REGO PAYMENT ARCHITECTURES, INC. This Management's Discussion and Analysis of Financial Condition And Results Of Operations and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors in Item 1A - Risk Factors herein. The following should be read in conjunction with our annual financial statements contained elsewhere in this report.
Overview
COPPA applies not only to websites and mobile apps. It can apply to a growing list of connected devices that is included in the Internet of Things. Some of these include toys and products that could collect personal information, such as voice recordings or geolocation information. Non-compliance with COPPA
has meant substantial fines for many violators.
Management believes that by building on its COPPA compliance advantage, the
future of
Further,
? the right to know, through a general privacy policy and with more specifics
available upon request, what personal information a business has collected
about them, where it was sourced from, what it is being used for, whether it is
being disclosed or sold, and to whom it is being disclosed or sold;
? the right to "opt out" of allowing a business to sell their personal
information to third parties (or, for consumers who are under 16 years old, the
right not to have their personal information sold absent their, or their
parent's, opt-in);
? the right to have a business delete their personal information, with some
exceptions; and
? the right to receive equal service and pricing from a business, even if they
exercise their privacy rights under the CCPA.
With respect to the evolving CCPA, the Company has designed its Platform and app to be in compliance.
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Additionally, the
GDPR requirements apply to each member state of the
? Requiring the consent of subjects for data processing
? Anonymizing collected data to protect privacy
? Providing data breach notifications
? Safely handling the transfer of data across borders
? Requiring certain companies to appoint a data protection officer to oversee
GDPR compliance
In short, the handling of EU citizens' data is mandated by GDPR using a baseline set of standards for companies that are designed to better safeguard the processing and movement of personal data. The Company has designed its Platform and app to be in compliance with GDPR, and has received the GDPRkidsTM Trustmark from PRIVO.
Revenues generated from the Platform will come from multiple sources depending on the level of service and facilities requested. There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases, revenue sharing and licensing with banking and distribution partners.
Our goal, moving forward, is to enable both incumbent and new financial technology ("FinTech") participants, as well as key verticals with a large base of 'family accounts,' to provide their consumers with safe and empowering youth money management and financial literacy content and tools via the mobile payment platform.
While some of the REGO Platform can be easily duplicated/commoditized, such as the app skin, APIs to retailers, APIs to financial infrastructure and cloud storage, we believe that defending our market position rests on three factors:
1. The ability to define data control settings from parent to child.
Our approach to this opportunity uses a master account to dictate purchase rules to sub-accounts via a hierarchical architecture. This approach adheres to data flow and privacy policy requirements specifically outlined for COPPA compliance. We believe other approaches based on machine learning, or other artificial intelligence methodologies are potentially viable alternatives but are likely too costly, do not meet current compliance timelines, and may defy the core of COPPA's "opt-in" parameters. There is considerable room for next-generation automation techniques to be layered on REGO's hierarchical approach. Given its current stability and scalability metrics, the REGO Platform strongly features these advances in its technical development roadmap without compromising any of its current data control performance.
2. The ability to (mis)attribute the child's transaction and personal
identification.
REGO has solved this issue by masking user data and maintaining separate identity and financial data flows. As a result, REGO can verify the age of the internet user through the transaction lifecycle on its Platform. Authenticating and validating the identity of the actual user on the internet remains one of the more difficult cybersecurity challenges. Current approaches are mainly not for commercial use; however, there is investment in commercial innovation in this area. REGO's data control features and its (mis)attribution approach are inextricably linked and a key to its scalability and extensibility.
3. The ability to disseminate transactional data on minors while remaining COPPA
and GDPR compliant.
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The highest value data will be that which shows the most nuanced detail afforded under current regulations. Without extreme data control features, such as in the REGO Platform, any lesser data precision will be less valuable.
These three factors are all supported by REGO's patented technology.
REGO addresses hard industry problems such as:
? COPPA compliant technology with a key component being its ability to verify the
age of an internet user
? A master and sub-account architecture with the ability to administer
user-specific controls
? An advanced rules engine to provide strict automated compliance of the parental
rules for each child
? Near real-time buying behavior database on minors - anonymized geolocation, age
range and purchases
Currently, we are targeting established brands with large family-focused account bases - including banks, telecommunication companies, faith-based organizations, media distributors, mobile device Original Equipment Manufacturers ("OEMs"), and merchants.
We are seeking partners that will leverage our Platform to:
Buy vs. Build: Partners can license or revenue share for their specific market or field of use a safe, compliant system, instead of building one on their own.
Safety & Security: Partners can safely engage a younger consumer segment and their families with a new family friendly peer to peer payments approach. Vendors will be explicitly protected from non-compliant transactions and the underlying technology protects the privacy of the user.
Youth Financial Literacy: Partners can expand their brand story around empowerment and education of youth financial literacy while engaging their 'future customers' with Gen Z, a digital native population of post-millennial youth.
The REGO Mazoola® app and associated digital wallet technology is designed to
enable our partners to engage families with Gen Z and
In addition, we are analyzing specific components of our technology for individual monetization as well as exploring opportunities in the Business to Business ("B2B") realm.
Other markets for potential licensed applications are:
? Government social services payments where control over how benefits allowances
are used is required. This is particularly necessary in some European countries
where social benefits are not being used as intended by the government or where
benefits are subject to fraud.
? Closed network consumer to business (C2B) and business to business (B2B). An
example is school lunch programs where the consumer can make direct mobile
payments to the provider's point of sale (POS) terminal without the need to
traverse the traditional merchant payment system. This reduces the cost per
transaction for the vendor and provides instant non-repudiated settlement. Many
school lunch programs are now provided by large catering companies. This is
particularly valuable as credit card fees, transaction fees and service fees
can exceed 3% in overhead costs per transaction dependent on the negotiated
rate. Removing this overhead can have significant positive financial impact on
profitably. It also allows the closed network to own its own behavioral use
data thus obviating the need to pay a third party for the same data.
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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 Years Ended
The following discussion analyzes our results of operations for the years ended
Revenue/Net Loss Revenue
We have not generated significant revenue since our inception. For the years
ended
Net Loss
Our net loss attributable to common stockholders increased
Transaction Expense
Transaction expense for the year ended
Sales and Marketing Expenses
Sales and marketing expenses increased by
Product Development
Product development expenses decreased by
General and Administrative Expenses
General and administrative expenses increased by
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Interest expense decreased
Forgiveness of Debt
The Company had
Liquidity and Capital Resources
Net cash used in operating activities increased
Net cash used in investing activities was
Net cash provided by financing activities increased by
Subsequent to
As we have not realized significant revenues since our inception, we have financed our operations through public and private offerings of debt and equity securities.
On
Since our inception, we have focused on developing and implementing our business plan. We believe that our existing cash resources will not be sufficient to sustain our operations during the next twelve months. We currently need to generate sufficient revenues to support our cost structure to enable us to pay ongoing costs and expenses as they are incurred, finance enhancements to our Platform, and execute the business plan. If we cannot generate sufficient revenue to fund our business plan, we intend to seek to raise such financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. The issuance of convertible debt may also result in dilution to existing stockholders. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to us, we will be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on our business, financial condition and results of operations.
Even if we are successful in generating sufficient revenue or in raising sufficient capital in order to commercialize the Platform, our ability to continue in business as a viable going concern can only be achieved when our revenues reach a level that sustains our business operations. We do not project that significant revenue will be developed until the second quarter of 2024. There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan. Moreover, there can be no assurance that even if the Platform is fully developed and successfully commercialized, that we will generate revenues sufficient to fund our operations. In either such situation, we may not be able to continue our operations and our business might fail.
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As of
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 elements of the assumptions used will inevitably not materialize and unanticipated events will occur. Actual results of operations are, therefore, likely to vary from the projections and such variations may be material and adverse to us. Accordingly, no assurance can be given that such results will be achieved. Moreover, due to changes in technology, new product announcements, competitive pressures, system design and/or other specifications we may be required to change the current plans.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies
Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 1 of the Notes to Financial Statements included elsewhere herein. 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
We have used the Black-Scholes option-pricing model to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire).
All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Non-employee equity-based payments that do not vest immediately upon grant are recorded as an expense over the vesting period.
Revenue Recognition
In accordance with FASB ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue when it satisfies performance obligations, by transferring promised goods or services to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for fulfilling those performance obligations.
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Recently Issued Accounting Pronouncements
Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report.
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