IPSI 10-Q
Innovative Payment Solutions, Inc. (IPSI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly
period ended
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 Office) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| n/a |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition 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 Exchange Act). Yes ☐ No
As of May 13, 2024, there were
INNOVATIVE PAYMENT SOLUTIONS, INC.
Form 10-Q
For the Quarter Ended March 31, 2024
Index
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” (as defined in 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”)) that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the section of this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that significant known and unknown risks, uncertainties and other important factors (including those over which we may have no control and others listed in this Report and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”)) may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
| ● | our ability to implement our business plan, including our ability to launch and generate revenue from our IPSIPay Express joint venture or other digital payment solutions we may seek to develop or commercialize in the future; |
| ● | acceptance by the marketplace of our products and services, notably IPSIPay Express; |
| ● | our ability to formulate, implement and modify as necessary effective sales, marketing, and strategic initiatives to drive revenue growth; |
| ● | the viability of our current intellectual property and intellectual property created in the future; |
| ● | our ability to comply with currently applicable laws and government regulations and those that may be applicable in the future; |
| ● | our ability to retain key employees and third-party service providers; |
| ● | adverse changes in general market conditions for payment solutions such as IPSIPay Express and other products and services we offer; |
| ● | our ability to generate cash flow and profitability and continue as a going concern; |
| ● | our future financing plans and ability to repay outstanding indebtedness; and |
| ● | our ability to adapt to changes in market conditions which could impair our operations and financial performance. |
These forward-looking statements involve numerous and significant risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate herein could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” section contain in this Report and in the “Business,” “Risk Factors” and other sections of the 2023 Form 10-K. You should thoroughly read this Report and the documents that we refer to with the understanding that our actual future results may be materially different from, and worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this Report relate only to events or information as of the date of this Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | (Unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment | ||||||||
| Notes receivable | - | |||||||
| Security deposit | ||||||||
| Equity method investment | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Federal relief loans – current portion | ||||||||
| Notes payable | ||||||||
| Convertible debt, net of unamortized discount of $ | ||||||||
| Derivative liability | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Federal relief loans | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Equity (Deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Equity (Deficit) | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
1
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three months ended | Three months ended | |||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Net Revenue | $ | $ | ||||||
| Cost of Goods Sold | ||||||||
| Gross loss | ( | ) | ||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Total Expense | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Deemed Interest income | ||||||||
| Loss on convertible notes | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Derivative liability movements | ||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||
| Income Taxes | ||||||||
| Net Loss after income taxes | ( | ) | ( | ) | ||||
| Net loss from equity method investments | ( | ) | - | |||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Discontinued operations | ||||||||
| Net loss from discontinued operations | ( | ) | ||||||
| ( | ) | |||||||
| Net loss | ( | ) | ( | ) | ||||
| Net loss attributable to non-controlling interest | ||||||||
| Net loss attributable to Innovative Payment Solutions, Inc. stockholders | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share* | ||||||||
| ( | ) | ( | ) | |||||
| ( | ) | |||||||
| $ | ( | ) | $ | ( | ) | |||
| * |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| Preferred Stock Shares | Amount | Common Stock Shares* | Amount* | Additional Paid-in Capital* | Accumulated Deficit | Non-controlling shareholders interest | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued on debt extinguishment | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Preferred Stock Shares | Amount | Common Stock Shares* | Amount* | Additional Paid-in Capital* | Accumulated Deficit | Non-controlling shareholders interest | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| * |
See accompanying notes to condensed consolidated financial statements.
3
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended | Three months ended | |||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Derivative liability movements | ( | ) | ( | ) | ||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Loss on convertible notes | ||||||||
| Deemed interest income | ( | ) | ||||||
| Unrealized loss on equity method investments | ||||||||
| Warrants issued for services | ||||||||
| Stock based compensation | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Interest accruals | ||||||||
| Cash used in operating activities – continuing operations | ( | ) | ( | ) | ||||
| Cash provided by operating activities – discontinued operations | ||||||||
| CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in intangibles | ( | ) | ||||||
| Investment in notes receivable | ( | ) | ||||||
| Investment in equity method investment | ( | ) | - | |||||
| Net cash used in investing activities – continuing operations | ( | ) | ( | ) | ||||
| Net cash used in investing activities – discontinued operations | ( | ) | ||||||
| CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ||||||
| Repayment of federal relief loans | ( | ) | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| Cash and cash included in assets held for sale at the beginning of the period | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| RECONCILIATION OF OPENING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | ||||||||
| Cash | $ | $ | ||||||
| Cash included in assets held for sale | ||||||||
| CASH AT THE BEGINNING OF THE PERIOD | $ | $ | ||||||
| RECONCILIATION OF CLOSING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | ||||||||
| Cash | $ | $ | ||||||
| Cash included in assets held for sale | ||||||||
| CASH AT THE END OF THE PERIOD | $ | $ | ||||||
| CASH PAID FOR INTEREST AND TAXES: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Fair value of warrants issued with convertible notes | $ | $ | ||||||
See notes to the unaudited condensed financial statements.
4
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS |
| a) | Organizational History |
On
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 the Company’s common stock, par value $
The Merger was treated as a reverse acquisition of the Company, then 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 the Company was treated as the acquired entity for accounting and financial reporting purposes.
Qpagos Corporation 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 June 1, 2016, the board of directors of the Company (the “Board”) changed the Company’s fiscal year end from October 31 to December 31.
On November
1, 2019, the Company changed its corporate name from “QPAGOS” to “Innovative Payment Solutions, Inc.” Additionally,
and immediately following the name change, the Company filed a Certificate of Change with the Secretary of State of the State of
Nevada to effect a reverse split of the then outstanding Common Stock at a ratio of 1-for-10, effective on November 1, 2019 (the “Reverse
Stock Split”). As a result of the Reverse Stock Split, each ten pre-split shares of Common Stock outstanding automatically combined
into one new share of Common Stock without any further action on the part of the holders, and the number of outstanding shares of Common
Stock was reduced from
On
December 31, 2019, the Company consummated the disposal of Qpagos Corporation, Qpagos Mexico and Redpag in exchange for
On
June 21, 2021. the Company acquired a
On
August 26, 2021, the Company formed a new subsidiary, Beyond Fintech, Inc. (“Beyond Fintech”), in which it owns
a
5
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| a) | Organizational History (continued) |
On
May 12, 2023, the Company entered into an Agreement with Frictionless (the “May 2023 Frictionless Agreement”) to unwind
the equity ownership stakes that the Company and Frictionless have in each other and in Beyond Fintech. Pursuant to the May 2023 Frictionless
Agreement: (i) the Company assigned to Frictionless all common stock of Frictionless owned by the Company; (ii) the warrant to purchase
On August 30, 2023, the Company implemented a 1 for 30 reverse stock split of its Common Stock. Unless the context expressly requires otherwise, as used in this Report, all share and per share numbers reflect such reverse stock split.
On September 5, 2023, the Company’s entered into a novation agreement whereby it assigned all its rights and interest in its e-wallet product, IPSIPay, and its receivables and payables due from and to Frictionless, related to IPSIPay, to a third party in order to concentrate all of its efforts on the IPSIPay Express LLC (“IPSIPay Express”) joint venture. See note 1(b) for further information.
| b) | Description of current business |
The Company is currently a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new account-to-account payment application called Instant Settlement in RealTime as well as traditional credit card processing services. The Company has in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.
IPSIPay Express
On April 28, 2023, the Company formed a new company called IPSIPay Express. This entity was formed as a Delaware limited liability company joint venture with OpenPath, Inc. (“OpenPath”) and EfinityPay, LLC (“EfinityPay”, and the Company, collectively with OpenPath and EfinityPay, the “Members”) to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors.
On June 19, 2023, the Company entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”) with OpenPath and EfinityPay to jointly provide for the governance of and rights of the Members with respect to IPSIPay Express. The effective date of the Operating Agreement is April 28, 2023.
IPSIPay Express was formed by the Members with the initial business purposes of providing credit card processing solutions and also a proprietary solution for real time bank-to-bank payment transactions in a manner that provides seamless and frictionless consumer and merchant experiences, with an initial focus on merchants operating in gaming and entertainment sectors. Such solutions are collectively referred to herein as “IPEX.”
Pursuant
to the Operating Agreement, the Company agreed to contribute cash to or on behalf IPSIPay Express to be used for the IPEX business in
the aggregate amount of up to $
6
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| b) | Description of current business (continued) |
Simultaneously with the funding
of the initial Tranche, the Company issued to each of OpenPath and EfinityPay a five-year Common Stock purchase warrant (the “IPEX
Warrant”) to purchase
| 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 months ended March 31, 2024 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 Report should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024 and amended on April 17, 2024.
All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
| b) | Principles of Consolidation |
The unaudited condensed consolidated
financial statements as of March 31, 2024, include the financial statements of the Company. The unaudited condensed consolidated financial
statements as of March 31, 2023, include the financial statements of the Company and its subsidiary in which it has a majority voting
interest, until May 12, 2023, the date of disposal of its Beyond Fintech subsidiary. Pursuant to the May 2023 Frictionless Agreement,
the Company disposed of its
All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.
All amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
| c) | Use of Estimates |
The preparation of unaudited condensed consolidated 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 unaudited condensed consolidated 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, convertible notes and amendments thereto, 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 unaudited condensed consolidated 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.
7
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| d) | 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 unaudited condensed consolidated 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.
| e) | 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 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. We evaluate the fair value of variably priced derivative liabilities on a quarterly basis and report any movements thereon in earnings.
| f) | Risks and Uncertainties |
The Company’s operations and prospects are and will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including the potential risk of business failure. The recent wars in Ukraine and Israel and the global inflationary environment which has resulted in significant interest rate increases in the U.S and abroad has resulted 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, which may have an adverse impact on its business and financial condition and may hamper the Company’s ability to generate revenue and access usual sources of liquidity on reasonable terms.
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.
8
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| g) | Recent accounting pronouncements |
The Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended March 31, 2024. 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 Company’s unaudited condensed consolidated financial statements upon adoption.
| h) | Reporting by Segment |
No segmental information
is required as the Company has only
| i) | 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 March 31, 2024 and December 31, 2023, respectively, the Company had 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 March 31, 2024 and December 31, 2023, the balance did not exceed federally insured limits.
| j) | 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 March 31, 2024 and 2023.
| k) | 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
9
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| l) | Plant and Equipment |
| Description | Estimated Useful Life | |
| Computer equipment | ||
| Office 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.
| m) | 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.
| n) | 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 minimal revenues of $
10
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| o) | 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 consolidated statement of operations.
Prior to the Company’s reverse merger which took place on May 12, 2016, all share-based payments were based on management’s estimate of market value of the Company’s equity. The factors considered in determining managements estimate of market value includes, assumptions of future revenues, expected cash flows, market acceptability of our technology and the current market conditions. These assumptions are complex and highly subjective, compounded by the business being in its early stage of development in a new market with limited data available.
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 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.
Subsequent to the Company’s reverse merger which took place on May 12, 2016, the Company has utilized the market value of its Common Stock as quoted on the OTCQB, as an indicator of the fair value of its Common Stock in determining share- based payment arrangements.
| p) | 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.
| q) | Income Taxes |
The Company is based in the U.S. and currently enacted U.S. 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 March 31, 2024 and December 31, 2023, there have been no interest or penalties incurred on income taxes.
11
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| r) | 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. The Company does not have any comprehensive income (loss) for the periods presented.
| s) | Reclassification of prior year presentation |
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
| 3 | LIQUIDITY MATTERS AND GOING CONCERN |
The
Company’s financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. The Company has incurred net losses since its inception and anticipates
net losses and negative operating cash flows for the near future. For and as of the three months ended March 31, 2024, the Company
had a net loss of $
The accompanying financial statements for the period ended March 31, 2024 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has determined that there is substantial doubt about their ability to continue as a going concern.
| 4 | DISCONTINUED OPERATIONS |
In the prior year, effective May 12, 2023, the Company disposed of its investment in Beyond Fintech.
| Three months ended | ||||
| March 31 | ||||
| 2023 | ||||
| Net Revenue | $ | |||
| Cost of Goods Sold | ||||
| Gross loss | ||||
| General and administrative | ||||
| Depreciation and amortization | ||||
| Total Expense | ||||
| Loss from operations before income taxes | ( | ) | ||
| Income Taxes | ||||
| Loss from discontinued operations, net of taxation | $ | ( | ) | |
12
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 5 | LOANS RECEIVABLE |
On
February 22, 2024, the Company (utilizing a portion of the proceeds from the issuance of convertible notes) loaned funds to Business
Warrior Corporation (“BZWR”) in the principal amount of $
The debt discount on the BZWR note is amortized as income utilizing the effective interest rate method.
| Description | Interest Rate | Maturity date | Principal | Unamortized discount | March 31, 2024 Amount, net | |||||||||||||
| Business Warrior Corporation | % | ( | ) | |||||||||||||||
Discount
amortized to income as deemed interest during the three months ended March 31, 2024 was $
| 6 | INTANGIBLES |
On
August 26, 2021, the Company formed Beyond Fintech to acquire a product known as Beyond Wallet from a third party for gross proceeds of
$
During
the year ended December 31, 2021, the Company paid gross proceeds of $
Amortization
expense was $
| 7 | EQUITY METHOD INVESTMENT |
On
April 28, 2023, the Company formed IPSIPay Express with OpenPath and EFinityPay. As described in note 1(b), the Company has agreed to
make the IPSI Capital Contributions to IPSIPay Express. As of March 31, 2024, the initial Tranche of $
March 31, | December 31, 2023 | |||||||
| Cash contribution to IPSIPay Express | $ | $ | ||||||
| Fair value of warrants issued to third party joint venture partners | ||||||||
| Prior period equity loss from joint venture | ( | ) | ( | ) | ||||
| Current period equity income (loss) from joint venture | ( | ) | ||||||
| $ | $ | |||||||
13
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 8 | LEASES |
On
March 22, 2021, the Company entered into a real property lease for an office located at 56B 5th Street, Lot 1, #AT, Carmel
By The Sea, California.
The Company applied the practical expedient whereby operating leases with a duration of twelve months or less are expensed as incurred.
Total Lease Cost
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Operating lease expense | $ | - | $ | |||||
| Three months ended March 31, 2024 | Three months ended March 31, 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ( | ) | ||||
| Remaining lease term – operating lease | ||||||||
| 9 | FEDERAL RELIEF LOANS |
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 $
14
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 10 | NOTES PAYABLE |
On
February 16, 2021, the Company entered into separate Securities Purchase Agreements (the “SPAs”), with each of Cavalry Fund
I LP (“Cavalry”) and Mercer Street Global Opportunity Fund, LLC (“Mercer”), pursuant to which the Company received
$
In
terms of the December 30, 2022 Note Amendment Transaction, described in more detail in Note 9 below, the Original Warrants issued on February
16, 2021 were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $
The
Exchange Notes have a maturity date of
On February 27, 2024, the maturity date of the notes was extended to April 30, 2024 with an automatic one month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | March 31, 2024 Amount, net | December 31, | ||||||||||||||||
| Cavalry Fund I LP | % | |||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | % | |||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | $ | ||||||||||||||||||
Interest
expense totaled $
15
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 11 | CONVERTIBLE NOTES PAYABLE |
December 2022 Note Amendment Transaction
The
Company twice extended its indebtedness to each Cavalry and Mercer. On February 3, 2022, the Company agreed to extend the maturity date
of the Cavalry/Mercer Notes to
On December 30, 2022, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to December 30, 2023. Each of Cavalry and Mercer entered into Note Amendment Letter Agreement with the Company (the “Note Amendment”) pursuant to which the parties agreed to the following:
| (1) | The conversion price of the Cavalry/Mercer Notes was reduced from $ |
| (2) | The Original Warrants issued on February 16, 2021 were irrevocably
exchanged for 12-month non-convertible promissory notes in the amount of $ |
| (3) | Each of Cavalry and Mercer agreed (i) not to convert all or any portion of the Cavalry/Mercer Notes until after March 30, 2023 and (ii) waive any events of default under the Cavalry/Mercer Notes and the Cavalry/Mercer SPAs; |
| (4) | Certain other warrants held by Cavalry and Mercer which contain a mandatory
exercise provision allowing us to force exercise of such warrants if the price of the Common Stock is $ |
| (5) | The Company was obligated to register the shares of Common Stock underlying the Cavalry/Mercer Notes and the shares underlying all warrants held by Cavalry and Mercer for resale with the Securities and Exchange Commission and the Company filed the registration statement to satisfy such registration obligation. |
The
parties also acknowledged that the principal and accrued interest under the Cavalry/Mercer Notes as of December 28, 2022 is equal to an
aggregate of $
The
amendments to the Cavalry/Mercer Notes were evaluated in terms of ASC 470, Debt, to determine if the amendments to the Cavalry/Mercer
Notes were considered a modification of the debt or an extinguishment of the debt. Based on the penalty interest incurred on the convertible
notes of $
Effective December 30, 2023, on February 27, 2024, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to April 30, 2024, with an automatic one month extension each month until such time as the note is declared to be in default, other than the maturity date all other terms remained the same. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.
16
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 11 | CONVERTIBLE NOTES PAYABLE (continued) |
December 2022 Note Amendment Transaction (continued)
| Description | Interest Rate |
Maturity date | Principal | Accrued Interest | Unamortized debt discount | March 31, 2024 Amount, net | December 31, 2023 Amount, net | |||||||||||||||||||
| Cavalry Fund I LP | % | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | % | |||||||||||||||||||||||||
| Red Road Holdings Corporation* | % | ( | ) | |||||||||||||||||||||||
| % | ( | ) | ||||||||||||||||||||||||
| % | ( | ) | ||||||||||||||||||||||||
| Quick Capital, LLC* | % | ( | ) | |||||||||||||||||||||||
| 2023 and 2024 convertible notes | |
% | ( | ) | ||||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||
| * |
Interest
expense totaled $
Amortization
of debt discount totaled $
The Cavalry, Mercer and Red Road Holdings 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.
17
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 11 | CONVERTIBLE NOTES PAYABLE (continued) |
Cavalry Fund LP
On
February 16, 2021, the Company closed a transaction with Cavalry pursuant to which the Company received net proceeds of $
As
described more fully above, the maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again
to December 30, 2023. In consideration for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding
and due to Cavalry by twenty percent (
Between
August 24, 2023 and November 20, 2023, Cavalry converted $
On February 27, 2024, the maturity date of the notes was extended to April 30, 2024, , with an automatic one month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.
The
balance of the Cavalry Note plus accrued interest at March 31, 2024 was $
Mercer Street Global Opportunity Fund, LLC
On
February 16, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $
As
described more fully above, the maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again
to December 30, 2023. In consideration for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding
and due to Mercer by twenty percent (
Between
May 19, 2023 and August 30, 2023, Mercer converted an aggregate of $
On February 27, 2024, Cavalry entered into a note amendment with the company extending the maturity date of the convertible note to April 30, 2024. with an automatic one month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC 470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.
The
balance of the Mercer Note plus accrued interest at March 31, 2024 was $
18
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 11 | CONVERTIBLE NOTES PAYABLE (continued) |
Red Road Holdings Corporation
| ● | On September 9, 2023, the Company closed a transaction with Red Road Holdings Corporation (“RRH”) pursuant to which the Company received net proceeds of $
The balance of the RRH Note 1 plus accrued interest at March 31, 2024 was $ | |
| ● | On October 19, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
The balance of the RRH Note 2 plus accrued interest at March 31, 2024 was $ | |
| ● | On December 20, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
The balance of the RRH Note 3 plus accrued interest at March 31, 2024 was $ |
Quick Capital, LLC
On
March 4, 2024, the Company closed a transaction with Quick Capital, LLC pursuant to which the Company received net proceeds of $
The
balance of the Quick Capital note plus accrued interest at March 31, 2024 was $
2023 and 2024 Convertible Notes
Between
February 13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors (the “2023
Notes”), and between February 6, 2024 and February 21, 2024 (the “2024 Notes”), the Company entered into Securities
Purchase Agreements with
| ● | Convertible Promissory Notes (the “2023 Notes and 2024 Notes”); and |
| ● | five-year warrants to purchase an aggregate |
19
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 11 | CONVERTIBLE NOTES PAYABLE (continued) |
2023 and 2024 Convertible Notes (continued)
The
2023 Notes and the 2024 Notes mature between 3.5 months and 12 months, bear interest at rates between
The
2023 Notes, the 2024 Notes and the 2023 Warrants contain conversion limitations providing that a holder thereof may not convert the 2023
Notes or exercise the 2023 Warrants to the extent that, if after giving effect to such conversion, the holder or any of its affiliates
would beneficially own in excess of
On
December 14, 2023, two notes totaling $
On
March 14, 2024, the Company extended the maturity date of 11 convertible notes maturing between February 13, 2024 and February 23, 2024
by an additional six months and as compensation for the extension, the note holders were issued warrants exercisable for
The
balance of the 2023 Notes and the 2024 Notes plus accrued interest at March 31, 2024 was $
| 12 | DERIVATIVE LIABILITY |
The convertible notes and warrants issued by the Company to Cavalry, Mercer and RRH as described herein 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.
Between
September 12, 2023 and December 20, 2023, the Company entered into a convertible note agreement with RRH which 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, which gave rise
to a derivative financial liability, which was initially valued at inception of the convertible notes at $
The
net movement on the derivative liability for the three months ended March 31, 2024 was a net mark-to-market credit of $
| Three months ended March 31, 2024 | Year ended December 31, 2023 | |||||||
| Conversion price | $ | $
| ||||||
| Risk free interest rate | % | |||||||
| Expected life of derivative liability | ||||||||
| Expected volatility of underlying stock | % | | % | |||||
| Expected dividend rate | % | % | ||||||
20
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 12 | DERIVATIVE LIABILITY (continued) |
| March 31, 2024 | December 31, 2023 | |||||||
| Opening balance | $ | $ | ||||||
| Derivative financial liability arising from convertible note and warrants | ||||||||
| Fair value adjustment to derivative liability | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 13 | STOCKHOLDERS’ EQUITY |
| a. | Common Stock |
The
Company has total authorized Common Stock of
On
May 19, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
On
August 16, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
On
August 24, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
On
August 30, 2023, the Company effectuated a 1 for 30 reverse stock split, resulting in the issuance of an additional
On
August 31, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
On
November 8, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
On
November 20, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued
| b. | Restricted stock awards |
| Total restricted shares* | Weighted average fair market value per share* | Total unvested restricted shares* | Weighted average fair market value per share* | Total vested restricted shares* | Weighted average fair market value per share* | |||||||||||||||||||
| Outstanding January 1, 2023 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding December 31, 2023 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ||||||||||||||||||||||||
| Outstanding March 31, 2024 | $ | $ | $ | |||||||||||||||||||||
| * |
21
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | STOCKHOLDERS’ EQUITY (continued) |
| b. | Restricted stock awards (continued) |
| Restricted Stock Granted and Vested | ||||||||||
| Grant date Price | Number Granted* | Weighted Average Fair Value per Share* | ||||||||
| $ | 1.47 | $ | ||||||||
| $ | 1.50 | |||||||||
| $ | 1.65 | |||||||||
| $ | ||||||||||
| * |
The
Company has recorded an expense of $
| c. | Preferred Stock |
The
Company has authorized
| d. | Warrants |
Between
February 13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors, as disclosed
in note 11 above. In terms of these Securities Purchase Agreements, the Company issued five-year warrants to purchase an aggregate
On
August 11, 2023, the company issued an investor a five-year replacement warrant for a warrant that had expired on February 13, 2023 exercisable
for
In
connection with the formation of IPSIPay Express, the Company issued to each of the other venture partners, OpenPath and EfinityPay, IPEX
Warrants to purchase an aggregate of
On
December 14, 2023, the maturity date of two notes totaling $
During
2023, warrants exercisable for
22
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
On
March 4, 2024, the Company entered into a Securities Purchase Agreement with an accredited investor, as disclosed in note 11 above. In
terms of the Securities Purchase Agreement, the Company issued a five-year warrant to purchase an aggregate of
On
March 14, 2024, the Company extended the maturity date of 11 convertible notes maturing between February 13, 2024 and February 23, 2024
by an additional six months and as compensation for the extension, the note holders were issued warrants exercisable for
The
2023 and 2024 Warrants contain conversion limitations providing that a holder thereof may not exercise the Warrants to the extent that,
if after giving effect to such exercise, the holder or any of its affiliates would beneficially own in excess of
| Three months ended March 31, 2024 | ||||
| Exercise price | $ | |||
| Risk free interest rate | % | |||
| Expected life | | |||
| Expected volatility of underlying stock | | % | ||
| Expected dividend rate | % | |||
| Shares Underlying Warrants* | Exercise price per share* | Weighted average exercise price* | ||||||||||
| Outstanding January 1, 2023 | $ | $ | ||||||||||
| Granted | | |||||||||||
| Forfeited | ( | ) | ||||||||||
| Cancelled on disposal of investment in Frictionless and Beyond Fintech | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited | ||||||||||||
| Cancelled on disposal of investment in Frictionless and Beyond Fintech | ||||||||||||
| Exercised | - | |||||||||||
| Outstanding March 31, 2024 | $ | $ | ||||||||||
| * |
23
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
| 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 | ||||||||||||||||||||
| $ | 0.345 | |||||||||||||||||||||||||
| $ | 0.450 | |||||||||||||||||||||||||
| $ | 1.035 | |||||||||||||||||||||||||
| $ | 1.500 | |||||||||||||||||||||||||
| $ | 4.50 | |||||||||||||||||||||||||
| $ | 5.625 | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| * |
The warrants outstanding have an intrinsic value of $0 as of March 31, 2024 and 2023.
| 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
The Plan is administered by the Board or a committee appointed by the Board, 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
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
The 2021 Plan is administered by the Board or a Compensation Committee appointed by the Board, 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.
During
2023, the Company cancelled options exercisable for
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INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | STOCKHOLDERS’ EQUITY (continued) |
| e. | Stock options (continued) |
| Shares Underlying options* |
Exercise price per share* |
Weighted average exercise price* |
||||||||||
| Outstanding January 1, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ( |
) | $ | |||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding March 31, 2024 | $ | $ | ||||||||||
| * |
| 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 | ||||||||||||||||||||
| $ | 1.20 | |||||||||||||||||||||||||
| $ | 4.50 | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
The
options outstanding have an intrinsic value of $
The
option expense was $
| 14 | LOSS ON CONVERTIBLE NOTES |
Three months ended March 31, | Three months ended March 31, | |||||||
| Expense on extension of maturity date of convertible notes | ||||||||
On
March 14, 2024, the Company extended the maturity date of 11 convertible notes which matured between February 13, 2024 and February 23,
2024 by six months and issued the note holders additional warrants exercisable for
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INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | NET LOSS PER SHARE |
Basic loss per share is based on the weighted-average number of Common Stock 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 Stock that have an anti-dilutive effect on net loss per share. For the three months ended March 31, 2024 and 2023 all warrants options and convertible debt securities were excluded from the computation of diluted net loss per share.
Three months ended (Shares) | Three months ended March 31, 2023 (Shares) | |||||||
| Convertible debt | ||||||||
| Stock options | ||||||||
| Warrants to purchase shares of Common Stock | ||||||||
| 16 | RELATED PARTY TRANSACTIONS |
The following transactions were entered into with related parties during the quarter ended March 31, 2024:
William Corbett
An
option expense for options still vesting for Mr. Corbett was $
Richard Rosenblum
An
option expense for options still vesting for Mr. Rosenblum was $
| 17 | COMMITMENTS AND CONTINGENCIES |
The
Company has notes payable and convertible notes payable, disclosed under notes 10 and 11 above, which have maturity dates between
| 18 | SUBSEQUENT EVENTS |
Convertible note funding
On
April 1, 2024, the Company received gross proceeds of $
On
April 12, 2024 and May 3, 2024, the Company entered into Securities Purchase Agreements with 3 accredited investors pursuant to which
the Company received an aggregate of $
On
May 4, 2024, the maturity date of two notes totaling $
Other than the above, the Company has evaluated subsequent events through the date the financial statements were issued and did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
All references to “we,” “us,” “our” and the “Company” refer to Innovative Payment Solutions, Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Overview
We are a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new account-to-account payment application called Instant Settlement in RealTime as well as traditional credit card processing services. We have in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.
Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business
Development of IPSIPay Express
Our principal business as of the date of this Report consists of our participation in the IPSIPay Express joint venture. Since May 2023, we have been working with our joint venture partners OpenPath and EfinityPay to establish the necessary elements to commercially launch IPEX. This remains our top business priority. As described in Item 1. Business, we have been responsible for certain key aspects of establishing and launching IPEX. We have continued these efforts during 2024. No assurances can be given that we will be able to launch IPEX with our joint venture partners or that IPSIPay Express will generate revenues for us.
Potential Business Combination with Business Warrior Corporation
On February 13, 2024, we signed an amended and restated non-binding letter of intent relating to a potential business combination with Business Warrior Corporation (“BZWR”), pursuant to which we would acquire BZWR. As of the date of this Report, neither we nor BZWR have any legal obligation of any kind with respect to the proposed transaction. We are presently conducting due diligence on BZWR and working with legal counsel on draft documentation for the transaction.
BZWR is a publicly listed, revenue generating fintech company that offers PayPlan, a comprehensive lending software platform that includes marketing services for lenders and businesses. We believe that a potential combination with a fintech company that generates some revenue monthly would complement the development and commercial launch of our IPSIPay Express products and potentially other product offerings. In addition, we and BZWR have certain convertible note investors in common. Therefore, one purpose of the proposed transaction would be to convert the indebtedness of both our company and BZWR held by such note holders into equity securities of our company.
No assurances can be given, however, the business combination will ever take place. While this is a transaction we are presently interested in pursuing, we may elect to forego the transaction as we deemed appropriate. Moreover, even if we enter into definitive agreements with respect to the transaction, the transaction will be subject to material conditions to closing which may not be satisfied.
Inflation
Macro-economic conditions could affect consumer spending adversely and consequently our future operations when we fully launch our e-wallet products commercially. The U.S. has entered a period of significant inflation, and this may impact consumer’s desire to adopt our products and services and may increase our costs overall. However, as of the date of this Report, we do not expect there to be any material impact on our liquidity as forecast in our business plan due to recent inflationary concerns in the U.S.
Foreign Exchange Risks
We intend to operate in several foreign countries. Changes and fluctuations in the foreign exchange rate between the U.S. Dollar and other foreign currencies may in future have an effect our results of operations.
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Critical Accounting Estimates
Preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note 2 - Summary of Significant Accounting Policies of the Notes to the condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q for further information.
The critical accounting policies that involved significant estimation included the following:
Derivative liabilities
We have certain short-term convertible notes and certain warrants which have fundamental transaction clauses which might result in cash settlement. The conversion feature of these convertible notes and warrants are recorded as derivative liabilities which are valued at each reporting date.
The derivative liability is valued using the following inputs:
| ● | Conversion prices; |
| ● | Current market prices of our equity |
| ● | Risk free interest rates; |
| ● | Expected remaining life of the derivative liability; |
| ● | Expected volatility of the underlying stock; and expected dividend rates |
Any change in the above factors such as a change in risk free interest rates, a significant increase or decrease in our current stock prices and a change in the volatility of our Common Stock may result in a significant increase or decrease in the derivative liability.
Results of Operations
Results of Operations for the Three Months Ended March 31, 2024 and 2023
Net revenue
We did not have any revenues during the three months ended March 31, 2024 and minimal revenues of $433 for the three months ended March 31, 2023. The revenue in the prior year was generated from the IPSIPay platform which was been novated to a third party in September 2023. We pivoted to focus our attention on the IPSIPay Express joint venture, where we expect to generate initial revenues during the 2024 fiscal year, dependent on product testing, which is currently underway, and market acceptance.
Cost of goods sold
We did not have any revenues or cost of goods sold for the three months ended March 31, 2024. Cost of goods sold was $2,085 for the three months ended March 31, 2023 and consisted primarily of bank and merchant related fees and chargebacks.
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General and administrative expenses
General and administrative expenses were $626,797 and $949,947 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $323,150 or 34.0%. The decrease primarily due to the following:
| (i) | Selling and marketing expenses were $75,707 and $169,958 for the three months ended March 31, 2024 and 2023, respectively, a decrease of 94,251 or 55.5%. The decrease is primarily due to the reduction in social media advertising costs which were incurred in the prior year to promote the IPSIPay platform, which was novated to a third party in September 2023. | |
| (ii) | Payroll expenses were $269,003 and $279,764 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $10,761 or 3.8%. The decrease is primarily attributable to the reduction in employee taxes which were calculated on the basis of payments made during the current period. | |
| (iii) | Consulting fees was $15,000 and $45,000 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $30,000 or 66.7%, The decrease is primarily due to a reduction in technical consulting expenses as we concentrate all our efforts on developing and marketing the IPSIPay Express business model. | |
| (iv) | Legal fees were $152,594 and $135,523 for the three months ended March 31, 2024 and 2023, respectively, an increase of $17,071 or 12.6%. The increase in legal fees is primarily due to an increase in corporate related matters, including the Business Warrior potential acquisition, discussed above. | |
| (v) | Professional fees were $9,558 and $225,136 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $215,578 or 95.8%. The decrease is primarily due to the cessation of the relationship with Frictionless during May of the prior year and through the prior year disposal of certain assets to Frictionless and the prior year novation of the remaining IPSIPay assets to a third party as we focus all our attention on the IPSIPay Express business opportunity. | |
| (vi) | Audit fees was $80,000 and $0 for the three months ended March 31, 2024 and 2023, respectively, an increase of $80,000 or 100.0%. The increase is primarily related to the timing of invoices received from our auditors. | |
| (vii) | Other general and administrative expenses were $24,935 and $94,566 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $69,631 or 73.6%. The balance of the general and administrative expenses is made up of several individually insignificant expenses. |
Depreciation and amortization
Depreciation and amortization was $542 and $140,690 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $146,148, primarily due to the prior year amortization of the software platform which was subsequently novated to a third party on September 5, 2023.
Deemed interest income
Deemed interest income was $3,282 and $0 for the three months ended March 31, 2024 and 2023, respectively, an increase of $3,282 or 100.0%. The deemed interest income arises due to the amortization of debt discount on notes receivable advanced to Business Warrior during the current period.
Loss on convertible notes
Loss on convertible notes was $66,047 and $0 for the three months ended March 31, 2024 and 2023, respectively an increase of $66,047 or 100.0 The loss on convertible notes related to extension warrants issued to certain noteholders to extend the maturity date of their notes by 6 months, the value of the warrants was determined to be a debt extinguishment and were therefore expensed.
Interest expense, net
Interest expense was $136,919 and $85,221for the three months ended March 31, 2024 and 2023, respectively, an increase of $51,698 or 60.7%. The increase is related to the increase in the principal amount of convertible debt from $2,718,508 as at March 31, 2023 to $4,487,245 as at March 31, 2024, an increase of $1,768,737 as we raise additional funding for working capital purposes while we develop and market the IPSIPay Express payment processing platform, which we expect to be operational during the current fiscal year.
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Amortization of debt discount
Amortization of debt discount was $319,899 and $22,967 for the three months ended March 31, 2024 and 2023, respectively, an increase of $296,932 or 1,292,90%. The increase is primarily due to the amortization of debt discount related to the valuation of warrants, derivative liabilities and OID’s and fees paid on the increase in convertible debt of $1,768,737 raised since March 31, 2023.
Derivative liability movements
Derivative liability movements were $815,941 and $940,750 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $124,809 or 13.3%. The derivative liability arose due to the issuance of convertible securities and warrants with a fundamental transaction clause allowing for a cash settlement of the convertible note at the option of the holder. The credit during the current period represents the decrease in the mark-to-market value of the derivative liability due to a decrease in our stock price and the cash settlement of certain convertible notes which had derivative liability features.
Net loss from equity method investment
Net loss from equity method investment was $484 and $0 for the three months ended March 31, 2024 and 2023 respectively, an increase of $484 or 100.0%. On April 28, 2023, we formed a new Delaware limited liability company called IPSIPay Express LLC as a three-way joint venture with two other entities to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors. On June 19, 2023, we entered into the IPEX Operating Agreement with Open Path, Inc. and EfinityPay, LLC to memorialize the terms of our IPSIPay Express joint venture. The loss represents our proportionate share of the operating expenses of the joint venture.
Net loss from continuing operations
Net loss from continuing operations was $331,465 and $259,727 for the three months ended March 31, 2024 and 2023, respectively, an increase of $71,738 or 27.6%. The increase is primarily due to the decrease in the derivative liability movement, an increase in interest expense, an increase in discount amortization and the loss on convertible notes, offset by the decrease in general and administrative expenses, which are all discussed in detail above.
Net loss from discontinued operations
Net loss from discontinued operations was $0 and $15,260 for the three months ended March 31, 2024 and 2023, respectively, a decrease of $15,260 or 100.0%. Our Beyond fintech subsidiary was disposed of in the previous year.
Net loss
Net loss was $331,465 and $274,987 for the three months ended March 31, 2024 and 2023, respectively, an increase of $56,478 or 20.5%. The decrease is primarily attributable to the increase in net loss from continuing operations, as discussed in detail above.
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 have an accumulated deficit of approximately $58.6 million through March 31, 2024 and incurred negative cash flow from operations of approximately $0.2 million for the three months ended March 31, 2024. Our primary focus is on IPSIPay Express LLC as a three-way joint venture with two other entities to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors. On June 19, 2023, we entered into the IPEX Operating Agreement to memorialize the terms of the joint venture.
At March 31, 2024, we had cash of $6,875 and a working capital deficit of $8.4 million including a derivative liability of $0.6 million. After eliminating the derivative liability our working capital deficit is $7.8 million. Subsequent to March 31, 2024, we raised $0.17 million through the issuance of convertible notes to accredited investors.
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We used cash of $0.2 million and $0.7 million in operations for the three months ended March 31, 2024 and 2023, respectively. Overall cash used in operations decreased by $0.5 million due to cost containment efforts to preserve cash balances.
We invested $0.2 million in notes receivable for strategic purposes during the three months ended March 31, 2024. In the prior year we had invested $0.06 million in our payment platforms which we subsequently disposed of or novated to other parties.
We generated net cash of $0.3 million during the current period from convertible notes issued to investors to bridge our working capital. In the prior period we generated $0.5 million from convertible notes to fund our operations during the development and launch of the IPSIPay platform.
At March 31, 2024, we had outstanding convertible notes, including interest thereon of $4.8 million (before unamortized debt discount of $0.4 million) and outstanding promissory notes, including interest thereon of $1.1 million. 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 bear interest at rates from 8% to an effective rate of 32% per annum. and are convertible into our Common Stock at conversion prices ranging from fixed conversion prices of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events), to variable conversion prices of 60% of lowest trading prices over a 20-trading day period. Should the investors choose not to convert these convertible notes, we may need to repay these notes together with interest thereon which will impact on our liquidity.
Pursuant to the IPSIPay Express joint venture agreement, we were required to invest another $0.5 million in IPSIPay Express by November 30, 2023. In late 2023, we agreed with our joint venture partners that such investment was not required. Therefore, our share of the outstanding equity interests of IPSIPay Express remains at 22.22%. There is no penalty for non-payment other than our share of the joint venture remaining at 22.22% and not increasing to 33.33%.
Given our losses and negative cash flows, we will be required to raise significant additional funds to progress our business as planned by issuing equity or equity-linked securities. Should this occur, our stockholders would experience dilution, perhaps significantly. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which diverts resources from other activities. Moreover, there is a risk that financing may be unavailable to support our operations on favorable terms, or at all.
There is also a significant risk that none of our plans to raise financing will be implemented in a manner necessary to sustain us for an extended period of time. If adequate funds are not available to us when needed, we may be required to continue with reduced or discontinued operations or to obtain funds through arrangements that may require us to relinquish rights to technologies or potential markets, any of which could have a material adverse effect on our company. In addition, our inability to secure additional funding when needed could cause our business to fail or become bankrupt or force us to wind down or discontinue operations.
We do not have any off-balance sheet financing arrangements as of the date of this Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our 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, our CEO and CFO concluded that our disclosure controls and procedures as of March 31, 2024 are not effective due to a lack of written policies and procedures to address all material transactions and developments impacting our financial statements.
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Changes in Internal Control over Financial Reporting
There has been no 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 March 31, 2024.
Our management is committed to improving our controls and procedures by, among other matters, continuing to consider and adopt appropriate policies and procedures to address all material transactions and developments impacting our financial statements. However, our management does not expect that our disclosure controls and procedures and our internal control processes, even if improved, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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Part II. Other Information
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Below is a description of our outstanding pending litigation matters. Litigation is subject to inherent uncertainties and an adverse result in the below described or other matters may arise from time to time that may harm our business. Other than as set forth below, 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.
Voloshin v. Innovative Payment Solutions, Inc.
On October 20, 2021, a complaint was filed against our company and certain of its officers and directors with the Occupational Safety and Health Administration of the United States Department of Labor (“OSHA”), 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 alleged that complainants, four former employees of our company and one employee who was on suspension, 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. The complaint sought 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.
In early 2022, OSHA dismissed the claims of Ms. Rey and Mr. Perez, and they appealed that decision. We moved to dismiss the remaining claims and as of this writing OSHA took no action with respect to that motion.
On May 25, 2022, the parties held a mediation in an attempt to resolve the matters. The mediation was unsuccessful.
On October 26, 2022, OSHA scheduled a hearing on Ms. Rey’s and Mr. Perez’s appeal for April 5, 2023. On November 8, 2022, the claimants’ counsel informed us that all five former employees intended to exercise their right to file a lawsuit in federal court and asked if we would stipulate to dismissal of Rey’s and Perez’s OSHA claims without prejudice. We agreed and a stipulation of dismissal without prejudice was filed on November 10, 2022.
On November 7, 2022, the same five employees filed a lawsuit, not in federal court, but in the California Superior Court for the County of Los Angeles, against our company and the same individuals against whom they had asserted their OSHA claim. The complaint asserted claims for, among other things, breach of contract, failure to pay wages and failure to reimburse expenses under the California Labor Code and asserting retaliation claims under the California Labor Code. On December 16, 2022, the same five employees filed an amended complaint dropping all defendants from the case except Mr. Corbett and our company. The amended complaint asserts claims for violations of California Labor Code Section 1102.5; wrongful termination in violation of public policy; breach of contract; breach of covenant of good faith and fair dealing; violation of California Labor Code Section 201; waiting time penalties (Cal. Lab. Code Sections 201 & 203) and violation of California Labor Code Section 2802
We and Mr. Corbett, the sole remaining individual defendant, moved to compel arbitration on February 17, 2023. As a result of that motion and a stipulated order entered by the court, all proceedings were stayed.
On June 8, 2023, while our motion to compel arbitration was pending in the Superior Court three of the employees (Naum Voloshin, Alexander Voloshin, and Novikov) filed a civil action in the U.S. District Court for the Central District of California. Naum Voloshin, et al., v. Innovative Payment Solutions, Inc., Case No. CV 23-4515-JFW (PVCx), which alleges a single cause of action for retaliation in violation of The Sarbanes-Oxley Act of 2002 (the “Federal Action”). The plaintiffs in the Federal Action made no attempt to serve their complaint or to give notice to any defendant in the Federal Action until August 2023.
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On August 30, 2023, the Hon. William A. Crowfoot granted our and Mr. Corbett’s motion to compel arbitration, concluding that all of the claims alleged in the former employees’ first amended complaint were subject to arbitration. After the former employees failed to initiate arbitration, Defendants filed a motion to compel the appointment of an arbitrator, which was scheduled for hearing on January 2, 2024. On October 27, 2023, Plaintiffs, Perez, and Rey filed a petition for writ of mandate with the California Court of Appeal, seeking review of Judge Crowfoot’s order granting our motion to compel arbitration. The California Court of Appeal denied the petition for writ of mandate on November 1, 2023. On December 15, 2023, all five former employees filed a demand for arbitration. We withdrew our motion to compel appointment of an arbitration.
Upon motion of our company and Mr. Corbett, on January 10, 2024, the U.S. District Court for the Central District of California stayed all proceedings in the Federal Action until the arbitration is completed.
Plaintiffs Naum Voloshin, Andrey Novikov, and Alexander Voloshin asserted, in the Federal Action, that they are entitled to damages in the following amounts: Naum Voloshin: $950,000 plus an unstated amount of lost wages and emotional distress damages. The claim is premised upon Mr. Voloshin earning $15,000 per month and a claim that he was entitled to receive 333,334 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021 that he would have sold on July 1, 2021 for $2.85 per share on July 1, 2021 for $950,000. Andrey Novikov: $285,000 plus emotional distress and punitive damages. The claim is premised upon Mr. Novikov earning $15,000 per month and a claim that he was entitled to receive 100,000 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021, that he would have sold at $2.85 per share on July 1, 2021 for $285,000. Alexander Voloshin: $263,000 plus emotional distress and punitive damages. The claim is premised upon an alleged two-year contract signed in May 2021 that paid him $7,000 per month and that promised him 333,334 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021. Mr. Voloshin claims he would have sold those shares on or about July 1, 2021 for $2.85 per share for $950,000.
We have not received any information on the amount of the claims of the other two plaintiffs.
An arbitrator has been appointed, and the 10-day arbitration has been set for April 7-11 2025 and April 14-18, 2025. Management is vigorously defending the claims and intends to continue to do so.
Minkovich v. Corbett, et al.
On May 26, 2022, Mr. Jan Minkovich (“Minkovich”) filed a lawsuit in California Superior Court in Los Angeles County (Minkovich v. Corbett, et al., CASE NO. 22CHCV00377) against our company and our Chairman and Chief Executive Officer William Corbett. The complaint asserts six causes of action for: (i) breach of contract; (ii) nonpayment of wages; (iii) waiting time penalties; (iv) failure to indemnify for alleged employee business expenses; (v) violation of Section 17200 of the California Business and Professional Code; and (vi) wrongful termination of employment in violation of public policy. Minkovich seeks $570,000 in damages, penalties, and attorneys’ fees plus shares equal to five percent (5%) ownership of our company.
We and Mr. Corbett filed a motion to compel arbitration. The motion was denied on October 4, 2022. We and Mr. Corbett then appealed that decision to the California Court of Appeal. As a result of the appeal, the court case was stayed until the appeal was decided. As a result of the stay, the demurrer (the equivalent of a motion to dismiss) we and Mr. Corbett filed was not decided.
On February 27, 2024, the California Court of Appeal, Second District, reversed the Superior Court’s decision denying our motion to compel arbitration. The Court of Appeal remanded the case to the Superior Court with directions to issue a new order compelling to arbitration the parties’ dispute regarding the enforceability of the arbitration clause.
We expect that the plaintiff will, most likely, initiate arbitration before the American Arbitration Association (“AAA”) based on this ruling. While, as the court order states, the plaintiff may renew his challenge to the arbitration clause before the arbitrator, we believe such challenges are rare and rarely succeed. Accordingly, we expect that the dispute will be resolved by AAA arbitration. Management is vigorously defending the claims and intends to continue to do so.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Between February 6, 2024 and March 4, 2024, we entered into Securities Purchase Agreements with 5 accredited investors, pursuant to which we received an aggregate of $402,335 in gross proceeds from the Investors through the initial closing of a private placement issuance of:
| ● | Convertible Notes Promissory (the “Notes” and each a “Note”); and |
| ● | five-year warrants (the “Warrants” and each a “Warrant”) to purchase an aggregate 357,764 shares of the Company’s Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). |
The Notes mature between 6 months and 12 months, and bear interest at rates from 8% to 11.12% per annum, and are convertible into shares of Common Stock at a conversion price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).
The Notes may be prepaid at any time without penalty. The Company is under no obligation to register the shares of Common Stock underlying the Notes or the Warrants for public resale, pursuant to Section 4(a)(2) of the Securities Act.
On April 1, 2024, the Company closed a transaction with Red Road Holdings Corporation (“RRH”) pursuant to which the Company received net proceeds of $70,000, after an original issue discount and fees of $13,500 in exchange for the issuance of a $85,500 Convertible Note, bearing interest at 13%, which interest is earned on issuance of the note and maturing on December 30, 2024. The RRH Note is convertible into shares of Common Stock at a variable conversion rate of 65% of the lowest trading price ten trading days before conversion.
Use of Proceeds from Public Offering of Common Stock
Not applicable.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INNOVATIVE PAYMENT SOLUTIONS, INC. | ||
| Date: May 14, 2024 | By: | /s/ William D. Corbett |
| William D. Corbett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 14, 2024 | By: | /s/ Richard Rosenblum |
| Richard Rosenblum | ||
| President & Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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