NOTE 2 – MANAGEMENT PLANS
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant
losses and experienced negative cash flow from operations since inception. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Since inception, the Company has focused
on developing and implementing its business plan. The Company believes that its existing cash resources will not
be sufficient to sustain operations during the next twelve months.
The Company currently needs to generate revenue
in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its
operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The
issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain
additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would
be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse
effect on the business, financial condition and results of operations.
The Company’s current monetization
model is to derive revenues from levels of subscription revenue paid monthly, service fees, transaction fees and in some cases
revenue sharing with banking and distribution partners. As these bases of revenues grow, the Company expects to generate
additional revenue to support operations.
As of May 15,
2019, the Company has a cash position of approximately $10,000. Based upon the current cash position and the Company’s
planned expense run rate, management believes the Company has funds currently to finance its operations through May 2019.
NOTE 3 – ACCOUNTS PAYABLE
AND ACCRUED EXPENSES - RELATED PARTIES
As of March
31, 2019 and December 31, 2018, the Company owed the Chief Executive Officer a total of $270,419 and $210,032, consisting of
$266,884 and $207,845 in unpaid salary and expenses of $3,535 and $2,187.
As of March
31, 2019 and December 31, 2018, the Company owed the Chief Financial Officer $95,892 and $84,296 consisting of $95,892 and
$84,256 in unpaid salary and expenses of $0 and $40.
The Company
owed a company owned by a more than 5% beneficial owner $126,838 and $113,920 as of March 31, 2019 and December 31, 2018,
consisting of consulting fees of $120,450 and $113,920 and expenses of $6,388 and $0.
Additionally as of March 31, 2019 and
December 31, 2018, the Company owed the son of a more than 5% beneficial owner $24,000 and $20,000, pursuant to a consulting agreement.
NOTE 4 – LOANS PAYABLE
During the three months ended March
31, 2019 and 2018, the Company received loans in the amount of $0 with no formal repayment terms and 10% interest. The Company
received loans in the amount of $0 and $42,265 with no formal repayment terms and no interest, during the three months ended March
31, 2019 and 2018. The Company repaid $4,000 and $27,450 of these loans during the three months ended March 31, 2019 and
2018. The balance of the loans payable as of March 31, 2019 and December 31, 2018 was $85,600 and $89,600. Interest accrued
on the loans was $10,737 and $9,253 as of March 31, 2019 and December 31, 2018. Interest expense related to these loans
payable was $2,228 and $0 for the three months ended March 31, 2019 and 2018.
NOTE 5 – DEFERRED REVENUE
The Company received $200,000 in May
2018 as a down payment to develop software for the automotive industry. This will be a business to business and a business to consumer
application intended to remove friction in the industry and provide an improved and trusted consumer experience.
NOTE 6 – 10% SECURED CONVERTIBLE
NOTES PAYABLE - STOCKHOLDERS
On March 6, 2015, the Company, pursuant
to a Securities Purchase Agreement (the “Purchase Agreement”), issued $2,000,000 aggregate principal amount of its
10% Secured Convertible Promissory Notes due March 5, 2016 (the “Notes”) to certain stockholders.
On
May 11, 2015, the Company issued an additional $940,000 of Notes to stockholders. The maturity dates of the Notes have
been extended most recently from September 6, 2018 to September 6, 2019, with the consent of the Note holders.
The Notes are convertible by the holders,
at any time, into shares of the Company’s Series B Preferred Stock at a conversion price of $90.00 per share, subject to
adjustment for stock splits, stock dividends and similar transactions with respect to the Series B Preferred Stock only. Each
share of Series B Preferred Stock is currently convertible into 100 shares of the Company’s common stock at a current conversion
price of $0.90 per share, subject to anti-dilution adjustment as described in the Certificate of Designation of the Series B Preferred
Stock. In addition, pursuant to the terms of a Security Agreement entered into on May 11, 2015 by and among the Company,
the Note holders and a collateral agent acting on behalf of the Note holders (the “Security Agreement”), the Notes
are secured by a lien against substantially all of the Company’s business assets. Pursuant to the Purchase Agreement,
the Company also granted piggyback registration rights to the holders of the Series B Preferred Stock upon a conversion of the
Notes.
During the three months ended March
31, 2019, $350,000 of the Notes were exchanged for $350,000 of the 4% Secured Convertible Notes (See Note 8).
On March 6, 2018, the Company issued
2 year warrants to purchase 692,020 shares of the Company’s common stock to the 10% Secured convertible note holders at an
exercise price of $0.90, as consideration for the note holders extending the maturity date of the notes payable to September 6,
2018.
The warrants were valued at $128,803, fair value, using the Black-Scholes
option pricing model to calculate the grant-date fair value of the warrants. The warrant value of $128,803 was expensed immediately
as interest expense.
The assumptions related to the use of the Black-Scholes option pricing model for warrants and
options, during the three months ended March 31, 2018 are as follows: no dividend yield, expected volatility of 203.5% to 205.6%,
risk free interest rate of 1.96% to 2.28% and expected term of 2.0 years.
The Notes are recorded as a current
liability as of March 31, 2019 and December 31, 2018 in the amount of $2,813,157 and $3,163,157. Interest accrued on
the Notes was $1,356,595 and $1,283,660 as of March 31, 2019 and December 31, 2018. Interest expense other than the
warrant related interest expense in the paragraph above, related to these Notes payable was $72,935 and $88,507 for the three months
ended March 31, 2019 and 2018.
NOTE 7 – NOTES PAYABLE - STOCKHOLDERS
On
December 14, 2017, the Company issued a promissory note in the amount of $100,000, which is non-interest bearing along with warrants to purchase 160,000 shares of the Company’s common stock, with an exercise price of
$0.90, expiring in two years. The note also includes a provision that the promissory note holder will receive additional
warrants to purchase 25,000 shares of the Company’s common stock for each week that the payment of the principal is past
due. During the three months ended March 31, 2019 and 2018, the promissory note holder received additional warrants to purchase
175,000 shares and 325,000 shares of the Company’s common stock with an exercise price of $0.90, expiring in two years.
The warrants were valued at $21,305 and $62,934, fair value, using the Black-Scholes option pricing model to calculate the grant-date
fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 183.3% to 236.2%, risk free
interest rate of 1.9% to 2.6% and expected option term of 2 years. The warrant value of $21,305 and $62,934 was expensed
as interest expense during the three months ended March 31, 2019 and 2018.
On
February 15, 2019, the Company reached an agreement with the promissory note holder whereby the warrants would no longer be issued
on a weekly basis and that the accrued interest of 10% in addition to the warrants would be waived retrospectively in full.
The
Company also repaid $7,000 of the promissory notes during the three months ended March 31, 2019.
The notes payable are recorded as a
current liability as of March 31, 2019 and December 31, 2018 in the amount of $127,000 and $134,000. Interest accrued
on the notes, as of March 31, 2019 and December 31, 2018 was $1,828 and $1,084 Interest expense exclusive of the
fair value of warrants above related to these notes payable was $744 and $0 for the three months ended March 31, 2019 and 2018.
NOTE 8 – 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 and 2019.
The New Secured Notes are convertible
by the holders, at any time, into shares of the Company’s newly 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.
During the three months ended March
31, 2019, the Company issued $900,000 aggregate principal amount of its New Secured Notes to certain accredited investors. The
aggregate consideration consisted of $550,000 cash and the exchange of $350,000 outstanding principal amount of 10% Secured Convertible
Notes (See Note 6).
The New Secured Notes are recorded
as a short-term liability in the amount of $7,387,250 and $6,487,250 as of March 31, 2019 and December 31, 2018. Interest
accrued on the New Secured Notes was $464,216 and $394,967 as of March 31, 2019 and December 31, 2018. Interest expense,
including accretion of discounts, related to these notes payable was $69,249 and $49,983 for the three months ended March 31, 2019
and 2018.
NOTE 9 – INCOME TAXES
Income tax expense was $0 for the three
months ended March 31, 2019 and 2018.
As of January 1, 2019, the Company
had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2018 related to unrecognized
tax benefits. There has been no change in unrecognized tax benefits during the three months ended March 31, 2019, and there was
no accrual for uncertain tax positions as of March 31, 2019. Tax years from 2015 through 2018 remain subject to examination by
major tax jurisdictions.
There is no income tax benefit for
the losses for the three months ended March 31, 2019 and 2018, since management has determined that the realization of the net
tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.
NOTE 10 – CONVERTIBLE PREFERRED
STOCK
Rego Payment Architectures, Inc.
Series A Preferred Stock
The
Series A Preferred Stock has a preference in liquidation equal to two times the 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 2.5 times the 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 days.
The conversion feature of the Series
A Preferred Stock issued in January 2014 is an embedded derivative, which is classified as a liability in accordance with FASB
ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair market value of $1,648,825
at January 27, 2014, and $0 at March 31, 2019 and December 31, 2018. This was classified as an embedded derivative liability and
a discount to Series A Preferred Stock. Since the Series A Preferred Stock can be converted at any time, the full amount
of the discount was accreted and reflected as a deemed distribution.
The
conversion feature of the Series A Preferred Stock issued in April 2014 is an embedded derivative, which is classified as a liability
in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair market
value of $3,489,000 at April 30, 2014, and $0 at March 31, 2019 and December 31, 2018. This was classified as an embedded derivative
liability and a discount to Series A Preferred Stock. Since the Series A Preferred Stock can be converted at any time,
the full amount of the discount was accreted and reflected as a deemed distribution.
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
the 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 2.5 times the 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 or $7.20
per Series B Preferred Share.
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.
The
conversion feature of the Series B Preferred Stock is an embedded derivative, which is classified as a liability in accordance
with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair market value of $375,841
at October 30, 2014, and $0 at March 31, 2019 and December 31, 2018. This was classified as an embedded derivative liability and
a discount to Series B Preferred Stock. Since the Series B Preferred Stock can be converted at any time, the full amount
of the discount was accreted and reflected as a deemed distribution.
The Warrants associated with the Series
B Preferred Stock were also classified as equity, in accordance with FASB ASC 480-10-25. Therefore it is not necessary
to bifurcate these Warrants from the Series B Preferred Stock.
Rego Payment Architectures, Inc.
Series C Preferred Stock
In
August 2016, Rego authorized 150,000 shares of the Rego’s Series C Cumulative Convertible Preferred Stock
(“Series C”). As of March 31, 2019, none of the Series C shares are issued or outstanding. After the
date of issuance of Series C, 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 the 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 the Original Issue Price. The Series C Preferred Stockholders may cast the number of votes
equal to the number of whole shares of common stock into which the shares of Series C Preferred Stock can
be converted. The Series C Preferred Stock also contains customary approval rights with respect to
certain matters. There are no outstanding Series C Preferred Shares, therefore the current per annum dividend per share
is $0.
As of March
31, 2019, the value of the cumulative 8% dividends for all Rego preferred stock was $5,292,781. Such dividends
will be paid when and if declared payable by the 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.
In accordance
with FASB ASC 480 and 815, the ZS Series A Preferred Stock has been classified as permanent equity and was valued based on the
relative fair value, $139,959, assumed to be the total proceeds less the fair value of the warrants of $110,041, at November 6,
2018, the date of issuance. The value of the warrants were reflected as a discount to the ZS Series A Preferred Stock. Because
the ZS Series A Preferred Stock can be converted at any time, the full amount of the discount relative to the warrants has been
fully accreted and reflected as a deemed distribution.
The conversion feature of the ZS Series
A Preferred Stock is an embedded derivative, which is classified as equity in accordance with FASB ASC 815 and was valued in accordance
with FASB ASC 470 as a beneficial conversion feature at a fair market value of $193,377 at the date of issuance. However in accordance
with FASB ASC 470, the value of the beneficial conversion feature is limited to the value of the ZS Series A Preferred Stock of
$139,959 at the date of issuance. This was classified as an embedded derivative and a discount to the ZS Series A Preferred Stock. Since
the ZS Series A Preferred Stock can be converted at any time, the full amount of the discount was accreted and reflected as a deemed
distribution.
The warrants associated
with the ZS Series A Preferred Stock were also classified as equity, in accordance with FASB ASC 480-10-25. Therefore
it is not necessary to bifurcate the warrants from the ZS Series A Preferred Stock.
NOTE 11 – STOCKHOLDERS’
EQUITY
Issuance of Restricted Shares
A restricted stock award (“RSA”)
is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent
of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The
grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting
rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued
and outstanding. The Company’s restricted stock awards generally vest over a period of one year. The Company expenses the
cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line
over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined
based on the closing price of the Company’s common stock on the grant date.
During the three months ended March
31, 2019 and 2018, the Company expensed $0 and $9,375 relative to restricted stock awards.
NOTE 12 – STOCK OPTIONS AND
WARRANTS
During 2008, the Board of Directors
(“Board”) of the Company adopted the 2008 Equity Incentive Plan (“2008 Plan”) that was approved by the
stockholders. Under the 2008 Plan, the Company was authorized to grant options to purchase up to 25,000,000 shares of
common stock to any officer, other employee or director of, or any consultant or other independent contractor who provides services
to the Company. The 2008 Plan was intended to permit stock options granted to employees under the 2008 Plan to
qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All
options granted under the 2008 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified
options (“Non-Statutory Stock Options”). As of March 31, 2019, options to purchase 9,811,667 shares of common
stock have been issued and are unexercised, and 0 shares are available for grants under the 2008 Plan. The 2008 Plan expired on
March 3, 2019.
During 2013, the Board adopted the
2013 Equity Incentive Plan (“2013 Plan”), which was approved by stockholders at the 2013 annual meeting of stockholders. Under
the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based
awards of up to an aggregate of 5,000,000 shares of common stock to any officer, employee, director or consultant. The
2013 Plan is intended to permit stock options granted to employees under the 2013 Plan to qualify as Incentive Stock Options. All
options granted under the 2013 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be Non-Statutory
Stock Options. As of March 31, 2019, under the 2013 Plan grants of restricted stock and options to purchase 4,905,000
shares of common stock have been issued and are outstanding or unexercised, and 95,000 shares of common stock remain available
for grants under the 2013 Plan.
The 2013 Plan is administered by the
Board or its compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted,
and the specific terms of each grant, including the vesting thereof, subject to the terms of the 2013 Plan.
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
stock.
On January 9, 2019, the Company issued
options to purchase an aggregate of 500,000 shares of the Company’s common stock to four employees and a consultant.
The options have an exercise price of $0.90, vest immediately and have a term of 5 years, with a fair value of $72,576 in total,
which was expensed immediately.
On January 21, 2019, the Company issued
options to purchase 50,000 shares of the Company’s common stock to a consultant. The options have an exercise price
of $0.90, vest immediately and have a term of 2 years, with a fair value of $7,562, which was expensed immediately.
On February 1, 2019, the Company issued
options to purchase 25,000 shares of the Company’s common stock to a consultant. The options have an exercise price
of $0.90, vest immediately and have a term of 2 years, with a fair value of $3,593 in total. These options were issued to satisfy
a ZS obligation in the amount of $15,000 and resulted in forgiveness of debt of $11,607.
The following table presents the weighted-average
assumptions used to estimate the fair values of the stock options granted by REGO during the three months ended March 31, 2019:
|
|
|
2019
|
|
|
|
|
|
|
|
Risk Free Interest Rate
|
|
|
2.57%
|
|
|
Expected Volatility
|
|
|
170.0%
|
|
|
Expected Life (in years)
|
|
|
2 to 5
|
|
|
Dividend Yield
|
|
|
0%
|
|
Weighted average estimated fair value of options
during the period
|
|
|
$ 0.15
|
|
The following table summarizes the
activities for REGO’s stock options for the three months ended March 31, 2019:
|
|
|
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, 2018
|
|
|
12,925,000
|
|
|
$
|
0.66
|
|
|
|
3.3
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
575,000
|
|
|
|
0.90
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled
|
|
|
(183,333
|
)
|
|
|
0.91
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
13,316,667
|
|
|
$
|
0.67
|
|
|
|
3.1
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
9,758,333
|
|
|
$
|
0.58
|
|
|
|
3.1
|
|
|
$
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
13,316,667
|
|
|
$
|
0.67
|
|
|
|
3.1
|
|
|
$
|
27
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and
the closing stock price of $0.20 for REGO’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019 and 2018, Rego expensed $194,715 and $133,756 with respect to options.
In accordance with FASB ASC 505-50,
Equity
– Equity-Based Payments to Non-Employees
, share based compensation with performance conditions should be revalued
based on the modification accounting methodology described in FASB ASC 718-20,
Compensation—Stock Compensation—Awards
Classified as Equity
. Upon the adoption, on June 30, 2018, of FASB ASU No. 2018-07, the Company has revalued certain stock
options with consultants and determined that there was an aggregate increase in fair value of $4,208. Also upon the adoption of
FASB ASU No. 2018-07, nonemployee share-based payment awards within the scope of Topic 718 are measured at grant-date fair value
of the equity instruments that an entity is obligated to issue when the good has been delivered or the service has been rendered
and any other conditions necessary to earn the right to benefit from the instruments have been satisfied.
As of March 31, 2019, there was $285,635
of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average
period of 0.8 years. To the extent the actual forfeiture rate is different from what we have estimated, stock-based compensation
related to these awards will be different from the Company’s expectations. The difference between the stock options
exercisable at March 31, 2019 and the stock options exercisable and expected to vest relates to management’s estimate of
options expected to vest in the future.
The following table summarizes the
activities for REGO’s unvested stock options for the three months ended March 31, 2019:
|
|
|
|
Unvested Options
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
Number of
|
|
|
Date Fair
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Balance December 31, 2018
|
|
|
|
3,625,000
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
575,000
|
|
|
|
0.15
|
|
|
Expired/cancelled
|
|
|
|
(66,667
|
)
|
|
|
0.25
|
|
|
Vested
|
|
|
|
(575,000
|
)
|
|
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
|
3,558,333
|
|
|
$
|
0.16
|
|
The following table summarizes the
activities for REGO’s warrants for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance at December 31, 2018
|
|
|
3,052,020
|
|
|
$
|
0.90
|
|
|
|
1.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
175,000
|
|
|
|
0.90
|
|
|
|
2.0
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
3,227,020
|
|
|
$
|
0.90
|
|
|
|
1.1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
3,227,020
|
|
|
$
|
0.90
|
|
|
|
1.1
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
3,227,020
|
|
|
$
|
0.90
|
|
|
|
1.1
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the
closing stock price of $0.20 for Rego’s common stock on March 31, 2019.
|
All warrants were vested on the date
of grant.
The following table summarizes the
activities for ZS’s stock options for the three months ended March 31, 2019:
|
|
|
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, 2018
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
4.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
4.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
4.3
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and
the value of $4.00 for ZS’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019, ZS expensed $28,051 with respect to options.
The
following table summarizes the activities for ZS’s warrants for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2018
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
2.9
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
2.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
2.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
2.6
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and
the value of $4.00 for ZS’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019, ZS expensed $0 with respect to warrants.
The following table summarizes the
activities for ZBS’s stock options for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2018
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
(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 ZBS’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019, ZBS expensed $0 with respect to options.
The following table summarizes the
activities for ZCS’s stock options for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2018
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
4.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
4.6
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and
the value of $0.01 for ZCS’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019, ZCS expensed $0 with respect to options.
The following table summarizes the
activities for ZPS’s stock options for the three months ended March 31, 2019:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2018
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2019 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
1.4
|
|
|
$
|
-
|
|
|
|
(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 ZPS’s common stock on March 31, 2019.
|
For the three months ended March 31,
2019, ZPS expensed $0 with respect to options.
NOTE 13 – NONCONTROLLING INTERESTS
Losses incurred by the noncontrolling
interests for the three months ended March 31, 2019 and 2018 were $5,757 and $6,333.
N
OTE 14 – OPERATING LEASES
For the three months ended March
31, 2019 and 2018, total rent expense under leases amounted to $7,330 and $4,967. The Company has elected not to
recognize right-of-use assets and lease liabilities arising from short-term leases. The Company has no long-term lease
obligations as of March 31, 2019.
NOTE 15 – RELATED PARTY TRANSACTIONS
The Company has a consulting agreement
with a company owned by a more than 5% beneficial owner, at a cost of $15,000 per month. For the three months ended March
31, 2019 and 2018, the Company expensed $45,000 to the consulting company.
The Company has a consulting agreement
with the son of the principal of a company owned by a more than 5% beneficial owner, at a cost of $5,000 per month. For the
three months ended March 31, 2019 and 2018, the Company expensed $15,000 to this consultant.
During the three months ended March
31, 2019, the Company received revenue from a technology company for the outsourcing of the Company’s engineers for development.
In addition, the Company paid this technology company $20,000 as a deposit for technical assistance with the Platform when it becomes
necessary.
NOTE 16 – SUBSEQUENT EVENTS
On
April 2, 2019, the Company extended by two years the term of options to purchase 150,000 shares of the Company’s common
stock with an exercise price of $0.90 which were to expire in June 2019. The fair value of the extended warrants was
valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following
assumptions: no dividend yield, expected volatility of 182.9%, risk free interest rate of 2.3% and expected option life approximating
two years. The Company recognized compensation expense of $21,964 which was charged to general and administrative expenses.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
Rego Payment Architectures,
Inc. (the “Company,” “we”, or “us”) was incorporated in Delaware on February 11, 2008 under
the name Chimera International Group, Inc. On April 4, 2008, we amended our certificate of incorporation and changed
our name to Moggle, Inc. On August 22, 2011, we filed a Certificate of Ownership with the Secretary of State of
Delaware, pursuant to which the Company’s newly-formed wholly-owned subsidiary, Virtual Piggy Incorporated was merged into
and with the Company (the “Merger”). In connection with the Merger and in accordance with Section 253 of the Delaware
General Corporation Law, the name of the Company was changed from “Moggle, Inc.” to “Virtual Piggy, Inc.”
On February 28, 2017, we amended our certificate of incorporation and changed our name to Rego Payment Architectures, Inc. Our
principal offices are located at 18327 Gridley Road, Suite K Cerritos, CA 90703 and our telephone number is (561) 220-0408.
As of the date of this report, we have
not generated significant revenues. Our initial business plan was to develop an online game platform to allow game companies
to create, monetize and distribute massive multiplayer online games (MMOG). The Company technology was the monetization component
of this overall platform (our “Platform”). During 2010, we analyzed the market potential for an expanded Company solution
and decided to concentrate our efforts on the delivery of a full-featured Company solution that was not restricted to online gaming.
The expanded Company solution is designed to provide a complete online solution for families and parents to teach their children
about financial management and spending on gaming, retail, music and entertainment. In late 2013, we rebranded our Company product
under the name “Oink®”. In March 2016, we discontinued our prior Oink product offering.
Our CEO’s focus is monetizing
the Platform in the FinTech industry and crypto currencies, through technology licensing and similar partnerships. We
are focused on building and improving the existing Platform and App that will act as the foundation for the strategic alignment
with the Financial Technology (“FinTech”) industry. The FinTech industry is composed primarily of startup
companies that use software to provide financial services more efficiently and less costly than traditional financial service companies.
With our Children’s Online Privacy Protection Act (“COPPA”) compliant technology as an added feature, we believe
we will have better market success.
Strategic Outlook
We believe that the virtual goods market
and the FinTech industry will continue to grow over the long term. Within the market and industry, we intend to provide
services to allow transactions with children in compliance with COPPA and similar international privacy laws. We believe
that this particular opportunity is relatively untapped and intend to be a leading provider of online transactions for children.
Sustained spending on technology, our
ability to raise additional financing, the continued growth of the FinTech industry, and compliance with regulatory and reporting
requirements are all external conditions that may affect our ability to execute our business plan. In addition, the
FinTech industry is intensely competitive, and most participants have longer operating histories, significantly greater financial,
technical, marketing, customer service and other resources, and greater name recognition. In addition, certain potential
customers, particularly large organizations, may view our small size and limited financial resources as a negative even if they
prefer our offering to those of our competitors.
Our primary strategic objectives over
the next 12-18 months are to increase our user base and the engagement level of that base. We plan to achieve that by implementing
our partner-first go to market model in which established payments market leaders and vertical market participants can incorporate
and integrate our platform into co-branded payments solutions targeting youth and family. Management believes this approach
will enable the Company to reduce expenses while broadening its reach.
Within this model, the Company is incorporating
licensing fees. This should enable the Company to begin creating shareholder value above and beyond consumer transaction
fees. As our service grows, we intend to hire additional information technology staff to maintain our product offerings and develop
new products to increase our market share.
We believe that our near-term success
will depend particularly on our ability to develop customer awareness and confidence in our service. Since we have extremely
limited capital resources, we will need to closely manage our expenses and conserve our cash by continually monitoring any increase
in expenses and reducing or eliminating unnecessary expenditures. Our prospects must be considered in light of the risks, expenses
and difficulties encountered by companies at an early stage of development, particularly given that we operate in new and rapidly
evolving markets, that we have limited financial resources, and face an uncertain economic environment. We may not be successful
in addressing such risks and difficulties.
Results of Operations
Comparison of the Three Months Ended
March 31, 2019 and 2018
The following discussion analyzes our
results of operations for the three months ended March 31, 2019 and 2018. The following information should be considered together
with our condensed financial statements for such period and the accompanying notes thereto.
Net Revenue
We have not generated significant revenue
since our inception. For the three months ended March 31, 2019 and 2018 we generated revenues of $19,259 and $0.
In
2019, we outsourced some of our engineers to assist a technology company and were able to generate revenue to support our operations.
Net Loss
For the three months ended March 31,
2019 and 2018, we had a net loss of $911,854 and $1,084,867.
Sales and Marketing
Sales and marketing expenses for the
three months ended March 31, 2019 were $30,304 as compared to $8,200 for the three months ended March 31, 2018, an increase of
$22,104. The Company issued options to a marketing firm for the preparation of various presentation materials, during the
three months ended March 31, 2019. The options were valued at $22,077.
Product Development
Product development expenses were $213,557
and $174,501 for the three months ended March 31, 2019 and 2018, an increase of $39,056. The current platform development
is primarily labor intensive, which is being provided by employees as opposed to employee and consultant labor, therefore the Company
has incurred more payroll tax and employee benefit expenses during the three months ended March 31, 2019.
General and Administrative Expenses
General and administrative expenses
decreased $50,404 to $521,535 for the three months ended March 31, 2019 from $571,939 for the three months ended March 31, 2018. The
decrease resulted primarily from option expenses decreases in 2019 relative to employees, which is a difference of approximately
$40,500. Additionally, payroll expenses decreased in 2019, by approximately $13,000 as we reduced administrative staff in order
to conserve funds.
Interest Expense
During the three months ended March
31, 2019, the Company incurred interest expense of $165,717 as compared to $330,227 for the three months ended March 31,
2018, a decrease of $164,510. The decrease in interest expense relates to the exchange by some investors
of 10% secured convertible notes for the 4.0% secured convertible notes in 2018, which is now reducing interest expense
in 2019.
Liquidity and Capital Resources
As of May 15, 2019, we had cash
on hand of approximately $10,000.
Net cash used in operating activities
increased $30,210 to $481,999 for the three months ended March 31, 2019 as compared to $451,789 for the three months ended March
31, 2018. The increase resulted primarily from increases in prepaid expenses and deposits.
Net cash provided by financing activities
increased to $539,000 for the three months ended March 31, 2019 from
$448,065
for
the three months ended March 31, 2018, an increase of $90,935. Cash provided by financing activities during the three
months ended March 31, 2019, consisted of convertible notes payable to provide capital to continue operations.
Subsequent to
March 31, 2019, we have generated approximately $8,000 of revenue by outsourcing portions of our
development team for small development projects.
As we have not realized significant
revenues since our inception, we have financed our operations through offerings of debt and equity securities. We do
not currently maintain a line of credit or term loan with any commercial bank or other financial institution.
Since our inception, we have focused
on developing and implementing our business plan. We believe that our existing cash resources will not be sufficient
to sustain our operations during the next twelve months.
We currently need to generate sufficient revenues to
support our cost structure to enable us to pay ongoing costs and expenses as they are incurred, finance the development
of 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.
Even if we are successful in generating
sufficient revenue or in raising sufficient capital in order to complete the Platform, our ability to continue in business as a
viable going concern can only be achieved when our revenues reach a level that sustains our business operations. The
launch of the Platform is expected in the third quarter of 2019, however, we do not project that significant revenue will
be developed until later in 2019. There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to
implement fully our proposed business plan. Moreover there can be no assurance that even if the Platform is fully developed
and successfully launched, that we will generate revenues sufficient to fund our operations. In either such situation,
we may not be able to continue our operations and our business might fail.
Based upon the current cash position
and the Company’s planned expense run rate, management believes the Company will not be able to finance its operations beyond
May 2019.
The foregoing forward-looking information
was prepared by us in good faith based upon assumptions that we believe to be reasonable. No assurance can be given, however, regarding
the attainability of the projections or the reliability of the assumptions on which they are based. The projections are subject
to the uncertainties inherent in any attempt to predict the results of our operations, especially where new products and services
are involved. Certain of the assumptions used will inevitably not materialize and unanticipated events will occur. Actual results
of operations are, therefore, likely to vary from the projections and such variations may be material and adverse to us. Accordingly,
no assurance can be given that such results will be achieved. Moreover due to changes in technology, new product announcements,
competitive pressures, system design and/or other specifications we may be required to change the current plans.
Off-Balance Sheet Arrangements
As of March 31, 2019, 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, 2018. 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 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”) in March, 2005, 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 beginning January 1,
2006, based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718.
We have used the Black-Scholes
option-pricing model to estimate the option fair values. The option-pricing model requires a number of assumptions, of which
the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term
(the amount of time from the grant date until the options are exercised or expire).
All issuances of stock options or other
equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the
fair value of the equity instruments issued. Non-employee equity based payments that do not vest immediately upon grant
are recorded as an expense over the vesting period.
Revenue Recognition
In accordance with Securities and Exchange
Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (Codified in FASB ASC 606), we will recognize
revenue when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor
or wholesaler receives the goods, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably
assured. Subject to these criteria, we have generally recognized revenue from our prior Oink product at the time of the sale of
the associated goods.
Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements
are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report.