RPMT 10-K Fiscal year ended Dec. 31, 2017

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2017

OR

For the transition period from _________ to _________

Commission File Number 0-53944

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REGO PAYMENT ARCHITECTURES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (561) 220-0408

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ or No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ or No ☑

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 ☑ or No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes ☑ or No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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. (Check one):

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 ☑

The aggregate market value of the common stock held by non-affiliates of the registrant was $23,089,899 as of June 30, 2017 based on the price in which the common stock of the registrant was last sold as reported by the OTC Bulletin Board.  Shares of common stock held by each current executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not a conclusive determination for other purposes.

We had 118,596,866 shares of common stock outstanding as of the close of business on April 2, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

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REGO PAYMENT ARCHITECTURES, INC.

FORM 10-K ANNUAL REPORT

Year Ended December 31, 2017

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report 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 fact included or incorporated by reference in this annual report on Form 10-K, 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. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.  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, our limited revenues generated to date, our ability to attract and retain qualified personnel, our dependence on third party developers who we cannot control, our ability to develop and introduce a new service to the market in a timely manner, market acceptance of our services, our limited experience in a relatively new 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 factors set forth under “Item 1A — Risk Factors” below.  Except as required by law, we assume no duty to update or revise our forward-looking statements.

ITEM 1. BUSINESS .

General Development

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.

In April 2016, our former Chief Executive Officer (“CEO”) resigned and we hired a new CEO who was concentrating on the FinTech industry.  In September 2017, this CEO resigned and we hired a new CEO, whose 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 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 COPPA compliant technology as an added feature, we believe we will have better market success.

Overview

We are a technology company that will deliver an online and mobile payment platform solution for the family. Our system allows parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving on both a mobile device and online through our web portal.   Our 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 we allow individual parents 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.  In addition, we are including specialized technology that increases and improves the security of the system and protects the user’s identity while in use.

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.

Management believes that building on its COPPA advantage that the future of Rego Payment Architectures, Inc. 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 will 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 will come from multiple sources depending on the level of service and facilities requested by the parent.  There will be levels of subscription revenue paid monthly, service fees, transaction fees and in some cases revenue sharing with banking and distribution partners.

In addition, the team is analyzing specific components of our technology for individual monetization as well as exploring opportunities in the Business to Business (“B2B”) realm. The new architecture lends itself to provide closed network capability that allow B2B transactions outside of the traditional payment processing interchange services.  This reduces the cost of transacting between businesses.  Businesses that join the B2B will be able to perform instant settlements of transactions at lower fees than traditional services.

Industry Background

There are over 2 billion teens globally in the world and over 26 million teens in our Total Addressable Market (TAM) here in the US alone, most without digital payment capability or traditional card technology.   This is Generation Z: the Pivotal Generation (“Gen Z”), those born after the millennials (from 1997 and 2015) most of whom are currently under the age of 18 and are characterized by growing up in a highly sophisticated media and computer environment with greater internet savvy than any previous generation. Gen Z makes up 26% of the United States population. They use the mobile internet more than any other generation on a daily basis. Marketers have been focused on the millennials for more than a decade. Gen Z is a generation that influences all family purchases and has disposable income. On average Gen Z receive $17/week in allowance which gives them $44 billion spending power in the US per year.

Because there is no direct financial solution for this group, they still use either cash or their parent’s funding source (credit card) and hence there is still a lack of quantification of the dollar size of the kids “spending” market, which is separate from the dollars spent on kids. Marketers and regulators have taken note of the change and made a shift to a more “digital” approach to their overall strategy.  Additionally, kids’ access to increasingly available technology has fueled concerns about security, safety and compliance with government regulations. As children march toward adulthood, parents are providing the means for children to have products (money), and technology and providing them the increasingly easy opportunity to do so.

With Gen Z in mind, the Company is focusing on the FinTech industry.  Goldman Sachs has estimated that new FinTech companies could wrestle approximately $4.7 trillion in annual revenue and $470 billion in profit, away from established financial service companies.  Additionally, in 2014 and 2015, venture capitalists infused $23.5 billion into the FinTech industry.  Of that investment, approximately 27% was invested in consumer lending, 23% in payments and 16% in business lending.  The industry is priding itself on utilizing data in more productive ways and making the consumer interface smoother.

The FinTech companies are not restricted by regulatory compliance nor antiquated systems with which the established financial services companies contend.  These companies can concentrate on single purpose solutions, which are designed to enhance the user’s experience.  The innovations taking place can be summarized in four categories:

1.	Peer-to-Peer (“P2P”) value exchanges – Growth of applications has been stimulated by the popularity and use of social networks.

2.	Applications with machine intelligence – Automation becoming a necessity in the do-it-yourself environment.

3.	Data-driven services – The ability to access data and data analytics are leading to more individualized products and lower pricing of financial services.

4.	Less definition between physical and virtual worlds – People are using financial services more in the virtual arena than in visiting physical locations.

With this as a backdrop, Rego Payment Architectures, Inc. has identified an emerging need to market a financial platform that provides this generation with an alternative solution to traditional banking and solves current limitations on their ability to safely transact using mobile payment solutions for both brick & mortar retail outlets and online shopping.

The Company’s Relationship to the Children’s Online Privacy Protection Act (“COPPA”)

Though the Company does not target or collect the personal information of the under 13 age group, and rather targets parents and families as a whole, the products must still be compliant with COPPA. The new products will meet the requirements imposed by COPPA, including the recent amendments.  The Company has gone further than dealing with the federal rules by mapping all state by state statutes and regulations that deviate from the federal laws and thus having a complete inter-state commerce view of the regulations that assure compliance for all participants in the system.

Other Consumer Privacy Protection Legislation

In late 2010, the Federal Trade Commission (“FTC”) and the Department of Commerce (“DOC”) each issued a staff report proposing new frameworks for consumer privacy protection; the FTC report called for federal “Do Not Track” legislation. The FTC has also increased its enforcement actions against companies that fail to live up to their privacy or data security commitments to consumers. A number of privacy and data security bills have been introduced in Congress that address the collection, maintenance and use of personal information, web browsing and geolocation data, and establish data security and breach notification requirements. Some state legislatures have adopted legislation that regulates how businesses operate on the Internet, including measures relating to privacy, data security and data breaches. Several Congressional hearings have examined privacy implications for online, offline and mobile data. The DOC recently issued a “green paper” on cybersecurity, and the White House has proposed cybersecurity legislation.  Fundamental to the Company’s operating principles is to implement these regulatory conditions in its system and have the flexibility to adopt to any changes in legislation to meet federal and state compliance requirements.

A number of foreign governments also have either adopted or are considering data privacy and security regulations. For example, the EU is currently reviewing its data privacy directive, which became effective in 1998 and sets baseline standards for the collection, use, disclosure, storage, security and transfer of personal data (collectively referred to as “data processing”). Among the proposed revisions are new rules that strengthen requirements to obtain explicit consent for data processing; special rules requiring parental consent for collecting children’s personal data; data breach obligations for all industry sectors and enhanced remedies for violations of privacy. Different policy options, including new regulations, are being considered at both the EU and member state levels.  The company’s initial target is the U.S. However, the Company has been performing research on compliance issues in the EU and is able to rapidly adopt to these new markets should the Company choose to expand its services into those territories.

The Opportunity

Gen Z, the core target user of our OINK Mobile payment platform.

As consumers, Gen Z has deep pockets, but lacks direct access to funds.

Their spending power is significant and growing. According to the U.S. Census, Gen Z, will ultimately number close to 80 million.  In 2015, 9.7% of adults said that their children influence 100% of what they buy, which is up from 7.6% in 2014 and 93% of parents say their children influence family spending and household purchases.

In 2015, the average weekly allowance of a Gen Z is $17. This is based on an average of one dollar per week per year of age.  The company’s focus group returns predict an average of $25 per week. Gen Z has a combined buying power of $44 billion in the US, representing the Company’s Total Addressable Market.

Social and digital learning is key to Gen Z.

52% of Gen Z uses YouTube or social media to research school assignments, while 85% research online and 33% watch lessons online. Sharing their knowledge is of equal importance with 60% of the Gen Z population opting to share their own knowledge with others online.  When this generation makes purchases online 70% do so from a single online source.

Gen Z’s financial future and global impact has yet to be written.

While 60% of Gen Z say ‘a lot of money’ is a sign of success and 72% of Gen Z want to start a business one day, the details of how to make smart choices about money are not being shared. Only 17 states require a course in personal finance. Financial illiteracy is an epidemic and there’s no educational or private solution that has made an impact to scale. Gen Z is primed for deep engagement around future-focused payments solutions, but the conversation and learning and introduction of new financial technologies for this generation must occur within an experience that complements their values, interests and goals.  To this end, the financial literacy facilities built within the system target both the parent and the child.  These built in guidelines will prepare children for the financial responsibilities they will have in the future and prepare them for the emerging digital economy.

Our Solution

Our goal, moving forward is to enable both incumbent and new FinTech participants, as well as key verticals with a large base of ‘family accounts,’ to provide their consumers with safe and empowering youth money management and financial literacy content and tools via the OINK mobile payment platform.

Currently, our partner profile includes 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.

OINK partners will leverage our platform to:

Buy vs. Build: Partners can license 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 OINK mobile payment platform and associated digital wallet technology is designed to enable our partners to engage families with Gen Z through the leading money management, transactional and financial literacy platform that enables young people to make smart decisions about the things they value in life — including their money, their time, their ideas and their connections.  The new platform will enable a new way for individual users to own and monetize their purchasing behavior that is currently unavailable to them.

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 terminal (POS) 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.

Our Intellectual Property

Intellectual property is important to our business.  The Company has four issued patents with the United States Patent and Trademark Office (“USPTO”), entitled “System and Method for Verifying the Age of an Internet User,” “System and Method for Virtual Piggy Bank Wish-List,” ”Parent Match”  and “System and Method for Virtual Piggy Bank.” The Company has filed for one provisional U.S. patent application, as well as twelve non-provisional U.S. patent applications, one of which is pending, four of which have been allowed, and seven of which have been abandoned.  Additionally, the Company has been granted two patents, entitled “Virtual Piggy Bank” and “Parent Match,” in each of Germany, Canada, and Australia.  The Company also has patents pending in the Republic of Korea under the Patent Cooperation Treaty (“PCT”).  Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents.

The following are the names and brief descriptions of certain of our applications:

Virtual Piggy Bank .   A method of providing control preferences for a prospective Internet user, the method comprising the steps of establishing a first account, the settings of the first account being stored in a database; establishing a second account, the settings of the second account being stored in the database; linking the first and second accounts such that control settings of the second account are determined through the first account; and making a purchase from the second account consistent with the control settings of the second account.

Parent Match .  A method of providing control preferences set by a person for a second person who is a prospective Internet user, the method comprising the steps of establishing a first account, the settings of the first account being stored in a database; establishing a second account, the settings of the second account being stored in the database; linking the first and second accounts such that control settings of the second account are determined through the first account; and viewing Internet content from the second account consistent with the control settings of the second account.

Verifying the Age of an Internet User .  A system and method of verifying the age of a prospective internet user, the method comprising creating an age check account with a service requester; activating the age check system through the account; inputting into the age check system a user’s information; checking user’s information by age check system; and notifying service requester of checked user’s information by the age check system.

System and Method for Virtual Piggybank Wishlist . A non-transitory computer-readable storage medium, storing one or more programs configured for execution, the one or more programs for monitoring, transmitting, and recording usage of a computer or mobile device connected to a network, the one or more programs including instructions for establishing a first account, the settings of the first account being stored in a database; establishing a second account, the settings of the second account being stored in the database, wherein the second account includes a wish-list; linking the first and second accounts such that control settings of the second account are determined through the first account; and  making a purchase from the wish-list of the second account consistent with the control settings of the second account.

Until such time as the remaining pending patents are awarded, if ever, we intend to rely on trade secret protection and/or confidentiality agreements with our employees, customers, business partners and others to protect our intellectual property rights.  The Company entered into a licensing agreement for the underlying technology used to provide the contract models and real time regulatory oversight disclosed in prior filings.

Furthermore, we have filed trademark applications pertaining to our service with the USPTO, the European Community, and Canada. The USPTO has already granted us service mark registrations for Oink, Oink (stylized), PiggyPick, Virtual Piggy, Virtual Piggy and design (horizontal), the PIG design, Parent Match, Quickconnect, Virtual Piggy Youth Empowered Parent Approved and Design, Youth Empowered. Parent Approved, and Oink.com. The European Community has already granted us registration for Virtual Piggy, Virtual Piggy and Design, Virtual Piggy Youth Empowered Parent Approved and Design, PiggyPick, Wishlist Wednesday, the PIG design, and the PIG design (alternative). The Canadian Intellectual Property Office has already granted the registration for VP Authenticate.

Despite certain precautions taken by us, it may be possible for third parties to obtain and use our intellectual property without authorization. This risk may be increased due to the lack of patent and/or copyright protection.  If any of our proprietary rights are misappropriated or we are forced to defend our intellectual property rights, we will have to incur substantial costs. Such litigation could result in substantial costs and diversion of our resources, including diverting the time and effort of our senior management, and could disrupt our business, as well as have a material adverse effect on our business, prospects, financial condition and results of operations. Management will from time to time determine whether applying for and pursuing patent and copyright protection is appropriate for us.  We have no guarantee that any applications will be granted or, if awarded, whether they will offer us any meaningful protection from other companies in our business, or that we will have the financial resources to oppose any actual or threatened infringement by any third party.  Furthermore, any patent or copyrights that we may be granted may be held by a court to infringe on the intellectual property rights of others and subject us to the payment of damage awards.

In addition, we cannot be certain that our technology will not infringe upon patents, copyrights or other intellectual property rights held by third parties. While we know of no basis for any claims of this type, the existence of and ownership of intellectual property can be difficult to verify and we have not made an exhaustive search of all patent filings. We may become subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternative technology or obtain other licenses. In addition, we may incur substantial expenses in defending against these third party infringement claims and be diverted from devoting time to our business and operational issues, regardless of the merits of any such claim.

Research and Development

During 2017 and 2016, our research and product development expenses were $1.1 million and $830,000 all of which were borne by us.

Our Revenue Model

Our ability to generate and grow revenue is affected by consumer spending patterns, merchant and consumer adoption of digital payment methods.  We are relying on the the growth of mobile devices and the applications that will be used by merchants and consumers on those devices, and the transition from cash and checks to digital forms of payment, including cryptocurre ncies.  Our strategy to drive revenue in our business includes the following:

·

Utilize our COPPA compliant platform to capitalize on mobile device applications

·

License our technology for use with compatible technologies focusing on digital forms of payment

·

Utilize the blockchain component of the platform in conjunction with cryptocurrencies

As of the date of this report, we have not generated significant revenue.  Our previous revenues were generated by taking a small percentage of every transaction from an online merchant. Until now this was our only revenue source. As we proceed through 2018, we expect to generate additional revenue streams by generating licensing fees from our co-branding partners.

We will seek to derive revenues from:

·

Private labeling licenses for: particular phones, telecommunication vendors, distributors, and value added resellers (VAR).

·

User Subscription fees based on premium services.

·

Transaction and processing fees for both closed and open network transactions.

·

Special services fees for ad hoc special requests.

·

Data analytics sales – using algorithms to analyze use data for sale to data brokers (meta data).

·

Advertising revenue – for context based push messaging to subscribers

·

Shared transaction revenue or rebates from banking partners

Our Plan of Operation

A phased approach to the introduction of our improved Platform is planned.

We plan to launch our branding platform in the second quarter of 2018, however, this is dependent on our ability to generate renewed capital investment for working capital and to sustain operations.  The Company will also enter into strategic partnerships where the strategic partner will provide development capital for special purpose customization or equity where appropriate.

Sales and Marketing Strategy

In 2018, we are focusing on onboarding established brands with large family-focused account bases that would enable us to co-brand our platform and reach the Gen Z population through the FinTech industry, telecommunications businesses and global consulting organizations.  The Company maintains its view that these channels are most likely to provide rapid adoption of its technology across a broader industry segment.

Seasonality

Our new model should not be subject to seasonality.

Competition

There is a continuous introduction of new entrants into the market and the development of new technologies and product offerings in the global payments industry which is already highly competitive.  Although payment services such as PayPal, Amex Bluebird, FamZoo and Visa Buxx can be viewed as our competitors, we do not believe that these provide the type of family friendly solution that not only teaches young people about saving, spending, and giving, but that is also compliant with COPPA, and other laws that users of all ages need to be aware of, including but not limited to privacy, data collection, and security. Like them, however, we will c ompete against many companies that are larger than we are in a wide range of businesses, including banks, credit card providers, technology and ecommerce companies and traditional retailers.  These businesses offer other products and services that we do not offer and have been in the industry much longer than we have. We will compete against various forms of payment methods including cash and checks, credit and debit cards, automated clearing house, mobile payments and other online payment services.

We believe we have built and continue to build a financial solution that is not only good for the youth market, but one that will be requested by them over other products. To compete effectively, we expect that we will focus a majority of our 2018 resources on technology and product development.

Government Regulation

The industry which we serve is subject to regulation by the FTC, laws such as COPPA, and other laws relating to collection, use, retention, and security. Complying with these varying U.S. and international requirements could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. In addition, we have and post on our websites our own privacy policies and practices concerning the collection, use and disclosure of user data.  Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or orders or other federal, state or international privacy or consumer protection-related laws and regulations could result in proceedings or actions against us by governmental entities or others, subject us to significant penalties and negative publicity and adversely affect us. In addition, we are subject to the possibility of security breaches, which themselves may result in a violation of these laws.

Name		Age		Position with Company
David A. Knight		54		Chairman of the Board, Chief Executive Officer
Ernest Cimadamore		56		Director, Secretary
Gerald Hannahs		66		Director
Scott McPherson		56		Chief Financial Officer

												Stock				Option				All Other
				Salary				Bonus				Awards (1)				Awards (1)				Compensation				Total
Name and Principal Position		Year		($)				($)				($)				($)				($)				($)
David Knight, Chairman and Chief Executive Officer (a)		2017			111,363				40,000				97,500				616,884								865,747
		2016			-				-				-				-				-				-
John Coyne, Former Chairman and Chief Executive Officer (b)		2017			188,063				-				-				-				-				188,063
		2016			114,038				-				55,000				196,505				-				365,543
Ernest Cimadamore, Corporate Secretary		2017			52,400				-				-				-				-				52,400
		2016			26,000				-				-				10,434				-				36,434
Scott McPherson, Chief Financial Officer		2017			144,463				-				-				-				-				144,463
		2016			128,310				-				-				10,434				3,200				141,944

		Option awards																				Stock awards
																																		Equity
																																		incentive
										Equity																				Equity				plan awards:
										incentive																				incentive				Market or
										plan awards:																				plan awards:				payout
						Number of				Number of																Market				Number of				value of
		Number of				securities				securities												Number of				value of				unearned				unearned
		securities				underlying				underlying												shares or				shares or				shares, units				shares, units
		underlying				unexercised				unexercised												units of				units of				or other				or other
		unexercised				options				unearned				Option								stock that				stock that				rights that				rights that
		options				(#)				options				Exercise				Option				have not				have not				have not				have not
		(#)				unexercisable				(#)				Price				Expiration				vested				vested				vested				vested
Name		exercisable				(a)				(b)				($)				Date				(#)				($)				(#)				($)
David Knight							2,000,000								0.90			7/1/2022					250,000				60,000				-				-
							3,000,000								0.90			10/25/2022					-				-				-				-
John Coyne			-				-				-				-				-				-				-				-				-
			-				-				-				-				-				-				-				-				-
Ernest Cimadamore			200,000				100,000				-				0.29			9/1/2020					-				-				-				-
			250,000				-				-				0.90			5/18/2021					-				-				-				-
Scott McPherson			166,667				83,333				-				0.22			7/31/2020					-				-				-				-
			166,667				83,333				-				0.29			9/1/2020					-				-				-				-
			250,000				-				-				0.90			5/18/2021					-				-				-				-

Nonqualified

Non-equity incentive

deferred

Fees Earned or

Stock

Option

plan

compensation

All Other

paid in cash

awards

awards

compensation

earnings

Compensation

Total

Name

($)

($)

($)

($)

($)

($)

($)

Kirk Bradley (a)

-

-

-

-

-

-

-

Gerald Hannahs (b)

-

-

-

-

-

-

-

Dale Jensen (c)

-

-

-

-

-

-

-

Ernest Cimadamore (d)

-

-

-

-

-

-

-

Title of		Name and address of beneficial		Amount and nature of beneficial			Percent of
class		owner		ownership			class
Common		John Paul DeJoria Family Trust		18,807,523	(b)		15.4%
Series A Cumulative Convertible Preferred		1888 Century Park East		10,000			9.3%
Series B Cumulative Convertible Preferred		Suite 1600		22,223			78.3%
		Century City, CA  90067
Common		Peter S. Pelullo		16,193,983	(c)		13.7%
		2501 S. Wharton Street, Building J
		Philadelphia, PA  19146

		Number of shares of common stock			Percentage of
Name of beneficial owner		beneficially owned (a)			shares outstanding (a)
David Knight		245,907	(b)		*
Ernest Cimadamore		950,000	(c)		*
Gerald Hannahs		989,190	(d)		*
Scott McPherson		583,334	(e)		*
All current directors and executive
officers as a group (4 persons)		2,768,431			2.3%

Number of

securities

Number of

remaining available

securities to be

for issuance under

issued upon

Weighted average

equity

exercise of

exercise price of

compensation plans

outstanding

outstanding

(excluding

options, warrants

options, warrants

securities reflected

and rights

and rights

in column (a))

Plan Category

(col.a)

(col. b)

(col c)

Eqyity compensation plans approved by

security holders: (a)

10,511,700

$

0.84

9,930,000

Equity compensation plans not approved

by security holders: (b)

80,000

0.75

-

Total

10,591,700

$

0.84

9,930,000

(a)	Audited financial statements.
(b)	The following exhibits are filed as part of this report.

Exhibt Number	Description
3.1	Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form S-1 (Reg. # 333-152050) filed with the Commission on July 1, 2008).
3.2	Certificate of Ownership (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on August 30, 2011).
3.3	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on December 19, 2013).
3.4	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on August 20, 2014).
3.5	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on March 7, 2012).
3.6	Certificate of Designations of Preferences, Rights and Limitations of Series A Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on January 29, 2014).
3.7	Certificate of Designations of Preferences, Rights and Limitations of Series B Cumulative Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed with the Commission on October 31, 2014).
3.8	Certificate of Amendment of Incorporation (incorporated by reference to Exhibit 3.8 to the Company’s current Form 10-K filed with the Commission on March 31, 2017.
4.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s registration statement on Form S-1/A (Reg. # 333-152050) filed with the Commission on August 13, 2008).
4.2	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on February 13, 2012).
4.3	Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on February 13, 2012).
4.4	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on April 3, 2013).
4.5	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on May 29, 2013).
4.6	Form of Warrant to Purchase Common Stock (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on May 29, 2013).

4.7	Form of Note and Warrant Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on December 31, 2013).
4.8	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on January 29, 2014).
4.9	Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on January 29, 2014).
4.10	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on October 31, 2014).
4.11	Form of Warrant (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Commission on October 31, 2014).
10.1*	Employment Agreement between the Company and Ernest Cimadamore  (incorporated by reference to Exhibit 10.2 to the Company’s registration statement on Form S-1 (Reg. # 333-152050) filed with the Commission on July 1, 2008).
10.2*	2008  Equity Incentive Plan (incorporated by reference to Exhibit 4.2 to the Company’s registration statement on Form S-1 (Reg. # 333-152050) filed with the Commission on July 1, 2008).
10.3*	2013 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Commission on March 8, 2013).
10.4	Form of Securities Purchase Agreement (March 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2015)
10.5	Form of Secured Convertible Promissory Note (March 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2015)
10.6	Form of Security Agreement (March 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on March 12, 2015)
10.7	Form of Securities Purchase Agreement (May 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 11, 2015)
10.8	Form of Secured Convertible Promissory Note (May 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on May 11, 2015)
10.9	Form of Security Agreement (May 2015 Secured Convertible Notes) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on May 11, 2015)
10.10	Form of Promissory Note Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015)
10.11	Form of Promissory Note Agreement (including commitment fee) (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015)
10.12	Form of Warrant (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015)
10.13	Form of Amendment to Promissory Note Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on February 25, 2016)
10.14*	Coyne Employment Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 10-Q filed with the Commission on May 13, 2016)

10.15	ICM Consulting Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 10-Q filed with the Commission on May 13, 2016)
10.16	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 29, 2016)
10.17	Form of Secured Convertible Promissory Note (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on August 29, 2016)
10.18	Form of Amended and Restated Security Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on August 29, 2016)
10.19	Form of Note Exchange Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the Commission on August 29, 2016)
10.20*	Employment Agreement between the Company and David Knight (incorporated by reference to Exhibit 10.1 to the Company’s Form 10Q filed with the Commission on November 20, 2017).
21.1**	Subsidiaries of the Registrant.
31.1**	Certification of the principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
31.2**	Certification of the principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
32.1**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief executive officer of the Company
32.2**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief financial officer of the Company

101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1
CONSOLIDATED BALANCE SHEETS	F-2
CONSOLIDATED STATEMENTS OF OPERATIONS	F-3
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT	F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS	F-5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS	F-6 to F-25

	Rego Payment Architectures, Inc.
	By:	/s/ David A. Knight
		David A. Knight , Chairman, Chief Executive Officer and Principal Executive Officer
		/s/ Scott A McPherson
		Chief Financial Officer and Principal Accounting Officer

Signature			Title	Date
/s/ David A. Knight			Chairman, Chief Executive Officer and Principal	April 2, 2018
David A. Knight			Executive Officer
/s/ Ernest Cimadamore			Secretary and Director	April 2, 2018
Ernest Cimadamore
/s/Scott A. McPherson			Chief  Financial Officer and Principal Accounting Officer	April 2, 2018
Scott A. McPherson
/s/ Gerald Hannahs			Director	April 2, 2018
Gerald Hannahs

		December 31, 2017				December 31, 2016
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	7,232			$	52,719
Prepaid expenses			57,300				-
Deposits			1,218				-
TOTAL CURRENT ASSETS			65,750				52,719
PROPERTY AND EQUIPMENT
Computer equipment			5,129				10,748
Furniture and fixtures			-				15,722
			5,129				26,470
Less:  accumulated depreciation			(4,773	)			(18,473	)
			356				7,997
OTHER ASSETS
Patents and trademarks, net of accumulated
amortization of $134,023 and $133,130			411,090				552,573
			411,090				552,573
TOTAL ASSETS		$	477,196			$	613,289
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	3,170,114			$	2,047,012
Accounts payable and accrued expenses - related parties			48,103				59,323
Loans payable			27,000				-
10% Secured convertible notes payable - stockholders			3,460,264				4,260,264
Notes payable - stockholders, net of discount of $0 and $29,139			100,000				38,361
3.5% Secured convertible notes payable - stockholders, net of discount of $6,421			5,462,779				-
Preferred stock dividend liability			3,950,545				2,877,424
TOTAL CURRENT LIABILITIES			16,218,805				9,282,384
LONG-TERM LIABILITIES
3.5% Secured convertible notes payable - stockholders			-				2,069,200
CONTINGENCIES
STOCKHOLDERS' DEFICIT
Preferred stock, $.0001 par value; 2,000,000 preferred shares
authorized; 195,500 preferred shares Series A authorized; 107,850 and
108,600 shares issued and outstanding at December 31, 2017 and 2016			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 December 31, 2017 and 2016			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 December 31, 2017 and 2016			-				-
Common stock, $ .0001 par value; 230,000,000 shares authorized;
118,596,866 and 118,017,626 shares issued and outstanding
at December 31, 2017 and 2016			11,860				11,802
Additional paid in capital			56,390,489				55,955,114
Deferred compensation			(31,250	)			(9,167	)
Accumulated deficit			(72,112,722	)			(66,696,058	)
STOCKHOLDERS' DEFICIT			(15,741,609	)			(10,738,295	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	477,196			$	613,289

		For the Years Ended
		Ended December 31,
		2017				2016
SALES		$	-			$	1,050
OPERATING EXPENSES
Sales and marketing			261,763				428,216
Product development			1,177,131				830,052
Integration and customer support			-				75,255
General and administrative			2,107,956				2,959,815
Total operating expenses			3,546,850				4,293,338
NET OPERATING LOSS			(3,546,850	)			(4,292,288	)
OTHER INCOME (EXPENSE)
Interest expense			(679,515	)			(534,163	)
Other income			-				1,085
Gain (loss) on disposition of intangibles and fixed assets			(117,177	)			4,447
			(796,692	)			(528,631	)
NET LOSS			(4,343,542	)			(4,820,919	)
Less: Accrued preferred dividends			(1,073,122	)			(1,073,122	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(5,416,664	)		$	(5,894,041	)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE		$	(0.05	)		$	(0.05	)
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING			117,975,277				117,684,293

		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
		Shares				Amount				Shares				Amount				Shares				Amount				Shares				Amount				Capital				Compensation				Deficit				Total
Balance, December 31, 2015			108,600			$	11				28,378			$	3				-			$	-				117,517,626			$	11,752			$	54,203,451			$	(72,188	)		$	(60,802,017	)		$	(6,658,988	)
Issuance of restricted common stock for services			-				-				-				-				-				-				500,000				50				54,950				(55,000	)			-				-
Issuance of warrants with notes payable			-				-				-				-				-				-				-				-				37,675				-				-				37,675
Revaluation of warrants			-				-				-				-				-				-				-				-				1,305,411				-				-				1,305,411
Fair value of options for services			-				-				-				-				-				-				-				-				436,127								-				436,127
Amortization of deferred compensation			-				-				-				-				-				-				-				-				-				45,833				-				45,833
Forfeited restricted common stock			-				-				-				-				-				-				-				-				(82,500	)			72,188				-				(10,312	)
Accrued preferred dividends			-				-				-				-				-				-				-				-				-				-				(1,073,122	)			(1,073,122	)
Net loss			-				-				-				-				-				-				-				-				-				-				(4,820,919	)			(4,820,919	)
Balance, December 31, 2016			108,600				11				28,378			$	3				-			$	-				118,017,626			$	11,802			$	55,955,114			$	(9,167	)		$	(66,696,058	)		$	(10,738,295	)
Issuance of restricted common stock for services			-				-				-				-				-				-				650,000				65				97,435				(97,500	)			-				-
Shares withheld for employee taxes on restricted stock issuance			-				-				-				-				-				-				(154,093	)			(15	)			(23,098	)			-				-				(23,113	)
Issuance of warrants with notes payable			-				-				-				-				-				-				-				-				145,597				-				-				145,597
Fair value of options for services			-				-				-				-				-				-				-				-				215,449								-				215,449
Amortization of deferred compensation			-				-				-				-				-				-				-				-				-				75,417				-				75,417
Accrued preferred dividends			-				-				-				-				-				-				-				-				-				-				(1,073,122	)			(1,073,122	)
Conversion of  Preferred Stock Series A to  Common Stock			(750	)			-				-				-				-				-				83,333				8				(8	)			-				-				-
Net loss			-				-				-				-				-				-				-				-				-				-				(4,343,542	)			(4,343,542	)
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	)

		For the Years Ended December 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(4,343,542	)		$	(4,820,919	)
Adjustments to reconcile net loss to net cash:
used in operating activities
Provision for bad debts			-				360
Fair value of options issued in exchange for services			215,449				436,127
Forfeiture of restricted stock			-				(10,312	)
Fair value of common stock issued in exchange for services			75,417				45,833
Revaluation of options and warrants			-				1,305,411
Accretion of discount on notes payable			168,314				68,527
Depreciation and amortization			41,336				43,911
(Gain) loss on abandonment of patents and disposal of fixed assets			117,177				(4,447	)
(Increase) Decrease in assets
Prepaid expenses			(57,300	)			72,918
Deposits			(1,218	)			31,800
Increase in liabilities
Accounts payable and accrued expenses			1,088,769				780,664
Net cash used in operating activities			(2,695,598	)			(2,050,127	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment			(9,389	)			-
Net cash used in investing activities			(9,389	)			-
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable			122,250				9,000
Repayment of loans payable			(95,250	)			(9,000	)
Proceeds from convertible notes payable - stockholders			2,100,000				1,360,100
Proceeds from notes payable - stockholders			600,000				726,100
Repayment of notes payable - stockholders			(67,500	)			-
Net cash provided by financing activities			2,659,500				2,086,200
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(45,487	)			36,073
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR			52,719				16,646
CASH AND CASH EQUIVALENTS - END OF YEAR		$	7,232			$	52,719
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest		$	-			$	-
Income taxes		$	-			$	-
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Disposal of equipment in satisfaction of accounts payable		$	-			$	55,000
Accrued preferred dividend		$	1,073,122			$	1,073,122
Fair value of warrants issued as discount for note payable		$	139,375			$	37,675
Accrued commitment fees as discount on notes payable		$	-			$	22,508
Fair value of stock issued as deferred compensation		$	97,500			$	55,000
Accounts payable converted to convertible notes - stockholders		$	-			$	143,793
Accrued interest and commitment fees converted to 10% secured convertible
notes payable - stockholders		$	-			$	200,571
Exchange of unsecured notes payable into 10% secured convertible notes payable and
3.5% secured convertible notes payable		$	-			$	1,685,000
Forfeited restricted stock		$	-			$	82,500
Conversion of Preferred Stock Series A into common stock		$	8			$	-
Conversion of 10% secured convertible notes payable to 3.5% secured convertible notes payable		$	800,000			$	-
Conversion of notes payable to 3.5% secured convertible notes payable		$	500,000			$	-

		Useful life
		(in years)
Computer equipment		3 - 5
Furniture and fixtures		7

		December 31,
		2017				2016
Current		$	-			$	-
Deferred			(7,234,000	)			(1,977,000	)
Change in valuation allowance			7,234,000				1,977,000
		$	-			$	-

		December 31, 2017								December 31, 2016
		Amount				%				Amount				%
Income tax benefit at U.S.
federal income tax rate		$	(1,520,000	)			(34	)		$	(1,689,000	)			(35	)
State tax, net of federal tax effect			(261,000	)			(6	)			(289,000	)			(6	)
Non-deductible other expenses			2,000				-				1,000				-
Tax rate change			9,013,000				207				-				-
Change in valuation allowance			(7,234,000	)			(167	)			1,977,000				41
Net		$	-				-			$	-				-

		December 31,
		2017				2016
Deferred tax asset for NOL carryforwards		$	(18,523,000	)		$	(24,084,000	)
Deferred tax asset for stock based compensation			(887,000	)			(2,560,000	)
Valuation allowance			19,410,000				26,644,000
Net		$	-			$	-

		2017				2016
Risk Free Interest Rate			2.0	%			1.2	%
Expected Volatility			153.2	%			136.0	%
Expected Life (in years)			5				4.5
Dividend Yield			0	%			0	%
Weighted average estimated fair value of options during the period		$	0.15			$	0.10

		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, 2015			8,822,500			$	0.76				2.6			$	-
Granted			4,725,000				0.80
Cancelled/forfeited/expired			(2,152,501	)			0.79
Balance December 31, 2016			11,394,999				0.77				2.3				179
Granted			6,750,000				0.90
Cancelled/forfeited/expired			(8,994,999	)			0.80
Balance December 31, 2017			9,150,000			$	0.83				3.6			$	66
Exercisable at December 31, 2017			3,338,330			$	0.77				1.9			$	64
Exercisable at December 31, 2017 and expected to
vest thereafter			9,150,000			$	0.83				3.6			$	66

		Unvested Options
						Weighted -
						Average
						Grant
		Number of				Date Fair
		Shares				Value
Balance December 31, 2015			3,412,512			$	0.10
Granted			4,725,000				0.09
Vested			(2,534,171	)			0.20
Cancelled/forfeited/expired			(1,421,671	)			0.24
Balance December 31, 2016			4,181,670				0.12
Granted			6,750,000				0.15
Vested			(1,836,667	)			0.13
Cancelled/forfeited/expired			(3,283,333	)			0.15
Balance December 31, 2017			5,811,670			$	0.13

										Remaining				Aggregate
						Weighted-				Contractual				Intrinsic
		Number of				Average				Term				Value
		Shares				Exercise Price				(in years)				(in 000's) (1)
Balance December 31, 2015			26,365,896			$	1.02				0.4			$	160
Granted			231,700				0.90
Expired			(1,242,858	)			0.10
Balance December 31, 2016			25,354,738			$	1.07				0.4			$	23
Granted			960,000				0.90
Expired			(25,123,038	)			1.07
Balance December 31, 2017			1,191,700			$	0.90				1.9			$	-
Exercisable at December 31, 2017			1,191,700			$	0.90				1.9			$	-
Exercisable at December 31, 2017 and expected to
vest thereafter			1,191,700			$	0.90				1.9			$	-