IPSI 10-Q
Innovative Payment Solutions, Inc. (IPSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
or
For the transition period from ___________ to ___________
Commission
File Number
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| Address of Principal Executive Offices | Zip Code |
Registrant’s Telephone Number, Including Area Code
56B 5th Street, Lot 1, Carmel by the Sea, CA 93921
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
19355 Business Center Drive., #9, Northridge CA 91324
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ |
| ☒ | 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 Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Number
of shares of common stock outstanding as of November 12, 2021 was
INNOVATIVE PAYMENT SOLUTIONS, INC.
The Company is focused on operating and developing e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely. The Company’s first e-wallet, the Beyond Wallet, is currently operational. The Company’s flagship e-wallet, IPSIPay, is in final stages of development and testing. Previously the Company intended to invest in physical kiosks, which required the user presence at the kiosk location. The Company still intends to use its existing kiosks in certain target markets within Southern California. The kiosks are currently located in the Company’s warehouses in Southern California awaiting the installation of a suitable payment platform before deployment.
The Company continues to monitor the continuous impact of COVID-19 closely. The extent to which COVID-19 will continue to impact the Company’s operations, ability to obtain financing or future financial results is uncertain.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (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”). In particular, statements contained in this Report, including but not limited to, the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward-looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.
NOTE REGARDING COMPANY REFERENCES
Throughout this Report, “IPSI,” the “Company,” “we,” “us” and “our” refer to Innovative Payment Solutions, Inc.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Index
| Page | |||
| PART I. FINANCIAL INFORMATION | |||
| Item 1. | Condensed Consolidated Financial Statements (unaudited) | F-1 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risks | 6 | |
| Item 4. | Controls and Procedures | 6 | |
| PART II. OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 7 | |
| Item 1A. | Risk Factors | 7 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 | |
| Item 3. | Defaults Upon Senior Securities | 7 | |
| Item 4. | Mine Safety Disclosures | 7 | |
| Item 5. | Other Information | 7 | |
| Item 6. | Exhibits | 8 | |
i
Item 1.
INNOVATIVE PAYMENT SOLUTIONS, INC.
TABLE OF CONTENTS
September 30, 2021
F-1
INNOVATIVE PAYMENT SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment | ||||||||
| Intangible assets | - | |||||||
| Right of use asset | ||||||||
| Security deposit | ||||||||
| Investment | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Related party payables | ||||||||
| Federal relief loans | ||||||||
| Loans payable | ||||||||
| Convertible debt, net of unamortized discount of $ | ||||||||
| Operating lease liability | ||||||||
| Derivative liability | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Federal relief loans | ||||||||
| Operating lease liability | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements.
F-2
INNOVATIVE PAYMENT SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Investment impairment charge | - | ( | ) | |||||||||||||
| Loss on debt conversion | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on settlement of liabilities | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Derivative liability movements | ( | ) | ( | ) | ||||||||||||
| Other (expense) income | ( | ) | ( | ) | ||||||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Taxes | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Number of Shares Outstanding – Basic and diluted | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements
F-3
INNOVATIVE PAYMENT SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY (DEFICIT)
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of December 31, 2020 | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Warrants exercised | - | - | ||||||||||||||||||||||||||
| Share subscriptions | - | - | ||||||||||||||||||||||||||
| Share issue expenses | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Conversion of debt to equity | - | |||||||||||||||||||||||||||
| Fair value of warrants issued as compensation | - | - | ||||||||||||||||||||||||||
| Stock based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | - | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Warrants exercised | - | - | - | |||||||||||||||||||||||||
| Shares issued for services | - | - | - | |||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2021 | - | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Shares issued for services | - | - | - | |||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of September 30, 2021 | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Deficit | |||||||||||||||||||||||||
| Balance as of December 31, 2019 | - | $ | $ | $ | $ | ( | ) | $ | - | $ | ( | ) | ||||||||||||||||||||
| Settlement of liabilities | - | - | - | |||||||||||||||||||||||||||||
| Conversion of debt to equity | - | - | - | |||||||||||||||||||||||||||||
| Shares issued for services | - | - | - | |||||||||||||||||||||||||||||
| Share subscriptions | - | - | - | |||||||||||||||||||||||||||||
| Stock based compensation | - | - | - | |||||||||||||||||||||||||||||
| Fair value of Restricted Stock Awards | - | - | - | |||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2020 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Conversion of debt to equity | - | - | - | |||||||||||||||||||||||||||||
| Shares issued for services | - | |||||||||||||||||||||||||||||||
| Fair value of Restricted Stock Awards | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of June 30, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Conversion of debt to equity | - | |||||||||||||||||||||||||||||||
| Fair value of Restricted Stock Awards | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2020 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
See notes to the unaudited condensed consolidated financial statements.
F-4
INNOVATIVE PAYMENT SOLUTIONS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine months ended | Nine months ended | |||||||
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Derivative liability movements | ( | ) | ||||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Investment impairment charge | ||||||||
| Loss on conversion of debt to equity | ||||||||
| Loss on settlement of liabilities | ||||||||
| Deposit forfeited | ||||||||
| Shares issued for services | ||||||||
| Stock based compensation | ||||||||
| Amortization of right of use asset | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Interest accruals | ||||||||
| CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in Frictionless Financial Technologies Inc. | ( | ) | ||||||
| Intangibles acquired | ( | ) | ||||||
| Deposits paid | ( | ) | ||||||
| Plant and equipment purchased | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from share issuances | ||||||||
| Share issue expenses | ( | ) | ||||||
| Proceeds from warrants exercised | ||||||||
| Proceeds from loans payable | ||||||||
| Repayment of loans payable | ( | ) | ( | ) | ||||
| Repayment of convertible notes | ( | ) | ( | ) | ||||
| Proceeds from short term notes and convertible notes | ||||||||
| Proceeds from federal relief funds | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET INCREASE (DECREASE) IN CASH | ||||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| CASH PAID FOR INTEREST AND TAXES: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| De-recognition of right of use lease on early termination | $ | $ | ||||||
| Recognition of right of use lease | $ | $ | ||||||
| Conversion of convertible debt to equity | $ | $ | ||||||
| Settlement of liabilities with equity | $ | $ | ||||||
See notes to the unaudited condensed consolidated financial statements.
F-5
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS |
| a) | Organization |
On May 12, 2016, Innovative Payment Solutions, Inc. (formerly known as QPAGOS and Asiya Pearls, Inc.), a Nevada corporation (“IPSI” or the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of IPSI (“Merger Sub”). Pursuant to the Merger Agreement, on May 12, 2016, the merger was consummated, and Qpagos Corporation and Merger Sub merged (the “Merger”), with Qpagos Corporation continuing as the surviving corporation of the Merger.
Pursuant to the Merger Agreement, upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior to the Merger was converted into the right to receive two shares of IPSI common stock, par value $0.0001 per share (the “Common Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, IPSI assumed all of Qpagos Corporation’s warrants issued and outstanding immediately prior to the Merger, which were exercisable for approximately 621,920 shares of Common Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the Merger, the then-current IPSI stockholder of 500,000 shares of Common Stock agreed to return to IPSI 497,500 shares of Common Stock held by such holder and the then-current IPSI stockholder retained an aggregate of 2,500 shares of Common Stock and the other stockholders of IPSI retained 500,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former stockholders held 4,992,900 shares of IPSI common stock which represented approximately 91% of the outstanding Common Stock.
The Merger was treated as a reverse acquisition of IPSI, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation was treated as the acquirer for accounting and financial reporting purposes while IPSI was treated as the acquired entity for accounting and financial reporting purposes.
Qpagos Corporation (“Qpagos”) was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos, S.A.P.I. de C.V. (“Qpagos Mexico”) and Redpag Electrónicos S.A.P.I. de C.V. (“Redpag”). Each of the entities were incorporated in November 2013 in Mexico.
Qpagos Mexico was formed to process payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as a distributor.
On May 27, 2016 Asiya changed its name to QPAGOS.
On June 1, 2016, the board of directors of QPAGOS (the “Board”) changed the Company’s fiscal year end from October 31 to December 31.
On November 1, 2019, the Company changed its name from QPAGOS to Innovative Payment Solutions, Inc.
Also
on
On
August 26, 2021, The Company formed a new subsidiary, Beyond Fintech, Inc (“Beyond Fintech”). to acquire a product known
as Beyond Wallet from a third party, together with the logo, use of name and implementation of the product into the Company’s
technology. The company owns
F-6
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| b) | Description of the business |
Subsequent to the merger of Qpagos Corporation into IPSI and until the divestiture of Qpagos Corporation, Qpagos Mexico and Redpag, the Company’s focus was on the operations of Qpagos Corporation in Mexico. The Company’s current focus is on providing physical and virtual payment services to allow US persons to transfer funds to Mexico and other countries.
The Company is focused on operating and developing e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely. The Company’s first e-wallet, the Beyond Wallet, is currently operational. The Company’s flagship e-wallet, IPSIPay, is in final stages of development and testing. Previously the Company intended to invest in physical kiosks, which required the user presence at the kiosk location. The Company still intends to use its existing kiosks in certain target markets within Southern California.
The
Company acquired a
On
August 26, 2021, the Company formed a new subsidiary, Beyond Fintech, in which
its owns a
| c) | COVID-19 Outbreak |
In March 2020, the outbreak of COVID-19 (also known as the coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization, and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates. The Company has continued operating and has recently expanded on its strategy into developing an e-wallet for payment processing which will not require the presence of a physical kiosk.
The Company continues to monitor the continuous impact of COVID-19 closely. The extent to which COVID-19 will continue to impact the Company’s operations, ability to obtain financing or future financial results is uncertain.
F-7
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 | ACCOUNTING POLICIES AND ESTIMATES |
| a) | Basis of Presentation |
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three and nine months ended September 30, 2021 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this Quarterly Report on Form 10-Q (“Report”) should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2020, included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021.
All amounts referred to in the notes to the unaudited condensed financial statements are in United States Dollars ($) unless stated otherwise.
| b) | Use of Estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives for plant and equipment, the fair value of long-lived investments, the fair value of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating losses and the allowance for doubtful accounts.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
| c) | Contingencies |
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.
The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
F-8
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| d) | Fair Value of Financial Instruments |
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for the investment in Vivi Holdings Inc., was evaluated at fair value using Level 3 Inputs based on the Company’s estimate of the market value of the entities disposed to Vivi Holdings, Inc. Vivi Holdings Inc., does not have sufficient information available to assess the current market price of its equity.
On
June 22, 2021, the Company made a strategic investment of $
The carrying amounts reported in the balance sheets for cash, accounts receivable, other current assets, other assets, accounts payable, accrued liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company has identified the short-term convertible notes and certain warrants attached to certain of the notes that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company evaluates the fair value of variably priced derivative liabilities on a quarterly basis and report any movements thereon in earnings.
| e) | Risks and Uncertainties |
The Company’s operations will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including the potential risk of business failure. The global Covid-19 breakout caused an economic crisis which may result in a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, vendors and the Company to accurately forecast and plan future business activities.
The Company is focused on operating and developing e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely. The Company’s first e-wallet, the Beyond Wallet, is currently operational. The Company’s flagship e-wallet, IPSIPay, is in final stages of development and testing. Previously the Company intended to invest in physical kiosks, which required the user presence at the kiosk location. The Company still intends to use its existing kiosks in certain target markets within Southern California.
The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
F-9
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| f) | Recent accounting pronouncements |
The FASB issued several additional updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the financial statements upon adoption.
| g) | Reporting by Segment |
No
segmental information is required as the Company has not generated any revenue for the nine months ended September 30, 2021 and 2020 and
only has
| h) | Cash and Cash Equivalents |
The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September 30, 2021 and December 31, 2020, respectively, the Company had no cash equivalents.
The
Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution
in the United States. The balance at times may exceed federally insured limits. At September 30, 2021, the balance exceeded the federally
insured limit of $
| i) | Accounts Receivable and Allowance for Doubtful Accounts |
Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries during the period ended September 30, 2021 and December 31, 2020.
| j) | Investments |
The
Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values.
The carrying value of our non-marketable equity securities is adjusted to fair value for observable transactions for identical or similar
investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity
securities, realized and unrealized, are recognized in other income (expense), net. Non-marketable equity securities that have been remeasured
during the period are classified within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation
methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and
obligations of the securities the Company holds. The cost method is used when the Company has a passive, long-term investment that doesn’t
result in influence over the Company. The cost method is used when the investment results in an ownership stake of less than
F-10
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| k) | Plant and Equipment |
Plant
and equipment is stated at cost, less accumulated depreciation. Plant and equipment with costs greater than $
| Description | Estimated Useful Life | |
| Kiosks | ||
| Furniture and fixtures | ||
| Computer equipment |
The cost of repairs and maintenance is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
| l) | Long-Term Assets |
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets
| m) | Revenue Recognition |
The Company’s revenue recognition policy is consistent with the requirements of FASB ASC 606, Revenue.
The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
| i. | identify the contract with a customer; |
| ii. | identify the performance obligations in the contract; |
| iii. | determine the transaction price; |
| iv. | allocate the transaction price to performance obligations in the contract; and |
| v. | recognize revenue as the performance obligation is satisfied. |
The Company had no revenues during the three and nine months ended September 30, 2021 and 2020.
F-11
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| n) | Share-Based Payment Arrangements |
Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded in operating expenses in the statement of operations.
Where equity transactions with arms-length third parties, who had applied their own assumptions and estimates in determining the market value of our equity, had taken place prior to and within a reasonable time frame of any share-based payments, the value of those share transactions have been used as the fair value for any share-based equity payments.
Where equity transactions with arms-length third parties, included both shares and warrants, the value of the warrants have been eliminated from the unit price of the securities using a Black-Scholes valuation model to determine the value of the warrants. The assumptions used in the Black Scholes valuation model includes market related interest rates for risk-free government issued treasury securities with similar maturities; the expected volatility of the Company’s common stock based on companies operating in similar industries and markets; the estimated stock price of the Company; the expected dividend yield of the Company and; the expected life of the warrants being valued.
| o) | Derivative Liabilities |
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
| p) | Income Taxes |
The Company is based in the US and currently enacted US tax laws are used in the calculation of income taxes.
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of September 30, 2021 and December 31, 2020, there have been no interest or penalties incurred on income taxes.
| q) | Comprehensive income |
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, there is no comprehensive income for the periods presented.
F-12
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 3 | LIQUIDITY MATTERS |
The
Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future.
For the nine months ended September 30, 2021, the Company had a net loss of $
Management has executed the following to address the Company’s liquidity during the nine months ended September 30, 2021:
| ● | The Company received net proceeds
of $ |
| ● | Between February 18, 2021 and
June 23, 2021 warrants for |
| ● | On March 17, 2021, |
The funding the Company received will be used primarily for development of technology, the digital payment platform and marketing, as well as for working capital and general corporate purposes.
If the Company is required to raise additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities.
Based on this current business plan, the Company believes its existing cash is sufficient to conduct planned operations for one year from the issuance of the September 30, 2021 financial statements.
F-13
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4 | INTANGIBLES |
On
August 26, 2021, The Company formed a new subsidiary, Beyond Fintech. to acquire a
product known as Beyond Wallet from a third party, together with the logo, use of name and implementation of the product into the
Company’s technology. The company owns
| September 30, 2021 |
December 31, 2020 |
|||||||
| Purchased Technology | $ | $ | ||||||
| 5 | INVESTMENT |
Investment in Frictionless Financial Technologies Inc.
On
June 22, 2021, the Company entered into a Stock Purchase Agreement (the “SPA”) with Frictionless, to
purchase
The
company has undertaken to issue Frictionless a non-restricted,
non-dilutable
In
the event that Frictionless is unable to deliver the financial payment software on or before June 15, 2022, Frictionless shall immediately
refund the $
The Company has the right to appoint and has appointed, one member to the board of directors of Frictionless, which appointee will remain on the board as long as the Company is the holder of the Frictionless common stock.
The
Company has an irrevocable right to acquire up to an additional
The shares in Frictionless are unlisted as of September 30, 2021.
Investment in Vivi Holdings, Inc.
Effective December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corp, together with its 99.9% ownership interest of Qpagos Corporations’ two Mexican entities: QPagos S.A.P.I. de C.V. and Redpag Electrónicos S.A.P.I. de C.V, to Vivi.
As
consideration for the disposal Vivi issued an aggregate of
Due to the lack of available information, the Vivi Shares were valued by a modified market method, whereby the value of the assets disposed of were determined by management using the enterprise value of the entire Company less the liabilities and assets retained by the Company.
As
of September 30, 2021 and September 30, 2020, the Company impaired the carrying value of the investment in Vivi Holdings, Inc by $
The shares in Vivi Holdings, Inc., are unlisted as of September 30, 2021.
| September 30, 2021 |
December 31, 2020 |
|||||||
| Investment in Frictionless Financial Technologies, Inc. | $ | $ | ||||||
| Investment in Vivi Holdings, Inc. | ||||||||
| $ | $ | |||||||
F-14
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 6 | LEASES |
The
Company entered into a real property lease for office and warehouse space located at 19355 Business Center Drive in Northridge California,
Los Angeles County.
The
initial value of the right-of-use asset was $
Effective
June 1, 2021, the Company entered into a Mutual Termination of Lease Agreement with the landlord. The security deposit of $
On
March 22, 2021, the Company entered into a real property lease for an office located at 56B 5th Street, Lot 1 Carmel By
The Sea, California.
Discount Rate
To determine the present value of minimum future lease payments for operating leases at February 15, 2020, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).
The
Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options
and certain lease-specific circumstances. For the reference rate,
Right of use assets
Right of use assets are included in the unaudited condensed Balance Sheet are as follows:
September 30, 2021 | December 31, 2020 | |||||||
| Non-current assets | ||||||||
| Right of use assets, operating leases, net of amortization | $ | $ | ||||||
Total Lease Cost
Individual components of the total lease cost incurred by the Company is as follows:
Nine Months Ended 2021 | Nine months ended September 30, 2020 | |||||||
| Operating lease expense | $ | $ | ||||||
F-15
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 6 | LEASES (continued) |
Other lease information:
| Nine months ended September 30, 2021 |
||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows from operating leases | $ | ( |
) | |
| Remaining lease term – operating lease | ||||
| Discount rate – operating lease | % | |||
| 7 | FEDERAL RELIEF LOANS |
Payroll Protection Program loan
On
May 7, 2020, the Company received a Payroll Protection Program (“PPP”) loan through its bankers, Wells Fargo Bank, amounting
to $
The company has not made any payments on this loan and is awaiting a determination on its application for forgiveness.
Small Business Administration Disaster Relief loan
On
July 7, 2020, the Company received a Small Business Economic Injury Disaster loan amounting to $
The
company has accrued interest of $
| 8 | LOANS PAYABLE |
Loans payable consisted of the following:
| Description | Interest Rate | Maturity | September 30, 2021 | December 31, 2020 | ||||||||||
| Stanislav Minaychenko | % | $ | $ | |||||||||||
| Maxim Pukhoskiy | % | |||||||||||||
| Dieter Busenhart | % | |||||||||||||
| Total loans payable | $ | $ | ||||||||||||
Interest
expense totaled $
Stanislav Minaychenko
On
December 17, 2019, in terms of a settlement agreement entered into between the Company, Qpagos Corporation and Stanislav Minaychenko,
the Company issued a promissory note to Mr. Minaychenko in settlement of $
During
the nine months ended September 30, 2021, the Company repaid the aggregate principal sum of $
F-16
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 8 | LOANS PAYABLE (continued) |
Maxim Pukhoskiy
On
December 17, 2019, in terms of a settlement agreement entered into between the Company, Qpagos Corporation and Maxim Pukhoskiy, the Company
issued a promissory note to Mr. Pukhoskiy in settlement of $
During
the nine months ended September 30, 2021, the Company repaid the aggregate principal sum of $
Dieter Busenhart
On
July 17, 2020, the Company issued a promissory note to Dieter Busenhart in the aggregate principal amount of $
During
the nine months ended September 30, 2021, the Company repaid the aggregate principal sum of $
The
balance remaining on the promissory note consists of accrued interest of $
| 9 | CONVERTIBLE NOTES PAYABLE |
Convertible notes payable consists of the following:
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, Amount, net | December 31, Amount, | |||||||||||||||||||
| Power Up Lending Group | % | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Cavalry Fund I LP | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ( | ) | ||||||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ( | ) | ||||||||||||||||||||||||
| Iroquois Master Fund Ltd. | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| Mark Geist | % | |||||||||||||||||||||||||
| Bellridge Capital LP. | % | |||||||||||||||||||||||||
| % | ||||||||||||||||||||||||||
| % | ( | ) | ||||||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||
F-17
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Interest
expense totaled $
The convertible notes have variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the common stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative financial liability.
The
total value of the beneficial conversion feature recorded as a debt discount during the nine months ended September 30, 2021 and 2020
was $
Power Up Lending Group Ltd
| ● | On July 13, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $
On January 11, 2021, the Company repaid the principal sum of $ |
Cavalry Fund LLP
| ● | On July 1, 2020, the Company closed a transaction with Cavalry Fund I LP (“Cavalry”), pursuant to which the Company received net proceeds of $
The Initial Cavalry Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Initial Note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
Between January 4, 2021 and February 3, 2021,
the Company received conversion notices from Cavalry, converting the aggregate principal amount of $ |
F-18
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Cavalry Fund LLP (continued)
| ● | Cavalry had agreed to purchase an additional $
The Second Cavalry Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Second Note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Second Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
Between February 8, 2021 and February 12, 2021, the Company received conversion notices from Cavalry, converting the aggregate principal amount of $ |
| ● | On September 24, 2020, the Company closed a transaction with Cavalry pursuant to which the Company received net proceeds of $
The Third Cavalry Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Third Note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Third Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
On February 18, 2021, the Company received a conversion notice from Cavalry, converting the aggregate principal amount of $
|
| ● | On October 20, 2020, Cavalry entered into an Assignment and Transfer agreement whereby the Senior Secured Convertible Note with a face value of $
The transferred Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Transferred Note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Transferred note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
On February 22, 2021, the Company received a conversion notice from Cavalry, converting the aggregate principal amount of $ |
F-19
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Cavalry Fund LLP (continued)
| ● | On February 3, 2021, the Company closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $
On February 17, 2021, the Company repaid the aggregate principal sum of $ |
| ● | On February 16, 2021, the Company closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $
The balance of the Fifth Cavalry Note plus accrued interest at September 30, 2021 was $ |
Mercer Street Global Opportunity Fund, LLC
| ● | On August 3, 2020, the Company closed a transaction with Mercer Street Global Opportunity Fund, LLC, (“Mercer”), pursuant to which the Company received net proceeds of $
The Initial Mercer note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Mercer Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
Between January 4, 2021 and February 9, 2021, the Company received conversion notices from Mercer, converting the aggregate principal amount of $ |
| ● | On February 3, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $
On February 16, 2021 and February 22, 2021, the Company repaid the aggregate principal sum of $ |
F-20
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Mercer Street Global Opportunity Fund, LLC (continued)
| ● | On February 16, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $
The balance of the Third Mercer Note plus accrued interest at September 30, 2021 was $ |
Iroquois Master Fund Ltd.
| ● | On September 16, 2020, the Company closed a transaction with Iroquois Master Fund Ltd., pursuant to which the Company received net proceeds of $
The Initial Iroquois Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Iroquois Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
Between January 5, 2021 and February 5, 2021, the Company received conversion notices from Iroquois Master Fund Ltd. |
| ● | On February 3, 2021, the Company closed a transaction with Iroquois Master Fund Ltd., pursuant to which the Company received net proceeds of $
On February 19, 2021, the Company received a conversion notice from Iroquois Master Fund Ltd., converting the aggregate principal amount of $ |
F-21
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Mark Geist
On
October 20, 2020, the Company closed a transaction with Mark Geist., pursuant to which the Company received net proceeds of $
On
January 15, 2021, the Company received a conversion notice from Mark Geist, converting the aggregate principal amount of $
Bellridge Capital LP.
| ● | On November 25, 2020, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $ |
The
Initial Bellridge Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day
180, the note could be prepaid in an amount equal to
On
February 6, 2021, the Company received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $
| ● | On February 16, 2021, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $ |
On
February 16, 2021, the Company received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $
F-22
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9 | CONVERTIBLE NOTES PAYABLE (continued) |
Bellridge Capital LP. (continued)
| ● | On February 16, 2021, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $
The balance of the Third Bellridge Note plus accrued interest at September 30, 2021 was $ |
| 10 | DERIVATIVE LIABILITY |
Certain of the short-term convertible notes disclosed in note 8 above and certain warrants disclosed in note 10 below, have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time and certain notes and warrants have fundamental transaction clauses which might result in cash settlement, due to these factors, all convertible notes and any warrants attached thereto are valued and give rise to a derivative financial liability, which was initially valued at inception of the convertible notes using a Black-Scholes valuation model.
During
the nine months ended September 30, 2021, an additional $
The
value of this derivative financial liability was re-assessed at September 30, 2021, and $
The following assumptions were used in the Black-Scholes valuation model:
| Nine months Ended September 30, 2021 | Year Ended December 31, 2020 | |||||||
| Conversion price | ||||||||
| Risk free interest rate | ||||||||
| Expected life of derivative liability | ||||||||
| Expected volatility of underlying stock | ||||||||
| Expected dividend rate | % | % | ||||||
The movement in derivative liability is as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Opening balance | $ | $ | ||||||
| Derivative financial liability arising from convertible note | ||||||||
| Fair value adjustment to derivative liability | ( | ) | ( | ) | ||||
| $ | $ | |||||||
F-23
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY |
| a. | Common Stock |
The Company has authorized
The following shares of common stock were issued by the Company during the nine months ended September 30, 2021:
| ● | In terms of debt conversion notices received between January 5, 2021 and February 23, 2021, the Company issued an aggregate of |
| ● | In terms of warrant exercise notices received between February 18, 2021 and June 23, 2021, the Company issued |
| ● | On March 17, 2021, the Company, entered into Securities Purchase Agreements with several institutional investors, pursuant to which the Company agreed to sell to the Investors in a private placement |
| Pursuant to an engagement letter dated as of March 6, 2021, by and between the Company and H.C. Wainwright & Co., LLC (“Wainwright”), the Company engaged Wainwright to act as the Company’s exclusive placement agent in connection with the private placement. Pursuant to the engagement agreement, the Company agreed to pay Wainwright a cash fee of |
| ● | On April 5, 2021, the Board of directors approved advisory board agreements with |
| ● | On July 22, 2021, the Board of directors approved the issuance of |
| ● | On August 9, 2021, the Board of directors
approved the issuance of |
| ● | The |
F-24
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY (continued) |
| b. | Restricted stock awards |
On
December 15, 2020, in terms of an employment agreement entered into with an employee, the Company granted
The restricted stock granted and exercisable at September 30, 2021 is as follows:
| Restricted Stock Granted | Restricted Stock Vested | |||||||||||||||||
| Grant date Price |
Number Granted |
Weighted Average Fair Value per Share |
Number Vested |
Weighted Average Fair Value per Share |
||||||||||||||
| $ | $ | $ | ||||||||||||||||
| $ | ||||||||||||||||||
The
Company has recorded an expense of $
| c. | Preferred Stock |
The
Company has authorized
F-25
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants |
In terms of the Senior Secured convertible notes entered into with various noteholders as described in note 8 above, the Company issued five year warrants exercisable for a total of 28,709,182 shares of common stock at initial exercise prices ranging from $0.05 to $0.24 per share. The warrants have a cashless exercise option and an exercise limitation based on a certain beneficial ownership percentage of 4.99% which may be adjusted to 9.99%. The exercise price of the warrant is adjustable under the following conditions; i) subsequent equity sales are at a price below the exercise price of the warrant; ii) the Company issues options with an exercise price lower than the exercise price of the warrants; iii) issues convertible securities which are convertible into common stock at a price lower than the warrant exercise price; and iv) the option exercise price or rate of conversion for convertible securities results in a lower exercise price than the exercise price of the warrants.
The warrant holders also have the option to acquire subsequent rights offering rights, under certain circumstances and are entitled to pro-rata distributions made by the Company in assets or securities other than common stock.
The warrants include a fundamental transaction clause which will give the warrant holder the right on an as converted basis to the proceeds which common shareholders would be entitled to as a result of a fundamental transaction. Notwithstanding the aforementioned rights, provided the warrants are not registered under an effective registration statement, the holder of the warrant has the right to receive cash equal to the Black-Scholes value of the unexercised portion of the warrant in accordance with the terms of the warrant agreement.
On
February 22, 2021, the Board of Directors of the Company appointed William Corbett, its Chief Executive Officer and then Interim
Chief Financial Officer, as its Chairman of the Board and issued him a five-year warrant to purchase
In
connection with the Securities Purchase Agreements with several institutional investors, disclosed in Note 9(a) above, the Company
sold warrants to purchase up to an aggregate of
The
Warrants are exercisable for a period of
Pursuant
to an engagement letter dated as of March 6, 2021, by and between the Company and Wainwright, the Company engaged Wainwright to act as
the Company’s exclusive placement agent in connection with the private placement, discussed above. The Company agreed to issue to
Wainwright (or its designees) Placement Agent Warrants to purchase an aggregate of up to
On
August 16, 2021, the Company and Mr. Corbett entered into an Executive Employment Agreement that replaced and superseded the previous
executive employment agreement whereby the
F-26
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
The fair value of the warrants granted and issued were determined by using a Black Scholes valuation model using the following assumptions:
| Nine months ended September 30, 2021 | ||||
| Exercise price | ||||
| Risk free interest rate | ||||
| Expected life | ||||
| Expected volatility of underlying stock | ||||
| Expected dividend rate | % | |||
A summary of warrant activity during the period January 1, 2020 to September 30, 2021 is as follows:
| Shares Underlying Warrants | Exercise price per share | Weighted average exercise price | ||||||||||
| Outstanding January 1, 2020 | $ | | $ | |||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ( | ) | | |||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2020 | $ | $ | ||||||||||
| Granted | | |||||||||||
| Forfeited/Cancelled | ( | ) | ||||||||||
| Exercised | ( | ) | ||||||||||
| Outstanding September 30, 2021 | $ | $ | ||||||||||
The warrants outstanding and exercisable at September 30, 2021 are as follows:
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||||||||
| Exercise Price* | Number Outstanding | Weighted Average Remaining Contractual life in years | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | Weighted Average Remaining Contractual life in years | ||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
The
warrants outstanding have an intrinsic value of $
| e. | Stock options |
On June 18, 2018, the Company established its 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to promote the interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate objectives. The Plan terminates after a period of ten years in June 2028.
F-27
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY (continued) |
The Plan is administered by the board of directors or a Committee appointed by the Board of Directors who have the authority to administer the Plan and to exercise all the powers and authorities specifically granted to it under the Plan.
The maximum number of securities available under the Plan is 800,000 shares of common stock. The maximum number of shares of common stock awarded to any individual during any fiscal year may not exceed 100,000 shares of common stock.
On October 22, 2021, the Company established its 2021 Stock Incentive Plan (“2021 Plan”). The purpose of the Plan is to promote the interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants, advisors and service providers of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate objectives. The Plan terminates after a period of ten years in August 2031.
The 2021 Plan is administered by the board of directors or a Compensation Committee appointed by the Board of Directors who have the authority to administer the Plan and to exercise all the powers and authorities specifically granted to it under the Plan.
The
maximum number of securities available under the 2021 Plan is
Under the 2021 Plan the company may award the following: (i) non-qualified stock options; (ii)) incentive stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) restricted stock unit; and (vi) other stock-based awards.
On
February 22, 2021, the board awarded each of its directors, James Fuller and Andrey Novikov, options under the Company’s 2018 Stock
Incentive Plan to purchase
On
August 16, 2021, the Company and Mr. Corbett entered into an Executive Employment Agreement that replaced and superseded the previous
executive employment agreement whereby the
On
August 31, 2021, the Board awarded Richard Rosenblum, the Company’s Chief Financial Officer an option to purchase
The fair value of the options granted and issued were determined by using a Black Scholes valuation model using the following assumptions:
| Nine months ended September 30, 2021 |
||||
| Exercise price | $ | |||
| Risk free interest rate | % | |||
| Expected life | ||||
| Expected volatility of underlying stock | % | |||
| Expected dividend rate | % | |||
On
July 22. 2021, the board of directors authorized the reduction in the exercise price of the options exercisable for
The value of the reduction in the exercise price was determined using a Black Scholes valuation model utilizing the following assumptions:
| Nine months Ended September 30, 2021 | ||||
| Revised exercise price | $ | |||
| Original exercise price | $ | |||
| Risk free interest rate | % | |||
| Expected life | ||||
| Expected volatility of underlying stock | % | |||
| Expected dividend rate | % | |||
F-28
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 11 | STOCKHOLDERS’ EQUITY (continued) |
| e. | Stock options (continued) |
No options were granted for the year ended December 31, 2020.
A summary of option activity during the period January 1, 2020 to September 30, 2021 is as follows:
| Shares Underlying options | Exercise price per share | Weighted average exercise price | ||||||||||
| Outstanding January 1, 2020 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2020 | ||||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding September 30, 2021 | $ | $ | ||||||||||
The options outstanding and exercisable at September 30, 2021 are as follows:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||
| Exercise Price* | Number Outstanding | Weighted Average Remaining Contractual life in years | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | Weighted Average Remaining Contractual life in years | ||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
The
options outstanding have an intrinsic value of $
| 12 | NET LOSS PER SHARE |
Basic loss per share is based on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares as determined above plus common stock equivalents. The computation of diluted net loss per share does not assume the issuance of common shares that have an anti-dilutive effect on net loss per share. For the three and nine months ended September 30, 2021 and 2020 all warrants, options and convertible debt securities were excluded from the computation of diluted net loss per share.
Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive for the three and nine months ended September 30, 2021 and 2020 are as follows:
| Three and nine months ended September 30, 2021 (Shares) | Three and nine months ended September 30, 2020 (Shares) | |||||||
| Convertible debt | ||||||||
| Stock options | ||||||||
| Warrants to purchase shares of common stock | ||||||||
F-29
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 13 | RELATED PARTY TRANSACTIONS |
The following transactions were entered into with related parties:
James Fuller
On
February 22, 2021, the board of directors awarded James Fuller options under the Company’s 2018 Stock Incentive Plan to purchase
On
July 22. 2021, the Company granted Mr. Fuller
Additionally, the board of directors approved
the repricing of the options exercisable for
Andrey Novikov
On
February 22, 2021, the board of directors awarded Andrey Novikov options under the Company’s 2018 Stock Incentive Plan to purchase
On May 31, 2021, Mr. Novikov notified the board of directors of his decision to resign as a member of the Board and as Secretary of the Company, effective as of June 1, 2021. Following his resignation Mr. Novikov has continued to serve as the Company’s Chief Technology Officer.
William Corbett
On
February 22, 2021, the board of directors of the Company appointed William Corbett, its Chief Executive Officer and Interim Chief
Financial Officer, as its Chairman of the Board and issued him a five-year warrant to purchase
On
August 16, 2021, the Company and Mr. Corbett entered into an Executive Employment Agreement that replaced and superseded the previous
executive employment agreement (the “August 2021 Corbett Employment Agreement”). The purpose of the August 2021 Corbett Employment
Agreement was to provide a replacement grant for warrants previously granted to Mr. Corbett under the terms of his previous employment
agreement with the Company. Pursuant to the August 2021 Corbett Employment Agreement, Mr. Corbett would continue to serve as the Company’s
Chief Executive Officer on a full time basis effective as of the date of the August 2021 Corbett Employment Agreement until the close
of business on December 31, 2024. Mr. Corbett’s base salary will be $
In addition, the Company and Mr. Corbett entered into an Indemnification Agreement on August 16, 2021 (the “August 2021 Corbett Indemnification Agreement”), pursuant to which the Company agreed to indemnify Mr. Corbett to indemnify Indemnitee to the fullest extent permitted by or under the Nevada Corporation Law in respect of claims, including third-party claims and derivative claims and provides for advancement of expenses. The August 2021 Corbett Indemnification Agreement amends the indemnification agreement in effect prior to entering into the August 2021 Corbett Indemnification Agreement to provide that unless Company shall pay Mr. Corbett’s attorneys’ fees and costs, including the compensation and expenses of any arbitrator, unless the arbitrator or the court determines that (a) Company has no liability in such dispute, or (b) the action or claims by Executive are frivolous in nature. In any other case or matter, the Company and Mr. Corbett shall each bear its or his own attorney fees and costs.
Clifford Henry
On May 3, 2021, the Company appointed Mr. Henry to the Board of Directors.
On
July 22, 2021, the Company granted Mr. Henry
F-30
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 13 | RELATED PARTY TRANSACTIONS (continued) |
Madisson Corbett
On May 3, 2021, the Company appointed Ms. Corbett to the Board of Directors. Ms. Corbett is the daughter of Mr. William Corbett, the Company’s Chief Executive Officer and Chairman of the Board.
On
July 22, 2021, the Company granted Ms. Corbett
David Rios
On July 22, 2021, the Company appointed David Rios to the Board of Directors.
On
July 22, 2021, the Company granted Mr. Rios
Richard Rosenblum
On July 22, 2021, the Company appointed Richard Rosenblum as President and Chief Financial Officer of the Company. In addition, Mr. Rosenblum was elected to the board of directors of the Company to serve until the Company’s next annual meeting of shareholders.
On July 27, 2021,
If Mr. Rosenblum’s employment
with Company is terminated at any time during the term of the Employment Agreement other than for Cause (as defined in the Employment
Agreement), or due to voluntary termination, retirement, death or disability, then Mr. Rosenblum shall be entitled to severance equal
to fifty percent (
On
August 16, 2021, the Company entered into an amendment to the Rosenblum Executive Employment Agreement (the “First Amendment”)
with Mr. Rosenblum. Under the terms of the Executive Employment Agreement, the Company had agreed to grant to Mr. Rosenblum an option
to purchase
In addition, the Company and Mr. Rosenblum entered into an Indemnification Agreement, pursuant to which the Company agreed to indemnify Mr. Rosenblum to indemnify Indemnitee to the fullest extent permitted by or under the Nevada Corporation Law in respect of claims, including third-party claims and derivative claims and provides for advancement of expenses.
F-31
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 14 | COMMITMENTS AND CONTINGENCIES |
The
Company entered into a real property lease for office and warehouse space located at 19355 Business Center Drive in Northridge California,
Los Angeles County. The lease commenced on February 15, 2020 and expires on February 28, 2022, monthly rental expense is $
On March 22, 2021, the Company entered into a real property lease for an office located at 56B 5th Street, Lot 1 Carmel By The Sea, California. The lease commenced on April 1, 2021 and is for a twelve month period, terminating on April 1, 2022.
| Amount | ||||
| Undiscounted minimum future lease payments | ||||
| Total instalments due: | ||||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| $ | ||||
| 15 | SUBSEQUENT EVENTS |
On
October 22, 2021, The Company conducted its 2021 annual meeting in which the following resolutions were approved:
The Company has evaluated subsequent events through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.
F-32
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with and is qualified in its entirety by our audited annual financial statements and the related notes thereto, each of which appear on Form 10-K filed with the SEC on March 31, 2021. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading “Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Actual results could differ materially from those projected in the forward-looking statements. The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Innovative Payment Solutions, Inc.
Overview and Financial Condition
The Company is focused on operating and developing e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely. The Company’s first e-wallet, the Beyond Wallet, is currently operational. The Company’s flagship e-wallet, IPSIPay, is in final stages of development and testing. Previously the Company intended to invest in physical kiosks, which required the user presence at the kiosk location. The Company still intends to use its existing kiosks in certain target markets within Southern California.
The Company acquired a 10% strategic interest in Frictionless on June 22, 2021. Frictionless agreed to deliver to the Company, a live fully compliant financial payment Software as a Service solution for use by the Company as a digital payment platform that enables payments within the United states and abroad, including Mexico, together with a service agreement providing a full suite of product services to facilitate the Company’s anticipated product offerings. The Company has an irrevocable right to acquire up to an additional 41% of the outstanding common stock of Frictionless at a purchase price of $300,000 for each 1% acquired.
On August 26, 2021, the Company formed a new subsidiary, Beyond Fintech, in which its owns a 51% stake, with Frictionless owning the remaining 49%. Beyond Fintech acquired an exclusive license to a product known as Beyond Wallet, to further its objective of providing virtual payment services allowing US persons to transfer funds to Mexico and other countries.
Management Discussion and Analysis of financial condition
The discussion and analysis of our financial condition and results of operations is based upon the unaudited condensed financial statements as of September 30, 2021 and 2020, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions.
1
Results of Operations for the Three Months Ended September 30, 2021 and 2020
Net revenue
We did not have revenues during the three months ended September 30, 2021 and 2020.We anticipate that we will recommence generating revenue when we launch our e-wallets once we have determined our deployment strategy, and we deploy our kiosks in the southern California market, the timing of which is uncertain.
Cost of goods sold
As we did not have revenues during the three months ended September 30, 2021 and 2020, we anticipate that we will begin to recognize cost of goods sold when we launch our e-wallets once we have determined our deployment strategy, and we deploy our kiosks in the southern California market.
General and administrative expenses
General and administrative expenses were $2,747,693 and $336,879 for the three months ended September 30, 2021 and 2020, respectively, an increase of $2,410,814 or 715.6%. The increase is primarily due to the following:
| (i) | Directors fees of $583,006 and $0 for the three months ended September 30, 2021 and 2020, respectively. Directors fees in the current period included shares issued to directors valued at $539,000 and cash fees paid of $44,000. No directors fees were paid in the prior period. |
| (ii) | Consulting fees of $470,250 and $41,500 for the three months ended September 30, 2021 and 2020, respectively, an increase of $428,750 or 1,033.1%. Consulting fees during the current period included shares issued to consultants valued at $443,050. |
| (iii) | Salaries and wages of $1,437,751 and $114,052 for the three months ended September 30, 2021 and 2020, respectively, an increase of $1,323,699 or 1,160.6%. Salaries and wages during the current period, includes a stock based compensation expense of $1,196,650 for options granted to our CEO and CFO. Additionally, the increase is due to the increase of head count on payroll from two people to four people, including the increase in our CEO’s salary from $12,500 per month to $30,000 per month and the employment of a CFO at a monthly salary of $18,000 with effect from July 1, 2021. |
| (iv) | Professional fees of $104,756 and $37,030 for the three months ended September 30, 2021 and 2020, respectively, an increase of $67,726 or 182.9%. The increase is primarily due to social media expense of $36,000 and reimbursement of platform related fees paid to Frictionless of $25,850 as part of the ongoing software development agreement we have in place with them. |
| (v) | The balance of the increase is made up of several individually insignificant expenses. |
Depreciation
Depreciation was $4,642 and $4,166 for the three months ended September 30, 2021 and 2020, respectively, an increase of $476 or 11.4%. Depreciation during the current period consists primarily of depreciation on the kiosks received from Qpagos Mexico.
Loss on debt conversion
Loss on debt conversion was $0 and $283,336 for the three months ended September 30, 2021 and 2020, respectively, a decrease of $283,336 or 100%. The loss on debt conversion represents a loss realized on the conversion of convertible notes into equity at conversion prices ranging from 38% to 40% below current market prices. During the three months ended September 30, 2020, $224,620 of principal and interest was converted into equity.
Interest expense, net
Interest expense was $53,903 and $253,487 for the three months ended September 30, 2021 and 2020, respectively, a decrease of $199,584 or 78.7%. The decrease is primarily due to a penalty interest expense in the prior period of $211,425 related to the settlement of convertible debt prior to conversion by the note holders.
Amortization of debt discount
Amortization of debt discount was $515,200 and $428,282 for the three months ended September 30, 2021 and 2020, respectively, an increase of $90,918 or 21.2%. The increase is primarily due to the increase in the debt discount of $2,569,000 associated with convertible debt issued in the prior period to fund the Company’s expansion plans.
2
Derivative liability movements
Derivative liability movements were $1,578,361 and a loss of $380,556 for the three months ended September 30, 2021 and 2020. The derivative liability arose due to the issuance of convertible securities with variable conversion prices and no floor conversion price. The charge during the current period represents the mark-to-market of the derivative liability outstanding as of September 30, 2021.
Net loss
Net loss was $1,743,077 and $1,706,706 for the three months ended September 30, 2021 and 2020, respectively, an increase in loss of $36,371 or 2.1%. The increase is primarily due to the increase in general and administrative expenses, offset by the net credit in the derivative liability movement, the decrease in the loss on debt conversion and the decrease in interest expense, discussed in detail above.
Results of Operations for the Nine Months Ended September 30, 2021 and 2020
Net revenue
We did not have revenues during the nine months ended September 30, 2021 and 2020. We anticipate that we will recommence generating revenue when we launch our e-wallets once we have determined our deployment strategy, and we deploy our kiosks in the southern California market, the timing of which is uncertain.
Cost of goods sold
As we did not have revenues during the nine months ended September 30, 2021 and 2020, we anticipate that we will begin to recognize cost of goods sold when we launch our e-wallets once we have determined our deployment strategy, and we deploy our kiosks in the southern California market.
General and administrative expenses
General and administrative expenses were $9,457,134 and $1,289,542 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $8,167,592 or 633.4%. The increase is primarily due to the following;
| (i) | Salaries and wages of $6,656,270 and $572,900 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $6,083,370 or 1,061,9%. The increase is due to the value of warrants issued to our CEO of $4,327,899; the increase in stock option compensation expense of $1,196,560; the amortization of restricted stock expense with vesting rights of $261,832 during the current period and $439,362 in the prior period; the increase in payroll of $472,690 due to the increase in head count from two people to four people and the increase in our CEO’s salary from $12,500 per month to $30,000 per month; the employment of a CFO at a monthly salary of $18,000 with effect from July 1, 2021; and a severance provision of $294,000 raised due to the termination of several employees, the severance is still being negotiated with the individuals concerned. |
| (ii) | Consulting fees of $1,313,134 and $279,200 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $1,033,934 or 370.3%. The increase is due to 8,000,000 restricted shares issued to various advisory board members valued at $776,000 in April 2021 and 5,650,000 shares issued to various consultants and advisory board members valued at $443,050 during July and August 2021. The remaining decrease of $(181,050) is due to management fees paid to various employees before they were appointed to official positions within the Company. |
| (iii) | Directors fees of $681,614 and $88,000 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $593,614 or 674.6%, Directors fees in the current period included shares issued to directors valued at $539,000, the value of options granted to directors of $91,608 and cash fees paid of $51,000. Directors fees expense in the prior period represents the value of restricted shares issued to a director. |
| (iv) | Selling and marketing costs of $119,514 and $17,199 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $102,315 or 594.9%. The increase is due to initial expenses paid for software development and public relations expenses incurred during the current period amounting to $113,008. |
| (iv) | Professional fees of $226,866 and $127,591 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $99,275 or 77.8%. The increase is primarily due to social media expense of $77,565, fees paid to Frictionless of $25,850 as part of the ongoing software development agreement we have in place with them and $40,000 paid to an individual for professional administrative advice. |
| (v) | The balance of the increase is made up of several individually insignificant expenses. |
3
Depreciation
Depreciation was $13,293 and $8,333 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $4,960 or 59.5%. Depreciation during the current period consists primarily of depreciation on the kiosks received from Qpagos Mexico. The increase in depreciation is primarily due to the kiosks being acquired in the second quarter of 2020 and were only amortized for two quarters in the prior period, during the current period these kiosks have been amortized for three quarters.
Investment impairment charge
Investment impairment charge was $0 and $1,019,960 for the nine months ended September 30, 2021 and 2020, respectively, in the prior year the Company raised an impairment charge against the investment in Vivi Holdings Inc, as Vivi continues to not meet any of its indicated milestones concerning its proposed IPO and fund raising efforts.
Loss on debt conversion
Loss on debt conversion was $5,184,447 and $433,610 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $4,750,837. The loss on debt conversion during the current year represents a loss realized on the conversion of convertible notes, into equity at fixed conversion prices which ranged from $0.035 to $0.05 per share, when the stock price ranged from $0.05 per share to $0.22 per share, resulting in a significant loss. A total of $2,259,221 was converted from convertible debt to equity during the nine months ended September 30, 2021.
Loss on settlement of liabilities
Loss on settlement of liabilities was $0 and $50,082 for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $50,082 or 100.0%. The loss on settlement of liabilities in the prior year represents the settlement of certain promissory notes during the current period by the issuance of 1,692,764 shares of common stock at a discount to market prices.
Interest expense, net
Interest expense was $174,587 and $337,575 for the nine months ended September 30, 2021 and 2020, respectively, a decrease of $162,988 or 48.3%. The decrease is primarily due to a penalty interest expense in the prior period of $211,425 related to the settlement of convertible debt prior to conversion by the note holders offset by the increase in the principal outstanding of convertible debt from $1,505,000 in the prior period to $2,044,000 in the current period.
Amortization of debt discount
Amortization of debt discount was $3,138,452 and $801,460 for the nine months ended September 30, 2021 and 2020, respectively, an increase of $2,336,992 or 291.6%. The increase is primarily due to the accelerated amortization of debt discount related to notes converted to equity during the first quarter of the current period, in addition, the increase is also due to the increase in the debt discount of $2,569,000 associated with the increase in convertible debt over the prior period.
Derivative liability movements
Derivative liability movements were $4,714,451 and a loss of $101,945 for the nine months ended September 30, 2021 and 2020. The derivative liability arose due to the issuance of convertible securities with variable conversion prices and no floor conversion price. The charge during the current period represents the mark-to-market of the derivative liability outstanding as of September 30, 2021.
Net loss
Net loss was $13,253,462 and $4,082,507 for the nine months ended September 30, 2021 and 2020, respectively, an increase in loss of $9,170,955 or 224.6%. The increase is due to the increase in general and administrative expenses, the loss realized on the conversion of convertible debt and the amortization of debt discount, offset by the movement in derivative liabilities, discussed in detail above.
4
Liquidity and Capital Resources
To date, our primary sources of cash have been funds raised primarily from the sale of our debt and equity securities.
We incurred an accumulated deficit of $40,883,037 through September 30, 2021 and incurred negative cash flow from operations of $1,883,716 for the nine months ended September 30, 2021. The Company’s focus on operating and developing e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely, will require us to spend, substantial amounts in connection with implementing our business strategy, including our planned product development.
To meet our financing needs, we have raised net convertible debt funding of $2,048,000, received proceeds from warrant exercises of $2,780,460 and additional gross proceeds $4,550,000 from a private placement of equity securities, we believe we have sufficient funding to implement our business strategy.
At September 30, 2021, we had cash of $6,531,153 and working capital of $3,821,856, including a derivative liability of $820,965. After eliminating the derivative liability our working capital is $4,642,821.
We utilized cash of $1,883,716 and $951,303 in operations for the nine months ended September 30, 2021 and 2020, respectively. Overall cash utilized in operations increased by $932,413, primarily due to the increase in corporate overhead as we ready ourselves for our new technology platform.
We invested $500,000 in the common stock of Frictionless which has been contracted to develop our payment platform for the Mexican and other markets. This is a strategic investment and we expect a platform to be ready to utilize within the current year. We also invested a further $250,000 in the acquisition of a license and services for the Beyond Wallet software in the furtherance of our objectives.
Cash provided by financing activities for the nine months ended September 30, 2021 was primarily comprised of gross proceeds of $4,550,000 from the private placement on March 17, 2021, $3,009,349 from warrants exercised and $2,569,000 from convertible debt issued. We utilized $501,100 for share issue expenses and repaid convertible debt of $521,000 during the period.
At September 30, 2021, we had outstanding notes in the principal amount of $2,044,000. The notes were issued on February 16, 2021 and may be prepaid at any time for the first 90 days in an amount equal to 115% of the principal amount plus accrued interest. From day 91 through day 180, the Notes may be prepaid in an amount equal to 120% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The notes contain certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets. The notes mature in 12 months, bears interest at a rate of 10% per annum, and are initially convertible into our common stock at a conversion price of $0.23 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). Upon the occurrence of an event of default under the notes, the respective holder has the right to be prepaid at 140% of the outstanding principal balance and accrued interest, and interest accrues at 18% per annum (or the maximum amount permitted by law). In addition, if an event of default under a note has occurred, regardless of whether it has been cured or remains ongoing, such Note will thereafter be convertible at 65% of the lowest closing price of our common stock for the last 10 consecutive trading days.
Other than amounts owed under convertible notes, we have a commitment for a property lease which expires in April 2022.
The amount of future minimum lease payments under operating leases are as follows:
| Amount | ||||
| Undiscounted minimum future lease payments | ||||
| Total instalments due: | ||||
| Remainder of 2021 | $ | 14,400 | ||
| 2022 | 19,200 | |||
| $ | 33,600 | |||
5
Capital Expenditures
Our capital expenditure will depend on our ability to roll out kiosks to serve the US market, we anticipate we could spend up to $1,000,000 in developing the payment platform and e-wallets.
Off Balance Sheet Arrangements
None
Item 3. Quantitative and Qualitative Disclosures About Market Risks
None.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that due to the recent appointment of the CFO that there are now sufficient controls over review and accounting, including complex transactions for certain complex transactions, that the Company’s disclosure controls and procedures as of September 30, 2021 are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, to allow timely decisions regarding required disclosure. The Company has retained additional individuals to remedy the ineffective controls.
(b) Changes in Internal Control over Financial Reporting
There has been a change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 2021 that has materially affected, our internal control over financial reporting, thereby remedying the weaknesses identified in previous periods.
6
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business.
On October 20, 2021, a complaint was filed against the Company and certain of its officers and directors with the Occupational Safety and Health Administration of the United Stated Department of Labor, captioned Naum Voloshin, Yulia Rey, Alexander Voloshin, Andrey Novikov, and Frank Perez v. Innovative Payment Solutions, Inc., William Corbett, Richard Rosenblum, Madisson Corbett, Jim Fuller, Cliff Henry and David Rios.
The complaint generally alleges that complainants, former employees of the Company, did not receive compensation to which they claim they were entitled and that they were wrongfully terminated for engaging in protected activities in violation of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A, including reporting concerns about the adequacy of the Company’s internal controls.
The complaint seeks reinstatement of complainants’ employment, monetary damages including back pay, raises, bonuses, benefits, overtime, emotional distress and loss of reputation, orders of abatement and injunctive relief, and costs of litigation.
While the outcome of this action is uncertain at this point, the Company intends to vigorously defend against the action.
We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as described below or as disclosed in Current Reports on Form 10-Q, we did not have any unregistered sales of equity securities during the nine months ended September 30, 2021.
As described above, we issued notes in the aggregate principal amount of $2,936,000 in February 2021 convertible into 28,709,182 shares of our common stock and warrants to purchase an aggregate of 28,709,182 shares of common stock.
The Company issued an aggregate of 61,793,616 shares of common stock upon the conversion of $2,259,221 of convertible debt and interest thereon between January 5, 2021 and February 23, 2021.
The Company issued 60,186,982 shares of common stock upon the exercise of warrants between February 18, 2021 and June 23, 2021.
Between July 22, 2021 and August 9, 2021, the Board of Directors approved the issuance of 7,000,0000 shares of common stock to board members that were appointed during the year. In addition, 300,000 shares of common stock were issued to an employee of the Company and 5,650,000 shares of common stock were issued to various consultants.
All sales to persons in each of the transactions set forth above were issued relying on the exemption provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder for the offer and sale of securities not involving a public offering, except for debt conversions which were effected relying on Section 3(a)(9) of the Securities Act as the common stock was exchanged by us with our existing security holders exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. The recipients of securities in each of these transactions relying on Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment, business or other relationships, to information about us.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
7
Item 6. Exhibits
EXHIBIT INDEX
| Exhibit No. | Description | |
| 31.1* | Certification of William Corbett, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) | |
| 31.2* | Certification of Richard Rosenblum, Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule15d-14(a) | |
| 32.1* | Certification of William Corbett, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Richard Rosenblum, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document.* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith |
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Innovative Payment Solutions, Inc. | ||
| Date: November 12, 2021 | By: | /s/ William Corbett |
| William Corbett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Richard Rosenblum | |
| Richard Rosenblum | ||
| President and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
9