000,000 shares of common stock to any officer, employee,
director or consultant. The 2013 Plan is intended to permit stock options
granted to employees under the 2013 Plan to qualify as Incentive Stock Options.
All options granted under the 2013 Plan, which are not intended to qualify as
Incentive Stock Options are deemed to be Non-Statutory Stock Options. As of
March 31, 2022 , under the 2013 Plan, grants of restricted stock and options to
purchase 4,700,000 shares of common stock have been issued and are unexercised,
and 300,000 shares of common stock remain available for grants under the
2013 Plan.
The 2013 Plan is administered by the Board or its compensation committee, which
determines the persons to whom awards will be granted, the number of awards to
be granted, and the specific terms of each grant, including the vesting thereof,
subject to the terms of the 2013 Plan.
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 toJanuary 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. BeginningJanuary 1, 2014 , volatility in all instances presented is the Company's estimate of volatility that is based on the historical volatility of the Company's common stock. The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted by REGO during the three months endedMarch 31, 2022 : Risk Free Interest Rate 1.5 % Expected Volatility 112.9 % Expected Life (in years) 2.9 Dividend Yield
0 %
Weighted average estimated fair value of options during the period
During the three months endedMarch 31, 2022 , the Company issued options to purchase 3,725,000 shares of the Company's common stock to various consultants and employees. The options were valued at$1,991,450 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the options. The fair value of options was expensed immediately. 16 Table of Contents
The following table summarizes the activities for REGO's stock options for the
three months ended
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 11,317,500 $ 0.57 2.1 $ 2,145
Granted 3,725,000 $ 0.90 2.8 $ 1,378
Expired/Cancelled (200,000 ) $ 0.90 - -
Exercisable at March 31, 2022 14,842,500 $ 0.65 2.1 $ 9,192
Exercisable at
vest thereafter 14,842,500 $ 0.65 2.1 $ 9,192
(1) The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying options and the closing stock price of
$1.27 for REGO's common stock onMarch 31, 2022 .
REGO expensed
As ofMarch 31, 2022 , there was$1,587,763 of unrecognized compensation cost related to outstanding stock options. The difference, if any, between the stock options exercisable atMarch 31, 2022 and the stock options exercisable and expected to vest relates to management's estimate of options expected to vest in the future.
The following table summarizes the activities for REGO's warrants for the three
months ended
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 1,500,000 $ 0.90 0.5 $ -
Expired/Cancelled (500,000 ) $ 0.90 - $ -
Balance, March 31, 2022 1,000,000 $ 0.90 0.2 $ 370
Exercisable at March 31, 2022 1,000,000 $ 0.90 0.2 $ 370
Exercisable at
vest thereafter 1,000,000 $ 0.90 0.2 $ 370
(1) The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying warrants and the closing stock price of
$1.27 for REGO's common stock onMarch 31, 2022 . 17 Table of Contents
REGO expensed
All warrants were vested on the date of grant.
The following table summarizes the activities for ZS's stock options for the
three months ended
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 1,600,000 $ 5.00 2.0 $ -
Balance, March 31, 2022 1,600,000 $ 5.00 1.7 $ -
Exercisable at March 31, 2022 1,600,000 $ 5.00 1.7 $ -
Exercisable at and
vest thereafter 1,600,000 $ 5.00 1.7 $ -
(1) The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying options and the value of $4.00 for ZS's
common stock on March 31, 2022 .
For the three months ended
The following table summarizes the activities for ZCS's stock options for the
three months ended
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 1,600,000 $ 5.00 2.0 $ - Balance, March 31, 2022 1,600,000 $ 5.00 1.7 $ -
Exercisable at March 31, 2022 1,600,000 $ 5.00 1.7 $ - Exercisable at and March 31, 2022 and expected to vest thereafter 1,600,000 $ 5.00 1.7 $ -
(1) The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying options and the value of $0.01 for ZCS's
common stock on March 31, 2022 .
For the three months ended
18 Table of Contents
NOTE 13 - NONCONTROLLING INTERESTS
Losses incurred by the noncontrolling interests for the three months ended
NOTE 14 - OPERATING LEASES For the three months endedMarch 31, 2022 and 2021, total rent expense under leases amounted to$800 and$761 . The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases. The Company has no long-term lease obligations as ofMarch 31, 2022 .
NOTE 15 - RELATED PARTY TRANSACTIONS
On
On
On
During the three months ended
NOTE 16 - SUBSEQUENT EVENTS
Between
In
During April, 2022, the Company issued options to purchase 225,000 shares of the Company's common stock to various consultants with 2 year terms and exercise prices between$1.28 and$1.31 per share. InMay 2022 , the Company extended the term of options to purchase 200,000 shares of the Company's common stock with an exercise price of$0.2595 and options to purchase 400,000 shares of the Company's common stock with an exercise price of$0.90 . All of these options were extended toJune 15, 2023 . 19 Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OverviewREGO Payment Architectures, Inc. is a provider of consumer software that delivers a mobile payment platform solution-MazoolaR - a family focused mobile banking solution. Headquartered inBlue 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 ofREGO 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,
? 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, theEuropean Parliament and Council agreed upon the General Data Protection Regulation ("GDPR") inApril 2016 , to replace the Data Protection Directive 95/46/EC. This is the primary law regulating how companies protectEuropean Union ("EU") citizens' personal data. GDPR became effective onMay 25, 2018 . Companies that fail to achieve GDPR compliance are subject to severe
fines and penalties.
GDPR requirements apply to each member state of theEuropean 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.
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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 andGen 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.
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Results of Operations
Comparison of the Three Months Ended
The following discussion analyzes our results of operations for the three months endedMarch 31, 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
Net Loss
For the three months ended
Transaction Expense
Transaction expense for the three months ended
Sales and Marketing
Sales and marketing expenses for the three months ended
Product Development Product development expenses were$435,366 and$830,358 for the three months endedMarch 31, 2022 and 2021, a decrease of$394,992 . 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$2,175,403 to$893,554 for the three months endedMarch 31, 2022 from$3,068,957 for the three months endedMarch 31, 2021 . This resulted from the Company issuing shares of common stock and options to Board members, officers and consultants, an increase of approximately$2,565,000 , during the three months endedMarch 31, 2021 , which did not reoccur during the three months endedMarch 31, 2022 . This was offset by bonuses to the Board members of$100,000 and options issued to consultants in the amount of$318,000 , during the three months endedMarch 31, 2022 . 22 Table of Contents Forgiveness of Debt Forgiveness of debt decreased$81,500 to$0 for the three months endedMarch 31, 2022 . This resulted from forgiveness of debt related to the Paycheck Protection Program, during 2021. Interest Expense
During the three months endedMarch 31, 2022 , the Company incurred interest expense of$252,523 , compared to$334,440 for the three months endedMarch 31, 2021 , a decrease of$81,917 . The decrease in interest expense relates to the exchange of 10% Secured Promissory Notes for 4% Secured Promissory Notes, during 2021.
Liquidity and Capital Resources
As of
Net cash used in operating activities increased$791,240 to$1,650,729 for the three months endedMarch 31, 2022 as compared to$859,489 for the three months endedMarch 31, 2021 . The increase resulted primarily from the increased marketing costs related to the Mazoola® app offset by the reduction in non-cash based compensation.
Net cash used in investing activities increased
Net cash provided by financing activities increased to$3,764,000 for the three months endedMarch 31, 2022 from$2,445,000 for the three months endedMarch 31, 2021 . Cash provided by financing activities during the three months endedMarch 31, 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.
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
23 Table of Contents
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
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 endedDecember 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.
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