UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
| FORM 10-Q |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2019
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file
number 0-53944
| REGO PAYMENT ARCHITECTURES, INC. |
| (Exact Name of Registrant as Specified in Its Charter) |
| Delaware | 35-2327649 | |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
|
18327 Gridley Road, Suite K Cerritos, CA |
90703 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(561)220-0408
(Registrant’s Telephone Number, Including Area Code)
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| None |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o
| 1 |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Non-accelerated filer ☒ | Smaller reporting company ☒ | |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 119,596,866 shares of common stock outstanding at August 14, 2019.
| 2 |
PART I - FINANCIAL INFORMATION
| Cautionary Note Regarding Forward-Looking Statements | 4 | |
| ITEM 1. | Financial Statements | 5 |
| Condensed Consolidated Balance Sheets (Unaudited) | 6 | |
| Condensed Consolidated Statements of Operations (Unaudited) | 7 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) | 8 | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) | 9 | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 10 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 29 |
| ITEM 4. | Controls and Procedures | 29 |
| PART II - OTHER INFORMATION | ||
| ITEM 1. | Legal Proceedings | 30 |
| ITEM 1A. | Risk Factors | 30 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30 |
| ITEM 3. | Defaults Upon Senior Securities | 30 |
| ITEM 4. | Mine Safety Disclosures | 30 |
| ITEM 5. | Other Information | 30 |
| ITEM 6. | Exhibits | 30 |
| SIGNATURES | 31 | |
| 3 |
PART I - FINANCIAL INFORMATION
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” “contemplates,” “targets,” “could,” “would” or “should” or the negative thereof or any variation thereon or similar terminology or expressions. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.
We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, the absence of any material operating history or revenue, our ability to attract and retain qualified personnel, our ability to develop and introduce a new service and products to the market in a timely manner, market acceptance of our services and products, our limited experience in the industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, and other risks discussed in Part I – Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (the “SEC”), and the Company’s other subsequent filings with the SEC.
All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. The Company has no obligation to and does not undertake to update, revise, or correct any of these forward-looking statements after the date of this report.
| 4 |
Rego Payment Architectures, Inc.
CONTENTS
| PAGE | |
| CONDENSED CONSOLIDATED BALANCE SHEETS | 6 |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | 7 |
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIT |
8 |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 9 |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 10 to 24 |
| 5 |
Rego Payment Architectures, Inc.
Condensed Consolidated Balance Sheets
June 30, 2019 and December 31, 2018
| June 30, 2019 | December 31, 2018 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 123,269 | $ | 10,733 | ||||
| Accounts receivable | - | 1,923 | ||||||
| Prepaid expenses | 26,461 | 19,505 | ||||||
| Deposits | 1,218 | 26,218 | ||||||
| TOTAL CURRENT ASSETS | 150,948 | 58,379 | ||||||
| PROPERTY AND EQUIPMENT | ||||||||
| Computer equipment | 5,129 | 5,129 | ||||||
| Less: accumulated depreciation | (5,129 | ) | (5,129 | ) | ||||
| - | - | |||||||
| OTHER ASSETS | ||||||||
| Patents and trademarks, net of accumulated | ||||||||
| amortization of $177,898 and $163,240 | 369,283 | 383,942 | ||||||
| Investment | 115,000 | 115,000 | ||||||
| 484,283 | 498,942 | |||||||
| TOTAL ASSETS | $ | 635,231 | $ | 557,321 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 4,524,886 | $ | 4,119,976 | ||||
| Accounts payable and accrued expenses - related parties | 647,592 | 428,249 | ||||||
| Loans payable | 85,600 | 89,600 | ||||||
| Deferred revenue | 200,000 | 200,000 | ||||||
| 10% Secured convertible notes payable - stockholders | 2,813,157 | 3,163,157 | ||||||
| Notes payable - stockholders, net of discount of $14,063 and $0 | 362,937 | 134,000 | ||||||
| 4% Secured convertible notes payable - stockholders | - | 6,487,250 | ||||||
| Preferred stock dividend liability | 5,564,561 | 5,021,000 | ||||||
| TOTAL CURRENT LIABILITIES | 14,198,733 | 19,643,232 | ||||||
| LONG-TERM LIABILITIES | ||||||||
| 4% Secured convertible notes payable - stockholders | 7,387,250 | - | ||||||
| TOTAL LONG-TERM LIABILITIES | 7,387,250 | - | ||||||
| CONTINGENCIES | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 195,500 preferred shares Series A authorized; 107,850 shares | ||||||||
| issued and outstanding at June 30, 2019 and December 31, 2018 | 11 | 11 | ||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 222,222 preferred shares Series B authorized; 28,378 shares | ||||||||
| issued and outstanding at June 30, 2019 and December 31, 2018 | 3 | 3 | ||||||
| Preferred stock, $.0001 par value; 2,000,000 preferred shares | ||||||||
| authorized; 150,000 preferred shares Series C authorized; 0 shares | ||||||||
| issued and outstanding at June 30, 2019 and December 31, 2018 | - | - | ||||||
| Common stock, $ .0001 par value; 230,000,000 shares authorized; | ||||||||
| 119,596,866 shares issued and outstanding at June 30, 2019 and | ||||||||
| December 31, 2018 | 11,960 | 11,960 | ||||||
| Additional paid in capital | 59,869,115 | 59,548,971 | ||||||
| Accumulated deficit | (81,048,638 | ) | (78,880,134 | ) | ||||
| Noncontrolling interests | 216,797 | 233,278 | ||||||
| STOCKHOLDERS' DEFICIT | (20,950,752 | ) | (19,085,911 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 635,231 | $ | 557,321 | ||||
See the accompanying notes to the condensed consolidated financial statements.
| 6 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2019 and 2018
(Unaudited)
| For the Three Months | For the Six Months Ended | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| SALES | $ | 15,226 | $ | - | $ | 34,485 | $ | - | ||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Sales and marketing | (1,839 | ) | 5,163 | 28,465 | 13,363 | |||||||||||
| Product development | 27,839 | 314,679 | 241,396 | 489,180 | ||||||||||||
| General and administrative | 568,167 | 1,435,925 | 1,089,703 | 2,007,864 | ||||||||||||
| Total operating expenses | 594,167 | 1,755,767 | 1,359,564 | 2,510,407 | ||||||||||||
| NET OPERATING LOSS | (578,941 | ) | (1,755,767 | ) | (1,325,079 | ) | (2,510,407 | ) | ||||||||
| OTHER EXPENSE | ||||||||||||||||
| Interest expense | (150,629 | ) | (213,452 | ) | (316,346 | ) | (543,679 | ) | ||||||||
| (150,629 | ) | (213,452 | ) | (316,346 | ) | (543,679 | ) | |||||||||
| NET LOSS | (729,570 | ) | (1,969,219 | ) | (1,641,425 | ) | (3,054,086 | ) | ||||||||
| LESS: Accrued preferred dividends | (271,781 | ) | (268,281 | ) | (543,561 | ) | (536,561 | ) | ||||||||
| Net loss attributable to noncontrolling interests | 724 | 5,126 | 6,481 | 11,459 | ||||||||||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (1,000,627 | ) | $ | (2,232,374 | ) | $ | (2,178,505 | ) | $ | (3,579,188 | ) | ||||
| BASIC AND DILUTED NET LOSS PER | ||||||||||||||||
| COMMON SHARE | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) | ||||
| BASIC AND DILUTED WEIGHTED AVERAGE | ||||||||||||||||
| COMMON SHARES OUTSTANDING | 119,596,866 | 119,180,199 | 119,596,866 | 118,680,199 | ||||||||||||
See the accompanying notes to the condensed consolidated financial statements.
| 7 |
Rego Payment Architectures, Inc.
Condensed Consolidated Statement of Changes in Stockholders’ Deficit
For the Six Month Period Ended June 30, 2019
| Preferred | Preferred | Preferred | Common | |||||||||||||||||||||||||||||||||||||||||||||
| Stock Series A | Stock Series B | Stock Series C | Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-In | Accumulated | Noncontrolling | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interests | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 119,596,866 | $ | 11,960 | $ | 59,548,971 | $ | (78,880,134 | ) | $ | 233,278 | $ | (19,085,911 | ) | ||||||||||||||||||||||||||
| Issuance of warrants with notes payable | - | - | - | - | - | - | - | - | 21,305 | - | - | 21,305 | ||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | 222,766 | - | - | 222,766 | ||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | (266,780 | ) | (5,000 | ) | (271,780 | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (906,097 | ) | (5,757 | ) | (911,854 | ) | |||||||||||||||||||||||||||||||||
| Balance March 31, 2019 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 119,596,866 | $ | 11,960 | $ | 59,793,042 | $ | (80,053,011 | ) | $ | 222,521 | $ | (20,025,474 | ) | ||||||||||||||||||||||||||
| Issuance of warrants with notes payable | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
| Issuance of options with notes payable | - | - | - | - | - | - | - | - | 16,437 | - | - | 16,437 | ||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | 59,636 | - | - | 59,636 | ||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | (266,781 | ) | (5,000 | ) | (271,781 | ) | |||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (728,846 | ) | (724 | ) | (729,570 | ) | |||||||||||||||||||||||||||||||||
| Balance June 30, 2019 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 119,596,866 | $ | 11,960 | $ | 59,869,115 | $ | (81,048,638 | ) | $ | 216,797 | $ | (20,950,752 | ) | ||||||||||||||||||||||||||
Condensed Consolidated Statement of Changes in Stockholders’ Deficit
For the Six Month Period Ended June 30, 2018
| Preferred | Preferred | Preferred | Common | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Series A | Stock Series B | Stock Series C | Stock | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||
| Number of | Number of | Number of | Number of | Paid-In | Deferred | Accumulated | Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Interests | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 118,596,866 | $ | 11,860 | $ | 56,390,489 | $ | (31,250 | ) | $ | (72,112,722 | ) | $ | - | $ | (15,741,609 | ) | |||||||||||||||||||||||||||
| Issuance of warrants for notes payable extensions | - | - | - | - | - | - | - | - | 191,737 | - | - | - | 191,737 | |||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | 133,757 | - | - | - | 133,757 | |||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | - | - | - | - | - | - | - | - | - | 9,375 | - | - | 9,375 | |||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | - | (268,280 | ) | - | (268,280 | ) | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | (1,078,434 | ) | (6,333 | ) | (1,084,767 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2018 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 118,596,866 | $ | 11,860 | $ | 56,715,983 | $ | (21,875 | ) | $ | (73,459,436 | ) | $ | (6,333 | ) | $ | (16,759,787 | ) | ||||||||||||||||||||||||||
| Issuance of warrants for notes payable extensions | - | - | - | - | - | - | - | - | 74,827 | - | - | - | 74,827 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for settlement of accounts payable | - | - | - | - | - | - | 500,000 | 50 | 169,400 | - | - | - | 169,450 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for investment | - | - | - | - | - | - | 500,000 | 50 | 114,950 | - | - | - | 115,000 | |||||||||||||||||||||||||||||||||||||||
| Fair value of options for services | - | - | - | - | - | - | - | - | 946,666 | - | - | - | 946,666 | |||||||||||||||||||||||||||||||||||||||
| Amortization of deferred compensation | - | - | - | - | - | - | - | - | - | 9,375 | - | - | 9,375 | |||||||||||||||||||||||||||||||||||||||
| Accrued preferred dividends | - | - | - | - | - | - | - | - | - | - | (268,281 | ) | - | (268,281 | ) | |||||||||||||||||||||||||||||||||||||
| Conversion of convertible notes payable for equity | - | - | - | - | - | - | - | - | 183,250 | - | - | - | 183,250 | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | (1,964,193 | ) | (5,126 | ) | (1,969,319 | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2018 | 107,850 | $ | 11 | 28,378 | $ | 3 | - | $ | - | 119,596,866 | $ | 11,960 | $ | 58,205,076 | $ | (12,500 | ) | $ | (75,691,910 | ) | $ | (11,459 | ) | $ | (17,498,819 | ) | ||||||||||||||||||||||||||
See
the accompanying notes to the condensed consolidated financial statements. Rego
Payment Architectures, Inc. Condensed
Consolidated Statements of Cash Flows For
the Six Months Ended June 30, 2019 and 2018 (Unaudited) See
the accompanying notes to the condensed consolidated financial statements. Rego
Payment Architectures, Inc. Notes
to Condensed Consolidated Financial Statements NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature
of the Business Rego
Payment Architectures, Inc. (“REGO”) was incorporated in the state of Delaware on February 11, 2008. Rego
Payment Architectures, Inc. and its subsidiaries (collectively, except where the context requires, the
“Company”) is a technology company that will deliver an online and mobile payment platform solution for the
family. The system will allow parents and their children to manage, allocate funds and track their expenditures, savings and
charitable giving on both a mobile device and online through the Company’s web portal. The Company’s
system is designed to allow a minor to transact both online and in traditional brick and mortar retail outlets using the
telephone handset as a payment device. The new payment platform automatically monitors regulatory compliance in
real-time for all transactions, including protection of vendors from unintended regulatory infractions. In addition,
utilizing the same architecture, individual parents will be able to create a contract with each child that sets the rules and
parameters of how the child may use the mobile payment system with as much or as little parental oversight as the parent
determines is necessary. The Company is including specialized technology that increases and improves the security of
the system and protects the user’s identity while in use. Management
believes that building on its Children’s Online Privacy Protection Act (“COPPA”) advantage, the future of the
Company will be based on the foundational architecture of the system that will allow its use across multiple financial markets
where secure controlled payments are needed. For the under seventeen years of age market, the Company will use its OINK.com
brand. The Company intends to license in each alternative field of use the ability for its partners, distributors and/or
value added resellers to private label each of the alternative markets. These partners will deploy, customize and support
each implementation under their own label but with acknowledgement of the Company’s proprietary intellectual assets as the
base technology. Management believes this approach will enable the Company to reduce expenses while broadening its reach. Revenues
generated from this system are anticipated to come from multiple sources depending on the level of service and facilities requested
by the parent. There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases
revenue sharing with banking and distribution partners. ZOOM
Payment Solutions, LLC (“ZPS, LLC”) ZPS,
LLC was formed in the state of Delaware on December 15, 2017, and Rego Payment Architectures, Inc. owned 78% of ZPS, LLC.
As of July 13, 2018, ZPS, LLC was dissolved. ZOOM
Solutions, Inc. (“ZS”) ZS
(formerly Zoom Payment Solutions, Inc.) was incorporated in the state of Delaware on February 16, 2018 as a subsidiary of Rego
Payment Architectures, Inc. Rego Payment Architectures, Inc. owns 78% of ZS. ZS is the holding company for various
subsidiaries that will utilize REGO’s payment platform to address emerging markets. REGO
has licensed its technology to ZS, as the REGO determined that to extend the Company’s business runway, the Company needed
to adapt its technology to include blockchain, token development and cloud storage. ZS was formed to implement these specified
new technologies and growth opportunities in conjunction with other business partners, as appropriate. ZOOM
Payment Solutions, Inc. (“ZPS”) ZPS
(formerly Zoom Payment Solutions USA, Inc.) was incorporated in the state of Nevada on December 6, 2017 as a wholly owned subsidiary
of Zoom Payment Solutions, LLC. ZPS is now a wholly owned subsidiary of ZS with the core focus on providing mobile payments
solutions. ZPS has secured a sublicense from ZS for Oink (a payment platform owned by REGO) and access to the patents from REGO
and is intended to launch a fully COPPA compliant platform in the fourth quarter of 2019. ZPS is also currently in discussions
with several Northwest Arkansas (“NW”) companies to provide a white label payments application for their employees
inclusive of a family wallet as well as financial literacy education. ZPS has also commenced initial discussions with a communications
company from Montreal, Canada to collaborate on global payments solutions for the unbanked and underbanked. ZOOM
Blockchain Solutions, Inc. (“ZBS”) ZBS
was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary of ZS. This company focuses on blockchain
as a business solution for the retail and Consumer Packaged Goods (“CPG”) industries. ZBS provides a boutique agency
approach to work with companies in NW Arkansas to build disruptive networks that will provide an enhanced customer experience,
drive efficiency and build transparency and trust from the consumer base. ZBS has commenced discussions and is under a Non-Disclosure
Agreement with a leading retailer to provide a blockchain solution for the enterprise. ZBS
is also negotiating a joint venture in the auto sector to develop a disruptive solution, powered by blockchain, that will enable
a consumer centric approach to buying and selling cars as well as provide a concierge approach to car supply and maintenance. ZOOM
Cloud Solutions, Inc. (“ZCS”) ZCS
(formerly Zoom Canada Solutions, Inc.) was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary
of ZS. ZCS is to provide highly secure cloud storage as a service with the following benefits: END-TO-END
PRIVATE CONNECTIVITY – The network of meshed carrier class private circuits will provide a secure, low latency private cloud
experience. UNLIMITED
CLOUD CAPABILITES - The data will reside in a dedicated environment called a Hyperscale Converged Cloud Infrastructure, which
is a leading-edge technology. Through an intuitive platform interface, the team will design, test, develop, manage, and deploy
networks from anywhere. This includes, but is not limited to, virtualized, scalable work environments, scalable storage capabilities,
state-of-the-art voice and unified communications solutions, cloud computing, backup and more. SMARTLY
DESIGNED - The Cloud platform will be custom-engineered on purpose-built hardware to deliver a highly-efficient and dense infrastructure
to the market. Through proprietary Software Defined Distributed Virtual Routing, the consumer will get increased network speeds,
agility, scalability and reduced latency as well as application mobility, security, data integrity and, most importantly, control. ZOOM
Auto Solutions, Inc. (“ZAS”) ZAS
(formerly Zoom Mining Solutions) was incorporated in the State of Delaware on February 19, 2018 as a wholly owned subsidiary of
ZCS. It is now a wholly owned subsidiary of ZBS and will be providing blockchain solutions to the auto industry. ZAS has had minimal
operations since inception. The
Company’s principal office is located in Cerritos, California. Basis
of Presentation The
accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”). These statements include all adjustments
(consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements
and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included
in the Company’s 2018 Annual Report on Form 10-K. All significant intercompany transactions and balances have been eliminated
in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance
with US GAAP have been condensed, or omitted pursuant to such rules and regulations, although the Company believes that the accompanying
disclosures are adequate to make the information presented not misleading. The accompanying
unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC. Operating results for the three and six
months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31,
2019. The
Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing
to operationalize the Company’s current technology before another company develops similar technology to compete with the
Company. Recently
Adopted Accounting Pronouncements In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)and subsequent related updates. The core principle
of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The Company adopted the standard
effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the
adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period
of adoption. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases
and therefore the standard did not have a material impact on the consolidated statements. Recently
Issued Accounting Pronouncements Not Yet Adopted As
of June 30, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the
Company’s financial statements. NOTE
2 – MANAGEMENT PLANS The
accompanying 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 August 14, 2019, the Company has a cash position of approximately $108,000.
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 September 2019. NOTE
3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES As
of June 30, 2019 and December 31, 2018, the Company owed the Chief Executive Officer a total of $353,880 and $210,032, consisting
of $353,345 and $207,845 in unpaid salary and expenses of $535 and $2,187. As
of June 30, 2019 and December 31, 2018, the Company owed the Chief Financial Officer $118,392 and $84,296 consisting of $118,392
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 $145,820 and $113,920 as of June 30, 2019 and December 31, 2018,
consisting of consulting fees. Additionally
as of June 30, 2019 and December 31, 2018, the Company owed the son of a more than 5% beneficial owner $29,500 and $20,000, pursuant
to a consulting agreement. NOTE
4 – LOANS PAYABLE During
the six months ended June 30, 2019 and 2018, the Company received $0 and $71,260 with no formal repayment terms and 10% interest.
The Company received loans in the amount of $0 and $59,915 with no formal repayment terms and no interest, during the six months
ended June 30, 2019 and 2018. The Company repaid $4,000 and $59,475 of these loans during the six months ended June 30,
2019 and 2018. The balance of the loans payable as of June 30, 2019 and December 31, 2018 was $85,600 and $89,600. Interest
accrued on the loans was $12,187 and $9,253 as of June 30, 2019 and December 31, 2018. Interest expense related to
these loans payable was $706 and $2,934 for the three and six months ended June 30, 2019 and $676 for the three and six months
ended June 30, 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 six months ended June 30, 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 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 June 30, 2019 and December 31, 2018 in the amount of $2,813,157 and
$3,163,157. Interest accrued on the Notes was $1,426,924 and $1,283,660 as of June 30, 2019 and December 31,
2018. Interest expense other than the warrant related interest expense in the paragraph above, related to these
Notes payable was $70,329 and $143,264 for the three and six months ended June 30, 2019 and $88,507 and $177,013 and for the
three and six months ended June 30, 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 options,
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 $0 and $21,305 was expensed as interest expense during the
three and six months ended June 30, 2019 and $74,827 and $137,761 during the three and six months ended June 30, 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 reversal was recorded as a reduction in interest expense. On
June 17, 2019, the Company issued a 90 day promissory note in the amount of $200,000, bearing interest at 10% along with
options to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.90 for term of 2 years,
vesting immediately. Additionally, the note holder will receive up to $200,000 from a 50/50 revenue split relative to a
Norway joint venture. The options were valued at $9,075, 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
176.1%, risk free interest rate of 1.86% and expected option life of 2 years. The relative fair value of
the option was $8,757 and was recorded as a discount to the note payable in accordance with FASB ASC
835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement
purposes. On
June 17, 2019, the Company issued a 90 day promissory note in the amount of $50,000, bearing interest at 10% along with
options to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.90 for term of 2 years,
vesting immediately. Additionally, the note holder will receive up to $50,000 from a 50/50 revenue split relative to a Norway
joint venture (Note 16). The options were valued at $9,075, 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
176.1%, risk free interest rate of 1.86% and expected option life of 2 years. The relative fair value of
the option was $7,681 and was recorded as a
discount to the note payable in accordance with FASB ASC
835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement
purposes. The
Company also repaid $7,000 of the promissory notes during the six months ended June 30, 2019. The
notes payable are recorded as a current liability as of June 30, 2019 and December 31, 2018 in the amount of $362,937 and $134,000
net of discount of $14,063 and $0. Interest accrued on the notes, as of June 30, 2019 and December 31, 2018 was
$3,391 and $1,084. Interest expense including accretion of discount, but exclusive of the fair value of warrants above
related to these notes payable was $3,937 and $4,681 for the three and six months ended June 30, 2019 and $0 for the three and
six months ended June 30, 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. The
maturity dates of the New Secured Notes were extended by the investors to October 31, 2020. During
the six months ended June 30, 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 long-term liability in the amount of $7,387,250 as of June 30, 2019 and a current
liability in the amount of $6,487,250 as of December 31, 2018. Interest accrued on the New Secured Notes was
$539,129 and $394,967 as of June 30, 2019 and December 31, 2018. Interest expense, including accretion of
discounts, related to these notes payable was $74,912 and $144,161 for the three and six months ended June 30, 2019 and
$49,442 and $99,426 for the three and six months ended June 30, 2018. NOTE
9 – INCOME TAXES Income
tax expense was $0 for the three and six months ended June 30, 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 2019 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the
three and six months ended June 30, 2019, and there was no accrual for uncertain tax positions as of June 30, 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 and six months ended June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2019, the value of the cumulative 8% dividends for all Rego preferred stock was $5,551,228. 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. 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. As
of June 30, 2019, the value of the cumulative 8% dividends for ZS preferred stock was $13,333. Such dividends will
be paid when and if declared payable by the ZS’ board of directors or upon the occurrence of certain liquidation events. In
accordance with FASB ASC 260-10-45-11, the Company has recorded these accrued dividends as a current liability. NOTE 11
– STOCKHOLDERS’ EQUITY Extension
and Revaluation of Options In
April 2019, the Board of Directors of the Company approved amendments extending the term of outstanding options to purchase in
the aggregate 150,000 shares of common stock of the Company at an exercise price $0.90 per share. These options were
scheduled to expire in June 2019 and were each extended for an additional two year period from the applicable current expiration
date. The Company used the Black-Scholes option pricing model to calculate the fair value at $21,975, with the following
assumptions for the extended options: no dividend yield, expected volatility of 179.2%, risk free interest rate of 2.3%, and expected
option life of two years. The incremental increase in fair value of this term extension was $21,964, which was expensed during
the period. 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 and six months ended June 30, 2019, the Company expensed $0 and during the three and six months ended June 30, 2018,
the Company expensed $9,375 and $18,750 relative to restricted stock awards. The
Company entered into an financial advisory agreement whereby generally the Company will pay the financial advisor a success fee
equal to 6% of the Capital committed in a capital transaction. 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 June 30, 2019, options to purchase 9,261,667 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 June 30, 2019, under the 2013 Plan grants of restricted stock and options to purchase 4,450,000
shares of common stock have been issued and 3,050,000 are outstanding or unexercised, and 550,000 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, REGO issued options to purchase an aggregate of 500,000 shares of REGO’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, REGO issued options to purchase 50,000 shares of REGO’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, REGO issued options to purchase 25,000 shares of REGO’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 six months ended June 30, 2019: Weighted average estimated fair value of options during the period The
following table summarizes the activities for REGO’s stock options for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019, Rego expensed $59,636 and $254,351 and for the three and six months ended June 30,
2018, Rego expensed $946,666 and $1,080,422 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 June 30, 2019, there was $104,032 of unrecognized compensation cost related to outstanding stock options. This amount is expected
to be recognized over a weighted-average period of 0.5 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 June 30, 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 six months ended June 30, 2019: The
following table summarizes the activities for REGO’s warrants for the six months ended June 30, 2019: All
warrants were vested on the date of grant. The
following table summarizes the activities for ZS’s stock options for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019, ZS expensed $0 and $28,051 with respect to options and for the three and six months
months ended June 30, 2018, ZS expensed $0 with respect to options. The
following table summarizes the activities for ZS’s warrants for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019 and 2018, ZS expensed $0 with respect to warrants. The
following table summarizes the activities for ZBS’s stock options for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019 and 2018, ZBS expensed $0 with respect to options. The
following table summarizes the activities for ZCS’s stock options for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019 and 2018, ZCS expensed $0 with respect to options. The
following table summarizes the activities for ZPS’s stock options for the six months ended June 30, 2019: For
the three and six months ended June 30, 2019, ZPS expensed $0 with respect to options. NOTE
13 – NONCONTROLLING INTERESTS Losses
incurred by the noncontrolling interests for the three and six months ended June 30, 2019 were $724 and $6,481 and for the three
and six months ended June 30, 2018 were $5,026 and $11,459. NOTE
14 – OPERATING LEASES For
the three and six months ended June 30, 2019, total rent expense under leases amounted to $6,352 and $13,682. For the three
and six months ended June 2018, total rent expense under leases amounted to $16,705 and $21,672. The Company has elected
not to recognize right-of-use assets and lease liabilities arising from short-term leases. The Company has no long-term lease
obligations as of June 30, 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 and six months ended June 30, 2019 and 2018, the Company expensed $45,000 and $90,000 relative 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 and six months ended June 30, 2019 and 2018, the Company expensed $15,000 and $30,000
relative to this consultant. During
the three and six months ended June 30, 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 has been fully refunded as of June 30, 2019. NOTE
16 – SUBSEQUENT EVENTS The
Company entered into a consulting agreement with a consultant whereby the Company is obligated as follows: 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 June 30, 2019 and 2018 The
following discussion analyzes our results of operations for the three months ended June 30, 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 June 30, 2019 and 2018 we generated
revenues of $15,226 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 June 30, 2019 and 2018, we had a net loss of $729,570 and $1,969,219. Sales
and Marketing Sales
and marketing expenses for the three months ended June 30, 2019 were $(1,839) as compared to $5,163 for the three months ended
June 30, 2018, a decrease of $7,002. The Company redirected marketing funds during the three months ended June 30, 2019 as
the focus has been on raising funds to be able to complete the Platform. Product
Development Product
development expenses were $27,839 and $314,679 for the three months ended June 30, 2019 and 2018, a decrease of $286,840. 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 $867,757 to $568,168 for the three months ended June 30, 2019 from $1,435,925 for the three
months ended June 30, 2018. The decrease resulted primarily from option expenses decreases in 2019 relative to employees
and consultants, which is a difference of approximately $643,000. Additionally, consultant fees decreased in 2019, by approximately
$136,000 due to stock issued for settlement expenses in 2018. Interest
Expense During
the three months ended June 30, 2019, the Company incurred interest expense of $150,629 as compared to $213,452 for the three
months ended June 30, 2018, a decrease of $62,823. 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. Comparison
of the Six Months Ended June 30, 2019 and 2018 The
following discussion analyzes our results of operations for the six months ended June 30, 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 six months ended June 30, 2019 and 2018 we generated
revenues of $34,485 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 six months ended June 30, 2019 and 2018, we had a net loss of $1,641,425 and $3,054,086. Sales
and Marketing Sales
and marketing expenses for the six months ended June 30, 2019 were $28,465 as compared to $13,363 for the six months
ended June 30, 2018, an increase of $15,102. The Company issued options to a marketing firm and a marketing consultant
for the preparation of various presentation materials, during the six months ended June 30, 2019. The options were valued at
$22,077. The Company also made an effort to minimize spending on sales and marketing in 2019. Product
Development Product
development expenses were $241,396 and $489,180 for the six months ended June 30, 2019 and 2018, a decrease of $247,784. 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 $918,161 to $1,089,703 for the six months ended June 30, 2019 from $2,007,864 for the six
months ended June 30, 2018. The decrease resulted primarily from option expense decreases in 2019 relative to employees and
consultants, which is a difference of approximately $671,000. Additionally, consultant fees decreased in 2019, by approximately
$167,000 due to stock issued in settlement of expenses in 2018. Interest
Expense During
the six months ended June 30, 2019, the Company incurred interest expense of $316,346 as compared to $543,679 for the six months
ended June 30, 2018, a decrease of $227,333. 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 August 14, 2019, we had cash on hand of approximately $108,000. Net
cash used in operating activities increased $30,526 to $676,464 for the six months ended June 30, 2019 as compared to
$645,938 for the six months ended June 30, 2018. The increase resulted primarily from reductions in options
and stock issued in 2019 compared to 2018 and accounts payable differences. Net
cash provided by financing activities increased to $789,000 for the six months ended June 30, 2019 from $639,950 for
the six months ended June 30, 2018, an increase of $149,050. Cash provided by financing activities during the six months
ended June 30, 2019, consisted of convertible notes payable and 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. 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 first quarter of 2020, however, we do not project
that significant revenue will be developed until later in 2020. 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 September 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 June 30, 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. ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not
applicable. ITEM
4. CONTROLS AND PROCEDURES. As
of June 30, 2019, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule
13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of June 30, 2019, our disclosure controls and procedures were effective to ensure that information
we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. There
has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended June 30, 2019
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART
II - OTHER INFORMATION There
have been no material developments since the disclosure provided in the Company’s Form 10-K for the year ended December
31, 2018. Not
required. ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. On June 17, 2019, the Company issued, in a private
placement, options to two promissory note holders to purchase in the aggregate 200,000 shares of the Company’s common
stock at an exercise price of $0.90 expiring in two years. ITEM
3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM
4. MINE SAFETY DISCLOSURES. Not
applicable. None. In
accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized. Chief
Financial Officer (Duly
Authorized Officer and Principal Financial
Officer) 31 8
For the Six Months Ended June 30,
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss
$ (1,641,425 )
$ (3,054,086 )
Adjustments to reconcile net loss to net cash used in operating activities:
Fair value of warrants issued for interest on notes payable
21,305
266,564
Fair value of options issued in exchange for services
282,402
1,080,422
Fair value of common stock issued in exchange for services
-
18,750
Fair value of common stock issued settlement of litigation
-
169,450
Accretion of discount on notes payable
2,374
6,421
Depreciation and amortization
14,659
14,978
(Increase) decrease in assets
Accounts receivable
1,923
-
Prepaid expenses
(6,956 )
35,800
Deposits
25,000
-
Increase in liabilities
Accounts payable and accrued expenses
395,295
436,795
Accounts payable and accrued expenses - related parties
228,959
178,968
Deferred revenue
-
200,000
Net cash used in operating activities
(676,464 )
(645,938 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable
-
131,175
Repayment of loans payable
(4,000 )
(59,475 )
Proceeds from convertible notes payable - stockholders
550,000
325,000
Proceeds from notes payable - stockholders
250,000
-
Repayment of notes payable - stockholders
(7,000 )
-
Proceeds from convertible notes payable
-
243,250
Net cash provided by financing activities
789,000
639,950
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
112,536
(5,988 )
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
10,733
7,232
CASH AND CASH EQUIVALENTS - END OF PERIOD
$ 123,269
$ 1,244
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest
$ -
$ -
Income taxes
$ -
$ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Accrued preferred dividends
$ 543,561
$ 536,561
Exchange of 10% secured convertible notes payable for 4.0% secured convertible notes payable
$ 350,000
$ 100,000
Accrued interest as discount on notes payable
$ 16,437
$ -
Issuance of common stock for investment
$ -
$ 115,000
Conversion of convertible notes payable for equity
$ -
$ 183,250 9 10 11 12 13 14
15 16 17 18
2019
Risk Free
Interest Rate
2.4%
Expected Volatility
171.4%
Expected Life (in years)
3.9
Dividend Yield
0%
$ 0.13
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
775,000
0.90
Expired/cancelled
(1,188,333 )
0.65
-
-
Balance June 30, 2019
12,511,667
$ 0.69
3.0
$ -
Exercisable at June 30, 2019
9,511,667
$ 0.60
3.0
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
12,511,667
$ 0.69
3.0
$ -
(1) The aggregate
intrinsic value is calculated as the difference between the exercise price of the underlying
options and the closing stock price of $0.15 for REGO’s common stock on June
30, 2019. 19
Unvested Options
Weighted -
Average
Grant
Number of
Date Fair
Shares
Value
Balance December 31, 2018
3,625,000
$ 0.13
Granted
775,000
0.13
Expired/cancelled
(616,667 )
0.25
Vested
(783,333 )
0.13
Balance June 30, 2019
3,000,000
$ 0.16
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 June 30, 2019
3,227,020
$ 0.90
0.8
$ -
Exercisable at June 30, 2019
3,227,020
$ 0.90
0.8
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
3,227,020
$ 0.90
0.8
$ -
(1) The
aggregate intrinsic value is calculated as the difference between the exercise price
of the underlying warrants and the closing stock price of $0.15 for Rego’s common
stock on June 30, 2019. 20
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 June 30, 2019
2,400,000
$ 5.00
4.1
$ -
Exercisable at June 30, 2019
2,400,000
$ 5.00
4.1
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
2,400,000
$ 5.00
4.1
$ -
(1) The aggregate
intrinsic value is calculated as the difference between the exercise price of the underlying
options and the value of $4.00 for ZS’s common stock on June 30, 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
$ 83
Balance June 30, 2019
83,334
$ 3.00
2.4
$ 83
Exercisable at June 30, 2019
83,334
$ 3.00
2.4
$ 83
Exercisable at June 30, 2019 and expected to
vest thereafter
83,334
$ 3.00
2.4
$ 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 June 30, 2019. 21
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 June 30, 2019
100,000
$ 5.00
1.2
$ -
Exercisable at June 30, 2019
100,000
$ 5.00
1.2
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
100,000
$ 5.00
1.2
$ -
(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 June 30, 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 June 30, 2019
2,200,000
$ 5.00
4.3
$ -
Exercisable at June 30, 2019
2,200,000
$ 5.00
4.3
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
2,200,000
$ 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 $0.01 for ZCS’s common stock on June 30, 2019.
22
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 June 30, 2019
100,000
$ 5.00
1.2
$ -
Exercisable at June 30, 2019
100,000
$ 5.00
1.2
$ -
Exercisable at June 30, 2019 and expected to
vest thereafter
100,000
$ 5.00
1.2
$ -
(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 June 30, 2019. 23
1. To
pay $2,000 upon execution of the agreement.
2. Upon
the
Effective
Date,
July 1, 2019, Company
shall
provide
Consultant
an option
to purchase 200,000 shares of Company's common stock at an exercise price of USD $0.90
per share. The term of such option shall commence on the Date of Grant and shall expire
three years from the Date of Grant. The
fair value of the options 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 171.9%, risk free interest rate of 1.8% and
expected option life approximating three years. The Company will recognize $22,897
as consulting expense over one year, which is the expected term of the consulting agreement.
3. Upon
the Company and a Norwegian bank entering into Definitive Agreements establishing a
Joint Venture, Company shall provide Consultant an option to purchase an additional 200,000
shares of Company's common stock at an exercise price of USD $0.90 per share.
The term
of such option shall commence on the Date of Grant and shall expire three years from
the Date of Grant.
4. Upon
the Joint Venture commercially launching the Payment Platform in Norway, Company shall
provide Consultant with an option to purchase an additional 200,000 shares of Company's
common stock at an exercise price of USD $0.90 per share. The term of such option shall
commence on the Date of Grant and shall expire three years from the Date of Grant.
5. In
addition to the aforesaid options, during the Term of the Agreement, Company shall pay
to Consultant an amount equal to 2% of all profit distributions received by Company from
the Joint Venture. By way of illustration, assuming that during the Term, the Company receives
an exclusive license fee of USD $10 million from the Joint Venture, Consultant shall
receive a payment of USD $200,000 from Company. 24 25 26 27 28 29 30
REGO PAYMENT ARCHITECTURES, INC.
By:
/s/
Scott McPherson
Scott McPherson
Date: August 14, 2019
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, David A. Knight, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Rego Payment Architectures, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 14, 2019 | By: | /s/ David A. Knight |
| David A. Knight | ||
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER
THE SECURITIES EXCHANGE ACT OF 1934
I, Scott A. McPherson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Rego Payment Architectures, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 14, 2019 | By: | /s/ Scott A. McPherson |
| Scott A. McPherson | ||
| Chief Financial Officer |
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report of Rego Payment Architectures, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ended June 30, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Knight, Chief Executive Officer (Principal Executive Officer) of the Registrant, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1) | This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2) | The information contained in this Report fairly presents, in all material respects, the financial condition and results of Operations of the Registrant. |
|
Date: August 14, 2019 |
By: | /s/ David A. Knight |
| David A. Knight | ||
| Chief Executive Officer |
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report of Rego Payment Architectures, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ended June 30, 2019, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Scott A. McPherson, Chief Financial Officeer (Principal Financial Officer) of the Registrant, certify to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1) | This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2) | The information contained in this Report fairly presents, in all material respects, the financial condition and results of Operations of the Registrant. |
| Date: August 14, 2019 | By: | /s/ Scott A. McPherson |
| Scott A. McPherson | ||
| Chief Financial Officer |
Document and Entity Information - shares |
6 Months Ended | |
|---|---|---|
Jun. 30, 2019 |
Aug. 14, 2019 |
|
| Document And Entity Information | ||
| Entity Registrant Name | REGO PAYMENT ARCHITECTURES, INC. | |
| Entity Central Index Key | 0001437283 | |
| Document Type | 10-Q | |
| Document Period End Date | Jun. 30, 2019 | |
| Amendment Flag | false | |
| Current Fiscal Year End Date | --12-31 | |
| Document Fiscal Period Focus | Q2 | |
| Document Fiscal Year Focus | 2019 | |
| Entity Filer Category | Non-accelerated Filer | |
| Entity Small Business | true | |
| Entity Shell Company | false | |
| Entity Emerging Growth Company | false | |
| Entity Interactive Data Current | Yes | |
| Entity Current Reporting Status | Yes | |
| Entity Common Stock, Shares Outstanding | 119,596,866 |
Condensed Consolidated Statements of Operations - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Income Statement [Abstract] | ||||
| SALES | $ 15,226 | $ 34,485 | ||
| OPERATING EXPENSES | ||||
| Sales and marketing | (1,839) | 5,163 | 28,465 | 13,363 |
| Product development | 27,839 | 314,679 | 241,396 | 489,180 |
| General and administrative | 568,167 | 1,435,925 | 1,089,703 | 2,007,864 |
| Total operating expenses | 594,167 | 1,755,767 | 1,359,564 | 2,510,407 |
| NET OPERATING LOSS | (578,941) | (1,755,767) | (1,325,079) | (2,510,407) |
| OTHER EXPENSE | ||||
| Interest expense | (150,629) | (213,452) | (316,346) | (543,679) |
| Total other expense | (150,629) | (213,452) | (316,346) | (543,679) |
| NET LOSS | (729,570) | (1,969,219) | (1,641,425) | (3,054,086) |
| LESS: Accrued preferred dividends | (271,781) | (268,281) | (543,561) | (536,561) |
| Net loss attributable to noncontrolling interests | 724 | 5,126 | 6,481 | 11,459 |
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ (1,000,627) | $ (2,232,374) | $ (2,178,505) | $ (3,579,188) |
| BASIC AND DILUTED NET LOSS PER COMMON SHARE | $ (0.01) | $ (0.02) | $ (0.02) | $ (0.03) |
| BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | 119,596,866 | 119,180,199 | 119,596,866 | 118,680,199 |
Condensed Consolidated Statement of Changes in Stockholders' Deficit - USD ($) |
Preferred Stock [Member]
Series A [Member]
|
Preferred Stock [Member]
Series B [Member]
|
Preferred Stock [Member]
Series C [Member]
|
Common Stock [Member] |
Additional Paid-In Capital [Member] |
Deferred Compensation [Member] |
Accumulated Deficit [Member] |
Noncontrolling Interest |
Total |
|---|---|---|---|---|---|---|---|---|---|
| Balance at Dec. 31, 2017 | $ 11 | $ 3 | $ 11,860 | $ 56,390,489 | $ (31,250) | $ (72,112,722) | $ (15,741,609) | ||
| Balance, shares at Dec. 31, 2017 | 107,850 | 28,378 | 118,596,866 | ||||||
| Issuance of warrants for notes payable extensions | 191,737 | 191,737 | |||||||
| Fair value of options for services | 133,757 | 133,757 | |||||||
| Amortization of deferred compensation | 9,375 | 9,375 | |||||||
| Accrued preferred dividends | (268,280) | (268,280) | |||||||
| Net loss | (1,078,434) | (6,333) | (1,084,767) | ||||||
| Balance at Mar. 31, 2018 | $ 11 | $ 3 | $ 11,860 | 56,715,983 | (21,875) | (73,459,436) | (6,333) | (16,759,787) | |
| Balance, shares at Mar. 31, 2018 | 107,850 | 28,378 | 118,596,866 | ||||||
| Balance at Dec. 31, 2017 | $ 11 | $ 3 | $ 11,860 | 56,390,489 | (31,250) | (72,112,722) | (15,741,609) | ||
| Balance, shares at Dec. 31, 2017 | 107,850 | 28,378 | 118,596,866 | ||||||
| Accrued preferred dividends | (536,561) | ||||||||
| Conversion of convertible notes payable for equity | 183,250 | ||||||||
| Net loss | (3,054,086) | ||||||||
| Balance at Jun. 30, 2018 | $ 11 | $ 3 | $ 11,960 | 58,205,076 | (12,500) | (75,691,910) | (11,459) | (17,498,819) | |
| Balance, shares at Jun. 30, 2018 | 107,850 | 28,378 | 119,596,866 | ||||||
| Balance at Mar. 31, 2018 | $ 11 | $ 3 | $ 11,860 | 56,715,983 | (21,875) | (73,459,436) | (6,333) | (16,759,787) | |
| Balance, shares at Mar. 31, 2018 | 107,850 | 28,378 | 118,596,866 | ||||||
| Issuance of warrants for notes payable extensions | 74,827 | 74,827 | |||||||
| Issuance of common stock for settlement of accounts payable | $ 50 | 169,400 | 169,450 | ||||||
| Issuance of common stock for settlement of accounts payable, shares | 500,000 | ||||||||
| Issuance of common stock for investment | $ 50 | 114,950 | 115,000 | ||||||
| Issuance of common stock for investment, shares | 500,000 | ||||||||
| Fair value of options for services | 946,666 | 946,666 | |||||||
| Amortization of deferred compensation | 9,375 | 9,375 | |||||||
| Accrued preferred dividends | (268,281) | (268,281) | |||||||
| Conversion of convertible notes payable for equity | 183,250 | 183,250 | |||||||
| Net loss | (1,964,193) | (5,126) | (1,969,219) | ||||||
| Balance at Jun. 30, 2018 | $ 11 | $ 3 | $ 11,960 | 58,205,076 | $ (12,500) | (75,691,910) | (11,459) | (17,498,819) | |
| Balance, shares at Jun. 30, 2018 | 107,850 | 28,378 | 119,596,866 | ||||||
| Balance at Dec. 31, 2018 | $ 11 | $ 3 | $ 11,960 | 59,548,971 | (78,880,134) | 233,278 | (19,085,911) | ||
| Balance, shares at Dec. 31, 2018 | 107,850 | 28,378 | 119,596,866 | ||||||
| Issuance of warrants with notes payable | 21,305 | 21,305 | |||||||
| Fair value of options for services | 222,766 | 222,766 | |||||||
| Accrued preferred dividends | (266,780) | (5,000) | (271,780) | ||||||
| Net loss | (906,097) | (5,757) | (911,854) | ||||||
| Balance at Mar. 31, 2019 | $ 11 | $ 3 | $ 11,960 | 59,793,042 | (80,053,011) | 222,521 | (20,025,474) | ||
| Balance, shares at Mar. 31, 2019 | 107,850 | 28,378 | 119,596,866 | ||||||
| Balance at Dec. 31, 2018 | $ 11 | $ 3 | $ 11,960 | 59,548,971 | (78,880,134) | 233,278 | (19,085,911) | ||
| Balance, shares at Dec. 31, 2018 | 107,850 | 28,378 | 119,596,866 | ||||||
| Accrued preferred dividends | (543,561) | ||||||||
| Conversion of convertible notes payable for equity | |||||||||
| Net loss | (1,641,425) | ||||||||
| Balance at Jun. 30, 2019 | $ 11 | $ 3 | $ 11,960 | 59,869,115 | (81,048,638) | 216,797 | (20,950,752) | ||
| Balance, shares at Jun. 30, 2019 | 107,850 | 28,378 | 119,596,866 | ||||||
| Balance at Mar. 31, 2019 | $ 11 | $ 3 | $ 11,960 | 59,793,042 | (80,053,011) | 222,521 | (20,025,474) | ||
| Balance, shares at Mar. 31, 2019 | 107,850 | 28,378 | 119,596,866 | ||||||
| Issuance of warrants with notes payable | |||||||||
| Issuance of options with notes payable | 16,437 | 16,437 | |||||||
| Fair value of options for services | 59,636 | 59,636 | |||||||
| Accrued preferred dividends | (266,781) | (5,000) | (271,781) | ||||||
| Net loss | (728,846) | (724) | (729,570) | ||||||
| Balance at Jun. 30, 2019 | $ 11 | $ 3 | $ 11,960 | $ 59,869,115 | $ (81,048,638) | $ 216,797 | $ (20,950,752) | ||
| Balance, shares at Jun. 30, 2019 | 107,850 | 28,378 | 119,596,866 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Accounting Policies [Abstract] | |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business Rego Payment Architectures, Inc. (“REGO”) was incorporated in the state of Delaware on February 11, 2008.
Rego Payment Architectures, Inc. and its subsidiaries (collectively, except where the context requires, the “Company”) is a technology company that will deliver an online and mobile payment platform solution for the family. The system will allow parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving on both a mobile device and online through the Company’s web portal. The Company’s system is designed to allow a minor to transact both online and in traditional brick and mortar retail outlets using the telephone handset as a payment device. The new payment platform automatically monitors regulatory compliance in real-time for all transactions, including protection of vendors from unintended regulatory infractions. In addition, utilizing the same architecture, individual parents will be able to create a contract with each child that sets the rules and parameters of how the child may use the mobile payment system with as much or as little parental oversight as the parent determines is necessary. The Company is including specialized technology that increases and improves the security of the system and protects the user’s identity while in use.
Management believes that building on its Children’s Online Privacy Protection Act (“COPPA”) advantage, the future of the Company will be based on the foundational architecture of the system that will allow its use across multiple financial markets where secure controlled payments are needed. For the under seventeen years of age market, the Company will use its OINK.com brand. The Company intends to license in each alternative field of use the ability for its partners, distributors and/or value added resellers to private label each of the alternative markets. These partners will deploy, customize and support each implementation under their own label but with acknowledgement of the Company’s proprietary intellectual assets as the base technology. Management believes this approach will enable the Company to reduce expenses while broadening its reach.
Revenues generated from this system are anticipated to come from multiple sources depending on the level of service and facilities requested by the parent. There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases revenue sharing with banking and distribution partners.
ZOOM Payment Solutions, LLC (“ZPS, LLC”)
ZPS, LLC was formed in the state of Delaware on December 15, 2017, and Rego Payment Architectures, Inc. owned 78% of ZPS, LLC. As of July 13, 2018, ZPS, LLC was dissolved.
ZOOM Solutions, Inc. (“ZS”)
ZS (formerly Zoom Payment Solutions, Inc.) was incorporated in the state of Delaware on February 16, 2018 as a subsidiary of Rego Payment Architectures, Inc. Rego Payment Architectures, Inc. owns 78% of ZS. ZS is the holding company for various subsidiaries that will utilize REGO’s payment platform to address emerging markets.
REGO has licensed its technology to ZS, as the REGO determined that to extend the Company’s business runway, the Company needed to adapt its technology to include blockchain, token development and cloud storage. ZS was formed to implement these specified new technologies and growth opportunities in conjunction with other business partners, as appropriate.
ZOOM Payment Solutions, Inc. (“ZPS”)
ZPS (formerly Zoom Payment Solutions USA, Inc.) was incorporated in the state of Nevada on December 6, 2017 as a wholly owned subsidiary of Zoom Payment Solutions, LLC. ZPS is now a wholly owned subsidiary of ZS with the core focus on providing mobile payments solutions. ZPS has secured a sublicense from ZS for Oink (a payment platform owned by REGO) and access to the patents from REGO and is intended to launch a fully COPPA compliant platform in the fourth quarter of 2019. ZPS is also currently in discussions with several Northwest Arkansas (“NW”) companies to provide a white label payments application for their employees inclusive of a family wallet as well as financial literacy education. ZPS has also commenced initial discussions with a communications company from Montreal, Canada to collaborate on global payments solutions for the unbanked and underbanked.
ZOOM Blockchain Solutions, Inc. (“ZBS”)
ZBS was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary of ZS. This company focuses on blockchain as a business solution for the retail and Consumer Packaged Goods (“CPG”) industries. ZBS provides a boutique agency approach to work with companies in NW Arkansas to build disruptive networks that will provide an enhanced customer experience, drive efficiency and build transparency and trust from the consumer base. ZBS has commenced discussions and is under a Non-Disclosure Agreement with a leading retailer to provide a blockchain solution for the enterprise.
ZBS is also negotiating a joint venture in the auto sector to develop a disruptive solution, powered by blockchain, that will enable a consumer centric approach to buying and selling cars as well as provide a concierge approach to car supply and maintenance.
ZOOM Cloud Solutions, Inc. (“ZCS”)
ZCS (formerly Zoom Canada Solutions, Inc.) was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary of ZS. ZCS is to provide highly secure cloud storage as a service with the following benefits:
END-TO-END PRIVATE CONNECTIVITY – The network of meshed carrier class private circuits will provide a secure, low latency private cloud experience.
UNLIMITED CLOUD CAPABILITES - The data will reside in a dedicated environment called a Hyperscale Converged Cloud Infrastructure, which is a leading-edge technology. Through an intuitive platform interface, the team will design, test, develop, manage, and deploy networks from anywhere. This includes, but is not limited to, virtualized, scalable work environments, scalable storage capabilities, state-of-the-art voice and unified communications solutions, cloud computing, backup and more.
SMARTLY DESIGNED - The Cloud platform will be custom-engineered on purpose-built hardware to deliver a highly-efficient and dense infrastructure to the market. Through proprietary Software Defined Distributed Virtual Routing, the consumer will get increased network speeds, agility, scalability and reduced latency as well as application mobility, security, data integrity and, most importantly, control.
ZOOM Auto Solutions, Inc. (“ZAS”)
ZAS (formerly Zoom Mining Solutions) was incorporated in the State of Delaware on February 19, 2018 as a wholly owned subsidiary of ZCS. It is now a wholly owned subsidiary of ZBS and will be providing blockchain solutions to the auto industry. ZAS has had minimal operations since inception.
The Company’s principal office is located in Cerritos, California.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company’s 2018 Annual Report on Form 10-K. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed, or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing to operationalize the Company’s current technology before another company develops similar technology to compete with the Company.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases and therefore the standard did not have a material impact on the consolidated statements.
Recently Issued Accounting Pronouncements Not Yet Adopted As of June 30, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements. |
MANAGEMENT PLANS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| MANAGEMENT PLANS [Abstract] | |
| MANAGEMENT PLANS | 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 August 14, 2019, the Company has a cash position of approximately $108,000. 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 September 2019. |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Related Party Transactions [Abstract] | |
| ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES | NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES - RELATED PARTIES
As of June 30, 2019 and December 31, 2018, the Company owed the Chief Executive Officer a total of $353,880 and $210,032, consisting of $353,345 and $207,845 in unpaid salary and expenses of $535 and $2,187.
As of June 30, 2019 and December 31, 2018, the Company owed the Chief Financial Officer $118,392 and $84,296 consisting of $118,392 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 $145,820 and $113,920 as of June 30, 2019 and December 31, 2018, consisting of consulting fees.
Additionally as of June 30, 2019 and December 31, 2018, the Company owed the son of a more than 5% beneficial owner $29,500 and $20,000, pursuant to a consulting agreement. |
LOANS PAYABLE |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Debt Disclosure [Abstract] | |
| LOANS PAYABLE | NOTE 4 – LOANS PAYABLE
During the six months ended June 30, 2019 and 2018, the Company received $0 and $71,260 with no formal repayment terms and 10% interest. The Company received loans in the amount of $0 and $59,915 with no formal repayment terms and no interest, during the six months ended June 30, 2019 and 2018. The Company repaid $4,000 and $59,475 of these loans during the six months ended June 30, 2019 and 2018. The balance of the loans payable as of June 30, 2019 and December 31, 2018 was $85,600 and $89,600. Interest accrued on the loans was $12,187 and $9,253 as of June 30, 2019 and December 31, 2018. Interest expense related to these loans payable was $706 and $2,934 for the three and six months ended June 30, 2019 and $676 for the three and six months ended June 30, 2018. |
DEFERRED REVENUE |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Revenue Recognition and Deferred Revenue [Abstract] | |
| DEFERRED REVENUE | 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. |
10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Convertible Debt [Abstract] | |
| 10% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS | 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 six months ended June 30, 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 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 June 30, 2019 and December 31, 2018 in the amount of $2,813,157 and $3,163,157. Interest accrued on the Notes was $1,426,924 and $1,283,660 as of June 30, 2019 and December 31, 2018. Interest expense other than the warrant related interest expense in the paragraph above, related to these Notes payable was $70,329 and $143,264 for the three and six months ended June 30, 2019 and $88,507 and $177,013 and for the three and six months ended June 30, 2018. |
NOTES PAYABLE - STOCKHOLDERS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Debt Disclosure [Abstract] | |
| NOTES PAYABLE - STOCKHOLDERS | 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 options, 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 $0 and $21,305 was expensed as interest expense during the three and six months ended June 30, 2019 and $74,827 and $137,761 during the three and six months ended June 30, 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 reversal was recorded as a reduction in interest expense.
On June 17, 2019, the Company issued a 90 day promissory note in the amount of $200,000, bearing interest at 10% along with options to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.90 for term of 2 years, vesting immediately. Additionally, the note holder will receive up to $200,000 from a 50/50 revenue split relative to a Norway joint venture. The options were valued at $9,075, 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 176.1%, risk free interest rate of 1.86% and expected option life of 2 years. The relative fair value of the option was $8,757 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes.
On June 17, 2019, the Company issued a 90 day promissory note in the amount of $50,000, bearing interest at 10% along with options to purchase 100,000 shares of the Company’s common stock at an exercise price of $0.90 for term of 2 years, vesting immediately. Additionally, the note holder will receive up to $50,000 from a 50/50 revenue split relative to a Norway joint venture (Note 16). The options were valued at $9,075, 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 176.1%, risk free interest rate of 1.86% and expected option life of 2 years. The relative fair value of the option was $7,681 and was recorded as a discount to the note payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes.
The Company also repaid $7,000 of the promissory notes during the six months ended June 30, 2019.
The notes payable are recorded as a current liability as of June 30, 2019 and December 31, 2018 in the amount of $362,937 and $134,000 net of discount of $14,063 and $0. Interest accrued on the notes, as of June 30, 2019 and December 31, 2018 was $3,391 and $1,084. Interest expense including accretion of discount, but exclusive of the fair value of warrants above related to these notes payable was $3,937 and $4,681 for the three and six months ended June 30, 2019 and $0 for the three and six months ended June 30, 2018. |
4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Convertible Debt [Abstract] | |
| 4% SECURED CONVERTIBLE NOTES PAYABLE - STOCKHOLDERS | 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.
The maturity dates of the New Secured Notes were extended by the investors to October 31, 2020.
During the six months ended June 30, 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 long-term liability in the amount of $7,387,250 as of June 30, 2019 and a current liability in the amount of $6,487,250 as of December 31, 2018. Interest accrued on the New Secured Notes was $539,129 and $394,967 as of June 30, 2019 and December 31, 2018. Interest expense, including accretion of discounts, related to these notes payable was $74,912 and $144,161 for the three and six months ended June 30, 2019 and $49,442 and $99,426 for the three and six months ended June 30, 2018. |
INCOME TAXES |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | NOTE 9 – INCOME TAXES
Income tax expense was $0 for the three and six months ended June 30, 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 2019 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three and six months ended June 30, 2019, and there was no accrual for uncertain tax positions as of June 30, 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 and six months ended June 30, 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. |
CONVERTIBLE PREFERRED STOCK |
6 Months Ended |
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Jun. 30, 2019 | |
| Preferred Stock, Number of Shares, Par Value and Other Disclosures [Abstract] | |
| CONVERTIBLE PREFERRED STOCK | 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2019, the value of the cumulative 8% dividends for all Rego preferred stock was $5,551,228. 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.
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.
As of June 30, 2019, the value of the cumulative 8% dividends for ZS preferred stock was $13,333. 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. |
STOCKHOLDERS' EQUITY |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Stockholders' Equity Note [Abstract] | |
| STOCKHOLDERS' EQUITY | NOTE 11 – STOCKHOLDERS’ EQUITY
Extension and Revaluation of Options
In April 2019, the Board of Directors of the Company approved amendments extending the term of outstanding options to purchase in the aggregate 150,000 shares of common stock of the Company at an exercise price $0.90 per share. These options were scheduled to expire in June 2019 and were each extended for an additional two year period from the applicable current expiration date. The Company used the Black-Scholes option pricing model to calculate the fair value at $21,975, with the following assumptions for the extended options: no dividend yield, expected volatility of 179.2%, risk free interest rate of 2.3%, and expected option life of two years. The incremental increase in fair value of this term extension was $21,964, which was expensed during the period.
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 and six months ended June 30, 2019, the Company expensed $0 and during the three and six months ended June 30, 2018, the Company expensed $9,375 and $18,750 relative to restricted stock awards.
The Company entered into an financial advisory agreement whereby generally the Company will pay the financial advisor a success fee equal to 6% of the Capital committed in a capital transaction. |
STOCK OPTIONS AND WARRANTS |
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| STOCK OPTIONS AND WARRANTS | 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 June 30, 2019, options to purchase 9,261,667 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 June 30, 2019, under the 2013 Plan grants of restricted stock and options to purchase 4,450,000 shares of common stock have been issued and 3,050,000 are outstanding or unexercised, and 550,000 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, REGO issued options to purchase an aggregate of 500,000 shares of REGO’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, REGO issued options to purchase 50,000 shares of REGO’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, REGO issued options to purchase 25,000 shares of REGO’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 six months ended June 30, 2019:
The following table summarizes the activities for REGO’s stock options for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019, Rego expensed $59,636 and $254,351 and for the three and six months ended June 30, 2018, Rego expensed $946,666 and $1,080,422 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 June 30, 2019, there was $104,032 of unrecognized compensation cost related to outstanding stock options. This amount is expected to be recognized over a weighted-average period of 0.5 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 June 30, 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 six months ended June 30, 2019:
The following table summarizes the activities for REGO’s warrants for the six months ended June 30, 2019:
All warrants were vested on the date of grant.
The following table summarizes the activities for ZS’s stock options for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019, ZS expensed $0 and $28,051 with respect to options and for the three and six months months ended June 30, 2018, ZS expensed $0 with respect to options.
The following table summarizes the activities for ZS’s warrants for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019 and 2018, ZS expensed $0 with respect to warrants.
The following table summarizes the activities for ZBS’s stock options for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019 and 2018, ZBS expensed $0 with respect to options.
The following table summarizes the activities for ZCS’s stock options for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019 and 2018, ZCS expensed $0 with respect to options.
The following table summarizes the activities for ZPS’s stock options for the six months ended June 30, 2019:
For the three and six months ended June 30, 2019, ZPS expensed $0 with respect to options. |
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NONCONTROLLING INTERESTS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Noncontrolling Interest [Abstract] | |
| NONCONTROLLING INTERESTS | NOTE 13 – NONCONTROLLING INTERESTS
Losses incurred by the noncontrolling interests for the three and six months ended June 30, 2019 were $724 and $6,481 and for the three and six months ended June 30, 2018 were $5,026 and $11,459. |
OPERATING LEASES |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Leases [Abstract] | |
| OPERATING LEASES | NOTE 14 – OPERATING LEASES
For the three and six months ended June 30, 2019, total rent expense under leases amounted to $6,352 and $13,682. For the three and six months ended June 2018, total rent expense under leases amounted to $16,705 and $21,672. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases. The Company has no long-term lease obligations as of June 30, 2019. |
RELATED PARTY TRANSACTIONS |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Related Party Transactions [Abstract] | |
| RELATED PARTY TRANSACTIONS | 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 and six months ended June 30, 2019 and 2018, the Company expensed $45,000 and $90,000 relative 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 and six months ended June 30, 2019 and 2018, the Company expensed $15,000 and $30,000 relative to this consultant.
During the three and six months ended June 30, 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 has been fully refunded as of June 30, 2019. |
SUBSEQUENT EVENTS |
6 Months Ended | |||||||||||||||
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Jun. 30, 2019 | ||||||||||||||||
| Subsequent Events [Abstract] | ||||||||||||||||
| SUBSEQUENT EVENTS | NOTE 16 – SUBSEQUENT EVENTS
The Company entered into a consulting agreement with a consultant whereby the Company is obligated as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended |
|---|---|
Jun. 30, 2019 | |
| Accounting Policies [Abstract] | |
| Nature of the Business | Nature of the Business Rego Payment Architectures, Inc. (“REGO”) was incorporated in the state of Delaware on February 11, 2008.
Rego Payment Architectures, Inc. and its subsidiaries (collectively, except where the context requires, the “Company”) is a technology company that will deliver an online and mobile payment platform solution for the family. The system will allow parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving on both a mobile device and online through the Company’s web portal. The Company’s system is designed to allow a minor to transact both online and in traditional brick and mortar retail outlets using the telephone handset as a payment device. The new payment platform automatically monitors regulatory compliance in real-time for all transactions, including protection of vendors from unintended regulatory infractions. In addition, utilizing the same architecture, individual parents will be able to create a contract with each child that sets the rules and parameters of how the child may use the mobile payment system with as much or as little parental oversight as the parent determines is necessary. The Company is including specialized technology that increases and improves the security of the system and protects the user’s identity while in use.
Management believes that building on its Children’s Online Privacy Protection Act (“COPPA”) advantage, the future of the Company will be based on the foundational architecture of the system that will allow its use across multiple financial markets where secure controlled payments are needed. For the under seventeen years of age market, the Company will use its OINK.com brand. The Company intends to license in each alternative field of use the ability for its partners, distributors and/or value added resellers to private label each of the alternative markets. These partners will deploy, customize and support each implementation under their own label but with acknowledgement of the Company’s proprietary intellectual assets as the base technology. Management believes this approach will enable the Company to reduce expenses while broadening its reach.
Revenues generated from this system are anticipated to come from multiple sources depending on the level of service and facilities requested by the parent. There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases revenue sharing with banking and distribution partners.
ZOOM Payment Solutions, LLC (“ZPS, LLC”)
ZPS, LLC was formed in the state of Delaware on December 15, 2017, and Rego Payment Architectures, Inc. owned 78% of ZPS, LLC. As of July 13, 2018, ZPS, LLC was dissolved.
ZOOM Solutions, Inc. (“ZS”)
ZS (formerly Zoom Payment Solutions, Inc.) was incorporated in the state of Delaware on February 16, 2018 as a subsidiary of Rego Payment Architectures, Inc. Rego Payment Architectures, Inc. owns 78% of ZS. ZS is the holding company for various subsidiaries that will utilize REGO’s payment platform to address emerging markets.
REGO has licensed its technology to ZS, as the REGO determined that to extend the Company’s business runway, the Company needed to adapt its technology to include blockchain, token development and cloud storage. ZS was formed to implement these specified new technologies and growth opportunities in conjunction with other business partners, as appropriate.
ZOOM Payment Solutions, Inc. (“ZPS”)
ZPS (formerly Zoom Payment Solutions USA, Inc.) was incorporated in the state of Nevada on December 6, 2017 as a wholly owned subsidiary of Zoom Payment Solutions, LLC. ZPS is now a wholly owned subsidiary of ZS with the core focus on providing mobile payments solutions. ZPS has secured a sublicense from ZS for Oink (a payment platform owned by REGO) and access to the patents from REGO and is intended to launch a fully COPPA compliant platform in the fourth quarter of 2019. ZPS is also currently in discussions with several Northwest Arkansas (“NW”) companies to provide a white label payments application for their employees inclusive of a family wallet as well as financial literacy education. ZPS has also commenced initial discussions with a communications company from Montreal, Canada to collaborate on global payments solutions for the unbanked and underbanked.
ZOOM Blockchain Solutions, Inc. (“ZBS”)
ZBS was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary of ZS. This company focuses on blockchain as a business solution for the retail and Consumer Packaged Goods (“CPG”) industries. ZBS provides a boutique agency approach to work with companies in NW Arkansas to build disruptive networks that will provide an enhanced customer experience, drive efficiency and build transparency and trust from the consumer base. ZBS has commenced discussions and is under a Non-Disclosure Agreement with a leading retailer to provide a blockchain solution for the enterprise.
ZBS is also negotiating a joint venture in the auto sector to develop a disruptive solution, powered by blockchain, that will enable a consumer centric approach to buying and selling cars as well as provide a concierge approach to car supply and maintenance.
ZOOM Cloud Solutions, Inc. (“ZCS”)
ZCS (formerly Zoom Canada Solutions, Inc.) was incorporated in the state of Delaware on April 20, 2018 as an 85% owned subsidiary of ZS. ZCS is to provide highly secure cloud storage as a service with the following benefits:
END-TO-END PRIVATE CONNECTIVITY – The network of meshed carrier class private circuits will provide a secure, low latency private cloud experience.
UNLIMITED CLOUD CAPABILITES - The data will reside in a dedicated environment called a Hyperscale Converged Cloud Infrastructure, which is a leading-edge technology. Through an intuitive platform interface, the team will design, test, develop, manage, and deploy networks from anywhere. This includes, but is not limited to, virtualized, scalable work environments, scalable storage capabilities, state-of-the-art voice and unified communications solutions, cloud computing, backup and more.
SMARTLY DESIGNED - The Cloud platform will be custom-engineered on purpose-built hardware to deliver a highly-efficient and dense infrastructure to the market. Through proprietary Software Defined Distributed Virtual Routing, the consumer will get increased network speeds, agility, scalability and reduced latency as well as application mobility, security, data integrity and, most importantly, control.
ZOOM Auto Solutions, Inc. (“ZAS”)
ZAS (formerly Zoom Mining Solutions) was incorporated in the State of Delaware on February 19, 2018 as a wholly owned subsidiary of ZCS. It is now a wholly owned subsidiary of ZBS and will be providing blockchain solutions to the auto industry. ZAS has had minimal operations since inception.
The Company’s principal office is located in Cerritos, California. |
| Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). These statements include all adjustments (consisting only of normal recurring adjustments) which management believes necessary for a fair presentation of the statements and have been prepared on a consistent basis using the accounting policies described in the summary of Accounting Policies included in the Company’s 2018 Annual Report on Form 10-K. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed, or omitted pursuant to such rules and regulations, although the Company believes that the accompanying disclosures are adequate to make the information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing to operationalize the Company’s current technology before another company develops similar technology to compete with the Company. |
| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)and subsequent related updates. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. The Company adopted the standard effective January 1, 2019 under the optional transition method which allows the entity to apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment, if any, to the opening balance of retained earnings in the period of adoption. The Company has elected not to recognize right-of-use assets and lease liabilities arising from short-term leases and therefore the standard did not have a material impact on the consolidated statements. |
| Recently Issued Accounting Pronouncements Not Yet Adopted | Recently Issued Accounting Pronouncements Not Yet Adopted As of June 30, 2019, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements. |
STOCK OPTIONS AND WARRANTS (Tables) |
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| Schedule of Weighted-average Assumptions Used to Estimate the Fair Values of Stock Options Granted | The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted by REGO during the six months ended June 30, 2019:
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| Schedule of Stock Option Activity | The following table summarizes the activities for REGO’s stock options for the six months ended June 30, 2019:
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| Schedule of Unvested Options Activity | The following table summarizes the activities for REGO’s unvested stock options for the six months ended June 30, 2019:
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| Schedule of Warrant Activity | The following table summarizes the activities for REGO’s warrants for the six months ended June 30, 2019:
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| ZS [Member] | Stock Options [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | The following table summarizes the activities for ZS’s stock options for the six months ended June 30, 2019:
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| ZS [Member] | Warrant [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | The following table summarizes the activities for ZS’s warrants for the six months ended June 30, 2019:
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| ZBS [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | The following table summarizes the activities for ZBS’s stock options for the six months ended June 30, 2019:
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| ZCS [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | The following table summarizes the activities for ZCS’s stock options for the six months ended June 30, 2019:
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| Schedule of Stock Option Activity | The following table summarizes the activities for ZPS’s stock options for the six months ended June 30, 2019:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) |
Jul. 13, 2018 |
Apr. 20, 2018 |
|---|---|---|
| ZPS, LLC [Member] | ||
| Ownership percentage | 78.00% | |
| ZBS [Member] | ||
| Ownership percentage | 85.00% | |
| ZCS [Member] | ||
| Ownership percentage | 85.00% |
MANAGEMENT PLANS (Details) - USD ($) |
Aug. 14, 2019 |
Jun. 30, 2019 |
Dec. 31, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
|---|---|---|---|---|---|
| Subsequent Event [Line Items] | |||||
| Cash positions | $ 123,269 | $ 10,733 | $ 1,244 | $ 7,232 | |
| Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Cash positions | $ 108,000 |
LOANS PAYABLE (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Dec. 31, 2018 |
|
| Debt Instrument [Line Items] | |||||
| Aggregate loan amount received | $ 131,175 | ||||
| Repayment of loans payable | 4,000 | 59,475 | |||
| Loans payable | $ 85,600 | $ 85,600 | $ 89,600 | ||
| Interest rate | 10.00% | 10.00% | |||
| Interest accrued | $ 12,187 | $ 12,187 | $ 9,253 | ||
| Loans Payable [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Interest expense, notes payable | $ 706 | $ 676 | 2,934 | 676 | |
| Loans Receivable [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Aggregate loan amount received | 0 | 71,260 | |||
| Loans Receivable One [Member] | |||||
| Debt Instrument [Line Items] | |||||
| Aggregate loan amount received | $ 0 | $ 59,915 | |||
DEFERRED REVENUE (Details) - USD ($) |
Jun. 30, 2019 |
Dec. 31, 2018 |
May 31, 2018 |
|---|---|---|---|
| Revenue Recognition and Deferred Revenue [Abstract] | |||
| Company received as a down payment | $ 200,000 | $ 200,000 | $ 200,000 |
INCOME TAXES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Income Tax Disclosure [Abstract] | ||||
| Income tax expense | $ 0 | $ 0 | $ 0 | $ 0 |
| Unrecognized tax benefits | 0 | 0 | ||
| Change in unrecognized tax benefits | 0 | 0 | ||
| Accrual for uncertain tax positions | $ 0 | $ 0 | ||
STOCKHOLDERS' EQUITY (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|---|
Apr. 30, 2019 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Class of Stock [Line Items] | |||||
| Compensation expense | $ 59,636 | $ 946,666 | $ 254,351 | $ 1,080,422 | |
| Expected life | 2 years | ||||
| Aggregate increase in fair value | $ 4,208 | ||||
| Consultant [Member] | |||||
| Class of Stock [Line Items] | |||||
| Percentage of legal fees paid to financial advisor | 6.00% | 6.00% | |||
| (RSUs) [Member] | |||||
| Class of Stock [Line Items] | |||||
| Compensation expense | $ 0 | $ 9,375 | $ 0 | $ 18,750 | |
| Extension and Revaluation of Options and Warrants [Member] | |||||
| Class of Stock [Line Items] | |||||
| Compensation expense | $ 21,964 | ||||
| Option to purchase common stock | 150,000 | ||||
| Exercise price | $ 0.90 | ||||
| Warrant term | 2 years | ||||
| Expiration date | Jun. 30, 2019 | ||||
| Dividend yield | 0.00% | ||||
| Expected volatility | 179.20% | ||||
| Risk-free interest rate | 2.30% | ||||
| Expected life | 2 years | ||||
| Aggregate increase in fair value | $ 21,975 | ||||
STOCK OPTIONS AND WARRANTS (Weighted Average Assumptions Used to Estimate Fair Value of Stock Option and Warrant Grants) (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2019
$ / shares
| |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Expected Life (in years) | 2 years |
| Stock Options [Member] | |
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Risk Free Interest Rate | 2.40% |
| Expected volatility | 171.40% |
| Expected Life (in years) | 3 years 10 months 25 days |
| Dividend yield | 0.00% |
| Weighted average estimated fair value of options during the period | $ 0.13 |
STOCK OPTIONS AND WARRANTS (Schedule of Unvested Options) (Details) - Stock Options [Member] |
6 Months Ended |
|---|---|
|
Jun. 30, 2019
$ / shares
shares
| |
| Shares | |
| Balance | shares | 3,625,000 |
| Granted | shares | 775,000 |
| Expired/cancelled | shares | (616,667) |
| Vested | shares | (783,333) |
| Balance | shares | 3,000,000 |
| Weighted-Average Grant Date Fair Value | |
| Balance | $ / shares | $ 0.13 |
| Granted | $ / shares | 0.13 |
| Expired/cancelled | $ / shares | 0.25 |
| Vested | $ / shares | 0.13 |
| Balance | $ / shares | $ 0.16 |
STOCK OPTIONS AND WARRANTS (Schedule of Warrant Activity) (Details) $ / shares in Units, $ in Thousands |
6 Months Ended | |||||
|---|---|---|---|---|---|---|
|
Jun. 30, 2019
USD ($)
$ / shares
shares
| ||||||
| Number of Shares | ||||||
| Balance December 31, 2018 | shares | 3,052,020 | |||||
| Granted | shares | 175,000 | |||||
| Balance June 30, 2019 | shares | 3,227,020 | |||||
| Exercisable at June 30, 2019 | shares | 3,227,020 | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | shares | 3,227,020 | |||||
| Weighted Average Exercise Price | ||||||
| Balance December 31, 2018 | $ 0.90 | |||||
| Granted | 0.90 | |||||
| Balance June 30, 2019 | 0.90 | |||||
| Exercisable at June 30, 2019 | 0.90 | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | $ 0.90 | |||||
| Weighted- Average Remaining Contractual Term in Years) | ||||||
| Balance December 31, 2018 | 1 year 3 months 19 days | |||||
| Granted | 2 years | |||||
| Balance as of June 30, 2019 | 9 months 18 days | |||||
| Exercisable at June 30, 2019 | 9 months 18 days | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | 9 months 18 days | |||||
| Aggregate Intrinsic Value | ||||||
| Balance December 31, 2018 | $ | [1] | |||||
| Granted | $ | [1] | |||||
| Balance June 30, 2019 | $ | [1] | |||||
| Exercisable at June 30, 2019 | $ | [1] | |||||
| Exercisable as of June 30, 2019 and expected to vest thereafter | $ | [1] | |||||
| Closing stock price | $ 0.15 | |||||
| ZS [Member] | ||||||
| Number of Shares | ||||||
| Balance December 31, 2018 | shares | 83,334 | |||||
| Balance June 30, 2019 | shares | 83,334 | |||||
| Exercisable at June 30, 2019 | shares | 83,334 | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | shares | 83,334 | |||||
| Weighted Average Exercise Price | ||||||
| Balance December 31, 2018 | $ 3.00 | |||||
| Balance June 30, 2019 | 3.00 | |||||
| Exercisable at June 30, 2019 | 3.00 | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | $ 3.00 | |||||
| Weighted- Average Remaining Contractual Term in Years) | ||||||
| Balance December 31, 2018 | 2 years 10 months 25 days | |||||
| Balance as of June 30, 2019 | 2 years 4 months 24 days | |||||
| Exercisable at June 30, 2019 | 2 years 4 months 24 days | |||||
| Exercisable at June 30, 2019 and expected to vest thereafter | 2 years 4 months 24 days | |||||
| Aggregate Intrinsic Value | ||||||
| Balance December 31, 2018 | $ | $ 83 | [2] | ||||
| Balance June 30, 2019 | $ | 83 | [2] | ||||
| Exercisable at June 30, 2019 | $ | 83 | [2] | ||||
| Exercisable as of June 30, 2019 and expected to vest thereafter | $ | $ 83 | [2] | ||||
| Closing stock price | $ 4.00 | |||||
| ||||||
NONCONTROLLING INTERESTS (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Noncontrolling Interest [Abstract] | ||||
| Net loss attributable to noncontrolling interests | $ 724 | $ 5,126 | $ 6,481 | $ 11,459 |
OPERATING LEASES (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Operating Leased Assets [Line Items] | ||||
| Total rent expense under leases | $ 6,352 | $ 16,705 | $ 13,682 | $ 21,672 |
RELATED PARTY TRANSACTIONS (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Related Party Transaction [Line Items] | ||||
| Professional expense | $ 45,000 | |||
| Beneficial Owner [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Related party expenses | $ 45,000 | $ 45,000 | 90,000 | $ 90,000 |
| Consulting agreement cost | 15,000 | 15,000 | ||
| Payment to consultant | $ 15,000 | $ 15,000 | $ 30,000 | $ 30,000 |
SUBSEQUENT EVENTS (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|---|
Aug. 14, 2019 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
| Subsequent Event [Line Items] | |||||
| Compensation expense | $ 59,636 | $ 946,666 | $ 254,351 | $ 1,080,422 | |
| Expected life | 2 years | ||||
| Consultant [Member] | Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Shares available for grant | 200,000 | ||||
| Exercise price | $ 0.90 | ||||
| Warrant term | 3 years | ||||
| Amount paid | $ 2,000 | ||||
| Compensation expense | $ 22,897 | ||||
| Dividend yield | 0.00% | ||||
| Expected Volatility Rate | 171.90% | ||||
| Risk Free Interest Rate | 1.80% | ||||
| Expected life | 3 years | ||||
| Consultant One [Member] | Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Shares available for grant | 200,000 | ||||
| Exercise price | $ 0.90 | ||||
| Warrant term | 3 years | ||||
| Consultant Two [Member] | Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Shares available for grant | 200,000 | ||||
| Exercise price | $ 0.90 | ||||
| Warrant term | 3 years | ||||
| Joint Venture [Member] | Subsequent Event [Member] | |||||
| Subsequent Event [Line Items] | |||||
| Percentage of profit | 2.00% | ||||
| License fee | $ 100,000,000 | ||||
| Amount received | $ 200,000 | ||||