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.
In March 2020, the World Health Organization
declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout the United States. On
March 19, 2020, the Governor of Pennsylvania declared a health emergency and issued an order to close all nonessential businesses
until further notice. The Company has temporarily curtailed its business operations and has required employees to work from home.
While the Company expects this matter to negatively impact its results of operations, cash flow and financial position, the related
financial impact cannot be reasonably estimated at this time.
As of June 29,
2020, the Company has a cash position of approximately $30,000. 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 July 2020.
NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED
PARTIES
As of March 31, 2020 and December 31, 2019,
the Company owed the Chief Executive Officer a total of $386,572 and $392,371, consisting of $386,037 and $391,836 in unpaid salary
and expenses of $535 and $535.
As of March 31, 2020 and December 31, 2019,
the Company owed the Chief Financial Officer $104,096 and $118,596 consisting of $104,096 and $118,956 in unpaid salary.
NOTE 4 – LOANS PAYABLE
During the three months ended March 31,
2020 and 2019, the Company did not receive any loans with no formal repayment terms and 10% interest. The Company also did not
receive any loans with no formal repayment terms and no interest, during the three months ended March 31, 2020 and 2019.
The Company repaid $0 and $4,000 of these loans during the three months ended March 31, 2020 and 2019. The balance of the
loans payable as of March 31, 2020 and December 31, 2019 was $85,600. Interest accrued on the loans was $16,568 and $15,118 as
of March 31, 2020 and December 31, 2019. Interest expense related to these loans payable was $1,450 and $2,228 for the
three months ended March 31, 2020 and 2019.
NOTE 5 – 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, 2019 to September 6, 2020, 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.
The Notes are recorded as a current liability
as of March 31, 2020 and December 31, 2019 in the amount of $2,813,157. Interest accrued on the Notes was $1,637,911
and $1,567,582 as of March 31, 2020 and December 31, 2019. Interest expense other than the warrant related interest
expense related to these Notes payable was $70,329 and $72,935 for the three months ended March 31, 2020
and 2019.
NOTE 6 – NOTES PAYABLE - STOCKHOLDERS
The notes payable are recorded as a current
liability as of March 31, 2020 and December 31, 2019 in the amount of $1,202,000 and $1,161,969. Interest accrued on
the notes, as of March 31, 2020 and December 31, 2019 was $50,972 and $29,481. Interest expense including accretion
of discount, but exclusive of the fair value of warrants related to these notes payable was $61,522 and $744, for the three
months ended March 31, 2020 and 2019.
NOTE 7 – 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 authorized Series C Cumulative Convertible Preferred Stock (“Series
C Preferred Stock”) at a conversion price of $90.00 per share, subject to adjustment for stock splits, stock dividends and
similar transactions with respect to the Series C Preferred Stock only. Each share of Series C Preferred Stock is currently
convertible into 100 shares of the Company’s common stock at a current conversion price of $0.90 per share, subject to full
ratchet anti-dilution adjustment for one year and weighted average anti-dilution adjustment thereafter, as described in the Certificate
of Designation of the Series C Preferred Stock. Upon a liquidation event, the Company shall first pay to the holders
of the Series C Preferred Stock, on a pari passu basis with the holders of the Company’s outstanding Series A Preferred Stock
and Series B Preferred Stock, an amount per share equal to 700% of the conversion price (i.e., $630.00 per share of Series C Preferred
Stock), plus all accrued and unpaid dividends on each share of Series C Preferred Stock (the “Series C Preference Amount”).
The Series C Preference Amount shall be paid prior and in preference to payment of any amounts to the Common Stock. After
the payment of all preferential amounts required to be paid to the holders of shares of Series C Preferred Stock, Series A Preferred
Stock, Series B Preferred Stock and any additional senior preferred stock, the Series C Preferred Stock participates in further
distributions subject to an aggregate cap of seven and one-half times (7.5x) the original issue price thereof, plus all accrued
and unpaid dividends.
The maturity dates of the New Secured Notes were extended by
the investors to October 31, 2020.
The New Secured Notes are recorded as a
current liability in the amount of $7,432,250 as of March 31, 2019 and December 31, 2019. Interest accrued on the
New Secured Notes was $761,527 and $687,204 as of March 31, 2020 and December 31, 2019. Interest expense related to
these notes payable was $74,323 and $69,249 for the three months ended March 31, 2020 and 2019.
NOTE 8 – INCOME TAXES
Income tax expense was $0 for the three
months ended March 31, 2020 and 2019.
As of January 1, 2020, the Company
had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2020 related to unrecognized
tax benefits. There has been no change in unrecognized tax benefits during the three months ended March 31, 2020, and there was
no accrual for uncertain tax positions as of March 31, 2020. Tax years from 2016 through 2019 remain subject to examination by
major tax jurisdictions.
There is no income tax benefit for the losses for the three
months ended March 31, 2020 and 2019, since management has determined that the realization of the net tax deferred asset is not
assured and has created a valuation allowance for the entire amount of such benefits.
NOTE 9 – CONVERTIBLE PREFERRED STOCK
Rego Payment Architectures, Inc. Series A Preferred Stock
The Series A Preferred Stock has a
preference in liquidation equal to two times the Original Issue Price, or $21,570,000 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 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 trading 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, 2020 and December 31, 2019. 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, 2020 and December 31, 2019. 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, or
$5,108,040, 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.
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, 2020 and December 31, 2019. 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 Rego’s Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”). As of
March 31, 2020, 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 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, 2020, the value of the
cumulative 8% dividends for all Rego preferred stock was $6,351,569 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.
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.
As of March 31, 2020, the value of the
cumulative 8% dividends for ZS preferred stock was $28,333. Such dividends will be paid when and if declared payable
by the ZS’ board of directors or upon the occurrence of certain liquidation events. In accordance with FASB ASC
260-10-45-11, the Company has recorded these accrued dividends as a current liability.
NOTE 10 – 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.
The Company entered into
a financial advisory agreement in November 2018 whereby generally the Company will pay the financial advisor a success fee
equal to 6% of the Capital committed in a capital transaction.
NOTE 11 – STOCK OPTIONS AND WARRANTS
During 2008, the Board of Directors (“Board”)
of the Company adopted the 2008 Equity Incentive Plan (“2008 Plan”) that was approved by the stockholders. Under
the 2008 Plan, the Company was authorized to grant options to purchase up to 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, 2020, options to purchase 8,410,000 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, 2020, under the 2013 Plan grants of restricted stock and options to purchase 4,000,000
shares of common stock have been issued and are unvested and unexercised, and 1,000,000 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 common stock.
The following table presents the weighted-average
assumptions used to estimate the fair values of the stock options granted by REGO during the three months ended March 31, 2020:
|
Risk Free Interest Rate
|
|
1.5%
|
|
Expected Volatility
|
|
140.0%
|
|
Expected Life (in years)
|
|
2.0
|
|
Dividend Yield
|
|
0%
|
|
Weighted average estimated fair value of options
during the period
|
|
$ 0.05
|
The following table summarizes the activities for REGO’s
stock options for the three months ended March 31, 2020:
|
|
|
|
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, 2019
|
|
|
13,185,000
|
|
|
$
|
0.69
|
|
|
|
2.4
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
200,000
|
|
|
|
0.90
|
|
|
|
0.3
|
|
|
|
-
|
|
|
Expired
|
|
|
(150,000
|
)
|
|
|
0.90
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
13,235,000
|
|
|
$
|
0.69
|
|
|
|
2.1
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
13,101,667
|
|
|
$
|
0.69
|
|
|
|
2.2
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
13,235,000
|
|
|
$
|
0.69
|
|
|
|
2.1
|
|
|
$
|
40
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and
the closing stock price of $0.26 for REGO’s common stock on March 31, 2020.
|
For the three months ended March 31, 2020
and 2019, Rego expensed $25,663 and $194,715 with respect to options.
As of March 31, 2020, there was $12,628
of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average
period of 0.2 years. To the extent the actual forfeiture rate is different from what the Company has 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, 2020 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, 2020:
|
|
|
Unvested Options
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant
|
|
|
|
|
Number of
|
|
|
|
Date Fair
|
|
|
|
|
Shares
|
|
|
|
Value
|
|
|
Balance December 31, 2019
|
|
233,333
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
200,000
|
|
|
|
0.05
|
|
|
Expired/cancelled
|
|
(100,000
|
)
|
|
|
0.25
|
|
|
Vested
|
|
(200,000
|
)
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
133,333
|
|
|
$
|
0.25
|
|
During the three months ended March 31, 2020, the Company issued
500,000 warrants commensurate with a consulting agreement. The warrants were valued at $74,886 fair value, using the Black-Scholes
option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield,
expected volatility of 140.4%, risk free interest rate of 0.36% and expected option life of 2 years. The fair value
of the warrants was $74,886 and was expensed immediately, during the three months ended March 31, 2020.
The following table summarizes the activities for REGO’s
warrants for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(in years)
|
|
|
(in 000's) (1)
|
|
|
Balance at December 31, 2019
|
|
|
4,427,020
|
|
|
$
|
0.90
|
|
|
|
1.0
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
500,000
|
|
|
|
0.90
|
|
|
|
1.8
|
|
|
|
-
|
|
|
Expired
|
|
|
(1,217,020
|
)
|
|
|
0.90
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
|
3,710,000
|
|
|
$
|
0.90
|
|
|
|
1.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
3,710,000
|
|
|
$
|
0.90
|
|
|
|
1.2
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
3,710,000
|
|
|
$
|
0.90
|
|
|
|
1.2
|
|
|
$
|
-
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the
closing stock price of $0.26 for Rego’s common stock on March 31, 2020.
|
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, 2020:
|
|
|
|
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, 2019
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
3.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
3.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
3.3
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
2,400,000
|
|
|
$
|
5.00
|
|
|
|
3.3
|
|
|
$
|
-
|
|
|
|
(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, 2020.
|
For the three months ended March 31, 2020
and 2019, ZS expensed $0 with respect to options.
The following table summarizes the activities
for ZS’s warrants for the three months ended March 31, 2020:
|
|
|
|
Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
Intrinsic
|
|
|
|
|
|
Number of
|
|
|
|
Average
|
|
|
|
Term
|
|
|
|
Value
|
|
|
|
|
|
Shares
|
|
|
|
Exercise Price
|
|
|
|
in years)
|
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2019
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
1.8
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
1.6
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
1.6
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
83,334
|
|
|
$
|
3.00
|
|
|
|
1.6
|
|
|
$
|
83
|
|
|
|
(1)
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and
the value of $4.00 for ZS’s common stock on March 31, 2020.
|
For the three months ended March 31, 2020
and 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, 2020:
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
Intrinsic
|
|
|
|
|
|
Number of
|
|
|
|
Average
|
|
|
|
Term
|
|
|
|
Value
|
|
|
|
|
|
Shares
|
|
|
|
Exercise Price
|
|
|
|
in years)
|
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
100,000
|
|
|
$
|
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 $0.01 for ZBS’s common stock on March 31, 2020.
|
For the three months ended March 31, 2020 and 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, 2020:
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Contractual
|
|
|
|
Intrinsic
|
|
|
|
|
|
Number of
|
|
|
|
Average
|
|
|
|
Term
|
|
|
|
Value
|
|
|
|
|
|
Shares
|
|
|
|
Exercise Price
|
|
|
|
(in years)
|
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2019
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
3.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
3.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
3.6
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
2,200,000
|
|
|
$
|
5.00
|
|
|
|
3.6
|
|
|
$
|
-
|
|
|
|
(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, 2020.
|
For the three months ended March 31, 2020 and 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, 2020:
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
Intrinsic
|
|
|
|
|
|
Number of
|
|
|
|
Average
|
|
|
|
Term
|
|
|
|
Value
|
|
|
|
|
|
Shares
|
|
|
|
Exercise Price
|
|
|
|
in years)
|
|
|
|
(in 000's) (1)
|
|
|
Balance December 31, 2019
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.7
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020
|
|
|
100,000
|
|
|
$
|
5.00
|
|
|
|
0.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2020 and expected to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vest thereafter
|
|
|
100,000
|
|
|
$
|
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 $0.01 for ZPS’s common stock on March 31, 2020.
|
For the three months ended March 31, 2020 and 2019, ZPS expensed
$0 with respect to options.
NOTE 12 – NONCONTROLLING INTERESTS
Losses incurred by the noncontrolling interests
for the three months ended March 31, 2020 and 2019 were $257 and $5,757.
NOTE 13 – OPERATING LEASES
For the three months ended March 31, 2020
and 2019, total rent expense under leases amounted to $10,347 and $7,330. 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, 2020.
NOTE 14 – RELATED PARTY TRANSACTIONS
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 $45,000 as a deposit for technical assistance with the Platform when it becomes
necessary. The deposit was fully refunded as of June 30, 2019. As of March 31, 2020, the technology company is no longer a related
party.
NOTE 15 –
SUBSEQUENT EVENTS
During April 2020, the Company received
$2,000 from the Emergency Injury Disaster Loan program and $79,500 from the Paycheck Protection Program. The Company has spent
all of the proceeds under these programs for payroll related expenses.
In May 2020, the Company received $14,500 through the issuance
of notes payable. All of these notes have been repaid and the Company issued an option to purchase 25,000 shares of the Company’s
common stock for a term of 3 years and an exercise price of $0.90.
Also in May 2020, the Company received $160,000 through the
issuance of our 4% secured convertible notes payable-stockholders.
On May 27, 2020, REGO issued options
to purchase 25,000 shares of REGO’s common stock as interest for a loan payable. The options have an exercise price
of $0.90, vest immediately and have a term of 3 years, with a fair value of $4,470, which was expensed immediately.
On June 11, 2020, REGO issued options
to purchase 100,000 shares of REGO’s common stock to a consultant for services. The options have an exercise price
of $0.90, vest immediately and have a term of 2 years, with a fair value of $8,685, which was expensed immediately.
On June 16, 2020, the Company issued 500,000 warrants commensurate
with a consulting agreement. The warrants have an exercise price of $0.90, vest immediately and have a term of 2 years, with a
fair value of $49,599, which was expensed immediately.
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 325 Sentry Parkway, Suite 200, Blue Bell , PA 19422 and our telephone number is (267) 465-7530.
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 software 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 focus is monetizing the Platform
in the FinTech industry 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”) and GDPRkidsTM Trustmark compliant technology as an added feature, we believe we may
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, our ability to successfully implement technology partnerships or joint
ventures, 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 goal, moving forward is to enable
both incumbent and new FinTech participants, as well as key verticals with a large base of ‘family accounts,’ to provide
their consumers with safe and empowering youth money management and financial literacy content and tools via the mobile payment
platform.
While some of the Rego Platform can be easily
duplicated/commoditized, such as the app skin, APIs to retailers, APIs to financial infrastructure and cloud storage, we
believe that defending our market position rests on three factors:
|
|
1.
|
The ability to define data control settings from parent to child.
|
Our approach to this opportunity uses a master account
to dictate purchase rules to sub-accounts via a hierarchical architecture. This approach adheres to data flow and privacy policy
requirements specifically outlined for COPPA compliance. We believe other approaches based on machine learning, or other artificial
intelligence methodologies are potentially viable alternatives but are likely too costly, do not meet current compliance timelines,
and may defy the core of COPPA’s “opt-in” parameters. There is considerable room for next-generation automation
techniques to be layered on Rego’s hierarchical approach. Given its current stability and scalability metrics, the Rego Platform
strongly features these advances in its technical development roadmap without compromising any of its current data control performance.
|
|
2.
|
The ability to (mis)attribute the child’s transaction and personal identification.
|
Rego has solved this issue by masking user data and
maintaining separate identity and financial data flows. As a result, Rego can verify the age of the internet user throught the
transaction lifecycle on its Platform. Authenticating and validating the identity of the actual user on the internet is
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.
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.
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. We are pursuing
both domestic and international opportunities for the use of our payment platform. These opportunities have customer bases of their
own that they could bring to our platform, thus minimizing the marketing costs for the Company, that would normally need to be
incurred. 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, 2020 and 2019
The following
discussion analyzes our results of operations for the three months ended March 31, 2020 and 2019. 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, 2020 and 2019 we generated revenues of $0 and
$19,259.
Net Loss
For the three
months ended March 31, 2020 and 2019, we had a net loss of $746,792 and $911,854.
Sales and
Marketing
Sales and
marketing expenses for the three months ended March 31, 2020 were $6,833 compared to $30,304 for the three months ended
March 31, 2019, a decrease of $23,471. The Company redirected marketing funds during the three months ended March 31,
2020 to the development of the Platform.
Product
Development
Product development
expenses were $73,620 and $213,557 for the three months ended March 31, 2020 and 2019, a decrease of $139,937. The Company
is in the process of raising funds to complete the development of the Platform and only funding necessary projects.
General
and Administrative Expenses
General and
administrative expenses decreased $62,820 to $458,715 for the three months ended March 31, 2020 from $521,535 for the three
months ended March 31, 2019. The decrease is primarily attributable to a decrease in option expense as a result of a
decrease in option grants, as well as a reduction in employee benefits from fewer employees during the three months ended
March 31, 2020, compared to the three months ended March 31, 2019.
Interest Expense
During the three months ended March 31,
2020, the Company incurred interest expense of $207,624, compared to $165,717 for the three months ended March 31, 2019, an increase
of $41,907. The increase in interest expense relates additional debt outstanding.
Liquidity and Capital Resources
As of June
29, 2020 we had cash on hand of approximately $30,000.
Net cash
used in operating activities decreased $98,684 to $383,315 for the three months ended March 31, 2020 as compared to $481,999
for the three months ended March 31, 2019. The decrease resulted primarily from the decrease in net loss partially
offset by reduced option and warrant expenses during the three months ended March 31, 2020 compared to the three months
ended March 31, 2019.
Net cash provided
by financing activities decreased to $0 for the three months ended March 31, 2020 from $539,000 for
the three months ended March 31, 2019. Cash provided by financing activities during the three months ended March 31,
2019, consisted of convertible notes payable to provide capital to continue operations.
As we have not
realized significant revenues since our inception, we have financed our operations through offerings of debt and equity securities. We
do not currently maintain a line of credit or term loan with any commercial bank or other financial institution.
Since our inception,
we have focused on developing and implementing our business plan. We believe that our existing cash resources will not
be sufficient to sustain our operations during the next twelve months. We currently need to generate sufficient
revenues to support our cost structure to enable us to pay ongoing costs and expenses as they are incurred, finance 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.
See Note 2, to our consolidated financial statements included in December 31, 2019 Form 10-K.
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 fourth quarter of 2020, however,
we do not project that significant revenue will be developed until 2021. 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 July 2020.
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,
2020, 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, 2019. 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.