UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20222023

☐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 0-53944

 

For the transition period from __________ to __________

Commission file number 0-53944

REGO PAYMENT ARCHITECTURES, INC.

(Exact Name of Registrant as Specified in Its Charter)

REGO PAYMENT ARCHITECTURES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 35-2327649

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

   
325 Sentry Parkway, Suite 200  
Blue Bell, PA 19422
(Address of Principal Executive Offices) (Zip Code)

(267) 465-7530

(Registrant’s Telephone Number, Including Area Code)

(267) 465-7530
(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 ClassTrading 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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 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 ☐ 
Non-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: 123,627,213135,248,105 shares of common stock outstanding at August 15, 2022.14, 2023.

 

 2 

 

TABLE OF CONTENTS

 Page
PART I - FINANCIAL INFORMATION
  
Cautionary Note Regarding Forward-Looking Statements4
ITEM 1.Financial Statements5
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 Operations2019
ITEM 3.Quantitative and Qualitative Disclosures about Market Risk26
ITEM 4.Controls and Procedures26
  
PART II - OTHER INFORMATION 
   
ITEM 1.Legal Proceedings2726
ITEM 1A.Risk Factors2726
ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds2726
ITEM 3.Defaults Upon Senior Securities2726
ITEM 4.Mine Safety Disclosures2726
ITEM 5.Other Information27
ITEM 6.Exhibits2827
SIGNATURES2928

 

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Table of Contents

 

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, 20212022 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.

 

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Table of Contents

 

ITEM 1. FINANCIAL STATEMENTS

Rego Payment Architectures, Inc.

CONTENTS

 PAGE
  
CONDENSED CONSOLIDATED BALANCE SHEETS6
  
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS7
  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT8
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS9
  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS10 to 19

 

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Rego Payment Architectures, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 June 30, 2022 December 31, 2021  June 30, 2023 December 31, 2022 
ASSETS             
             
CURRENT ASSETS             
Cash and cash equivalents $1,103,542  $553,131  $8,717,134  $6,005,667 
Receivables  18,000   - 
Prepaid expenses  19,699   108,131   16,891   17,758 
Deposits  341   341   341   341 
                
TOTAL CURRENT ASSETS  1,123,582   661,603   8,752,366   6,023,766 
                
OTHER ASSETS                
Patents and trademarks, net of accumulated                
amortization of $280,110 and $253,262  364,806   379,401 
amortization of $310,548 and $291,255  337,392   352,859 
  364,806   379,401   337,392   352,859 
                
TOTAL ASSETS $1,488,388  $1,041,004  $9,089,758  $6,376,625 
        
                
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                
CURRENT LIABILITIES                
Accounts payable and accrued expenses $6,686,630  $6,108,019  $7,261,426  $6,861,314 
Accounts payable and accrued expenses - related parties  -   141,522   70,591   2,610 
Loans payable  42,600   42,600   42,600   42,600 
10% secured convertible notes payable - stockholders  3,316,357   3,316,357   3,316,357   3,316,357 
Notes payable - stockholders  595,000   595,000   595,000   595,000 
4% secured convertible notes payable - stockholders  14,981,250   14,781,250   14,981,250   14,981,250 
Preferred stock dividend liability  8,535,662   7,928,199   10,126,777   9,214,850 
Common stock to be issued  -   5,350,000 
                
TOTAL CURRENT LIABILITIES  34,157,499   32,912,947   36,394,001   40,363,981 
                
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        
outstanding at December 31, 2021  10   10 
authorized; 195,500 preferred shares Series A authorized; 98,350 shares        
issued and outstanding at June 30, 2023 and 100,350 issued and        
outstanding at December 31, 2022  10   10 
                
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        
outstanding at December 31, 2021  8   4 
authorized; 347,222 preferred shares Series B authorized; 227,514 shares        
issued and outstanding at June 30, 2023 and 162,485 issued and        
outstanding at December 31, 2022  23   17 
                
Preferred stock, $.0001 par value; 2,000,000 preferred shares                
authorized; 300,000 preferred shares Series C authorized; 0 shares                
issued and outstanding at June 30, 2022 and December 31, 2021  -   - 
issued and outstanding at June 30, 2023 and December 31, 2022  -   - 
                
Common stock, $ .0001 par value; 230,000,000 shares authorized;                
123,627,213 shares issued and outstanding at June 30, 2022 and        
123,441,102 shares issued and outstanding at December 31, 2021  12,363   12,344 
135,248,105 shares issued and outstanding at June 30, 2023 and        
124,160,885 shares issued and outstanding at December 31, 2022  13,525   12,416 
                
Additional paid in capital  72,768,466   67,740,012   102,400,362   83,255,319 
                
Accumulated deficit  (105,362,254)  (99,546,710)  (129,610,561)  (117,157,414)
                
Noncontrolling interests  (87,704)  (77,603)  (107,602)  (97,704)
                
STOCKHOLDERS' DEFICIT  (32,669,111)  (31,871,943)  (27,304,243)  (33,987,356)
                
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,488,388  $1,041,004  $9,089,758  $6,376,625 

 

See the accompanying notes to the condensed consolidated financial statements.

 

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Rego Payment Architectures, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

 For the Three Months Ended For the Six Months Ended  For the Three Months Ended For the Six Months Ended 
 June 30, June 30,  June 30, June 30, 
 2022 2021 2022 2021  2023 2022 2023 2022 
                  
NET REVENUE $253  $740  $1,650  $1,273  $-  $253  $-  $1,650 
                                
OPERATING EXPENSES                                
Transaction expense  59,982   38,745   122,513   76,059   58,678   59,982   114,962   122,513 
Sales and marketing  581,038   166,597   1,217,646   623,613   653,363   581,038   1,007,343   1,217,646 
Product development  663,542   817,558   1,098,908   1,647,916   605,658   663,542   1,292,406   1,098,908 
General and administrative  1,381,489   2,021,831   2,275,043   5,090,788   4,570,440   1,381,489   8,628,485   2,275,043 
Total operating expenses  2,686,051   3,044,731   4,714,110   7,438,376   5,888,139   2,686,051   11,043,196   4,714,110 
                                
NET OPERATING LOSS  (2,685,798)  (3,043,991)  (4,712,460)  (7,437,103)  (5,888,139)  (2,685,798)  (11,043,196)  (4,712,460)
                                
OTHER INCOME (EXPENSE)                                
Interest income  841   8   879   259   -   841   -   879 
Forgiveness of debt  -   13,925   -   95,425 
Interest expense  (254,078)  (241,507)  (506,601)  (575,947)  (254,078)  (254,078)  (507,922)  (506,601)
  (253,237)  (227,574)  (505,722)  (480,263)  (254,078)  (253,237)  (507,922)  (505,722)
                                
NET LOSS  (2,939,035)  (3,271,565)  (5,218,182)  (7,917,366)  (6,142,217)  (2,939,035)  (11,551,118)  (5,218,182)
                                
LESS: Accrued preferred dividends  (320,113)  (267,113)  (607,463)  (534,227)  (645,063)  (320,113)  (911,927)  (607,463)
Net loss attributable to noncontrolling interests  -   -   101   101   -   -   -   101 
                                
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(3,259,148) $(3,538,678) $(5,825,544) $(8,451,492) $(6,787,280) $(3,259,148) $(12,463,045) $(5,825,544)
                                
BASIC AND DILUTED NET LOSS PER                                
COMMON SHARE $(0.03) $(0.03) $(0.05) $(0.07) $(0.05) $(0.03) $(0.10) $(0.05)
                                
BASIC AND DILUTED WEIGHTED AVERAGE                                
COMMON SHARES OUTSTANDING  123,580,546   123,102,040   123,512,676   122,178,595   130,599,494   123,580,546   127,466,744   123,512,676 

 

See the accompanying notes to the condensed consolidated financial statements.

 

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Rego Payment Architectures, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the Three and Six Month PeriodsMonths Ended June 30, 20222023 and June 30, 20212022

(Unaudited)

 

 Preferred Preferred Preferred Common           Preferred Preferred Preferred Common         
 Stock Series A Stock Series B Stock Series C Stock Additional         Stock Series A Stock Series B Stock Series C Stock Additional       
 Number of     Number of     Number of     Number of     Paid-In Accumulated Noncontrolling     Number of   Number of   Number of   Number of   Paid-In Accumulated Noncontrolling   
 Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Interests Total  Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Interests Total 
                                                  
Balance, December 31, 2021  102,350  $10   35,879  $4   -  $-   123,441,102  $12,344  $67,740,012  $(99,546,710) $(77,603) $(31,871,943)
Balance, December 31, 2022  100,350  $10   162,485  $17   -  $-   124,160,885  $12,416  $83,255,319  $(117,157,414) $(97,704) $(33,987,356)
                                                                                                

Conversion of Series A Preferred

stock to common stock

  (1,000)                      111,111   11   (11)  -   -   -   (2,000)  -   -   -   -   -   222,220   22   (22)  -   -   - 
Sale of Series B Preferred stock  -   -   39,599   4   -   -   -   -   3,563,996   -   -   3,564,000   -   -   8,444   -   -   -   -   -   759,999   -   -   759,999 
Issuance of commonstock to board members and employees  -   -   -   -   -   -   7,200,000   720   8,278,430   -   -   8,279,150 
Exercise of options  -   -   -   -   -   -   80,000   8   79,592   -   -   79,600 
Fair value of options for services  -   -   -   -   -   -   -   -   403,686   -   -   403,686   -   -   -   -   -   -   -   -   504,862   -   -   504,862 
Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (282,350)  (5,000)  (287,350)  -   -   -   -   -   -   -   -   -   (261,966)  (4,898)  (266,864)
Net loss  -   -   -   -   -   -   -   -   -   (2,279,046)  (101)  (2,279,147)  -   -   -   -   -   -   -   -   -   (5,408,901)  -   (5,408,901)
                                                                                                
Balance, March 31, 2022  101,350  $10   75,478  $8   -  $-   123,552,213  $12,355  $71,707,683  $(102,108,106) $(82,704) $(30,470,754)
Balance, March 31, 2023  98,350  $10   170,929  $17   -  $-   131,663,105  $13,166  $92,878,180  $(122,828,281) $(102,602) $(30,039,510)
                                                                                                
Sale of Series B Preferred stock  -   -   1,555   0   -   -   -   -   140,000   -   -   140,000   -   -   56,585   6   -   -   -   -   5,092,494   -   -   5,092,500 
Issuance of commonstock to board members and employees  -   -   -   -   -   -   1,375,000   138   1,662,613   -   -   1,662,751 

Issuance of common stock to

consultants

  -   -   -   -   -   -   75,000   8   80,242   -   -   80,250   -   -   -   -   -   -   250,000   25   312,475   -   -   312,500 
Exercise of options  -   -   -   -   -   -   1,960,000   196   546,854   -   -   547,050 
Fair value of options for services  -   -   -   -   -   -   -   -   840,541   -   -   840,541   -   -   -   -   -   -   -   -   1,907,746   -   -   1,907,746 
Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (315,113)  (5,000)  (320,113)  -   -   -   -   -   -   -   -   -   (640,063)  (5,000)  (645,063)
Net loss  -   -   -   -   -   -   -   -   -   (2,939,035)  -   (2,939,035)  -   -   -   -   -   -   -   -   -   (6,142,217)  -   (6,142,217)
                                                                                                
Balance, June 30, 2022  101,350  $10   77,033  $8   -  $-   123,627,213  $12,363  $72,768,466  $(105,362,254) $(87,704) $(32,669,111)
Balance, June 30, 2023  98,350  $10   227,514  $23   -  $-   135,248,105  $13,525   102,400,362  $(129,610,561) $(107,602) $(27,304,243)
                                                

 

  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

  107,850  $11   28,378  $3   -   -   120,096,866  $12,010  $61,447,232  $(87,783,083) $(57,502) $(26,381,329)
                                                 

 Conversion of Series A Preferred

stock into common stock

  (5,500)  (1)  -   -   -   -   611,111   61   (60)  
-
   
-
   
-
 

 Issuance of common stock to

board members and employees

  -   -   -   -   -   -   1,800,000   180   1,929,820   -   -   1,930,000 

 Issuance of common stock for

accounts payable

  -   -   -   -   -   -   150,000   15   134,985   -   -   135,000 
 Exercise of options  -   -   -   -   -   -   80,000   8   19,992   -   -   20,000 
 Fair value of options for software  -   -   -   -   -   -   -   -   111,817   -   -   111,817 
 Fair value of options for services  -   -   -   -   -   -   -   -   1,417,625   -   -   1,417,625 
 Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (262,114)  (5,000)  (267,114)
Net loss  -   -   -   -   -   -   -   -   -   (4,645,700)  (101)  (4,645,801)
                                                 
 Balance, March 31, 2021  102,350   10   28,378   3   -   -   122,737,977   12,274   65,061,411   (92,690,897)  (62,603)  (27,679,802)
                                                 

 Issuance of common stock to

board members and employees

  -   -   -   -   -   -   600,000   60   620,940   -   -   621,000 
 Exercise of options, cashless  -   -   -   -   -   -   28,125   3   (3)  -   -   - 
 Fair value of options for services  -   -   -   -   -   -   -   -   1,161,089   -   -   1,161,089 
 Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (262,113)  (5,000)  (267,113)
Net loss  -   -   -   -   -   -   -   -   -   (3,271,565)  -   (3,271,565)
                                                 
 Balance, June 30, 2021  102,350  $10   28,378  $3   -   -   123,366,102  $12,337  $66,843,437  $(96,224,575) $(67,603) $(29,436,391)
  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  102,350  $10   35,879  $4   -  $-   123,441,102  $12,344  $67,740,012  $(99,546,710) $(77,603) $(31,871,943)
                                                 
 Conversion of Series A Preferred stock to common stock  (1,000)  -   -   -   -   -   111,111   11   (11)  -   -   - 
 Sale of Series B Preferred stock  -   -   39,599   4   -   -   -   -   3,563,996   -   -   3,564,000 
 Fair value of options for services  -   -   -   -   -   -   -   -   403,686   -   -   403,686 
 Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (282,350)  (5,000)  (287,350)
Net loss  -   -   -   -   -   -   -   -   -   (2,279,046)  (101)  (2,279,147)
                                                 
 Balance, March 31, 2022  101,350  $10   75,478  $8   -  $-   123,552,213  $12,355  $71,707,683  $(102,108,106) $(82,704) $(30,470,754)
                                                 
 Sale of Series B Preferred stock  -   -   1,555   0   -   -   -   -   140,000   -   -   140,000 
 Issuance of common stock to consultants  -   -   -   -   -   -   75,000   8   80,242   -   -   80,250 
 Fair value of options for services  -   -   -   -   -   -   -   -   840,541   -   -   840,541 
 Accrued preferred dividends  -   -   -   -   -   -   -   -   -   (315,113)  (5,000)  (320,113)
Net loss  -   -   -   -   -   -   -   -   -   (2,939,035)  -   (2,939,035)
                                                 
 Balance, June 30, 2022  101,350  $10   77,033  $8   -  $-   123,627,213  $12,363  $72,768,466  $(105,362,254) $(87,704) $(32,669,111)

 

See the accompanying notes to the condensed consolidated financial statementsstatements.

 

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Rego Payment Architectures, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 For the Six Months Ended June 30,  For the Six Months Ended June 30, 
 2022 2021  2023 2022 
CASH FLOWS FROM OPERATING ACTIVITIES             
Net loss $(5,218,182) $(7,917,366) $(11,551,118) $(5,218,182)
Adjustments to reconcile net loss to net cash used in operating activities:                
Fair value of common stock issued in exchange for services  80,250   2,551,000   10,254,401   80,250 
Fair value of options issued in exchange for services  1,244,228   2,578,715   2,412,608   1,244,228 
Impairment loss  -   111,817 
Depreciation and amortization  26,848   12,647   19,293   26,848 
Forgiveness of debt  -   (95,425)
Decrease in assets        
(Increase) decrease in assets        
Receivables  (18,000)  - 
Prepaid expenses  88,432   148,557   867   88,432 
Increase (decrease) in liabilities                
Accounts payable and accrued expenses  578,606   339,337   400,112   578,606 
Accounts payable and accrued expenses - related parties  (141,522)  (84,336)  67,981   (141,522)
Common stock to be issued  (5,350,000)  - 
                
Net cash used in operating activities  (3,341,340)  (2,355,054)  (3,763,856)  (3,341,340)
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Investment in patents  (12,253)  -   (3,826)  (12,253)
Net cash used in investing activities  (12,253)  -   (3,826)  (12,253)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Exercise of options  -   20,000   626,650   - 
Proceeds from sale of Series B Preferred stock  3,704,004   
 
   5,852,499   3,704,004 
Proceeds from 4% secured notes payable - stockholders  200,000       -   200,000 
Repayment of notes payable - stockholders  -   (50,000)
Proceeds from convertible notes payable - stockholders  -   4,770,000 
                
Net cash provided by financing activities  3,904,004   4,740,000   6,479,149   3,904,004 
                
NET INCREASE IN CASH AND CASH EQUIVALENTS  550,411   2,384,946   2,711,467   550,411 
                
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD  553,131   273,176   6,005,667   553,131 
                
CASH AND CASH EQUIVALENTS - END OF PERIOD $1,103,542  $2,658,122  $8,717,134  $1,103,542 
                
        
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
                
Cash paid during year for:        
Cash paid during period for:        
Interest $-  $576  $-  $- 
        
Income taxes $-  $-  $-  $- 
                
                
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                
                
Accrued preferred dividends $607,463  $534,227  $911,927  $607,463 
Options issued for software $-  $111,817 
Issuance of common stock for accounts payable $-  $135,000 
        
Conversion of Series A Preferred stock to common stock $11  $61  $22  $11 
Adoption of new accounting principle for embedded derivative liabilities        
affecting accumulated deficit $-  $10,987,578 
Exchange of deferred revenue for 10% convertible note payable $-  $200,000 
Cashless conversion of options into common stock $-  $3 
Exchange of note payable-stockholder and accrued interest for 4% convertible note payable $-  $517,000 

 

See the accompanying notes to the condensed consolidated financial statements.

 

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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—platform solution—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.

 

The Company’s principal office is located in Blue Bell, Pennsylvania.

ZOOM Solutions, Inc. (“ZS”)

 

ZS (formerly Zoom Payment Solutions, Inc.) was incorporated in the state of Delaware on February 16, 2018 as a subsidiary of REGO Payment Architectures, Inc. REGO owns 100% of the common stock of ZS. ZS is the holding company for various subsidiaries that willmay utilize REGO’s payment platform to address emerging markets.

 

There were minimal operations at ZS during the three and six months ended June 30, 20222023 and 2021.

ZOOM Payment Solutions, Inc. (“ZPS”)2022.

 

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 85% owned subsidiary of ZS. This company was focused on blockchain as a business solution for the retail and Consumer Packaged Goods (“CPG”) industries.

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 85% owned subsidiary of ZS. ZCS was focused on providing a highly secure cloud storage as a service.

There were minimal operations at ZCS during the three and six months ended June 30, 2022 and 2021.

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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 20212022 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, 20212022 as filed with the SEC. Operating results for the three and six months ended June 30, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.

 

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The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing to operationalize the Company’s current technology before another company develops or markets similar technology to compete with the Company.

 

Recently Adopted Accounting Pronouncements

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), Issuer’s Accounting for Certain Modifications or Exchanges or Freestanding Equity – Classified Written Call Options. The amendments in this Update clarify an issuer’s accounting for modifications or exchanges of freestanding equity – classified written call options (for example, warrants) that remain equity classified after modification or exchange. This wasThe amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. The Company adopted this standard effective January 1, 2022 and there was nowhich did not have a material impact toon the Company's consolidated financial statements.statements and related disclosure.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

As of June 30, 2022,2023, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

 

NOTE 2 – MANAGEMENT PLANS

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced negative cash flow from operations since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Since inception, the Company has focused on developing and implementing its business plan. The Company believes that its existing cash resources will 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.

 

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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, 2022,14, 2023, the Company has a cash position of approximately $860,000.$8.2 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 through November 2022.December 2024.

 

NOTE 3 – IMPAIRMENT OF LONG-LIVED ASSETS

On January 1, 2021, REGO entered into a Purchase of Business Agreement (“Agreement”) with Chore Check, LLC pursuant to which it purchased the assets of Chore Check, LLC, consisting primarily of a software application, valued at $111,817, fair value. The consideration for the acquisition consisted of the issuance of an option to purchase 100,000 shares of the Company’s common stock, with an exercise price of $0.90, vesting immediately and with a term of three years.

Long-lived assets are tested for impairment by performing a qualitative assessment to determine whether it is more likely than not that the fair value is less than the carrying value. Long-lived assets are considered impaired if the carrying value exceeds its fair value. 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 $111,817 as of June 30, 2021, which was included in general and administrative expenses.

NOTE 43 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES

 

As of June 30, 20222023 and December 31, 2021,2022, the Company owed the Chief Executive Officer, who is also a more than 5% beneficial owner, a total of $0$63,283 and $95,185, consisting of $0 and $95,185$1,703 in unpaid salary.

 

Additionally, as of June 30, 2022 and December 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 June 30, 20222023 and December 31, 2021,2022, the Company owed the Chief Financial Officer $0$7,308 and $35,988$907 in unpaid salary.

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NOTE 54 – LOANS PAYABLE

 

Loans payable as of June 30, 20222023 and December 31, 20212022 were $42,600. Interest accrued on the loans at 6% and 10% was $5,275$8,237 and $3,806$6,768 as of June 30, 20222023 and December 31, 2021.2022. Interest expense related to these loans payable was $739 and $1,469 for the three and six months ended June 30, 20222023 and $253$739 and $504$1,469 for the three and six months ended June 30, 2021.2022.

 

NOTE 65 – 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS

 

On March 6, 2015, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued $2,000,000 aggregate principal amount of its 10% Secured Convertible Promissory Notes due March 5, 2016 (the “Notes”) to certain stockholders. On May 11, 2015, the Company issued an additional $940,000 of Notes to stockholders. The maturity dates of the Notes have been extended most recently to October 31, 2022,2023, with the consent of the Note holders.

 

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The Notes are convertible by the holders, at any time, into shares of the Company’s Series B Preferred Stock at a conversion price of $90.00 per share, subject to adjustment for stock splits, stock dividends and similar transactions with respect to the Series B Preferred Stock only. Each share of Series B Preferred Stock is currently convertible into 100 shares of the Company’s common stock at a current conversion price of $0.90 per share, subject to anti-dilution adjustment as described in the Certificate of Designation of the Series B Preferred Stock. In addition, pursuant to the terms of a Security Agreement entered into on May 11, 2015 by and among the Company, the Note holders and a collateral agent acting on behalf of the Note holders (the “Security Agreement”), the Notes are secured by a lien against substantially all of the Company’s business assets. Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Series B Preferred Stock upon a conversion of the Notes.

 

The Notes are recorded as a current liability as of June 30, 20222023 and December 31, 20212022 in the amount of $3,316,357. Interest accrued on the Notes was $2,345,420$2,677,056 and $2,179,602$2,511,238 as of June 30, 20222023 and December 31, 2021.2022. Interest expense related to these Notes payable was $82,909 and $165,818 for the three months and six months ended June 30, 20222023 and $80,507$82,909 and $158,416$165,818 for the three and six months ended June 30, 2021.2022.

 

NOTE 76 – NOTES PAYABLE – STOCKHOLDERS

 

These notes payable have no formal repayment terms and $370,000 of the notes bear interest at 10% per annum and the remaining $225,000 of the notes bear interest at 20% per annum.

 

These notes payable are recorded as a current liability as of June 30, 20222023 and December 31, 20212022 in the amount of $595,000. Interest accrued on the notes, as of June 30, 20222023 and December 31, 20212022 was $236,636$320,074 and $195,626.$278,326. Interest expense related to these notes was $21,357 and $41,749 for the three and six months ended June 30, 2023 and $20,618 and $41,010 for the three and six months ended June 30, 2022 and $28,361 and $183,566 for the three and six months ended June 30, 2021.2022.

 

NOTE 87 – 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS

 

On August 26, 2016, the Company, pursuant to a Securities Purchase Agreement, issued $600,000 aggregate principal amount of its 4.0% Secured Convertible Promissory Notes due June 30, 2019 (the “New Secured Notes”) to certain accredited investors (“investors”). The Company issued additional New Secured Notes during 2016, 2017, 2018, 2019 2020, 2021 and 2022.

 

During the six months ended June 30, 2022, the Company issued $200,000 aggregate principal amount of its New Secured Notes to a member of the Board of Directors and his son.

 

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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 most recently to October 31, 2022.2023.

 

The New Secured Notes are recorded as a current liability in the amount of $14,981,250 and $14,781,250 as of June 30, 20222023 and December 31, 2021.2022. Interest accrued on the New Secured Notes was $1,850,824$2,450,074 as of June 30, 20222023 and $1,552,519,$2,150,449, as of December 31.31, 2022. Interest expense related to these New Secured Notes was $149,813 and $299,625 for the three and six months ended June 30, 2023 and $149,813 and $298,304 for the three and six months ended June 30, 2022 and $136,992 and $237,491 for the three and six months ended June 30. 2021.2022.

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NOTE 98 – INCOME TAXES

 

Income tax expense was $0 for the three and six months ended June 30, 20222023 and 2021.2022.

 

As of January 1, 2022,2023, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 20222023 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and six months ended June 30, 2022,2023, and there was no accrual for uncertain tax positions as of June 30, 2022.2023. Tax years from 20182019 through 20212022 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, 20222023 and 2021,2022, since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

 

NOTE 109 – CONVERTIBLE PREFERRED STOCK

 

Rego Payment Architectures, Inc. Series A Preferred Stock

 

The Series A Preferred Stock has a preference in liquidation equal to two times its original issue price, or $20,270,000,$19,670,000, 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 six months ended June 30, 2022,2023, a Series A Preferred stockholder converted 1,0002,000 Series A Preferred shares into 111,111222,220 shares of common stock.

 

Rego Payment Architectures, Inc. Series B Preferred Stock

 

The Series B Preferred Stock is pari passu with the Series A Preferred Stock and has a preference in liquidation equal to two times its original issue price, or $13,865,940$40,952,520 as of June 30, 2022,2023, 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.

 

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The conversion price of the Series B Preferred Stock is currently $0.90 per share. The Series B Preferred Stock is subject to mandatory conversion if certain registration or related requirements are satisfied and the average closing price of the Company’s common stock exceeds 2.5 times the conversion price over a period of twenty consecutive trading days.

 

During the six months ended June 30, 20222023 and 2021,2022, the Company sold 41,15565,029 and 041,154 shares of the Company’s Series B Preferred Stock in private placements to accredited investors and received proceeds of $3,704,000$5,852,610 and $0.$3,704,000.

 

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Rego Payment Architectures, Inc. Series C Preferred Stock

 

In August 2016, Rego authorized 150,000 shares of Rego’s Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”). On August 23, 2021, Rego filed with the Delaware 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 of June 30, 2022,2023, none of the Series C Preferred Stock was issued or outstanding. After the date of issuance of Series C Preferred Stock, dividends at the rate of $7.20 per share will begin accruing and will be cumulative. The Series C Preferred Stock is pari passu with the Series A Preferred Stock and Series B Preferred Stock and has a preference in liquidation equal to seven times its original issue price to be paid out of assets available for distribution prior to holders of common stock and thereafter participates with the holders of common stock in any remaining proceeds subject to an aggregate cap of 7.5 times its original issue price. The Series C Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Series C Preferred Stock can be converted. The Series C Preferred Stock also contains customary approval rights with respect to certain matters. There are no outstanding Series C Preferred Shares, therefore the current per annum dividend per share is $0.

 

As of June 30, 2022,2023, the value of the cumulative 8% dividends for all Rego preferred stock was $8,462,328.$10,033,444. Such dividends will be paid when and if declared payable by Rego’s board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC 260-10-45-11, the Company has recorded these accrued dividends as a current liability.

 

ZS Series A Preferred Stock

 

In November 2018, ZS pursuant to a Securities Purchase Agreement (the “ZS Series A Purchase Agreement”), issued in a private placement to an accredited investor, 83,334 units at an original issue price of $3 per unit (the “ZS Original Series A Issue Price”), which includes one share of ZS’ Series A Cumulative Convertible Preferred Stock (the “ZS Series A Preferred Stock”) and one warrant to purchase one share of ZS’ common stock with an exercise price of $3.00 per share expiring in three years (the “Series A Warrants”). ZS raised $250,000 with respect to this transaction. Dividends on the ZS Series A Preferred Stock accrue at a rate of 8% per annum and are cumulative. The ZS Series A Preferred Stock has a preference in liquidation equal to two times the ZS Original Series A Issue Price to be paid out of assets available for distribution prior to holders of ZS common stock and thereafter participates with the holders of ZS common stock in any remaining proceeds subject to an aggregate cap of 2.5 times the ZS Original Series A Issue Price. The ZS Series A Preferred Stockholders may cast the number of votes equal to the number of whole shares of ZS common stock into which the shares of ZS Series A Preferred Stock can be converted.

 

As of June 30, 2022,2023, the value of the cumulative 8% dividends for ZS preferred stock was $73,333  .$93,333. 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.

 

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NOTE 1110 – STOCKHOLDERS’ EQUITY

 

TheOn September 22, 2022 the Company entered intoengaged an investment banking firm to explore a financial advisory agreement in November 2018 whereby generallyprospective sale of the Company. The Company will pay a financial advisor a success fee equal to 6%1.5% of the capital committed in a capital transaction involving the sale of the Company  .value upon closing. This contingency has not yet been met.

 

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 250,000 shares of common stock of the Company at exercise prices of $0.90 per share. These options were scheduled to expire on June 15, 2022 and were each extended to June 15, 2023. The increase in fair value of this term extension was $109,155 which was expensed during the six months ended June 30, 2022. The Company used the Black-Scholes option pricing model to calculate the increase in fair value, with the following assumptions for the extended options: no dividend yield, expected volatility of 85.9%, risk free interest rate of 2.16%, and expected option life of 1.08 years.

 

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On May 7, 2023, the Board of Directors approved amendments extending the term of certain outstanding options to purchase in the aggregate 1,675,000 shares of common stock of the Company at exercise prices ranging from $0.26 to $1.04 per share. These options were scheduled to expire in May and June 2023 and were each extended to December 31, 2025. The increase in fair value of this term extension was $1,481,912 which was expensed during the six months ended June 30, 2023. The Company used the Black-Scholes option pricing model to calculate the increase in fair value, with the following assumptions for the extended options: no dividend yield, expected volatility of 91.7%, risk free interest rate of 3.92%, and expected option life of 2.66 years.

 

Issuance of Restricted Shares

 

A restricted stock award (“RSA”) is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s restricted stock awards generally vest over a period of one year. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.

On April 11, 2023 the Company granted 250,000 shares of the Company’s common stock to a former corporate officer in exchange for 650,000 options granted to him under the 2013 Plan at an exercise price of $0.2595 per share. The value of the options exchanged was higher than the value of the shares being issued. The Company expensed $312,475, the fair value of the Common Stock issued, in April 2023.

 

NOTE 1211 – 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 June 30, 2022,2023, under the 2008 Plan, options to purchase 1,250,000500,000 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.

 

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 June 30, 2022,2023, under the 2013 Plan, grants of restricted stock and options to purchase 4,700,0001,237,500 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.unexercised.

 

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.

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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.

 

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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, 2022:2023:

Risk Free Interest Rate  4.1%
Expected Volatility  75.5%
Expected Life (in years)  2.0 
Dividend Yield  0%
Weighted average estimated fair value of options during the period $0.55 

 

Risk Free Interest Rate  1.6%
Expected Volatility  112.0%
Expected Life (in years)  2.9 
Dividend Yield  0%
Weighted average estimated fair value of options during the period $0.55 

During the six months ended June 30, 2022,2023, the Company issued options to purchase 4,050,0001,462,875 shares of the Company’s common stock to various consultants and employees. The options were valued at $2,246,508$810,141 fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the options. The fair value of stock options for employees iswas expensed over the vesting term in accordance with the terms of the related stock option agreements and for consultants is expensed over the vesting term, if that is shorter than the term of the consulting agreement, otherwise over the term of the consulting agreement.immediately.

 

The following table summarizes the activities for REGO’s stock options for the six months ended June 30, 2022:2023:

 

 Options Outstanding  Options Outstanding 
      Weighted -          Weighted -    
      Average          Average    
      Remaining Aggregate       Remaining Aggregate 
    Weighted- Contractual Intrinsic     Weighted- Contractual Intrinsic 
 Number of Average Term Value  Number of Average Term Value 
 Shares Exercise Price (in years) (in 000's) (1)  Shares Exercise Price (in years) (in 000's) (1) 
Balance, December 31, 2021  11,317,500  $0.57   2.1  $2,145 
Balance, December 31, 2022  16,062,125  $0.71   1.5  $8,803 
                                
Granted  4,050,000  $0.90   2.5  $1,600   1,462,875   1.28   1.8   - 
Exercised  (2,040,000)  0.31   -   - 
Expired/Cancelled  (450,000) $0.90   -   -   (1,300,000)  0.38   -   - 
                                
Exercisable at June 30, 2022  14,917,500  $0.65   1.9  $9,592 
Exercisable at June 30, 2023  14,185,000  $0.86   1.7  $7,109 
                                
Exercisable at June 30, 2022 and expected to                
Exercisable at June 30, 2023 and expected to                
vest thereafter  14,917,500  $0.65   1.9  $9,592   14,185,000  $0.86   1.7  $7,109 

 

 (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the closing stock price of $1.30$1.35 for Rego’s common stock on June 30, 2022.2023.

 

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REGO expensed $1,907,746 and $2,412,608 for the three and six months ended June 30, 2023 and $840,542 and $1,244,228 for the three and six months ended June 30, 2022 and $1,161,090 and $2,578,714 for the three and six months ended June 30, 2021, with respect to stock options.

 

As of June 30, 2022,2023, there was $1,111,434$47,053 of unrecognized compensation cost related to outstanding stock options. The difference, if any, between the stock options exercisable at June 30, 20222023 and the stock options exercisable and expected to vest relates to management’s estimate of options expected to vest in the future.

 

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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  1,500,000  $0.90   0.5  $- 
                 
Expired/Cancelled  (1,000,000) $0.90   -  $- 
                 
Balance, June 30, 2022  500,000  $0.90   0.2  $200 
                 
Exercisable at June 30, 2022  500,000  $0.90   0.2  $200 
                 
Exercisable at June 30, 2022 and expected to                
vest thereafter  500,000  $0.90   0.2  $200 

 (1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the closing stock price of $1.30 for Rego’s common stock on June 30, 2022.

Rego expensed $0 for the 3 and six months ended June 30, 2022 and 2021 with respect to warrants.

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, 2022:2023:

 

  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, June 30, 2022  1,600,000  $5.00   1.5  $- 
                 
Exercisable at June 30, 2022  1,600,000  $5.00   1.5  $- 
                 
Exercisable at June 30, 2022 and expected to                
vest thereafter  1,600,000  $5.00   1.5  $- 
  Options Outstanding 
        Weighted -    
        Average    
        Remaining  Aggregate 
     Weighted-  Contractual  Intrinsic 
  Number of  Average  Term  Value 
  Shares  Exercise Price  (in years)  (in 000's) (1) 
Balance, December 31, 2022  1,600,000  $5.00   1.0  $- 
                 
Balance, June 30, 2023  1,600,000  $5.00   0.5  $- 
                 
Exercisable at June 30, 2023  1,600,000  $5.00   0.5  $- 
                 
Exercisable at June 30, 2023 and expected to                
  vest thereafter  1,600,000  $5.00   0.5  $- 

 

 (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 June 30, 2022.2023.

 

For the three and six months ended June 30, 20222023 and 2021,2022, ZS expensed $0 with respect to options.

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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  1,600,000  $5.00   2.0  $- 
                 
Balance, June 30, 2022  1,600,000  $5.00   1.5  $- 
                 
Exercisable at June 30, 2022  1,600,000  $5.00   1.5  $- 
                 
Exercisable at June 30, 2022 and expected to                
vest thereafter  1,600,000  $5.00   1.5  $- 

 (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 June 30, 2022.

For the three and 6 months ended June 30, 2022 and 2021, ZCS expensed $0 with respect to options.

 

NOTE 1312 – NONCONTROLLING INTERESTS

 

Losses incurred by the noncontrolling interests for the three and six months ended June 30, 20222023 were $0 and $101 and for the three and six months ended June 30, 20212022 were $0 and $101.

 

NOTE 1413 – OPERATING LEASES

 

For the three and six months ended June 30, 2022 and 2021,2023, total rent expense under leases amounted to $1,601$1,252 and $2,401$2,483 and for the three and six months ended June 30, 20212022 total rent under leases amounted to $1,521$1,601 and $2,282.$2,401. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases. The Company has no long-term lease obligations as of June 30, 2022.2023.

 

NOTE 1514 – RELATED PARTY TRANSACTIONS

 

On January 20,Pursuant to the September 22, 2022 incentive awards for the Board Members received cash bonusessuccessful engagement of $50,000 each, or a totalan investment banker, the Company issued shares of $100,000.Common Stock as follows: Chairman: 1,000,000 shares; Chief Executive Officer: 1,500,000 shares; Chief Technology Officer: 200,000 and Chief Financial Officer: 100,000 shares. The Company recorded combined share-based compensation expense and board fees of $2,704,650, the fair value of the Common Stock issued, in the first quarter 2023.

Pursuant to the October 5, 2022 incentive awards for the securing of additional investment in its Series B Preferred Stock to satisfy completion of the $20MM Preferred B Raise, the Company issued shares of Common Stock as follows: Chairman: 1,000,000 shares; Chief Executive Officer: 1,000,000 shares; Chief Technology Officer: 100,000 and Chief Financial Officer: 50,000 shares. The Company recorded combined share-based compensation expense and board fees of $2,644,500, the fair value of the Common Stock issued, in the first quarter 2023.

 

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On January 26, 2022,March 8, 2023 the following performance bonuses were earned pursuant to the securing of a commercial distribution agreement with a financial institution software provider: 1) Shares of Common Stock: Chairman: 150,000 shares; Chief Executive Officer: 400,000 shares; Chief Technology Officer: 200,000 shares; and Chief Financial Officer: 50,000 shares. 2) Cash Compensation: Chief Executive Officer: $20,000; and Chief Technology Officer: $20,000. For the Common Stock awards, the Company recorded combined share-based compensation expense and board fees of $1,040,000, the fair value of the Common Stock issued, in March 2023.

On March 13, 2023 the following performance bonuses were earned pursuant to the securing of a $20 million Business Line of Credit: 1) Shares of Common Stock: Chairman: 750,000 shares; Chief Executive Officer: 500,000 shares; and Chief Technology Officer: 150,000 shares . 2) Cash Compensation: Chairman: $50,000; and Chief Executive Officer: $50,000. For the Common Stock awards, the Company recorded combined share-based compensation expense and board fees of $1,890,000, the fair value of the Common Stock issued, in March 2023.

On April 19, 2023 the following cash bonuses were earned pursuant to the securing of an agreement with a banking FinTech provider: Chairman: $20,000; Chief Executive Officer: $60,000; and Chief Technology Officer: $20,000. Pursuant to this item, shares of common stock were also earned as follows: Chairman: 100,000 shares; Chief Executive Officer: 450,000 shares; Chief Technology Officer: 100,000 shares; and Chief Financial Officer: 25,000 shares. The Company recorded share-based compensation expense of $816,750 , the fair value of the common stock issued, in April 2023.

On May 1, 2023, the Board of Directors approved a salary increase raising the Chief Executive Officer’s salary to $310,000$345,360 per year.

 

On FebruaryMay 22, 2022, a Board member and his son each purchased a 4% Secured Note Payable for $100,000.

On April 1, 2022,2023 the Chief Executive Officer was paid a performance bonus pursuant to raising an additional $3.250 million in funding. 250,000 shares of $50,000.Common Stock were awarded. The Company recorded share-based compensation expense of $297,500, the fair value of the Common Stock issued, in May 2023. This performance bonus also included a $15,000 payment.

 

On April 7, 2022,May 30, 2023 the Chief FinancialExecutive Officer was paid a performance bonus pursuant to the successful completion of $75,000.platform enhancements that will enable fractional stock transaction capability. 250,000 shares of Common Stock were awarded. The Company recorded share-based compensation expense of $292,500, the fair value of the Common Stock issued, in May 2023.

 

On May 20,30, 2023, the Board of Directors approved a salary increase raising the Chief Financial Officer’s salary to $190,000 per year.

On June 26, 2023 the following performance bonuses were earned pursuant to the completion of raising an additional $5 million via Preferred B investment: 1) Shares of Common Stock: Chairman: 100,000 shares; Chief Executive Officer: 100,000 shares. 2) Cash Compensation: Chairman: $50,000; and Chief Executive Officer: $50,000. For the Common Stock awards, the Company recorded combined share-based compensation expense and board fees of $256,000, the fair value of the Common Stock issued, in June 2023.

NOTE 15 – COMMON STOCK TO BE ISSUED

On September 22, 2022 the Company issued 75,000engaged an investment banker for advisory services to explore a prospective sale of the Company. The successful engagement of this investment banker resulted in an incentive award of 2,850,000 shares of common stock due to a consultant in payment for marketing services with acertain executives and board of director members. The Company accrued compensation expense of $2,705,000, the fair market value of $80,250. This same consultant was also paid $10,800the common stock to be issued, for other marketing services forthe year ended December 31, 2022. During the three months ended June 30,March 31, 2023, the Company recognized the shares as issued on January 1, 2023 and reclassed the amount from common stock to be issued to additional paid in capital.

On October 5, 2022 the Company secured additional investment in its Series B Preferred Stock to satisfy completion of the $20MM Preferred B Raise – Successful Corporate Action Award. This resulted in an incentive award of 2,150,000 shares of common stock due to certain executives and $21,600board of director members. The Company accrued compensation expense of $2,645,000, the fair value of the common stock to be issued, for the sixyear ended December 31, 2022. During the three months ended June 30, 2022.March 31, 2023, the Company recognized the shares as issued on January 1, 2023 and reclassed the amount from common stock to be issued to additional paid in capital.

 

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NOTE 16 - INVESTOR PRIVATE LINE OF CREDIT

On March 13, 2023, the Company entered into an Investor Private Line of Credit agreement (the “LOC Agreement”) with an existing shareholder of the Company (the “Lender”). Pursuant to this agreement, the Lender may extend unsecured loans to the Company in the amount of up to twenty million dollars ($20,000,000) which may be drawn upon by the Company for a period of one year in order to provide additional capital to facilitate the Company’s operations. Drawings may be made by the Company as long as there has not been any material change in the operations of the Company. Loans under the LOC Agreement bear interest at the rate of 7% per annum. Drawings under the LOC Agreement must be repaid in full: (i) upon the execution and completion of a sale, merger or other transaction of the Company whereby the Company transfers its ownership and/or its assets to a third party within thirty (30) days of the completion of the transaction (a “Change of Control”) or (ii) if a Change of Control does not occur within one year from the date of the LOC Agreement, the Company will repay any amounts outstanding within sixty (60) days. As of June 30, 2023 the outstanding balance on this LOC is $0.

NOTE 1617 – SUBSEQUENT EVENTS

 

BetweenOn July 1, 2022 and August 15, 2022,14, 2023 the Company sold 1,611Chief Executive Officer was paid a performance bonus pursuant to the raising of additional investment in the Company: 200,000 shares of Common Stock. The Company recorded compensation expense of $248,000, the Company’s Series B Preferredfair value of the Common Stock issued, in a private placement to accredited investors and received proceeds of $145,000.July 2023.

 

In July 2022, the Company issued three consultants options to purchase in aggregate 275,000 shares of the Company’s common stock with an aggregate fair market value of $195,387.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Overview

 

REGO Payment Architectures, Inc. is a provider of consumer software that delivers a mobile payment platform—MazoolaRMazoolaR - 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.

 

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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” o4fof 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 GDPRkidsTMGDPRkidsTM Trustmark from PRIVO.

 

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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.

 

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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 

●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 & SecuritySecurity: : Partners can safely engage a younger consumer segment and their families with a new family friendly peer to peer paymentspeer-to-peer-payment approach. Vendors will be explicitly protected from non-compliant transactions and the underlying technology protects the privacy of the user.

 

Youth Financial LiteracyLiteracy: : 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 MazoolaSMMazoola® 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 MazoolaSMMazoola® app enables a new way for individual users to own and monetize their purchasing behavior that is currently unavailable to them.

 

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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.

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Other markets for potential licensed applications are:

 

●Government social services payments where control over how benefits allowances are used is required. This is particularly necessary in some European countries where social benefits are not being used as intended by the government or where benefits are subject to fraud.

 

●Closed network consumer to business (C2B) and business to business (B2B). An example is school lunch programs where the consumer can make direct mobile payments to the provider’s point of sale (POS) terminal without the need to traverse the traditional merchant payment system. This reduces the cost per transaction for the vendor and provides instant non-repudiated settlement. Many school lunch programs are now provided by large catering companies. This is particularly valuable as credit card fees, transaction fees and service fees can exceed 3% in overhead costs per transaction dependent on the negotiated rate. Removing this overhead can have significant positive financial impact on profitably. It also allows the closed network to own its own behavioral use data thus obviating the need to pay a third party for the same data.

 

●Integration of our certified COPPA-compliant white label Family Wallet Banking-as-a-Platform into digital banking platforms. This will make the Company's family wallet available to financial institutions which will allow end-user customers of subscribing financial institutions to utilize the Company's family wallet.

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, 20222023 and 20212022

 

The following discussion analyzes our results of operations for the three months ended June 30, 20222023 and 2021.2022. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

 

Net Revenue

 

We have not generated significant revenue since our inception. For the three months ended June 30, 20222023 and 2021,2022, we generated revenues of $253$0 and $740.$253.  

 

Net Loss 

 

For the three months ended June 30, 20222023 and 2021,2022, we had a net loss of $2,939,035$6,142,217 and $3,271,565.$2,939,035.

 

Transaction Expense

 

Transaction expense for the three months ended June 30, 20222023 was $59,982$58,678 compared to $38,745$59,982 for the three months ended June 30, 2021.2022. These are transactional charges primarily for the operation of the Mazoola® app, and the Chore Check app.

 

Sales and Marketing

 

Sales and marketing expenses for the three months ended June 30, 20222023 were $581,038$653,363 compared to $166,597$581,038 for the three months ended June 30, 2021,2022, an increase of $414,441.$72,325. This resulted from aadditional expenditures in the second quarter 2023 for marketing planconsultants and media campaigns designed to bring users to the Platform.increase brand awareness.

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Product Development

 

Product development expenses were $663,542$605,658 and $817,558$663,542 for the three months ended June 30, 20222023 and 2021,2022, a decrease of $154,016. The$57,884. Product development expenses increased in 2023 as the Company continued the process to add further enhancement to Mazoola® app to increase its marketability. However, second quarter 2023 product development expenses were lower as compared to the prior year period due to billing cycle timing differences.

 

General and Administrative Expenses

 

General and administrative expenses decreased $640,342increased $3,188,951 to $4,570,440 for the three months ended June 30, 2023 from $1,381,489 for the three months ended June 30, 2022 from $2,021,831 for the three months ended June 30, 2021.2022. This resulted from the Company issuing shares of common stock and options to Board members, officers and consultants, an increase of approximately $1 million,$3,150,000, during the three months ended June 30, 2021,2023, which did not recuroccur 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.

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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, theThe Company incurred interest expense of $254,078 compared to $241,507 for the three months ended June 30, 2021, an increase2023 and June 30, 2022.

Dividend Accrual

Accrued preferred dividend expense increased by $324,950 to $645,063 for the three months ended June 30, 2023 compared to $320,113 as of $12,571.June 30, 2022. The expense increased as a result of the increase in interest expense relates to increased levelsSeries B Preferred stock sold during the period along with an understatement of outstanding debt.a prior quarter expense.

 

Comparison of the Six Months Ended June 30, 20222023 and 20212022

 

The following discussion analyzes our results of operations for the six months ended June 30, 20222023 and 2021.2022. The following information should be considered together with our condensed financial statements for such period and the accompanying notes thereto.

 

Net Revenue

 

We have not generated significant revenue since our inception. For the six months ended June 30, 20222023 and 2021,2022, we generated revenues of $1,650$0 and $1,273.$1,650.  

 

Net Loss 

 

For the six months ended June 30, 20222023 and 2021,2022, we had a net loss of $5,218,182$11,551,118 and $7,917,366.$5,218,182.

 

Transaction Expense

 

Transaction expense for the six months ended June 30, 20222023 was $122,513$114,962 compared to $76,059$122,513 for the six months ended June 30, 2021.2022. These are transactional charges primarily for the operation of the Mazoola® app, and the Chore Check app.

 

Sales and Marketing

 

Sales and marketing expenses for the six months ended June 30, 20222023 were $1,217,646$1,007,343 compared to $623,613$1,217,646 for the six months ended June 30, 2021, an2022, a decrease of $210,303. Sales and marketing expenses increased in the second quarter 2023 when compared to the prior year due to additional expenditures for marketing consultants and media campaigns designed to increase of $594,033. This resulted frombrand awareness. However, the first quarter 2022 had significantly higher expenditures that were associated with a marketing plancampaign designed to bring users to the Platform. This campaign was discontinued after 2022.

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Product Development

 

Product development expenses were $1,098,908$1,292,406 and $1,647,916$1,098,908 for the six months ended June 30, 2023 and 2022, and 2021, a decreasean increase of $549,008.$193,498. 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 $2,815,745increased $6,353,442 to $2,275,043 or the six months ended June 30, 2022 from $5,090,788$8,628,485 for the six months ended June 30, 2021.2023 from $2,275,043 for the six months ended June 30, 2022. 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$6,000,000, during the six months ended June 30, 2021,2023, which did not reoccuroccur during the six months ended June 30, 2022. In addition, professional fees for investment bankers and strategic advisors increased in 2023 by approximately $600,000. This was offset by a $300,000 reduction in legal fees associated with patents and valuations of approximately $400,000, duringas compared to the six months ended June 30, 2022.

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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, 2022,2023, the Company incurred interest expense of $506,601,$507,922, compared to $575,947$506,601 for the six months ended June 30, 2021, a decrease2022, an increase of $69,346.$1,321. The decreaseincrease in interest expense relates to the movementcompounding interest from the new 10% Secured Promissory Notes added in 2022.

Dividend Accrual

Accrued preferred dividend expense increased by $304,464 to $911,927 for the 4% Secured Promissory Notes.six months ended June 30, 2023 compared to $607,463 as of June 30, 2022. The expense increased as a result of the increase in Series B Preferred stock sold during the period along with an understatement of a prior quarter expense.

 

Liquidity and Capital Resources

 

As of August 15, 202214, 2023 we had cash on hand of approximately $860,000.$8.2 million.

 

Net cash used in operating activities increased $986,286$422,516 to $3,763,856 for the six months ended June 30, 2023 as compared to $3,341,340 for the six months ended June 30, 2022 as compared2022.  The increase resulted primarily from the increased costs associated with the issuance of common stock and options to $2,355,054Board members, officers and consultants.

Net cash used in investing activities decreased to $3,826 for the six months ended June 30, 2021. The increase resulted primarily2023 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.a decrease in patents and trademarks expense.

 

Net cash provided by financing activities increased to $6,479,149 for the six months ended June 30, 2023 from $3,904,004 for the six months ended June 30, 2022 from $4,740,000 for the six months ended June 30, 2021.2022.  Cash provided by financing activities during the six months ended June 30, 2022,2023, 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 maintainOn March 13, 2023, the Company entered into a line$20 million Investor Private Line of credit or term loanCredit agreement with any commercial bank or other financial institution.  an existing shareholder of the Company.

 

Since our inception, we have focused on developing and implementing our business plan.  We believe that our existing cash resources will not be sufficient to sustain our operations during the next twelve months.  We currently need to generate sufficient revenues to support our cost structure to enable us to pay ongoing costs and expenses as they are incurred, finance enhancements to our Platform, and execute the business plan.  If we cannot generate sufficient revenue to fund our business plan, we intend to seek to raise such financing through the sale of debt and/or equity securities.  The issuance of additional equity would result in dilution to existing shareholders. The issuance of convertible debt may also result in dilution to existing stockholders. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to us, we will be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on our business, financial condition and results of operations. See Note 2, to our consolidated financial statements included in this Form 10-Q. 

 

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Even if we are successful in generating sufficient revenue or in raising sufficient capital in order to commercialize the Platform, our ability to continue in business as a viable going concern can only be achieved when our revenues reach a level that sustains our business operations.  We do not project that significant revenue will be developed at the earliest until the fourthsecond quarter of 2022.2024. There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan.  Moreover, there can be no assurance that even if the Platform is fully developed and successfully commercialized, that we will generate revenues sufficient to fund our operations.  In either such situation, we may not be able to continue our operations and our business might fail.

 

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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.December 2024.

 

The foregoing forward-looking information was prepared by us in good faith based upon assumptions that we believe to be reasonable. No assurance can be given, however, regarding the attainability of the projections or the reliability of the assumptions on which they are based. The projections are subject to the uncertainties inherent in any attempt to predict the results of our operations, especially where new products and services are involved. Certain of the assumptions used will inevitably not materialize and unanticipated events will occur. Actual results of operations are, therefore, likely to vary from the projections and such variations may be material and adverse to us. Accordingly, no assurance can be given that such results will be achieved. Moreover, due to changes in technology, new product announcements, competitive pressures, system design and/or other specifications we may be required to change the current plans. 

 

Off-Balance Sheet Arrangements

 

As of June 30, 2022,2023, we do not have any off-balance sheet arrangements.

 

Critical Accounting Policies

 

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 1 of the Notes to Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2021.2022. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

 

Stock-based Compensation

 

We have adopted the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 718. In addition, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”), which provides supplemental FASB ASC 718 application guidance based on the views of the SEC. Under FASB ASC 718, compensation cost recognized includes compensation cost for all share-based payments granted, based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718.

 

We have used the Black-Scholes option-pricing model to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire).

 

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued.  Non-employee equity basedequity-based payments that do not vest immediately upon grant are recorded as an expense over the vesting period.

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Revenue Recognition

 

In accordance with FASB ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when it satisfies performance obligations, by transferring promised goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for fulfilling those performance obligations.

 

Recently Issued Accounting Pronouncements

 

Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report. 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not required.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

As of June 30, 20222023 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, 2022,2023, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

There has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended June 30, 20222023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

There have been no material developments since the disclosure provided in the Company’s Form 10-K for the year ended December 31, 2021.2022.

 

ITEM 1A. RISK FACTORS.

 

Not required. 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During the three months ended June 30, 2022,2023, the Company sold 1,55656,585 shares of the Company’s Series B Preferred stock in a private placement to accredited investors and received proceeds of $140,000.$5,092,500. In July and August 2023, the Company sold 3,890 shares of the Company’s Series B Preferred stock in a private placement to accredited investors and received proceeds of $350.000.

 

Each of the foregoing issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.Act. 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.

 

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ITEM 5. OTHER INFORMATION.

 

In addition, theThe 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

 

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
Exhibit 101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
   
Exhibit 101.SCH Inline XBRL Taxonomy Extension Schema Document.
   
Exhibit 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
   
Exhibit 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
   
Exhibit 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
   
Exhibit 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
   
Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

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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 McPhersonJoseph R. Toczydlowski
  Scott McPhersonJoseph R. Toczydlowski
  

Chief Financial Officer

(Duly Authorized Officer and

Principal Financial Officer)

Date: August 15, 202214, 2023  

 

 

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