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
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Registrant’s telephone number, including area code) |
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| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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. ☐
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whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act: n/a.
As of November 13, 2023, there were
INNOVATIVE PAYMENT SOLUTIONS, INC.
Form 10-Q
For the Quarter Ended September 30, 2023
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, and Section 21E of the Securities Exchange Act of 1934, as amended) 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 report and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 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 2022 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
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Other current assets | ||||||||
| Assets held for sale | ||||||||
| Total Current Assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment | ||||||||
| Intangible assets | ||||||||
| Security deposit | ||||||||
| Equity method investment | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Liabilities held for sale | ||||||||
| Related party payables | ||||||||
| 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) attributable to Innovative Payment Solutions, Inc. Stockholders | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| 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 | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net Revenue | $ | ( | ) | $ | $ | $ | ||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on debt conversion | ( | ) | ( | ) | ||||||||||||
| Penalty on convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on novation | ( | ) | - | ( | ) | - | ||||||||||
| Fair value of warrants issued | ( | ) | - | ( | ) | - | ||||||||||
| 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 | ||||||||||||||||
| Operating loss from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on disposal of subsidiary and investment | ( | ) | ||||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||
| 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 condensed consolidated financial statements.
2
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(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, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Conversion of convertible debt | ||||||||||||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for equity method investments | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Conversion of convertible debt | ||||||||||||||||||||||||||||||||
| Additional shares issued on reverse stock split | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| 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, 2021 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
| Stock based option expense | - | - | ||||||||||||||||||||||||||||||
| Restricted stock awards | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Contribution by minority shareholders | - | - | ||||||||||||||||||||||||||||||
| Stock based option expense | - | - | ||||||||||||||||||||||||||||||
| Restricted stock awards | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ||||||||||||||||||||||||||||||
| Fair value of warrants issued | - | - | ||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||
| Restricted stock awards | ||||||||||||||||||||||||||||||||
| Stock based option expense | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| * |
See accompanying notes to condensed consolidated financial statements.
3
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine months ended | Nine months ended | |||||||
| September 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| 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 novation | ||||||||
| Loss on conversion of debt to equity | ||||||||
| Penalty on convertible debt | ||||||||
| Unrealized loss on equity method investments | ||||||||
| Shares issued for services | ||||||||
| Stock based compensation | ||||||||
| Fair value of warrants issued | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Other current assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Related party payables | ||||||||
| Interest accruals | ||||||||
| Cash used in operating activities – continuing operations | ( | ) | ( | ) | ||||
| Cash provided by (used in) operating activities – discontinued operations | ( | ) | ||||||
| CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in intangibles | ( | ) | ( | ) | ||||
| Investment in deposits | ( | ) | ||||||
| Deposit refunded | ||||||||
| Plant and equipment purchased | ( | ) | ||||||
| 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 (used in) financing activities – continuing operations | ( | ) | ||||||
| Net cash provided by financing activities – discontinued operations | ||||||||
| NET CASH PROVIDED BY (SUED IN) 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 | $ | $ | ||||||
| Conversion of convertible debt to equity | $ | $ | ||||||
| Fair value of warrants issued for equity method investments | $ | $ | ||||||
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 May 12, 2016, Innovative Payment Solutions, Inc., a Nevada corporation (“IPSI” or the “Company”) (originally formed on September 23, 2013 under the name “Asiya Pearls, Inc.”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the Merger Agreement, on May 12, 2016, the merger was consummated, and Qpagos Corporation and Merger Sub merged (the “Merger”), with Qpagos Corporation continuing as the surviving corporation of the Merger. On May 27, 2016, the Company’s name was changed from “Asiya Pearls, Inc.” to “QPAGOS”.
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
| 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 (as defined below), 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.
5
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
IPSIPay Express
On April 28, 2023, the Company formed a new company called IPSIPay Express LLC (“IPSIPay Express”). This entity was formed as a Delaware limited liability company joint venture with Open Path, Inc. (“Open Path”) and EfinityPay, LLC (“EfinityPay”, and the Company, collectively with Open Path 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 Open Path 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 $
Frictionless Financial Technologies
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
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 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 joint venture. See note 5 for further information.
6
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES |
| a) | Basis of Presentation |
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three and nine months ended September 30, 2023 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this Quarterly Report on Form 10-Q (“Report”) should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2022, included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023.
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 September 30, 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.
| 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, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating losses and the allowance for doubtful accounts.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the 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.
| d) | Contingencies |
Certain conditions may exist as of the date the financial statements are issued, which may result in the generation of continuing losses by 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.
7
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| 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 are and will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including the potential risk of business failure. These risks include, without limitation, risks associated with (i) launching and scaling the IPSIPay Express products and the use by customers of such products, (ii) developing and implementing successful marketing campaigns and other strategic initiatives; (iii) competition, (iv) compliance with applicable laws, rules and regulations (including those related to fund remittance); (v) the Company’s outstanding indebtedness, including the Company’s ability to repay or extend the maturity of such indebtedness (see notes 11 and 12); (vi) inflation and other economic factors and (vii) the Company’s ability to obtain necessary financing. These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, vendors and the Company to accurately forecast and plan future business activities.
The Company’s results may also 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. Many of these risks are beyond the Company’s control and are unpredictable. The Company may be unable to adequately manage such risks and similar risks, which could impair the viability of the Company.
| g) | Recent accounting pronouncements |
The Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended September 30, 2023. 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 condensed consolidated financial statements upon adoption.
8
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| h) | Reporting by Segment |
No
segmental information is required as the Company only has
| 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 September 30, 2023 and December 31, 2022, respectively, the Company had no cash equivalents.
The
Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution
in the United States. The balance at times may exceed federally insured limits. At September 30, 2023 and December 31, 2022, the balance
exceed the federally insured limit by $
| 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 September 30, 2023 and December 31, 2022.
| 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
| l) | Plant and Equipment |
| Description | Estimated Useful Life | |
| Kiosks (not used in the Company’s current business) | ||
| 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.
9
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| 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 Recognition.
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 $(
| 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 management’s 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.
10
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| p) | Derivative Liabilities |
ASC Topic 815, Derivatives and hedging (“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 September 30, 2023 and December 31, 2022, there have been no interest or penalties incurred on income taxes.
| 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.
| 3 | LIQUIDITY MATTERS AND GOING CONCERN |
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States (“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 the nine months ended September 30, 2023 and the year ended December 31, 2022, the Company had a net loss of $
The accompanying financial statements for the three and nine months ended September 30, 2023 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, as well as potentially launching and deriving cash from IPEX during 2023 and into 2024. 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 (including as required to meet its funding obligations to IPSIPay Express), the Company will be required to delay, reduce the scope of or terminate 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 cash flow positive and 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 currently is substantial doubt about their ability to continue as a going concern.
11
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 4 | DISPOSAL OF INVESTMENT IN FRICTIONLESS AND BEYOND FINTECH |
On
May 12, 2023, the Company entered into 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 (representing a
| Amount | ||||
| Assets | ||||
| Current Assets | ||||
| Cash | $ | |||
| Non-current assets | ||||
| Intangible assets | ||||
| Security deposit | ||||
| Investment | ||||
| Total assets | ||||
| Liabilities | ||||
| Current Liabilities | ||||
| Accounts payable | ||||
| Net assets sold | ||||
| Proceeds due on disposal | ( | ) | ||
| Net loss on disposal | $ | |||
| 5 | NOVATION OF CERTAIN ASSETS AND LIABILITES |
On September 5, 2023, the Company entered into a novation agreement with a third party whereby the third party assumed all of the Company’s debts, clients, and services and assumes all the rights and responsibilities of the Company under the SAAS Cloud Hosted Services Enablement Master Services Agreement, dated September 9, 2021 (the “SAAS Agreement”), including the information technology, supplier access, billing and rating technology, mobile wallet, debit card enablement, back-office support services, customer service, and consulting services related to the Company’s IPSIPay mobile application.
Pursuant to the novation agreement, Frictionless released the Company from all its obligations, debts, and liabilities under the SAAS Agreement as of September 5, 2023 and consented to the third party assuming these obligations. Each party agreed to indemnify the other party harmless for any damages, claims or expenses incurred by the other party.
The novation agreement also provided the third party a 30-day transition period in which the Company assisted the third party in transferring all the assets and obligations, including existing customers and wallets to the third party, thereafter the third party will no longer be permitted to operate the IPSIPay app under the brand name “IPSIPay”.
12
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 5 | NOVATION OF CERTAIN ASSETS AND LIABILITES (continued) |
| Amount | ||||
| Assets | ||||
| Current Assets | ||||
| Receivable on sale of subsidiary | $ | |||
| Non-current assets | ||||
| Intangible assets | ||||
| Total assets | ||||
| Current Liabilities | ||||
| Accounts payable | ||||
| Net loss on novation | $ | |||
| 6 | DISCONTINUED OPERATIONS |
Effective May 12, 2023, the Company disposed of its investment in Beyond Fintech pursuant to the May 2023 Frictionless Agreement, as disclosed in note 4 above.
| December 31, | ||||
| 2022 | ||||
| Current assets | ||||
| Cash | $ | |||
| Non-current assets | ||||
| Intangibles, net | ||||
| Investment | ||||
| Security deposit | ||||
| Assets held for sale | $ | |||
| Current liabilities | ||||
| Accounts payable | $ | |||
| Liabilities held for sale | $ | |||
13
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 6 | DISCONTINUED OPERATIONS (continued) |
| Three months ended | Three months ended | Six months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 7 | 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 $
| September 30, 2023 |
December 31, 2022 |
|||||||||||||||
| Cost | Accumulated amortization |
Net Book Value |
Net book value |
|||||||||||||
| Purchased Technology - IPSIPay | $ | $ | $ | $ | ||||||||||||
Amortization
expense was $
| 8 | EQUITY METHOD INVESTMENT |
On April 28, 2023, the Company formed
IPSIPay Express with OpenPath and EFinityPay (see note 1(b) above). As described in note 1(b), the Company has agreed to make the IPSI
Capital Contributions to IPSIPay Express. As of September 30, 2023, the initial Tranche of $
| September 30, 2023 | ||||
| Cash contribution to IPSIPay Express | $ | |||
| Fair value of warrants issued to third party joint venture partners | ||||
| Equity loss from joint venture | ( | ) | ||
| $ | ||||
14
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 9 | INVESTMENTS |
Investment in Frictionless Financial Technologies Inc.
On May 12, 2023, the Company assigned
to Frictionless all common stock of Frictionless owned by the Company (representing a
| 10 | 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
| Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||
| Operating lease expense | $ | $ | ||||||
| Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | ( | ) | $ | ( | ) | ||
| Remaining lease term – operating lease | ||||||||
| 11 | 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 repaid an aggregate
principal amount of $
15
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 12 | NOTES PAYABLE |
On February 16, 2021, the Company
entered into separate Securities Purchase Agreements (the “Cavalry/Mercer SPAs”), with each of Cavalry Fund I LP (“Cavalry”)
and Mercer Street Global Opportunity Fund, LLC (“Mercer”), pursuant to which the Company received $
In connection with the December 30,
2022 Note Amendment Transaction, described in more detail in Note 13 below, the Original Cavalry/Mercer Warrants were irrevocably exchanged
for 12-month non-convertible promissory notes in the amount of $
The Exchange Notes have a maturity
date of
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | September 30, 2023 Amount, net | December 31, net | ||||||||||||||||
| Cavalry Fund I LP | % | |||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | % | |||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | $ | ||||||||||||||||||
Interest expense totaled $
16
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | 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 $
17
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | CONVERTIBLE NOTES PAYABLE (continued) |
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, 2023 Amount, net | December 31, 2022 Amount, net | |||||||||||||||||||||
| Cavalry Fund I LP | % | |||||||||||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | % | |||||||||||||||||||||||||||
| Quick Capital, LLC | % | ( | ) | |||||||||||||||||||||||||
| Red Road Holdings Corporation | % | ( | ) | |||||||||||||||||||||||||
| 2023 convertible notes | % | to September 14, 2024 | ( | ) | ||||||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||
| * | These notes were repaid on August 3, 2023. See note 18. |
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.
Cavalry Fund LLP
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 (
On August 24, 2023, Cavalry converted
$
The balance of the Cavalry Note plus
accrued interest at September 30, 2023 was $
18
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | CONVERTIBLE NOTES PAYABLE (continued) |
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 (
On May 19, 2023, August 16, 2023 and
August 30, 2023, Mercer converted an aggregate of $
The balance of the Mercer Note plus
accrued interest at September 30, 2023 was $
Quick Capital, LLC
On June 20, 2023, 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 September 30, 2023 was $
1800 Diagonal Street Lending LLC
| ● | On May 10, 2023, the Company closed a transaction with 1800
Diagonal Street Lending LLC (“1800 Diagonal”) pursuant to which the Company received net proceeds of $ |
| ● | On June 13 2023, the Company closed a transaction with 1800 Diagonal, pursuant to which the Company received net proceeds of $
On August 3, 2023, the Company settled in full, the outstanding convertible
notes owing to 1800 Diagonal, for $ |
19
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 13 | 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 plus accrued
interest at September 30, 2023 was $
2023 Convertible Notes
Between February 13, 2023 and September
14, 2023, the Company entered into Securities Purchase Agreements with 24 accredited investors, pursuant to which the Company received
an aggregate of $
| ● | Convertible Promissory Notes (the “2023 Notes” and each a “2023 Note”); and |
| ● | five-year warrants (the “2023 Warrants”) to purchase
an aggregate |
The 2023 Notes mature between 3.5
months and 12 months, bear interest at rates between
The 2023 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
The balance of the 2023 Notes plus
accrued interest at September 30, 2023 was $
| 14 | 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.
On December 30, 2022, the Company entered into the December 2022 Note Amendment transaction (“the Note Amendment”) as fully described under note 12 above. Included in the derivative liability is: (i) the Original Warrants which were exchanged for non-convertible promissory notes, (ii) the Cavalry and Mercer convertible notes which were subject to the Note Amendment and (ii) the Cavalry and Mercer Extension Warrants as well as certain other warrants due to Cavalry and Mercer and certain other warrant holders. The Note Amendment triggered a repricing of certain of these warrants.
The derivative liability on the Cavalry
and Mercer convertible notes and the warrants affected by the note amendment were marked-to-market immediately prior to the Note Amendment
resulting in a market to market movement on the original warrants, the convertible notes and the extension warrants and certain other
warrants, which were subject to a full rachet provision, of $
On May 10, 2023 and June 13, 2023,
the Company entered into convertible note agreements with 1800 Diagonal 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 $
20
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 14 | DERIVATIVE LIABILITY (continued) |
On September 12, 2023, the Company
entered into a convertible note agreement with RRH which has 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 September 30, 2023 was a net mark-to-market credit of $
| Nine months ended September 30, 2023 |
Year ended December 31, 2022 |
|||||||
| Conversion price | $ | $ | ||||||
| Risk free interest rate | % | % | ||||||
| Expected life of derivative liability | ||||||||
| Expected volatility of underlying stock | % | % | ||||||
| Expected dividend rate | % | % | ||||||
| September 30, 2023 | December 31, 2022 | |||||||
| Opening balance | $ | $ | ||||||
| Derivative financial liability arising from convertible note and warrants | ||||||||
| Derivative financial liability arising on note amendment included in loss on convertible notes | ||||||||
| Fair value adjustment to derivative liability | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| 15 | 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
On August 31, 2023, in terms of a conversion
notice received from a convertible note holder, the Company issued
21
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | STOCKHOLDERS’ EQUITY (continued) |
| 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, 2022 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding December 31, 2022 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding September 30, 2023 | $ | $ | $ | |||||||||||||||||||||
| * |
| 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
22
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants |
Effective July 8, 2022 (the “Effective Date”), the Company entered into an Endorsement Agreement with Pez-Mar, Inc., a California corporation (“Pez-Mar”), to furnish the services of Mario Lopez (“Lopez”). Pursuant to the Endorsement Agreement, Lopez will act as a Company spokesperson in connection with the promotion, advertisement and endorsement of the Company’s physical and virtual payment processing and money remittance business and the Company’s related products and services.
The Endorsement Agreement has a term of two (2) years from the Effective Date (the “Term”), which is subject to earlier termination on customary terms and conditions. The parties have agreed to certain deliverables of Lopez during the term of the agreement, including with respect to social media posts, television commercials, interviews and photo shoots. The Endorsement Agreement also contains other customary terms, covenants and conditions, including representations and warranties, restrictions on endorsements of competitive products during the term of the agreement, confidentiality, indemnification, and Pez-Mar and Lopez’s independent contractor status.
As compensation for the services provided
under the Endorsement Agreement, Lopez or their designees are entitled to the following payments:
On August 30, 2022, the Company extended
the maturity date of the Cavalry/Mercer Notes and agreed to grant each note holder a warrant exercisable for
On December 30, 2022, the Company issued
to Frictionless a 5 year warrant to purchase
On December 30, 2022,
| ● | The warrants issued to Cavalry and Mercer exercisable for 165,798 shares of Common Stock (82,899 for each of Cavalry and Mercer), were exchanged for two promissory notes of $482,000 each, as disclosed in note 11 above; |
| ● | The warrants issued to Cavalry and Mercer on August 30, 2022, were subject to repricing and a full rachet increase in the number of warrants issued, resulting in an increase in the number of warrants by 2,408,696 (1,204,348 to each Cavalry and Mercer) and a reset of the exercise price to $0.345 per share. The additional warrants were valued at $841,003 using a Black-Scholes valuation model and was expensed in the statement of operations as a component of the loss on convertible debt. |
| ● | An additional 457,895 warrants previously issued to Mercer, Iroquois Master Fund and Bellridge Capital LP were subject to repricing of the exercise price from a range of $1.50 to $4.50 per share to $0.345 per share. The change in the fair value of these warrants of $20,079, using a Black-Scholes valuation model was recorded as a component of the loss on convertible debt. |
23
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
Between February
13, 2023 and September 14, 2023, the Company entered into Securities Purchase Agreements with 124 accredited investors, as disclosed
in note 13 above. In terms of these Securities Purchase Agreements, the Company issued five-year warrants to purchase an aggregate
The 2023 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
In
connection with the formation of IPSIPay Express, the Company issued to each of the other venture partners, Open Path and
EfinityPay, IPEX Warrants to purchase an aggregate of
| Nine months ended September 30, 2023 | ||||
| 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, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Increase in warrants due to debt amendment full rachet trigger | ||||||||||||
| Cancelled on debt amendment | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2022 | $ | | $ | |||||||||
| Granted | ||||||||||||
| Forfeited | ( | ) | ||||||||||
| Cancelled on disposal of investment in Frictionless and Beyond Fintech | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding September 30, 2023 | $ | $ | ||||||||||
| * |
24
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | 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 | ||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| * |
The warrants outstanding have an intrinsic
value of $
| e. | Stock options |
On June 18, 2018, the Company established
its 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to promote the interests of the Company and the stockholders
of the Company by providing directors, officers, employees and consultants of the Company with appropriate incentives and rewards to
encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary interest in the long-term
success of the Company and to reward the performance of individuals in fulfilling long-term corporate objectives. The Plan terminates
after a period of
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.
On July 11, 2022, the Board approved,
granted and issued
On September 13, 2022, the Company
granted ten-year options exercisable for
25
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 15 | STOCKHOLDERS’ EQUITY (continued) |
| e. | Stock options (continued) |
| Shares Underlying options* | Exercise price per share* | Weighted average exercise price* | ||||||||||
| Outstanding January 1, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2022 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ||||||||||||
| Exercised | ||||||||||||
| Outstanding September 30, 2023 | $ | |||||||||||
| * |
| Options Outstanding* | Options Exercisable* | |||||||||||||||||||||||||
| Exercise Price* | Number Outstanding* | Weighted Average Remaining Contractual life in years | Weighted Average Exercise Price* | Number Exercisable* | Weighted Average Exercise Price* | Weighted Average Remaining Contractual life in years | ||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
The options outstanding have an intrinsic
value of $
The option expense was $
| 16 | NET LOSS PER SHARE |
Basic loss per share is based on the weighted-average number of shares 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 and nine months ended September 30, 2023 and 2022 all warrants, options and convertible debt securities were excluded from the computation of diluted net loss per share.
| Three and nine months ended September 30, 2023 (Shares) | Three and nine months ended September 30, 2022 (Shares) | |||||||
| Convertible debt | ||||||||
| Stock options | ||||||||
| Warrants to purchase shares of Common Stock | ||||||||
26
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 17 | RELATED PARTY TRANSACTIONS |
The following transactions were entered into with related parties:
James Fuller
On September 13, 2022, the Company
granted Mr. Fuller ten-year options exercisable for
The option expense for Mr. Fuller
was $
Mr. Fuller voluntarily resigned as a member of the Board of Directors effective as of our 2022 annual meeting of shareholders which occurred on November 3, 2022.
William Corbett
On July 11, 2022, the Company granted
Mr. Corbett ten-year options exercisable for
On June 21, 2023, Mr. Corbett advanced
the company $
The option expense for Mr. Corbett
was $
Clifford Henry
Mr. Henry has an oral consulting arrangement
with the Company whereby he is paid $
On September 13, 2022, the Company
granted Mr. Henry, immediately vesting, ten-year options exercisable for
The option expense for Mr. Henry was
$
Madisson Butler
On September 13, 2022, the Company
granted Ms. Butler (formerly known as Madisson Corbett), immediately vesting, ten-year options exercisable for
The option expense for Ms. Butler was
$
27
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 17 | RELATED PARTY TRANSACTIONS (continued) |
David Rios
On September 13, 2022, the Company
granted Mr. Rios, immediately vesting, ten-year options exercisable for
The option expense for Mr. Rios was
$
Richard Rosenblum
On July 11, 2022, the Company granted
Mr. Rosenblum
The option expense for Mr. Rosenblum
was $
| 18 | COMMITMENTS AND CONTINGENCIES |
The Company has notes payable and convertible notes payable, disclosed under notes 12 and 13 above, which mature between December 30, 2023 and September 14, 2024. The Company may settle the notes payable, at its option by the issue of common shares and should the convertible notes not be converted to Common Stock prior to their maturity dates, the Company may need to repay the principal and interest outstanding on these notes.
| 19 | SUBSEQUENT EVENTS |
On October 19, 2023, the Company closed
a transaction with Red Road Holdings Corporation (“RRH”) pursuant to which the Company received net proceeds of $
On October 20, 2023, the Company
entered into Securities Purchase Agreements with an accredited investor, pursuant to which the Company received an aggregate of
$
On November 1, 2023, the Company received an extension of the payment date of the third Tranche due under the IPSIPay Express Operating Agreement from October 31, 2023 to November 30, 2023.
On November 8, 2023, the Company received
a notice of conversion from Cavalry, converting $
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.
28
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 provider of digital payment solutions and services to businesses and consumers.
Our historical core business was focused on operating and developing “e-wallets” that enabled consumers to deposit cash, convert it into a digital form, and remit the funds to Mexico and other countries quickly and securely. Our flagship e-wallet, IPSIPay®, was focused on the consumer market and was fully launched in July 2022 after a soft launch in December 2021.
The IPSIPay platform (which can be used both business-to-business and business-to-consumer) facilitated the transfer of funds in digital form to other countries, initially Mexico but also, India and the Philippines, primarily from hand-held devices as well as on desktop or laptop computers.
Our launch plan for IPSIPay was to target lower income, migrant communities in California (notably in the agriculture industry) and expanding to other states with large migrant populations such as Texas and Florida. We not only believed that the addressable market for IPSIPay was large and growing, but that servicing this market is socially responsible. Based on our public announcement in May 2023, described below, we exited the e-wallet line of business by novating all of our rights and obligations thereunder to a third party. We may in future develop another e-wallet product.
In May 2023, we publicly announced a new line of business called IPSIPay ExpressTM. This business is being operated via a three-way joint venture in the form of a Delaware limited liability company named IPSIPay Express, LLC (“IPSIPay Express”) between our company and payment industry veterans OpenPath, Inc. (“OpenPath”) and eFinityPay, LLC (“eFinityPay”). The purposes of IPSIPay Express is to develop and market a proprietary consumer to merchant real-time payment platform called Instant-Settlement in RealTime™ as well as to provide traditional credit card processing services initially focused on the fast-growing online gaming and entertainment sectors.
On June 19, 2023, we entered into a Limited Liability Company Operating Agreement (the “IPEX Operating Agreement”) with OpenPath and EfinityPay, to provide for the terms of the IPSIPay Express joint venture. Pursuant to the IPEX Operating Agreement, The Company has agreed to contribute cash to or on behalf IPSIPay Express to be used for the IPEX business in the aggregate amount of up to $1,500,000 (the “IPSI Capital Contribution”). The Company has made two tranches of capital contributions of $500,000 each, with a third tranche still to be made. With the full funding of each tranche, The Company currently owns 22.22% of the joint venture which percentage will increase to 33.33% on contribution of the third tranche of $500,000. Should the Company contribute the full IPSI Capital Contribution, the Members will each own one-third of the membership interests in IPSIPay Express. The IPSI Capital Contribution has been or shall be made by the following dates and in the following amounts: (i) $200,000 of the initial tranche was paid by the Company on June 21, 2023; (ii) the $300,000 balance of the initial tranche was paid on August 4, 2023; (iii) the second $500,000 tranche was paid during September 2023 and (iv) the third $500,000 tranche was to be paid by October 31, 2023 but is now expected to be paid on or before November 30, 2023.
Also, May 12, 2023, we entered into an agreement with one of our technology partners, Frictionless Financial Technologies, Inc. (“Frictionless”), to, among other things, divest ourselves of our interest in Frictionless and in Beyond Fintech, Inc., a joint venture entity we owned with Frictionless which has been developing an application called Beyond Wallet. See Note 1(b) to the accompanying financial statements for further information.
Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business
Launch and Scaling of E-Wallets; IPSIPay Express
IPSIPay
Having achieved full commercial integration and launch of the IPSIPay app during the third quarter of 2022, the key for our business was to scale the number of IPSIPay downloads achieved and revenue generated from transactions process by customers via IPSIPay.
29
We generated nominal IPSIPay-related revenue during the first half of 2023, with the initial goal of increasing revenues over time. In the current environment, it was taking longer than expected to win a customer’s trust and resulting fees generated by the usage of IPSIPay. Based on the slow growth rate in revenues, we elected to novate the Company’s rights and obligations to the IPSIPay platform and related e-wallet business to a third party who intends to invest and grow the business based on the existing platform and e-wallet. However, we retain the rights to develop e-wallets under the name “IPSIPay” in the future.
IPSIPay Express
While we believe the IPSIPay Express opportunity has great promise, as of the date of this report, IPEX has not been launched and we have derived no revenue or cash distributions from IPSIPay Express. No assurances can be given that IPSIPay Express will be successfully launched or will generate revenues or otherwise have a positive impact on our results of operations. We believe IPSIPay Express could be commercially launched and generate initial revenues in the fourth quarter of 2023, but no assurances can be provided that this will be achieved or that (i) we will be able to raise funds satisfactory to fulfill all of our capital contributions to IPSIPay Express or (ii) that we will ever receive distributions of free cash flow from IPSIPay Express. Moreover, the IPSIPay Express product offering will be targeting so-called “high risk” sectors such as online gaming and entertainment, which also carries certain risks.
Inflation
Macro-economic conditions could affect consumer spending adversely and consequently our future operations. The U.S experienced a period of significant inflation over the past several years, and while inflation has abated somewhat in the U.S., continuing high consumer prices and high interest rates arising from the Federal Reserve’s efforts to contain inflation could impact consumer’s desire to purchase goods and services utilizing our payment 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 European countries. Changes and fluctuations in the foreign exchange rate between the US Dollar and the Euro, may in future have an effect our results of operations.
Critical Accounting Estimates
Preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“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.
30
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.
Impairment of Investments and Intangible assets
The value of our intangibles were novated to a third party during the current quarter, prior to the novation, our intangible assets had not produced material revenues on which to assess whether the income generated from these assets could support the carrying value of these assets. For impairment testing of intangibles we determine the fair value of the underlying assets using an income-based approach which estimates the fair value using a discounted cash flow model. Key assumptions in estimating fair values include projected revenue growth and the weighted average cost of capital. Based on the novation of our remaining intangible asset to a third party, we no longer have indefinite lived intangible assets to consider for impairment.
Results of Operations
Results of Operations for the Three Months Ended September 30, 2023 and 2022
Net revenue
We recorded a minimal of revenues of $(28) during the three months ended September 30, 2023 and we did not have revenues during the three months ended September 30, 2022. We pivoted to focus our attention on the IPSIPay Express joint venture, we expect to generate initial revenues through the joint venture during the fourth quarter of 2023. We are focusing all of our efforts on developing and launching IPSIPay Express, which we believe has a higher possibility for revenue generation in both the near and long term.
Cost of goods sold
Cost of goods sold was $387 for the three months ended September 30, 2023 and consists primarily of bank and merchant related fees and chargebacks. We had no cost of goods sold, as we did not have revenues during the three months ended September 30, 2022.
31
General and administrative expenses
General and administrative expenses were $745,688 and $2,705,833 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1,960,145 or 72.4%. The decrease primarily due to the following:
| (i) | Selling and marketing costs were $87,361 and $412,567 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $325,206 or 78.8%. The decrease is primarily related to the fair value of immediately vesting warrants issued to Mario Lopez in the prior year valued at $289,654; the cessation of the social media campaign promoting the IPSIPay wallet, which in the prior year amounted to $21,934 and a reduction in marketing expenses of $19,899 which included the launch costs of the IPSIPay platform in September of the prior year. The Company has divested itself of the IPSIPay platform on September 5, 2023 and is concentrating its efforts on developing the IPSIPay Express business. | |
| (ii) | Payroll expenses was $278,345 and $1,290,681 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $1,012,336 or 78.4%. The decrease is primarily attributable to the reduction in stock based compensation of $855,826 related to immediately vesting options issued to our CEO in the prior year and a reduction in restricted stock expense of $172,785 related to restricted stock issued to our CFO in the prior year and the amortization of vesting stock awards issued to our CEO in 2021. | |
| (iii) | Consulting fees was $15,000 and $193,000 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $178,000 or 92.2%, The decrease is primarily due to immediately vesting restricted stock issued to two marketing consultants in the prior year amounting to $168,000 and additional consulting expenses amounting to $10,000 relating to the marketing consultants and certain once off IT consulting. | |
| (iv) | Professional fees were $131,867 and $454,613 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $322,746 or 71.0%. The decrease is primarily due to the scaling back and subsequent cessation of the relationship with Frictionless during the current period, through the disposal of certain assets to Frictionless and the subsequent novation of the remaining IPSIPay assets to a third party as we focus all of our attention on the IPSIPay Express business opportunity. | |
| (v) | The balance of the general and administrative expenses decreased by approximately $121,857 which is made up of several individually insignificant expenses. |
Depreciation and amortization
Depreciation was $100,387 and $20,500 for the three months ended September 30, 2023 and 2022, respectively, an increase of $79,887, primarily due to the depreciation of the software platform which was subsequently novated to a third party on September 5, 2023.
Loss on debt conversion
Loss on debt conversion was $58,769 and $0 for the three months ended September 30, 2023 and 2022, respectively, an increase of $58,769 or 100%. The loss on debt conversion related to the conversion of $135,000 of convertible debt into 391,306 shares of common stock.
Penalty on convertible notes
Penalty on convertible notes was $9,306 and $602,100 for the three months ended September 30, 2023 and 2022, a decrease of $592,794 or 98.5%. The decrease is attributable to the prior year modification of the maturity date of two convertible notes, resulting in the negotiation of a 20% repayment penalty on the convertible notes and the value of the warrants to purchase 6,000,0000 shares of our Common Stock that were issued to the note holders as additional compensation for extending the maturity date of the convertible notes.
Loss on novation
Loss on novation was $1,066,165 and $0 for the three months ended September 30, 2023 and 2022, respectively, an increase of $1,066,165 or 100%. The loss on novation arose due the novation of the IPSIPay platform and all rights and obligations associated with the service agreement with Frictionless to a third party.
32
Fair value of warrants issued
Fair value of warrants issued was $14,176 and $0 for the three months ended September 30, 2023 and 2022, respectively, an increase of $14,176 or 100.0%. We issued a replacement warrant exercisable for 33,334 shares to an investor during the current period.
Interest expense, net
Interest expense was $110,328 and $51,340 for the three months ended September 30, 2023 and 2022, respectively, an increase of $58,988 or 114.9%. The increase is related to the additional $1,026,666 of convertible note funding raised during the current period to fund our investment in the IPSIPay Express joint venture which is expected to become operational in the fourth quarter of 2023.
Amortization of debt discount
Amortization of debt discount was $303,042 and $0 for the three months ended September 30, 2023 and 2022, respectively, an increase of $303,042 or 100.0%. 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 $2,001,666 of convertible debt raised during the current year.
Derivative liability movements
Derivative liability movements were $1,795,642 and $84,895 for the three months ended September 30, 2023 and 2022, respectively, an increase of $1,710,747 or 2,015.1%. 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 $402,509 and $0 for the three months ended September 30, 2023 and 2022, respectively, an increase of $402,509 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 and the additional loss associated with the increase in the basis of our investment from 11.11% to 22.22%, based on the net asset value of the joint venture.
Net loss from continuing operations
Net loss from continuing operations was $1,015,143 and $3,294,878 for the three months ended September 30, 2023 and 2022, respectively, a decrease in loss of $2,279,735 or 69.2%. The decrease is primarily due to the decrease in general and administrative expenses, the decrease in penalty on convertible notes and the derivative liability movements, offset by, the loss on novation , the increase in depreciation expenses and the amortization of debt discount, which are discussed in detail above.
Operating loss from discontinued operations
Operating loss from discontinued operations was $0 and $15,618 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $15,618 or 100.0%. Our Beyond fintech subsidiary was disposed of in the previous quarter.
Net loss
Net loss was $1,015,143 and $3,310,496 for the three months ended September 30, 2023 and 2022, respectively, a decrease of $2,295,353 or 69.3%. The decrease is primarily attributable to the decrease in net loss from continuing operations, as discussed in detail above.
33
Results of Operations for the Nine Months Ended September 30, 2023 and September 30, 2022
Net revenue
We recorded minimal revenues of $410 during the nine months ended September 30, 2023 and we did not have revenues during the nine months ended September 30, 2022. We pivoted to focus our attention on the IPSIPay Express joint venture, we expect to generate initial revenues through the joint venture during the fourth quarter of 2023. We are focusing all of our efforts on developing and launching IPSIPay Express, which we believe has a higher possibility for revenue generation in the near and longer term.
Cost of goods sold
Cost of goods sold was $2,756 for the nine months ended September 30, 2023 and consists primarily of bank and merchant related fees and chargebacks. We had no cost of goods sold, as we did not have revenues during the nine months ended September 30, 2022.
General and administrative expenses
General and administrative expenses were $2,753,266 and $4,326,413 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $1,573,147 or 36.4%. The decrease is primarily due to the following:
| (i) | Selling and marketing expenses were $348,003 and $498,494 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $150,491 or 30.2%. The decrease is primarily due to the fair value of the prior period immediately vesting warrants granted to Mario Lopez, offset by the monthly amortization of vesting warrants during the current period, and a reduction in both social media marketing and marketing expenses related to the launch of the IPSIPay platform and e-wallet in the prior year. | |
| (ii) | Payroll expenses were $836,887 and $1,998,232 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $1,161,345 or 58.1%. The decrease is primarily attributable to the reduction in stock based compensation of $855,826 related to immediately vesting options issued to our CEO in the prior year and a reduction in restricted stock expense of $298,298 related to restricted stock issued to our CFO in the prior year and the amortization of vesting stock awards issued to our CEO in 2021. | |
| (iii) | Legal fees were $611,178 and $335,846 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $275,332 or 82.0%. The increase is primarily due to the legal matters relating to unfair dismissal matters which were claimed in the prior year by several individuals. | |
| (iv) | Professional fees were $583,873 and $734,300 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $150,427 or 20.5%. The decrease is due to the reduction in professional fees paid for social media management in the prior year. | |
| (v) | Consulting fees was $85,000 and $247,900 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $162,900 or 65.7%. The decrease is primarily due to immediately vesting restricted stock issued to two marketing consultants in the prior year amounting to $168,000. | |
| (v) | The balance of the general and administrative expenses decreased by approximately $223,316 which is made up of several individually insignificant expenses. |
Depreciation
Depreciation was $380,092 and $29,493 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $350,599, primarily due to the depreciation of the software platform of $347,298 prior to its novation to a third party during the current period.
Loss on debt conversion
Loss on debt conversion was $77,247 and $0 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $77,247 or 100%. The loss on debt conversion related to the conversion of $160,000 of convertible debt into 463,770 shares of common stock.
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Penalty on convertible notes
Penalty on convertible notes was $9,306 and $1,321,658 for the nine months ended September 30, 2023 and 2022, a decrease of $1,312,352 or 99.3%. The decrease is due to the repayment of one convertible note and the modification of the maturity date of two convertible notes during the prior year, resulting in the triggering of the repayment penalty per the convertible note agreements as well as additional penalties for the extension of the maturity date of convertible notes in the prior year.
Loss on novation
Loss on novation was $1,066,165 and $0 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $1,066,165 or 100%. The loss on novation arose due the novation of the IPSIPay platform and all rights and obligations associated with the service agreement with Frictionless to a third party.
Fair value of warrants issued
Fair value of warrants issued was $14,176 and $0 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $14,176 or 100.0%. We issued a replacement warrant exercisable for 33,334 shares to an investor during the current period.
Interest expense, net
Interest expense was $290,628 and $142,302 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $148,326 or 104.2%. The increase is related to the additional $2,001,666 of convertible note funding raised during the current year to fund the company’s investment in the IPSIPay Express joint venture which is expected to become operational in the second half of the year.
Amortization of debt discount
Amortization of debt discount was $414,696 and $263,200 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $151,496 or 57.6%. 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 $2,001,666 of convertible debt raised during the current year.
Derivative liability movements
Derivative liability movements were $1,483,710 and $(65,046) for the nine months ended September 30, 2023 and 2022, respectively, a movement of $1,548,756 or 2,381.0%. 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 charge during the current period represents the decrease in the mark-to-market value of the derivative liability due to a decrease in the share price and the increase in interest rates over the prior year.
Net loss from equity method investment
Net loss from equity method investment was $403,890 and $0 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $403,890 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 and the additional loss associated with the increase in the basis of our investment from 11.11% to 22.22%, based on the net asset value of the joint venture.
Net loss from continuing operations
Net loss from continuing operations was $3,928,102 and $6,148,112 for the nine months ended September 30, 2023 and 2022, respectively, a decrease in loss of $2,220,010 or 36.1%. The decrease is primarily due to the decrease in general and administrative expenses, the decrease in the penalty on convertible notes and the movement in derivative liabilities, offset by, the loss on novation, the increase in interest expense and the increase in the amortization of debt discount, all discussed in detail above.
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Operating loss from discontinued operations
Operating loss from discontinued operations was $40,821 and $59,962 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $19,141 or 31.9%. Beyond Fintech was disposed of in May 2023.
Loss on disposal of subsidiary
Loss on disposal of subsidiary was $495,424 and $0 for the nine months ended September 30, 2023 and 2022, respectively, an increase of $495,424 or 100.0%. On May 12, 2023, the Company entered into an Agreement with Frictionless to unwind the equity ownership stakes that the Company and Frictionless have in each other and in Beyond Fintech. The Company assigned to Frictionless all common stock of Frictionless owned by the Company and all shares of common stock of Beyond Fintech owned by the Company. The consideration to the Company for the assignment of the Beyond Fintech Shares to Frictionless was $250,000, resulting in a net loss on disposal of $495,424.
Net loss
Net loss was $4,464,347 and $6,208,074 for the nine months ended September 30, 2023 and 2022, respectively, a decrease of $1,743,727 or 28.1%. the decrease is primarily attributable to the decrease in net loss from continuing operations and the loss on disposal of subsidiary and investment, 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 $56,862,608 through September 30, 2023 and incurred negative cash flow from operations of $1,089,011 for the nine months ended September 30, 2023. Our primary focus was on launching and operating e-wallets that enable consumers to deposit cash, convert it into a digital form and remit the funds to Mexico and other countries quickly and securely, which will require us to spend, substantial amounts in connection with implementing our business strategy. During the second quarter 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 to memorialize the terms of the joint venture.
At September 30, 2023, we had cash of $19,395 and working capital deficit of $7,416,133 including a derivative liability of $1,341,932. After eliminating the derivative liability our working capital deficit is $6,074,201. Subsequent to September 30, 2023, between October 19, 2023 and October 20, we raised $110,000 through the issuance of convertible notes to accredited investors.
We used cash of $1,089,011 and $2,320,426 in operations for the nine months ended September 30, 2023 and 2022, respectively. Overall cash used in operations decreased by $1,231,415 due to cost containment efforts to preserve cash balances.
We invested a further $80,635 in our e-wallet platforms to enhance the product offering and to further develop the Beyond Wallet application (which was discontinued in May 2023). We also invested $1,000,000 in our IPSIPay Express joint venture to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors.
We generated cash of $1,809,476 during the current period primarily $2,001,666 from convertible notes issued to investors to bridge our working capital and repaid $189,326 of convertible notes. Cash utilized in financing activities for the nine months ended September 30, 2022 included the repayment of a convertible note of $1,147,063.
At September 30, 2023, we had outstanding convertible notes, including interest thereon of $4,200,851 (before unamortized debt discount of $744,915) and outstanding promissory notes, including interest thereon of $1,037,371. 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 a rates of 8% to 17.3% per annum. and are convertible into our common stock at conversion prices ranging from fixed conversion prices of$0.0115 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.
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Pursuant to the IPSIPay Express joint venture agreement, we are required to invest another $500,000 in the JV by November 30, 2023, failing which our share of the joint venture will remain at 22.22%.
However, 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
Not required for smaller reporting companies.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), 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 September 30, 2023 are not effective due to a lack of written policies and procedures to address all material transactions and developments impacting our financial statements.
(b) 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 September 30, 2023.
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.
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; 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 claimants 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 IPSI and the same individuals against whom they had asserted their OSHA claim. The complaint asserted claims for, inter alia, 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 IPSI. 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
Defendants moved to compel arbitration on February 17, 2023. As a result of that motion and a stipulated order entered by the court, all proceedings are stayed until the motion to compel arbitration is heard and decided. The hearing for the motion to compel arbitration was scheduled for May 4, 2023. The court held its ruling in abeyance to allow limited discovery and additional briefing. The court had issued a tentative ruling denying our motion to compel arbitration. The court ordered plaintiffs to take their case to arbitration on August 30, 2023. Plaintiffs, however, have declined to file an arbitration and filed a petition for writ of mandate to challenge the order on October 27, 2023. The California Court of Appeals denied the petition on November 1, 2023.
Consequently, we filed a motion with the court for the appointment of an arbitrator and for the setting of a deadline for arbitration to be completed. The federal court declined to grant defendants IPSI and Williams Corbett (“defendants”) an extension of time until November 13 to file an answer and has ordered defendants and plaintiff to hold a meet and confer on the motion to stay. Accordingly, defendants answered the complaint on October 27, 2023. Counsel are holding a meet and confer regarding the stay motion on November 15, 2023. On the motion to stay the federal case until the arbitration in the state case occurs, defendants will argue that, because the parties and factual allegations in the arbitration and the federal case are exactly the same, the court should stay the federal case to allow the arbitration to be completed which will simplify the issues in the federal case or even resolve it completely.
We anticipate filing the motion to stay on or about November 27. The reasons are: a) court rules require us to wait five days after the meet and confer and to file a joint statement about the meet and confer before filing the motion; b) the motion must be noticed for a day within 35 days of filing the motion and the court hears motions on Mondays only; c) Monday Dec. 25, 2023 and Monday Jan. 1, 2024 are holidays. Accordingly, the next date that the motion can be heard is January 8, 2024.
If the motion to stay is denied, defendants will file a motion for judgment on the pleadings.
We may engage in alternative dispute resolution with the plaintiffs but there can be no assurance that these efforts will be successful. While the outcome of the anticipated civil action is uncertain at this point, we intend to vigorously defend against the action.
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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 are vigorously defending these claims, which are premised upon a putative three-year employment agreement that is not signed by our company or Mr. Corbett, and which Minkovich admits in his complaint that we expressly refused to sign.
We and Mr. Corbett filed a motion to compel arbitration. The motion was denied on October 4, 2022. We and Mr. Corbett have appealed that decision to the California Court of Appeal. As a result of the appeal, the court case is stayed until the appeal is decided, which we expect to take at least six months. As a result of the stay, the demurrer (the equivalent of a motion to dismiss) we and Mr. Corbett filed has yet to be decided and will not be decided unless the court’s decision is sustained on appeal. Otherwise, the case shall proceed to arbitration. We filed our opening brief on July 14, 2023, the case is in abeyance while we appeal our motion to compel arbitration. Plaintiffs obtained an extension and filed their answering brief in September 2023. Our reply brief is due on December 11, 2023.
Item 1A. Risk Factors.
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Between July 18, 2023 and September 14, 2023, we entered into Securities Purchase Agreements with 13 accredited investors, pursuant to which we received an aggregate of $976,666 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 2,470,906 shares of the Company’s common stock (the “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 3.5 months and 12 months, and bear interest at rates from 8% to 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.
On September 9, 2023, the Company closed a transaction with Red Road Holdings Corporation (“RRH”) pursuant to which the Company received net proceeds of $125,000, after an original issue discount and fees of $21,900 in exchange for the issuance of a $146,900 Convertible Note, bearing interest at 13%, which interest is earned on issuance of the note, an effective interest rate of 17.13%, and maturing on June 15, 2024. The RRH Note is convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
| Exhibit No. | Exhibit Description | |
| 31.1* | Certification of William Corbett, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a) | |
| 31.2* | Certification of Richard Rosenblum, Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule15d-14(a) | |
| 32.1* | Certification of William Corbett, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 | |
| 32.2* | Certification of Richard Rosenblum, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document.* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith |
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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: November 13, 2023 | By: | /s/ William D. Corbett |
| William D. Corbett | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 13, 2023 | By: | /s/ Richard Rosenblum |
| Richard Rosenblum | ||
| President & Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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