UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from ____________ to ____________
Commission
file number
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Office) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| n/a |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered
pursuant to Section 12(b) of the Act:
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 12, 2024, there were
INNOVATIVE PAYMENT SOLUTIONS, INC.
Form 10-Q
For the Quarter Ended September 30, 2024
Index
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that reflect our current expectations and views of future events. The forward-looking statements are contained principally in the section of this Report entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Readers are cautioned that significant known and unknown risks, uncertainties and other important factors (including those over which we may have no control and others listed in this Report and in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”)) may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
| ● | our ability to implement our business plan, including our ability to launch and generate revenue from our IPSIPay Express joint venture or other digital payment solutions we may seek to develop or commercialize in the future; |
| ● | acceptance by the marketplace of our products and services, notably IPSIPay Express; |
| ● | our proposed merger with Business Warrior Corporation; |
| ● | our ability to formulate, implement and modify as necessary effective sales, marketing, and strategic initiatives to drive revenue growth; |
| ● | the viability of our current intellectual property and intellectual property created in the future; |
| ● | our ability to comply with currently applicable laws and government regulations and those that may be applicable in the future; |
| ● | our ability to retain key employees and third-party service providers; |
| ● | adverse changes in general market conditions for payment solutions such as IPSIPay Express and other products and services we offer; |
| ● | our ability to generate cash flow and profitability and continue as a going concern; |
| ● | our future financing plans and ability to repay outstanding indebtedness; and |
| ● | our ability to adapt to changes in market conditions which could impair our operations and financial performance. |
These forward-looking statements involve numerous and significant risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results of operations or the results of other matters that we anticipate herein could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in the “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” section contain in this Report and in the “Business,” “Risk Factors” and other sections of the 2023 Form 10-K. You should thoroughly read this Report and the documents that we refer to with the understanding that our actual future results may be materially different from, and worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.
The forward-looking statements made in this Report relate only to events or information as of the date of this Report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect.
ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Receivable from equity method investment | ||||||||
| Notes receivable - current | ||||||||
| Other current assets | ||||||||
| Total Current Assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment | ||||||||
| Notes receivable, net of unamortized discount of $ | ||||||||
| Security deposit | ||||||||
| Equity method investment | ||||||||
| Total Non-Current Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Federal relief loans – current portion | ||||||||
| Notes payable, net of unamortized discount of $ | ||||||||
| Convertible debt, net of unamortized discount of $ | ||||||||
| Derivative liability | ||||||||
| Total Current Liabilities | ||||||||
| Non-Current Liabilities | ||||||||
| Federal relief loans | ||||||||
| Total Non-Current Liabilities | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ 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, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Revenue | $ | $ | ( | ) | $ | $ | ||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Loss from Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Fair value adjustment to price protected warrants | ( | ) | - | ( | ) | |||||||||||
| Penalty on convertible notes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on novation | ( | ) | ( | ) | ||||||||||||
| Fair value of warrants issued | ( | ) | ( | ) | ||||||||||||
| Loss on disposal of assets | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| 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 | ||||||||||||||||
| Deemed dividend | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to Innovative Payment Solutions, Inc., stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per share* | ||||||||||||||||
| Continuing operations* | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Discontinued operations* | ( | ) | ||||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Weighted Average Number of Shares Outstanding – Basic and diluted | ||||||||||||||||
| * |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
| Preferred Stock Shares | Amount | Common Stock Shares* | Amount* | Additional Paid-in Capital* | Accumulated Deficit | Non- controlling shareholders interest | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued on debt extinguishment | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Fair value of warrants issued to convertible debt holders | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued on debt extinguishment | - | - | ||||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| Conversion of convertible debt | - | |||||||||||||||||||||||||||||||
| Deemed dividend on warrant anti-dilution | - | - | ( | ) | ||||||||||||||||||||||||||||
| Fair value of warrants issued for services | - | - | ||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2024 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
3
| 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 | - | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||
| * |
See accompanying notes to unaudited condensed consolidated financial statements.
4
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Nine months ended | Nine months ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss from discontinued operations | ||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Derivative liability movements | ( | ) | ( | ) | ||||
| Depreciation | ||||||||
| Amortization of debt discount | ||||||||
| Loss on convertible debt | ||||||||
| Fair value adjustment to price protected warrants | ||||||||
| Loss on novation | ||||||||
| Penalty on convertible debt | ||||||||
| Deemed interest income | ( | ) | ||||||
| Unrealized loss on equity method investments | ||||||||
| Warrants issued for services | ||||||||
| Stock based compensation | ||||||||
| Changes in Assets and Liabilities | ||||||||
| Receivable from equity method investments | ( | ) | ||||||
| Other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Related party payables | ||||||||
| Interest accruals | ||||||||
| Cash used in operating activities – continuing operations | ( | ) | ( | ) | ||||
| Cash provided by operating activities – discontinued operations | ||||||||
| CASH USED IN OPERATING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in notes receivable | ( | ) | ||||||
| Investment in intangibles | ( | ) | ||||||
| Deposits refunded | ||||||||
| 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 notes payable | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayment of convertible notes | ( | ) | ( | ) | ||||
| Repayment of federal relief loans | ( | ) | ||||||
| Net cash provided by financing activities – continuing operations | ||||||||
| Net cash provided by financing activities – discontinued operations | ||||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| Cash and cash included in assets held for sale at the beginning of the period | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| RECONCILIATION OF OPENING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | ||||||||
| Cash | $ | $ | ||||||
| Cash included in assets held for sale | ||||||||
| CASH AT THE BEGINNING OF THE PERIOD | $ | $ | ||||||
| RECONCILIATION OF CLOSING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | ||||||||
| Cash | $ | $ | ||||||
| Cash included in assets held for sale | ||||||||
| CASH AT THE END OF THE PERIOD | $ | $ | ||||||
| CASH PAID FOR INTEREST AND TAXES: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Fair value of warrants issued with convertible notes | $ | $ | ||||||
| Conversion of convertible debt to equity | $ | $ | ||||||
| Fair value of warrants issued for equity method investments | $ | $ | ||||||
See notes to the unaudited condensed financial statements.
5
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS |
| a) | Organizational History |
On
Pursuant to the Qpagos Merger
Agreement, upon consummation of the Qpagos 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 Qpagos 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
On December 31, 2019, the Company
consummated the disposal of Qpagos Corporation, Qpagos Mexico and Redpag in exchange for
On June 21, 2021, the Company acquired
a
On August 26, 2021, the Company formed
a new subsidiary, Beyond Fintech, Inc. (“Beyond Fintech”), in which it owns a
6
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| a) | Organizational History (continued) |
On May 12,
2023, the Company entered into an Agreement with Frictionless (the “May 2023 Frictionless Agreement”) to unwind the
equity ownership stakes that the Company and Frictionless have in each other and in Beyond Fintech. Pursuant to the May 2023 Frictionless
Agreement: (i) the Company assigned to Frictionless all common stock of Frictionless owned by the Company; (ii) the warrant to purchase
On August
30, 2023, the Company implemented a
On September 5, 2023, the Company’s entered into a novation agreement whereby it assigned all its rights and interest in its e-wallet product, IPSIPay, and its receivables and payables due from and to Frictionless, related to IPSIPay, to a third party in order to concentrate all of its efforts on the IPSIPay Express LLC (“IPSIPay Express”) joint venture. See note 1(b) for further information.
| b) | Description of current business |
The Company is currently a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new account-to-account payment application called Instant Direct Payments as well as traditional credit card processing services. The Company has in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.
IPSIPay Express
On April 28, 2023, the Company formed a new company called IPSIPay Express. This entity was formed as a Delaware limited liability company joint venture with OpenPath, Inc. (“OpenPath”) and EfinityPay, LLC (“EfinityPay”, and the Company, collectively with OpenPath and EfinityPay, the “Members”) to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors.
On June 19, 2023, the Company entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”) with OpenPath and EfinityPay to jointly provide for the governance of and rights of the Members with respect to IPSIPay Express. The effective date of the Operating Agreement is April 28, 2023.
IPSIPay Express was formed by the Members with the initial business purposes of providing credit card processing solutions and also a proprietary solution for real time bank-to-bank payment transactions in a manner that provides seamless and frictionless consumer and merchant experiences, with an initial focus on merchants operating in gaming and entertainment sectors. Such solutions are collectively referred to herein as “IPEX.”
Pursuant to the Operating Agreement, the Company agreed to contribute
cash to or on behalf IPSIPay Express to be used for the IPEX business in the aggregate amount of up to $
7
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| b) | Description of current business (continued) |
Simultaneously
with the funding of the initial Tranche, the Company issued to each of OpenPath and EfinityPay a five-year Common Stock purchase warrant
(the “IPEX Warrant”) to purchase
| c) | Merger Agreement with Business Warrior |
On July 28, 2024, the Company entered into an Agreement and Plan of Merger (the “BW Merger Agreement”), by and among the Company, IPSI Merger Sub, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of the Company (“Merger Sub”) and Business Warrior.
Pursuant to the BW Merger Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the BW Merger Agreement (the “Closing”), Merger Sub will merge with and into Business Warrior (the “BW Merger” and, together with the other transactions contemplated by the BW Merger Agreement, the “BW Transactions”), with Business Warrior continuing as the surviving Wyoming corporation in the BW Merger and a wholly owned subsidiary of the Company.
Subject to the terms and conditions
set forth in the BW Merger Agreement, at the effective time of the BW Merger (the “Effective Time”): (i) each outstanding
share of common stock, par value $
Merger Consideration
Pursuant to the terms of the BW Merger
Agreement, the consideration to be delivered to the holders of Business Warrior Common Stock and Business Warrior Preferred Stock in
connection with the BW Merger Consideration (the “BW Merger Consideration”) will be a number of newly issued shares of Common
Stock representing forty-five percent (
8
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| c) | Merger Agreement with Business Warrior (continued) |
Representations and Warranties
The BW Merger Agreement contains representations and warranties of each of the Company, Merger Sub and Business Warrior that are customary for similar transactions and that include certain qualifications and customary exceptions, as applicable.
Covenants of the Parties
The BW Merger Agreement includes customary covenants of the parties with respect to, among others things, (i) operation of their respective businesses prior to consummation of the BW Merger and efforts to satisfy conditions to consummation of the BW Merger, (ii) access to information, (iii) cooperation in the preparation of the registration statement on Form S-4 (as may be amended or supplemented from time to time, the “Registration Statement”) which the Company is expected to file with the U.S. Securities and Exchange Commission (“SEC”) in connection with the BW Merger and the Transactions, (iv) use of reasonable best efforts to obtain regulatory approvals, (v) notification of the other party of certain breaches, (vi) Section 16 matters, (vii) indemnification of directors and officers and tail insurance and (viii) obtaining all requisite approvals of each party’s respective stockholders. Additionally, Business Warrior has agreed not to solicit or enter into a competing alternative transaction (an “Alternative Transactions”), subject to the fiduciary duties of the board of directors Business Warrior, in accordance with customary terms and provisions set forth in the BW Merger Agreement.
The parties agreed to take all necessary actions to cause the Company’s board of directors immediately after Closing to consist of five directors, including: (i) two persons who are designated by the Company prior to Closing, (ii) two persons who are designated by Business Warrior prior to Closing and (iii) one person mutually agreed upon by the Company and Business Warrior.
Conditions to Consummation of the Merger; Convertible Note Exchange
Each party’s obligation to consummate the BW Merger is conditioned upon, among other things: (i) approval by the Company stockholders of the amendment to its certificate of incorporation (“the Company Stockholder Approval”), (ii) approval by Business Warrior stockholders of the BW Merger and related transactions and matters (“Business Warrior Stockholder Approval”), (iii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all other requisite regulatory approval, (iv) the absence of any applicable law or order that makes illegal, or prohibits or prevents, the Transactions and (v) the Registration Statement having become effective in accordance with the provisions of the Securities Act of 1933, as amended (“Securities Act”).
In addition, each party’s obligation to consummate the BW Merger is conditioned upon the following agreements being in full force and effect: (i) exchange agreements, to be entered into by and among the Company, Business Warrior and each holder of the outstanding convertible notes of the Company (the “Company Exchange Agreements”), pursuant to which each outstanding convertible note of the Company will be exchanged for shares of newly-issued shares of a newly designated Series A Convertible Preferred Stock of the Company (the “Company Series A Preferred”) and (ii) exchange agreements, to be entered into by and among the Company, Business Warrior and each holder of the outstanding convertible notes of Business Warrior (the “Business Warrior Exchange Agreements”), pursuant to which each outstanding convertible note of Business Warrior will be exchanged for shares of newly-issued shares of Company Series A Preferred. The designation of the Company Series A Preferred is subject to the Company Stockholder Approval. Further, as of the date of this Report, the terms of the Company Series A Preferred remain subject to negotiation between the Company, Business Warrior and the holders of such convertible notes. The Company and Business Warrior have certain convertible note holders in common.
In addition, the Company’s obligation to consummate the BW Merger is conditioned upon, among other things: (i) the representations and warranties of Business Warrior being true and correct on and as of the Closing Date (as defined in the Merger Agreement) as if made on the Closing Date (subject to certain exceptions and an overall “Material Adverse Effect” standard), (ii) Business Warrior having performed in all material respects all of its obligations and complied in all material respects with all of its agreements and covenants under the BW Merger Agreement to be performed or complied with by it on or prior to the Closing Date and (iii) receipt by the Company of each Lock-Up Agreement (as defined below) and Employment Agreement (as defined in the BW Merger Agreement).
9
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| c) | Merger Agreement with Business Warrior (continued) |
Business Warrior’s obligation to consummate the BW Merger is further conditioned upon, among other things: (i) the representations and warranties of the Company being true and correct on and as of the Closing Date as if made on the Closing Date (subject to certain exceptions and an overall “Material Adverse Effect” standard) and (ii) the Company and Merger Sub having performed in all material respects all of its obligations and complied in all material respects with all of its agreements and covenants under the BW Merger Agreement to be performed or complied with by it on or prior to the Closing Date.
Termination
The BW Merger Agreement may be terminated at any time prior to the Effective Time by either the Company or Business Warrior if the BW Merger and related transactions are not consummated on or before the seven-month anniversary of the date of the Merger Agreement (the “Termination Date”), provided that the Termination Date shall be automatically extended to the nine-month anniversary of the BW Merger Agreement if the conditions to closing, other than receipt of the Company Stockholder Approval and Business Warrior Stockholder Approval, effectiveness of the Registration Statement and that the Company Exchange Agreements and Business Warrior Exchange Agreements are in full force and effect, have been satisfied.
The BW Merger Agreement may also be terminated under certain other customary and limited circumstances at any time prior the Closing, including, among other reasons (i) by mutual written consent of the Company and Business Warrior, (ii) by written notice by either the Company or Business Warrior if a governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the BW Merger, and such order or other action has become final and non-appealable, (iii) by written notice by Business Warrior of the Company’s or Merger Sub’s uncured breach of a representation, warranty, or covenant contained in the BW Merger Agreement that would cause the related condition to closing to not be satisfied, (iv) by written notice by the Company of Business Warrior’s uncured breach of a representation, warranty, or covenant contained in the BW Merger Agreement that would cause the related Closing condition to not be satisfied or a material breach of a Business Warrior Voting and Support Agreement (as defined below), (v) by either the Company or Business Warrior if Business Warrior holds its stockholder meeting to approve the BW Merger Agreement and the BW Merger, and Business Warrior Stockholder Approval is not obtained, (vi) by the Company if Business Warrior’s board of directors has failed to recommend or shall have withdrawn, amended or modified in any respect materially adverse to the Company its recommendation of the BW Merger Agreement or shall have recommended another proposal for an Alternative Transaction or accepted a Superior Proposal (as defined in the BW Merger Agreement) and (vii) by Business Warrior if, prior to receipt of Business Warrior Stockholder Approval, Business Warrior accepts a Superior Proposal, subject to the terms and conditions of the BW Merger Agreement.
Governing Law
The Merger Agreement is governed by the laws of the State of New York and the parties are subject to the jurisdiction of any New York state court or any federal court sitting in the State of New York in any action arising out of or relating to the Merger Agreement.
Certain Agreements Related to the Merger Agreement
Business Warrior Voting and Support Agreements
In connection with the execution of the Merger Agreement, on July 29, 2024, certain stockholders of Business Warrior, including Rhett Doolittle and Jonathan Brooks, the Chief Executive Officer and President, respectively, of Business Warrior (the “Business Warrior Holders”) entered into support agreements with the Company (the “Business Warrior Voting and Support Agreements”), pursuant to which such Business Warrior Holders agreed, among other things, to vote all shares of capital stock of Business Warrior beneficially owned by the Business Warrior Holders (the “Business Warrior Shares”) in favor of the BW Merger and related transactions. Such Business Warrior Holders also agreed to take certain other actions in support of the BW Merger Agreement and related transactions (and any actions required in furtherance thereof) and refrain from taking actions that would adversely affect such Business Warrior Holders’ ability to perform their obligations under the Business Warrior Voting and Support Agreement. Pursuant to the Business Warrior Voting and Support Agreements, the Business Warrior Holders also agreed not to transfer the Business Warrior Shares during the period from and including the date of the Business Warrior Voting and Support Agreement and the first to occur of the Effective Time or the date on which the Business Warrior Support Agreement is terminated, except for certain permitted transfers where the recipient also agrees to comply with the Business Warrior Voting and Support Agreement.
10
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 1 | ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
| c) | Merger Agreement with Business Warrior (continued) |
Certain Agreements Related to the Merger Agreement (continued)
Lock-Up Agreements
Concurrently with and effective upon the Closing, officers, directors and certain stockholders of Business Warrior (each, a “Significant Stockholder”) shall each enter into a Lock-Up Agreement with the Company (each, a “Lock-Up Agreement”). Pursuant to the Lock-Up Agreements, with respect to the shares received as BW Merger Consideration, each Significant Stockholder may not, with limited exceptions, transfer shares, or publicly disclose the intention to transfer shares until the twelve-month anniversary of the Closing.
| 2 | ACCOUNTING POLICIES AND ESTIMATES |
| a) | Basis of Presentation |
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three months and nine months ended September 30, 2024 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this Report should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2024 and amended on April 17, 2024.
All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
| b) | Principles of Consolidation |
The unaudited condensed consolidated
financial statements as of September 30, 2024, include the financial statements of the Company. The unaudited condensed consolidated
financial statements as of September 30, 2023, include the financial statements of the Company and its subsidiary in which it has a majority
voting interest, until May 12, 2023, the date of disposal of its Beyond Fintech subsidiary. Pursuant to the May 2023 Frictionless Agreement,
the Company disposed of its
All significant inter-company accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP.
All amounts referred to in the notes to the unaudited condensed consolidated financial statements are in United States Dollars ($) unless stated otherwise.
| c) | Use of Estimates |
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives for plant and equipment, the fair value of long-lived investments, the fair value of warrants and stock options granted for services, debt extinguishments or compensation, convertible notes and amendments thereto, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating losses and the allowance for doubtful accounts.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
11
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| d) | Contingencies |
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.
The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s unaudited condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
| e) | Fair Value of Financial Instruments |
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the balance sheets for cash, accounts receivable, notes receivable, other current assets, other assets, accounts payable, accrued liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company has identified the short-term convertible notes and certain warrants attached to certain of the notes that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.
ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. We evaluate the fair value of variably priced derivative liabilities on a quarterly basis and report any movements thereon in earnings.
| f) | Risks and Uncertainties |
The Company’s operations and prospects are and will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including the potential risk of business failure. In particular, there is a risk that that IPSIPay Express business (the commercial launch of which has taken longer than originally expected) may never generate revenue for the Company. There are also significant risks and uncertainties associated with the Company’s proposed merger with Business Warrior (see notes 1(c) and 6 for further information). Further, the ongoing wars in Ukraine and between Israel, Hamas and more recently, Hezbollah and uncertainties regarding the global economic environment which has resulted in a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, vendors and the Company to accurately forecast and plan future business activities, which may have an adverse impact on its business and financial condition and may hamper the Company’s ability to generate revenue and access usual sources of liquidity on reasonable terms.
The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.
12
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| g) | Recent accounting pronouncements |
The Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended September 30, 2024. None of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the Company’s unaudited condensed consolidated financial statements upon adoption.
| h) | Reporting by Segment |
No segmental information is required as the Company has
only
| i) | Cash and Cash Equivalents |
The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the balance did not exceed federally insured limits.
| j) | Accounts Receivable and Allowance for Doubtful Accounts |
Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries during the period ended September 30, 2024 and 2023.
| k) | Investments |
The Company’s non-marketable
equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable
equity securities is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment
(referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are
recognized in other income (expense), net. Non-marketable equity securities that have been remeasured during the period are classified
within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation methods using the observable transaction
price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities the Company
holds. The cost method is used when the Company has a passive, long-term investment that doesn’t result in influence over the Company.
The cost method is used when the investment results in an ownership stake of less than
13
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| l) | Plant and Equipment |
Plant and equipment is stated at cost,
less accumulated depreciation. Plant and equipment with costs greater than $
| Description | Estimated Useful Life | |
| Computer equipment | ||
| Office equipment |
The cost of repairs and maintenance is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
| m) | Long-Term Assets |
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
| n) | Revenue Recognition |
The Company’s revenue recognition policy is consistent with the requirements of FASB ASC 606, Revenue.
The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:
| i. | identify the contract with a customer; |
| ii. | identify the performance obligations in the contract; |
| iii. | determine the transaction price; |
| iv. | allocate the transaction price to performance obligations in the contract; and |
| v. | recognize revenue as the performance obligation is satisfied. |
The Company had minimal revenues of
and $
14
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| o) | Share-Based Payment Arrangements |
Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded in operating expenses in the consolidated statement of operations.
Prior to the Company’s reverse merger which took place on May 12, 2016, all share-based payments were based on management’s estimate of market value of the Company’s equity. The factors considered in determining management’s estimate of market value include, assumptions of future revenues, expected cash flows, market acceptability of our technology and the current market conditions. These assumptions are complex and highly subjective, compounded by the business being in its early stage of development in a new market with limited data available.
Where equity transactions with arms-length third parties, who had applied their own assumptions and estimates in determining the market value of our equity, had taken place prior to and within a reasonable time frame of any share-based payments, the value of those share transactions have been used as the fair value for any share-based equity payments.
Where equity transactions with arms-length third parties included both shares and warrants, the value of the warrants have been eliminated from the unit price of the securities using a Black-Scholes valuation model to determine the value of the warrants. The assumptions used in the Black Scholes valuation model includes market related interest rates for risk-free government issued treasury securities with similar maturities; the expected volatility of the Common Stock based on companies operating in similar industries and markets; the estimated stock price of the Company; the expected dividend yield of the Company and; the expected life of the warrants being valued.
Subsequent to the Company’s reverse merger which took place on May 12, 2016, the Company has utilized the market value of its Common Stock as quoted on the OTCQB, as an indicator of the fair value of its Common Stock in determining share- based payment arrangements.
| p) | Derivative Liabilities |
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
| q) | Income Taxes |
The Company is based in the U.S. and currently enacted U.S. tax laws are used in the calculation of income taxes.
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of September 30, 2024 and December 31, 2023, there have been no interest or penalties incurred on income taxes.
15
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 2 | ACCOUNTING POLICIES AND ESTIMATES (continued) |
| r) | Comprehensive income |
Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. The Company does not have any comprehensive income (loss) for the periods presented.
| s) | Reclassification of prior year presentation |
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
| 3 | LIQUIDITY MATTERS AND GOING CONCERN |
The Company’s financial statements
are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has incurred net losses since its inception and anticipates net losses and negative operating
cash flows for the near future. For and as of the nine months ended September 30, 2024, the Company had a net loss of $
The accompanying financial statements for the period ended September 30, 2024 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and, ultimately, becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be required to delay and reduce the scope of the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has determined that there is substantial doubt about its ability to continue as a going concern.
| 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
16
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 4 | DISPOSAL OF INVESTMENT IN FRICTIONLESS AND BEYOND FINTECH (continued) |
| 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 | DISCONTINUED OPERATIONS |
In the prior year, effective May 12, 2023, the Company disposed of its investment in Beyond Fintech.
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross loss | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Loss from operations before income taxes | ( | ) | ||||||||||||||
| Income Taxes | ||||||||||||||||
| Loss from discontinued operations, net of taxation | $ | $ | $ | $ | ( | ) | ||||||||||
17
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 6 | LOANS RECEIVABLE |
On February
22, 2024, the Company (utilizing a portion of the proceeds from the issuance of convertible notes) loaned funds to Business Warrior in
the principal amount of $
The debt discount on the Business Warrior’s note is amortized as income utilizing the effective interest rate method.
Between June 19, 2024 and September 10, 2024, the Company (utilizing
a portion of the proceeds from the issuance of convertible notes) loaned additional funds to Business Warrior in the aggregate principal
amount of $
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, 2024 Amount, net | ||||||||||||||
| Business Warrior Corporation | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Disclosed as follows: | ||||||||||||||||||||
| Current portion of notes receivable | $ | |||||||||||||||||||
| Long-term portion of notes receivable | ||||||||||||||||||||
| $ | ||||||||||||||||||||
Discount
amortized to income as deemed interest during the three months and nine months ended September 30, 2024 was $
Interest
earned for the three and nine months ended September 30, 2024 was $
| 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 $
Amortization expense was $
18
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 8 | EQUITY METHOD INVESTMENT |
On April 28, 2023, the Company formed
IPSIPay Express with OpenPath and EFinityPay. As described in Note 1(b), the Company has agreed to make the IPSI Capital Contributions
to IPSIPay Express. As of September 30, 2024, the initial Tranche of $
| September 30, 2024 | December 31, 2023 | |||||||
| Cash contribution to IPSIPay Express | $ | $ | ||||||
| Fair value of warrants issued to third party joint venture partners | ||||||||
| Prior period equity loss from joint venture | ( | ) | ( | ) | ||||
| Current period equity income (loss) from joint venture | ( | ) | ||||||
| $ | $ | |||||||
| 9 | 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, 2024 | Nine months ended September 30, 2023 | |||||||
| Operating lease expense | $ | $ | ||||||
| Nine months ended September 30, 2024 | Nine months ended September 30, 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows from operating leases | $ | $ | ( | ) | ||||
| Remaining lease term – operating lease | ||||||||
19
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 10 | FEDERAL RELIEF LOANS |
Small Business Administration Disaster Relief loan
On July 7, 2020, the Company received
a Small Business Economic Injury Disaster loan amounting to $
The company has accrued interest
of $
| 11 | NOTES PAYABLE |
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, 2024 Amount, net | December 31, 2023 Amount, net | |||||||||||||||||
| Cavalry Fund I LP | $ | $ | $ | $ | $ | |||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | ||||||||||||||||||||||||
| 2024 notes | ( | ) | ||||||||||||||||||||||
| Total notes payable | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
Interest expense totaled $
Amortization of debt discount totaled
$
Cavalry Fund I LP and Mercer Street Global Opportunity Fund, LLC
On February
16, 2021, the Company entered into separate Securities Purchase Agreements (the “SPAs”), with each of Cavalry Fund I LP (“Cavalry”)
and Mercer Street Global Opportunity Fund, LLC (“Mercer”), pursuant to which the Company received $
In terms
of the December 30, 2022 Note Amendment Transaction, described in more detail in note 12 below, the Original Warrants issued on February
16, 2021 were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $
The Exchange
Notes have a maturity date of
On February 27, 2024, the maturity date of the notes was extended to April 30, 2024 with an automatic one-month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.
20
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 11 | NOTES PAYABLE (continued) |
2024 Notes
Between May 29, 2024 and September
9, 2024, the Company entered into five Securities Purchase Agreements with three accredited investors, pursuant to which the Company issued
The 2024 Notes mature between February
28, 2025 and June 6, 2025 and bear interest at
The 2024 Notes have restrictions relating
to fundamental transactions which require the approval of the note holder, in addition the note holder has an optional redemption right
on subsequent transactions that may require the Company to redeem all or part of the Note, at a premium of
| 12 | 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. |
21
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 12 | CONVERTIBLE NOTES PAYABLE (continued) |
December 2022 Note Amendment Transaction (continued)
The parties also acknowledged that
the principal and accrued interest under the Cavalry/Mercer Notes as of December 28, 2022 is equal to an aggregate of $
The amendments to the Cavalry/Mercer Notes were evaluated in terms
of ASC 470, Debt, to determine if the amendments to the Cavalry/Mercer Notes were considered a modification of the debt or
an extinguishment of the debt. Based on the penalty interest incurred on the convertible notes of $
Effective December 30, 2023, on February 27, 2024, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to April 30, 2024, with an automatic one-month extension each month until such time as the note is declared to be in default, other than the maturity date all other terms remained the same. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.
| Description | Interest Rate | Maturity date | Principal | Accrued Interest | Unamortized debt discount | September 30, 2024 Amount, net | December 31, 2023 Amount, net | |||||||||||||||||
| Cavalry Fund I LP | $ | $ | $ | $ | $ | |||||||||||||||||||
| Mercer Street Global Opportunity Fund, LLC | ||||||||||||||||||||||||
| Red Road Holdings Corporation* | ||||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||
| Quick Capital, LLC* | ||||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||
| 2023 and 2024 convertible notes | | ( | ) | |||||||||||||||||||||
| Total convertible notes payable | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| * |
Interest expense totaled $
Amortization of debt discount totaled
$
The Cavalry, Mercer and Red Road Holdings convertible notes have variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the Common Stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative financial liability.
22
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 12 | CONVERTIBLE NOTES PAYABLE (continued) |
Cavalry Fund LP
On February 16, 2021, the Company
closed a transaction with Cavalry pursuant to which the Company received net proceeds of $
As described more fully above, the
maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again to December 30, 2023. In consideration
for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding and due to Cavalry by twenty
percent (
Between August 24, 2023 and November
20, 2023, Cavalry converted $
On February 27, 2024, the maturity date of the notes was extended to April 30, 2024, with an automatic one-month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.
Between September 5, 2024 and September 10, 2024, Cavalry converted
$
The balance of the Cavalry Note plus
accrued interest at September 30, 2024 was $
Mercer Street Global Opportunity Fund, LLC
On February 16, 2021, the Company
closed a transaction with Mercer, pursuant to which the Company received net proceeds of $
As described more fully above, the
maturity date of the note was extended to August 16, 2022, additionally to November 16, 2022 and again to December 30, 2023. In consideration
for the November 16, 2022 extension, the Company agreed to (i) increase the principal amount outstanding and due to Mercer by twenty
percent (
Between May 19, 2023 and August 30,
2023, Mercer converted an aggregate of $
On February 27, 2024, Mercer entered into a note amendment with the Company extending the maturity date of the convertible note to April 30, 2024. with an automatic one-month extension each month until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an analysis performed in terms of ASC 470, the amendment to the agreement was determined to be a debt modification, there were no expenses incurred on the amendment and interest will be accrued at the effective interest rate.
Between August 20, 2024 and September
5, 2023, Mercer converted an aggregate principal amount of $
The balance of the Mercer Note plus
accrued interest at September 30, 2024 was $
23
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 12 | 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 RRH note 1 was repaid in full during the quarter ended June 30, 2024. | |
| ● | On October 19, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
On August 6, 2024, RRH converted an aggregate of $ | |
| ● | On December 20, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
The balance of the RRH Note 3 plus accrued interest at September 30, 2024 was $ | |
| ● | On April 2, 2024, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
The balance of the RRH Note 4 plus accrued interest at September 30, 2024 was $ | |
| ● | On June 25, 2024, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $
The balance of the RRH Note 5 plus accrued interest at September 30, 2024 was $ |
Quick Capital, LLC
| ● | On March 4, 2024, the Company closed a transaction with Quick
Capital, LLC (“Quick Capital”) pursuant to which the Company received net proceeds of $
The Company had repaid an aggregate of $ |
24
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 12 | CONVERTIBLE NOTES PAYABLE (continued) |
Quick Capital, LLC (continued)
| ● | On May 28, 2024, the Company closed a transaction with Quick Capital pursuant to which the Company received net proceeds of $
No repayments have been made on the Quick Capital Note 2 which provides for a no notice default, whereupon the note accrues penalty interest at a rate of
The balance of the Quick Capital note plus accrued interest at September 30, 2024 was $ |
2023 and 2024 Convertible Notes
Between February 13, 2023 and November 27, 2023, the Company entered
into Securities Purchase Agreements with 30 accredited investors to purchase convertible notes (the “2023 Convertible Notes”).
Between February 6, 2024 and August 9, 2024, the Company entered into Securities Purchase Agreements with 8 accredited investors
to purchase convertible notes (the “2024 Convertible Notes”). The Company received an aggregate of $
| ● | the 2023 Convertible Notes and the 2024 Convertible Notes; and |
| ● | five-year warrants to purchase
an aggregate |
The 2023 Convertible Notes and the
2024 Convertible Notes mature between 3.5 months and 12 months, bear interest at rates between
The 2023 Convertible Notes, the 2024
Convertible Notes and the 2023 Warrants and the 2024 Warrants contain conversion limitations providing that a holder thereof may not convert
or exercise such securities to the extent that, if after giving effect to such conversion or exercise, the holder or any of its affiliates
would beneficially own in excess of
On December 14, 2023, two notes totaling
$
On March 14, 2024, the Company extended
the maturity date of 11 convertible notes maturing between February 13, 2024 and February 23, 2024 by an additional six months and as
consideration for the extension, the note holders were issued additional warrants exercisable for
At September 30, 2024, notes with a
principal amount of $
The balance of the 2023 Convertible
Notes and the 2024 Convertible Notes plus accrued interest at September 30, 2024 was $
25
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 13 | DERIVATIVE LIABILITY |
The convertible notes and warrants issued by the Company to Cavalry, Mercer and RRH as described in Note 12 have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time and certain notes and warrants have fundamental transaction clauses which might result in cash settlement, due to these factors, all convertible notes and any warrants attached thereto are valued and give rise to a derivative financial liability, which was initially valued at inception of the convertible notes using a Black-Scholes valuation model.
Between September 12, 2023 and December
20, 2023, and between April 2, 2024 and June 25, 2024, the Company entered into a convertible note agreement with RRH which have variable
priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of
time, which gave rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $
On August 6, 2024, the Company received a conversion notice from
the holder of RRH Note 2 (see Note 12) pursuant to which $
Convertible notes with an aggregate principal and interest balance
outstanding on August 6, 2024 of $
The value of the derivative liability
related to the anti-dilution price protected convertible notes and warrants was evaluated immediately prior to the Triggering Event and
immediately after the Triggering Event, resulting in an additional derivative liability of $
The net mark-to-market movement of
the derivative liability for the three months ended September 30, 2024 was a net mark-to-market credit of $
| nine months ended September 30, 2024 | Year ended December 31, 2023 | |||||||
| Conversion price | $ | | $ | | ||||
| Risk free interest rate | ||||||||
| Expected life of derivative liability | ||||||||
| Expected volatility of underlying stock | | |||||||
| Expected dividend rate | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| Opening balance | $ | $ | ||||||
| Derivative financial liability arising from convertible note and warrants | ||||||||
| Derivative liability arising on anti-dilutive convertible notes and warrants | ||||||||
| Fair value adjustment to derivative liability | ( | ) | ( | ) | ||||
| $ | $ | |||||||
26
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | STOCKHOLDERS’ EQUITY |
| a. | Common Stock |
The Company has total authorized Common
Stock of
On May 19, 2023, in terms of a conversion
notice received from a convertible note holder, the Company issued
On August 16, 2023, in terms of a conversion
notice received from a convertible note holder, the Company issued
On August 24, 2023, in terms of a conversion
notice received from a convertible note holder, the Company issued
On August 30, 2023, the Company effectuated
a 1 for 30 reverse stock split, resulting in the issuance of an additional
On August 31, 2023, in terms of a conversion
notice received from a convertible note holder, the Company issued
On November 8, 2023, in terms of a
conversion notice received from a convertible note holder, the Company issued
On November 20, 2023, in terms of a
conversion notice received from a convertible note holder, the Company issued
On August 6, 2024, the Company received
a conversion notice from the holder of RRH Note 2 (see Note 12) pursuant to which $
Between August 6, 2024 and September
17, 2024, in terms of conversion notices received from 4 convertible note holders, including the RRH Note 2 described above, the Company
issued
27
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | 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, 2023 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding December 31, 2023 | $ | $ | $ | |||||||||||||||||||||
| Granted and issued | ||||||||||||||||||||||||
| Forfeited/Cancelled | ||||||||||||||||||||||||
| Vested | ||||||||||||||||||||||||
| Outstanding September 30, 2024 | $ | $ | $ | |||||||||||||||||||||
| * |
| Restricted Stock Granted and Vested | ||||||||||
| Grant date Price | Number Granted* | Weighted Average Fair Value per Share* | ||||||||
| $ | 1.47 | | $ | | ||||||
| $ | 1.50 | |||||||||
| $ | 1.65 | |||||||||
| $ | ||||||||||
| * |
The Company has recorded an expense of $
| c. | Preferred Stock |
The Company
has authorized
| d. | Warrants |
Between February
13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors. In terms of these
Securities Purchase Agreements, the Company issued five-year warrants to purchase an aggregate
On August 11, 2023, the Company issued an investor a five-year replacement
warrant for a warrant that had expired on February 13, 2023 exercisable for
28
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
In connection
with the formation of IPSIPay Express, the Company issued to each of the other venture partners, OpenPath and EfinityPay, IPEX Warrants
to purchase an aggregate of
On December
14, 2023, the maturity date of two notes totaling $
During 2023,
warrants exercisable for
On March 4,
2024, the Company entered into a Securities Purchase Agreement with an accredited investor, as disclosed in note 12 above. In terms of
the Securities Purchase Agreement, the Company issued a five-year warrant to purchase an aggregate of
On March 14,
2024, the Company extended the maturity date of 11 convertible notes maturing between February 13, 2024 and February 23, 2024 by an additional
six months and as compensation for the extension, the note holders were issued warrants exercisable for
Between May
3, 2024 and May 28, 2024, the Company entered into a Securities Purchase Agreements with four accredited investors, as disclosed in note
12 above. In terms of the Securities Purchase Agreement, the Company issued five-year warrants to purchase an aggregate of
On May 4,
2024, the maturity date of two notes totaling $
29
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
On August 6, 2024, the Company received
a conversion notice from the holder of RRH Note 2 (see Note 12). As a result of the conversion of the RRH Note 2, all warrants of the
Company that contain price-based anti-dilution protection had the exercise price of such warrants adjusted to $
The 2023 and
2024 Warrants contain exercise 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
| Nine months ended September 30, 2024 | ||||
| Exercise price | $ | |||
| Risk free interest rate | ||||
| Expected life | ||||
| Expected volatility of underlying stock | ||||
| Expected dividend rate | ||||
| Shares Underlying Warrants* | Exercise price per share* | Weighted average exercise price* | ||||||||||
| Outstanding January 1, 2023 | $ | $ | ||||||||||
| Granted | | |||||||||||
| Forfeited | ( | ) | ||||||||||
| Cancelled on disposal of investment in Frictionless and Beyond Fintech | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Increase in warrants issued due to anti-dilution price protection | ||||||||||||
| Forfeited | ||||||||||||
| Exercised | ||||||||||||
| Outstanding September 30, 2024 | $ | $ | ||||||||||
| * |
30
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | STOCKHOLDERS’ EQUITY (continued) |
| d. | Warrants (continued) |
| Warrants Outstanding* | Warrants Exercisable* | |||||||||||||||||||||||||
| Exercise Price* | Number Outstanding* | Weighted Average Remaining Contractual life in years | Weighted Average Exercise Price* | Number Exercisable* | Weighted Average Exercise Price* | Weighted Average Remaining Contractual life in years | ||||||||||||||||||||
| $ | 0.084 | |||||||||||||||||||||||||
| $ | 0.345 | |||||||||||||||||||||||||
| $ | 0.450 | |||||||||||||||||||||||||
| $ | 1.035 | |||||||||||||||||||||||||
| $ | 1.500 | |||||||||||||||||||||||||
| $ | 4.50 | |||||||||||||||||||||||||
| $ | 5.625 | |||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
| * |
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.
During 2023, the Company cancelled
options exercisable for
31
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 14 | STOCKHOLDERS’ EQUITY (continued) |
| e. | Stock options (continued) |
During 2024, the Company options
exercisable for
| Shares Underlying options* | Exercise price per share* | Weighted average exercise price* | ||||||||||
| Outstanding January 1, 2023 | $ | $ | | |||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ( | ) | $ | |||||||||
| Exercised | ||||||||||||
| Outstanding December 31, 2023 | $ | $ | ||||||||||
| Granted | ||||||||||||
| Forfeited/Cancelled | ( | ) | ||||||||||
| Exercised | ||||||||||||
| Outstanding September 30, 2024 | $ | $ | ||||||||||
| * |
| Options Outstanding* | Options Exercisable* | |||||||||||||||||||||||||
| Exercise Price* | Number Outstanding* | Weighted Average Remaining Contractual life in years | Weighted Average Exercise Price* | Number Exercisable* | Weighted Average Exercise Price* | Weighted Average Remaining Contractual life in years | ||||||||||||||||||||
| $ | 1.20 | | ||||||||||||||||||||||||
| $ | 4.50 | |||||||||||||||||||||||||
| $ | | $ | | | ||||||||||||||||||||||
The options outstanding have an intrinsic value of $0 as of September 30, 2024 and 2023.
The option expense was $
32
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 15 | LOSS ON CONVERTIBLE NOTES |
| Three months ended | Three months ended | Nine months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Expense on extension of maturity date of convertible notes | - | |||||||||||||||
| Loss on conversion of convertible notes | ||||||||||||||||
| Loss on anti-dilution price protection adjustment | ||||||||||||||||
| Loss on no notice default convertible note | ||||||||||||||||
On March
14, 2024, the Company extended the maturity date of 11 convertible notes which matured between February 13, 2024 and February 23, 2024
by six months and issued the note holders additional warrants exercisable for
On May 4,
2024, the maturity date of two notes totaling $
The debt
extinguishments resulted in a charge of $
Between August 6, 2024 and September
17, 2024, in terms of conversion notices received from 4 convertible note holders, the Company issued
As a result of the conversion of the
RRH Note 2 ( see note 12 above), included in the paragraph above, all other outstanding convertible notes of the Company that contain
price-based anti-dilution protection had the conversion prices of such notes adjusted to $
The value of the derivative liability
related to the anti-dilution price protected convertible notes was evaluated immediately prior to the Triggering Event and immediately
after the Triggering Event, resulting in an additional derivative liability and loss on convertible notes of $
| 16 | NET LOSS PER SHARE |
Basic loss per share is based on the weighted-average number of Common Stock outstanding during each period. Diluted loss per share is based on basic shares as determined above plus Common Stock equivalents. The computation of diluted net loss per share does not assume the issuance of Common Stock that have an anti-dilutive effect on net loss per share. For the three and nine months ended September 30, 2024 and 2023 all warrants options and convertible debt securities were excluded from the computation of diluted net loss per share.
Three and (Shares) | Three and nine months ended September 30, 2023 (Shares) | |||||||
| Convertible debt | ||||||||
| Stock options | ||||||||
| Warrants to purchase shares of Common Stock | ||||||||
33
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to the unaudited Condensed Consolidated Financial Statements
| 17 | RELATED PARTY TRANSACTIONS |
The following transactions were entered into with related parties during the nine months ended September 30, 2024:
William Corbett
An option expense for options still
vesting for Mr. Corbett was $
Richard Rosenblum
An option expense for options still
vesting for Mr. Rosenblum was $
| 18 | COMMITMENTS AND CONTINGENCIES |
The Company has notes payable and
convertible notes payable, disclosed under Notes 11 and 12 above, which had and have maturity dates between
| 19 | SUBSEQUENT EVENTS |
October 2024 Senior Promissory Notes
On October 10, 2024, the Company entered
into two Securities Purchase Agreements with accredited investors, pursuant to which the Company issued two senior promissory notes each
with a principal amount totaling $
October 2024 Convertible Promissory Notes
On October 22, 2024, the Company entered
into a Securities Purchase Agreement with an accredited investor, pursuant to which the Company received an aggregate of $
The note and warrant contain conversion
limitations providing that a holder thereof may not convert the notes or exercise the 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
Note Conversions
On October 11, 2024, the Company received
two conversion notices from two convertible note holders, each converting an aggregate of $
On October 25, 2024, the Company received
two conversion notices from two convertible note holders, each converting an aggregate of $
On November 11, 2024, the Company received
two conversion notices from two convertible note holders, each converting an aggregate of $
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.
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
All references to “we,” “us,” “our” and the “Company” refer to Innovative Payment Solutions, Inc., a Delaware corporation and its consolidated subsidiaries unless the context requires otherwise.
Overview
We are a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new account-to-account payment application called Instant Direct Payments (which we call IPEX) as well as traditional credit card processing services. We have in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.
Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business
Development of IPSIPay Express
Our principal business as of the date of this Report consists of our participation in the IPSIPay Express joint venture. Since May 2023, we have been working with our joint venture partners OpenPath and EfinityPay to establish the necessary elements to commercially launch IPEX. This remains our top business priority. We have been responsible for certain key aspects of establishing and launching IPEX. We have continued these efforts during 2024. No assurances can be given that we will be able to launch IPEX with our joint venture partners or that IPSIPay Express will generate revenues for us.
Merger Agreement with Business Warrior
On July 28, 2024, we entered into an Agreement and Plan of Merger pursuant to which we would acquire Business Warrior Corporation, a Wyoming corporation (“Business Warrior”). See Note 1(c) to the accompanying financial statements for information regarding the terms and conditions of this proposed merger.
Business Warrior offers a proprietary software solution for lenders called PayPlan, a next-generation SaaS platform that offers lenders unprecedented flexibility to customize their loan offerings and adjust underwriting rules in minutes, without the need for coding or significant financial outlay.
We believe this strategic merger brings together the strengths of both our Company and Business Warrior, creating an expanded fintech offering and promising immediate cost efficiencies and a stronger executive team capable of raising additional capital. The integration of our Company with Business Warrior will enable optimization of talent and networks, allowing the teams from both companies to leverage their experience and connections to drive business growth. The merger also aligns the scalable technologies of our Company and Business Warrior, paving the way for increased revenue generation and, ultimately, profitability.
We expect to spend much of the fourth quarter of 2024 raising capital necessary to seek appropriate shareholder approvals, and seeking such approvals, for the merger and otherwise fulfilling the conditions to closing of the merger. Among such conditions is an exchange of our and Business Warrior’s outstanding convertible promissory notes for shares of a newly designated preferred stock of our Company (we have convertible note investors in common with Business Warrior). However, the terms of such exchange and such preferred stock remain subject to negotiation and approval of our shareholders. Moreover, there are several other key conditions to closing which will be challenging to fulfill. Therefore, our ability to consummate the merger is subject to significant risks and uncertainties, and the merger may never be consummated. The efforts needed to complete the merger and these risks and uncertainties will affect our results of operations in the coming periods.
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Critical Accounting Estimates
Preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. Significant accounting policies are fundamental to understanding our financial condition and results as they require the use of estimates and assumptions which affect the financial statements and accompanying notes. See Note 2 - Summary of Significant Accounting Policies of the Notes to the condensed Consolidated Financial Statements included in Part I, Item I of this Form 10-Q for further information.
The critical accounting policies that involved significant estimation included the following:
Derivative liabilities
We have certain short-term convertible notes and certain warrants which have fundamental transaction clauses which might result in cash settlement. The conversion feature of these convertible notes and warrants are recorded as derivative liabilities which are valued at each reporting date.
The derivative liability is valued using the following inputs:
| ● | Conversion prices; |
| ● | Current market prices of our equity |
| ● | Risk free interest rates; |
| ● | Expected remaining life of the derivative liability; |
| ● | Expected volatility of the underlying stock; and expected dividend rates |
Any change in the above factors such as a change in risk free interest rates, a significant increase or decrease in our current stock prices and a change in the volatility of our Common Stock may result in a significant increase or decrease in the derivative liability.
Results of Operations
Results of Operations for the Three Months Ended September 30, 2024 and 2023
Net revenue
We recorded minimal revenues of $0 and $(28) during the three months ended September 30, 2024 and 2023, respectively. The revenue in the prior year was generated from our legacy IPSIPay platform which was novated to a third party in September 2023. We pivoted to focus our attention on the IPSIPay Express joint venture, where we expect to generate initial revenues during the 2024 fiscal year, dependent on product testing, which is currently underway, and market acceptance. In addition, if the merger with Business Warrior is consummated, we expect to generate revenues from Business Warrior’s business activities.
Cost of goods sold
We did not have any revenues or cost of goods sold for the three months ended September 30, 2024. Cost of goods sold was $387 for the three months ended September 30, 2023 and consisted primarily of bank and merchant related fees and chargebacks.
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General and administrative expenses
General and administrative expenses were $296,438 and $745,688 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $449,250 or 60.2%. The decrease is primarily due to the following:
| (i) | Legal fees were $89,334 and $236,832 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $147,498 or 62.3%. The decrease is primarily due to the prior year legal fees related to unfair dismissal matters which were claimed in the prior year by several individuals, offset by legal fees incurred on the proposed merger with Business Warrior. | |
| (ii) | Professional fees were $11,607 and $131,867 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $120,260 or 91.2%. The decrease is primarily due to professional fees incurred in the prior year from Frictionless for management fees and customer support fees and a decrease in solicitation agent fees incurred in the prior year to support our prior year annual general meeting. | |
| (iii) | Salaries and wages were $140,087 and $278,345 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $138,258 or 49.7%. the decrease is primarily due to the decrease in accrued compensation due to our CEO by $60,000 during the current period and a reduction in payroll taxes of $8,704 related to the reduction in payroll and the reduction in stock-based compensation of $62,976 due to the full amortization of option expense during the current year. | |
| (iv) | Audit fees were $12,500 and $(23,000) for the three months ended September 30, 2024 and 2023, an increase of $35,500 or 154.3%, primarily due to a credit processed in the prior year for duplicated invoices recorded in the prior year. | |
| (v) | Insurance expense was $317 and $11,771 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $11,454 or 97.3%. This is primarily due to the suspension of insurance coverage during the current period as no business is being conducted during this development phase. | |
| (vi) | Selling and marketing expenses were $5,991 and $87,361 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $81,370 or 93.1%. the decrease is primarily due the decrease in social media marketing expenses and the decrease in endorsement fees due to Mario Lopez which were fully amortized during the current year. | |
| (vii) | The balance of the general and administrative expenses was $36,601 and $22,512 for the three months ended September 30, 2024 and 2023, respectively, an increase of $14,089 or 62.6%. The increase is made up of several individually insignificant items. |
Depreciation and amortization
Depreciation was $543 and $100,387 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $99,844, primarily due to the prior period depreciation of our legacy IPSIPay software platform and purchased software of $93,095 prior to the novation of such platform to a third party during the prior year.
Loss on convertible notes
Loss on convertible notes was $4,534,491 and $58,769 for the three months ended September 30, 2024 and 2023, respectively, an increase of $4,475,722. The loss on convertible notes during the current year related to; (i) a loss of $4,318,669 realized on an anti-dilution adjustment to the conversion feature of certain convertible notes; (ii) a loss of $56,329 realized on the conversion feature of a convertible note which through a no notice default clause, triggered a variable priced conversion liability; and (iii) a loss of $159,493 realized on conversion of certain convertible notes at prices lower than the current market price during the current year. In the prior year, the loss on convertible notes related to the conversion of $135,000 of convertible debt into 391,306 shares of common stock.
Fair value on price protected warrants
Fair value on price protected warrants was $2,051,405 and $0 for the three months ended September 30, 2024 and 2023, respectively. During the current year the exercise price of certain warrants were reset due to the anti-dilution price protection and in the case of certain warrants, full ratchet price protection, from an exercise price of $0.345 to $0.084. This resulted in a Black -Scholes derived valuation difference related to those certain warrants of $2,051,405.
Penalty on convertible notes
Penalty on convertible notes was $6,611 and $9,306 for the three months ended September 30, 2024 and 2023, a decrease of $2,695 or 29.0%. The current year penalty arose on certain warrants conversions which were triggered by delayed payments to the note holders, resulting in the charge of $6,611.
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Loss on novation
Loss on novation was $0 and $1,066,165 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $1,066,165 or 100%. The prior year loss on novation arose due to the September 2023 transfer of our legacy 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 $0 and $14,176 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $14,176 or 100.0%. We issued a replacement warrant exercisable for 33,334 shares to an investor during the prior period.
Interest expense, net
Interest expense was $152,376 and $110,328 for the three months ended September 30, 2024 and 2023, respectively, an increase of $42,048 or 38.1%. The increase is related to the additional $785,502 of new convertible note funding and $233,333 of promissory note funding during the current year for working capital purposes.
Amortization of debt discount
Amortization of debt discount was $233,948 and $303,042 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $69,094 or 22.8%. The decrease is primarily due to the full amortization of debt discount on convertible notes carried over from the prior year , the current year debt discount, and consequent amortization thereof, on new funding is significantly lower than the prior year.
Derivative liability movements
Derivative liability movements were $5,538,008 and $1,795,642 for the three months ended September 30, 2024 and 2023, respectively, a net movement of $3,742,366 or 72.7%. The derivative liability arose primarily due to the revaluation of certain repriced conversion features on convertible notes and the reset of the exercise price and full ratchet reset of certain warrants during the current year, and the subsequent mark-to-market of these derivatives due to a declining stock price on the exercise of certain convertible notes during the current year.
Net loss from equity method investment
Net loss from equity method investment was $88 and $402,509 for the three months ended September 30, 2024 and 2023, respectively, a decrease of $402,421 or 99.9%. The loss in the prior year related is due to the dilutive effect of withdrawals of cash out of the joint venture by the other joint venture parties, impacting on the overall value of the. IPSIPay Express Joint venture attributes to the Company.
Net loss
Net loss was $1,728,152 and $1,015,143 for the three months ended September 30, 2024 and 2023, respectively, an increase of $713,009 or 70.2%. The increase is primarily due to the increase in the loss on convertible notes and the increase in the fair value adjustment on price protected warrants, offset by the decrease in loss on novation, the decrease in operating loss and the movement in derivative liabilities, as discussed in detail above.
Results of Operations for the Nine Months Ended September 30, 2024 and 2023
Net revenue
We did not have any revenues during the nine months ended September 30, 2024 and minimal revenues of $410 for the nine months ended September 30, 2023. The revenue in the prior year was generated from the IPSIPay platform which was been novated to a third party in September 2023. We pivoted to focus our attention on the IPSIPay Express joint venture, where we expect to generate initial revenues during the 2024 fiscal year, dependent on product testing, which is currently underway, and market acceptance. In addition, if the merger with Business Warrior is consummated, we expect to generate revenues from Business Warrior’s business activities.
Cost of goods sold
We did not have any revenues or cost of goods sold for the nine months ended September 30, 2024. Cost of goods sold was $2,756 for the nine months ended September 30, 2023 and consisted primarily of bank and merchant related fees and chargebacks.
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General and administrative expenses
General and administrative expenses were $1,330,367 and $2,753,266 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $1,422,899 or 51.7%. The decrease is primarily due to the following:
| (i) | Legal fees were $307,997 and $611,178 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $303,181 or 49.6%. The decrease is primarily due to the legal matters relating to unfair dismissal matters which were claimed in the prior year by several individuals, offset by legal expenses related to the proposed acquisition of Business Warrior. | |
| (ii) | Professional fees were $35,441 and $583,873 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $548,432 or 93.9%. The decrease is due to the reduction in professional fees related to services previously provided to us by Frictionless, amounting to $490,293 and a reduction in proxy solicitation agent fees of $47,069, which were required in the prior year to approve the reverse stock split at our 2023 annual meeting of stockholders. | |
| (iii) | Salaries and wages were $614,081 and $836,887 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $222,806 or 26.6%. The decrease is primarily attributable to the reduction in stock-based compensation of $62,976 due to the current-year full amortization of option expense related to options issued to our management, the decrease in our previous CEO’s salary of $120,000 during the second and third quarter of 2024 and the related decrease in employer related payroll taxes and health insurance costs during the current year. | |
| (iv) | Audit fees were $105,000 and $84,000 for the nine months ended September 30, 2024 and 2023, an increase of $21,000 or 25.0%, primarily due to a credit processed in the prior year for duplicated invoices recorded in the prior year. | |
| (v) | Insurance expense was $943 and $105,067 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $104,124 or 99.1%. This is primarily due to the suspension of insurance coverage during the current period as no business is being conducted during this development phase. | |
| (vi) | Selling and marketing expenses were $154,864 and $348,003 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $193,139 or 55.5%. The decrease is primarily due to the fair value of the prior period immediately vesting warrants granted to Mario Lopez (who performed spokesperson services for us), 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 our legacy IPSIPay platform and e-wallet in the prior year. | |
| (vii) | The balance of the general and administrative expenses was $112,042 and $184,258 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $72,216 or 39.9%, which is made up of several individually insignificant items. |
Depreciation
Depreciation was $1,627 and $380,092 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $378,465 or 99.6%, primarily due to the depreciation of the software platform and purchased software of $374,298, prior to the novation of the platform to a third party during the prior year.
Loss on convertible notes
Loss on convertible notes was $4,636,843 and $77,247 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $4,559,596. The loss on convertible notes during the current year related to; (i) a loss of $4,318,669 realized on an anti-dilution adjustment to the conversion feature of certain convertible notes; (ii) a loss of $56,329 realized on the conversion feature of a convertible note which through a no notice default clause, triggered a variable priced conversion liability; (iii) a loss of $159,493 realized on conversion of certain convertible notes at prices lower than the current market price during the current year; and (iv) a loss on debt extinguishment of $102,352. In the prior year, the loss on debt conversion related to the conversion of $160,000 of convertible debt into 463,770 shares of common stock.
Fair value on price protected warrants
Fair value on price protected warrants was $2,051,405 and $0 for the nine months ended September 30, 2024 and 2023, respectively. During the current year the exercise price of certain warrants were reset due to the anti-dilution price protection and in the case of certain warrants, full ratchet price protection, from an exercise price of $0.345 to $0.084. This resulted in a Black -Scholes derived valuation difference related to those certain warrants of $2,051,405.
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Penalty on convertible notes
Penalty on convertible notes was $6,611 and $9,306 for the nine months ended September 30, 2024 and 2023, a decrease of $2,695 or 29.0%. The current year penalty arose on certain warrants conversions which were triggered by delayed payments to the note holders, resulting in the charge of $6,611.
Loss on novation
Loss on novation was $0 and $1,066,165 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $1,066,165 or 100%. The prior year loss on novation arose due the novation of our legacy 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 $0 and $14,176 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $14,176 or 100.0%. We issued a replacement warrant exercisable for 33,334 shares to an investor during the prior period.
Interest expense, net
Interest expense was $435,471 and $290,628 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $144,843 or 49.8%. The increase is related to the additional $785,502 of new convertible note funding and $233,333 of promissory note funding during the current year for working capital purposes.
Amortization of debt discount
Amortization of debt discount was $874,193 and $414,696 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $459,497 or 110.8%. The increase is primarily due to the amortization of debt discount on convertible notes carried over from the prior year and additional debt discount on new convertible notes issued during the current year to fund working capital.
Derivative liability movements
Derivative liability movements were $6,461,496 and $1,483,710 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $4,977,7862,541,364 or 171.3%. The derivative liability arose primarily due to the revaluation of certain repriced conversion features on convertible notes and the reset of the exercise price and full ratchet reset of certain warrants during the current year, and the subsequent mark-to-market of these derivatives due to a declining stock price on the exercise of certain convertible notes during the current year.
Net loss from equity method investment
Net loss from equity method investment was $660 and $403,890 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $403,230 or 99.8%. The loss in the prior year related is due to the dilutive effect of withdrawals of cash out of the joint venture by the other joint venture parties, impacting on the overall value of the. IPSIPay Express Joint venture attributes to the Company.
Net loss from continuing operations
Net loss from continuing operations was $2,857,262 and $3,928,102 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $1,070,840 or 27.3%. The decrease is primarily due to the decrease in general and administrative expenses, a decrease in depreciation and amortization, a decrease in loss on novation and the movement in derivative liability, offset by an increase in loss on convertible notes and fair value oof price protected warrants, as discussed in detail above.
Operating loss from discontinued operations
Operating loss from discontinued operations was $0 and $40,821 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $40,821 or 100.0%. On May 12, 2023, we entered into an agreement with Frictionless to unwind the equity ownership stakes that we and Frictionless have in each other and in Beyond Fintech. We assigned to Frictionless all common stock of Frictionless owned by us and all shares of common stock of Beyond Fintech owned by us.
Loss on disposal of subsidiary
Loss on disposal of subsidiary was $0 and $495,424 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $495,424 or 100.0%. This relates to the unwinding of our relationship with Frictionless as described above. The consideration received by us for the assignment of our equity in Beyond Fintech to Frictionless was $250,000, resulting in a net loss on disposal of $495,424.
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Net loss
Net loss was $2,857,262 and $4,464,347 for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $1,607,085 or 36.0%. the decrease is primarily attributable to the decrease in net loss from continuing operations and the decrease in loss on disposal of subsidiary and investment, as described 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 $61.5 million through September 30, 2024 and incurred negative cash flow from operations of $0.5 million for the nine months ended September 30, 2024. Our primary focus is on our IPSIPay Express LLC three-way 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. To date, this joint venture has not generated revenue, but we believe much of the background work necessary for IPSIPay Express to commence revenue generating operations from payment processing has been completed. No assurances can be given, however, that such revenue generation will commence or be meaningful to us as an approximately 22% joint venture partner in IPSIPay Express.
We have also entered into a merger agreement with Business Warrior as described above and expect to generate revenue from Business Warrior’s product offerings following this merger if the transaction is consummated.
At September 30, 2024, we had cash of $1,033 and working capital deficit of $10.3 million, including a derivative liability of $1.6 million. After eliminating the derivative liability our working capital deficit is $8.7 million.
We used cash of $0.5 million and $1.1 million in operations for the nine months ended September 30, 2024 and 2023, respectively. Overall cash used in operations decreased by $0.6 million due to cost containment to preserve cash balances.
We invested $0.3 million in Business Warrior in the form of notes receivable for strategic purposes during the nine months ended September 30, 2024. In the prior year we had invested $0.1million in our payment platforms which we subsequently disposed of or novated to other parties and we invested $1.0 million in our equity method investment.
We generated cash of $0.8 million from promissory notes and convertible notes and repaid $0.3 million of convertible notes and generated a further $0.2 million in notes payable during the current period. In the prior year we generated $2.0 million from convertible notes and repaid $0.2 million.
At September 30, 2024, we had outstanding convertible notes, including interest thereon of $4.9 million, net of unamortized debt discount of $0.2 million and outstanding promissory notes, including interest thereon of $1.4 million, net of unamortized debt discount of $0.06 million. The notes contain certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets. The notes bear interest at a rates of 8% to 32.0% per annum. and are convertible into our common stock at conversion prices ranging from fixed conversion prices of $0.084 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events), to variable conversion prices of 60% to 70% of lowest trading prices over a 10 to 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.
Given our losses and negative cash flows, we will be required to raise significant additional funds by issuing equity or equity-linked securities to progress our existing business, complete the Business Warrior merger and grow the combined company (should the merger be consummated) as planned. 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risks
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Executive Chairman (“Executive Chairman”) and our President 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 Executive Chairman and CFO concluded that our disclosure controls and procedures as of September 30, 2024 are not effective due to a lack of written policies and procedures to address all material transactions and developments impacting our financial statements.
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, 2024.
Our management is committed to improving our controls and procedures by, among other matters, continuing to consider and adopt appropriate policies and procedures to address all material transactions and developments impacting our financial statements. However, our management does not expect that our disclosure controls and procedures and our internal control processes, even if improved, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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Part II. Other Information
Item 1. Legal Proceedings.
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Below is a description of outstanding pending litigation matters. As also noted previously, litigation is subject to inherent uncertainties and an adverse result in the below described or other matters may arise from time to time that may harm our business. Other than as set forth below, we are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.
Voloshin, et al., v. Innovative Payment Solutions, Inc., et al.
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 (or independent consultants) of our Company and one employee who was on suspension, did not receive compensation to which they claim they were entitled and that they were wrongfully terminated for engaging in protected activities in violation of the Sarbanes-Oxley Act of 2002, 18 U.S.C. § 1514A. The complaint sought reinstatement of complainants’ employment, monetary damages including back pay, raises, bonuses, benefits, overtime, emotional distress and loss of reputation, orders of abatement and injunctive relief, and costs of litigation.
In early 2022, OSHA dismissed the claims of Ms. Rey and Mr. Perez, and they appealed that decision. Prior counsel moved to dismiss the remaining claims and as of this writing OSHA took no action with respect to that motion as ultimately the former employees elected to proceed in federal court. Pursuant to agreement and stipulation, dismissal of the OSHA claims was accomplished without prejudice on November 10, 2022.
On November 7, 2022, the same five employees filed a lawsuit, not in federal court, but in the California Superior Court for the County of Los Angeles, against our Company and the same individuals against whom they had asserted their OSHA claim. The complaint asserted claims for, among other things, breach of contract, failure to pay wages and failure to reimburse expenses under the California Labor Code and asserting retaliation claims under the California Labor Code. On December 16, 2022, the same five employees filed an amended complaint dropping all defendants from the case except Mr. Corbett and our Company. The amended complaint asserts claims for violations of California Labor Code Section 1102.5; wrongful termination in violation of public policy; breach of contract; breach of covenant of good faith and fair dealing; violation of California Labor Code Section 201; waiting time penalties (Cal. Lab. Code Sections 201 & 203) and violation of California Labor Code Section 2802.
We and Mr. Corbett, the sole remaining individual defendant, through prior counsel moved to compel arbitration on February 17, 2023. As a result of that motion and a stipulated order entered by the court, all proceedings in the Superior Court were stayed.
On June 8, 2023, while our motion to compel arbitration was pending in the Superior Court three of the employees (Naum Voloshin, Alexander Voloshin, and Novikov) filed a civil action in the U.S. District Court for the Central District of California. Naum Voloshin, et al., v. Innovative Payment Solutions, Inc., Case No. CV 23-4515-JFW (PVCx), which alleges a single cause of action for retaliation in violation of The Sarbanes-Oxley Act of 2002 (the “Federal Action”). The plaintiffs in the Federal Action made no attempt to serve their complaint or to give notice to any defendant in the Federal Action until August 2023.
On August 30, 2023, the Hon. William A. Crowfoot granted our and Mr. Corbett’s motion to compel arbitration, concluding that all of the claims alleged in the former employees’ first amended complaint were subject to arbitration. The California Court of Appeal subsequently denied the former employees’ petition for writ of mandate on November 1, 2023. On December 15, 2023, all five former employees filed a demand for arbitration. We withdrew our motion to compel appointment of an arbitrator.
Upon motion of our Company and Mr. Corbett, on January 10, 2024, the U.S. District Court for the Central District of California stayed all proceedings in the Federal Action until the arbitration is completed.
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Plaintiffs Naum Voloshin, Andrey Novikov, and Alexander Voloshin asserted, in the Federal Action, that they are entitled to damages in the following amounts: Naum Voloshin: $950,000 plus an unstated amount of lost wages and emotional distress damages. The claim is premised upon Mr. Voloshin earning $15,000 per month and a claim that he was entitled to receive 333,334 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021 that he would have sold on July 1, 2021 for $2.85 per share on July 1, 2021 for $950,000. Andrey Novikov: $285,000 plus emotional distress and punitive damages. The claim is premised upon Mr. Novikov earning $15,000 per month and a claim that he was entitled to receive 100,000 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021, that he would have sold at $2.85 per share on July 1, 2021 for $285,000. Alexander Voloshin: $263,000 plus emotional distress and punitive damages. The claim is premised upon an alleged two-year contract signed in May 2021 that paid him $7,000 per month and that promised him 333,334 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29, 2021. We have not received meaningful information on the amount of the claims of the other two plaintiffs.
An arbitrator was appointed through the American Arbitration Association and the arbitrator issued a scheduling order and Notice of Hearing. The ten-day arbitration has been set for April 7-11, 2025, and April 14-18, 2025. Management continues its vigorous defense of the claims.
In mid-April 2024, the Company and Mr. Corbett changed attorneys. The Law Offices of Jeffrey B. Neustadt replaced prior counsel. Mr. Neustadt and Plaintiffs’ counsel conferred and timely submitted the required joint statement on April 25, 2024.
Initial discovery was served by both sides. Documents were exchanged, and depositions proceeded for 4 persons with three depositions still outstanding, the first scheduled to be heard on November 20, 2024.
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. He bases his claim in part on the unilateral expectation that he receives 2.7 million shares of the Company. Assuming he is owed any shares, a claim which we dispute, after the reverse 30-1 split he would receive only 90,000 shares.
Through prior counsel, we and Mr. Corbett filed a motion to compel arbitration. The motion was denied on October 4, 2022. We and Mr. Corbett then appealed that decision to the California Court of Appeal. As a result of the appeal, the court case was stayed until the appeal was decided. As a result of the stay, the demurrer (the equivalent of a motion to dismiss) we filed through prior counsel was not decided.
On February 27, 2024, the California Court of Appeal, Second District, reversed the Superior Court’s decision denying our motion to compel arbitration. The Court of Appeal remanded the case to the Superior Court with directions to issue a new order compelling to arbitration the parties’ dispute regarding the enforceability of the arbitration clause. As the prevailing parties, the Company and Mr. Corbett were awarded costs on appeal.
As expected, the plaintiff-initiated arbitration before the American Arbitration Association (“AAA”) based on the appellate ruling. While, as the court order states, the plaintiff may renew his challenge to the arbitration clause before the arbitrator, we believe such challenges are rare and rarely succeed. Accordingly, we expect the dispute likely will be resolved through AAA arbitration. Management is vigorously defending the claims and intends to continue to do so.
In mid-April 2024, the Company and Mr. Corbett changed attorneys. The Law Offices of Jeffrey B. Neustadt replaced prior counsel. Mr. Neustadt’s office submitted the cost bill and an attorneys’ fees motion that will be decided on September 10, 2024, by the trial court for the fees incurred on the successful appeal. As with the Voloshin matter, we are contractually bound to proceed through arbitration and to that end completed the process of selecting an arbitrator under the AAA rules. That appointment was made on August 7, 2024. Henceforth, the Minkovich matter will track along the same lines as the Voloshin matter but on a smaller scale as there is only one plaintiff in the Minkovich matter as opposed to five in the Voloshin matter. The arbitration hearing (“trial”) in the Minkovich matter was set for June 30, 2025 to July 3, 2025at the continued “preliminary conference” held on October 7, 2024. Before the arbitration hearing, the parties will engage in discovery and some motion work which may (1) either dispose of all or some of the case, and/or (2) result in the Minkovich matter being sent back to the Superior Court for final determination.
Item 1A. Risk Factors.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Between February 6, 2024 and October 22, 2024, we entered into Securities Purchase Agreements with 9 accredited investors, pursuant to which we received an aggregate of $575,001 in gross proceeds from the Investors through the initial closing of a private placement issuance of:
| ● | Convertible Promissory Notes (the “Notes” and each a “Note”); and |
| ● | five-year warrants (the “Warrants” and each a “Warrant”) to purchase an aggregate 579,711 shares of the Company’s Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). |
The Notes mature between 9 months and 12 months, and bear interest at 8% per annum and are convertible into shares of Common Stock at a conversion prices ranging from $0.084 to $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).
The Notes may be prepaid at any time without penalty. The Company is under no obligation to register the shares of Common Stock underlying the Notes or the Warrants for public resale, pursuant to Section 4(a)(2) of the Securities Act.
Between April 2, 2024 and May 28, 2024, we entered into Securities Purchase Agreements with 2 accredited investors, whereby we received net proceeds of $310,000 after original issued discounts of $74,510 in exchange for:
| ● | Variable Priced Convertible Promissory Notes (the “Variable Notes” and each a “Variable Note”); and |
| ● | five-year warrants (the “Warrants” and each a “Warrant”) to purchase an initial aggregate 536,646 shares of the Company’s Common Stock at an initial exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).
On August 6, 2024, in terms of a conversion notice received, the terms of the warrants were changed, in terms of a full ratchet provision by increasing the number of shares subject to exercise of the warrants by 9,773,028 shares of the Company’s common stock to a total of 12,918,370 shares of the Company’s common stock, and an adjustment to the exercise price to $0.084 per share. |
The Variable Notes are convertible into common stock at a variable conversion price upon an event of default, the Variable conversion price was triggered in the last quarter. The Variable Notes are convertible into shares of common stock at conversion prices ranging from 65% to 70% of the lowest trading price five to ten day prior to conversion, bear interest at a one-time interest charge rate ranging from 8% to 15%, giving rise to an effective interest rates between 11.03% and 24.98%. The Variable Notes each have fixed instalment repayment terms.
Between August 6, 2024 and September 17, 2024, the Company received conversion notices from 4 convertible noteholders, converting $198,716 of principal and interest of convertible notes into 2,365,663 shares of Common Stock at a conversion price of $0.084 per share.
Between October 11, 2024 and November 11, 2024, the Company received conversion notices from 2 convertible noteholders, converting $213,855 of principal and interest of convertible notes into 2,545,894 shares of Common Stock at a conversion price of $0.084 per share.
On August 6, 2024, three notes with an aggregate principal balance of $1,859,174 as of September 30, 2024 ($868,951, 901,334 and $88,889, respectively), maturing between October 31, 2024, which maturity date gets automatically extended on a monthly basis, and May 9, 2025, had their conversion prices reset from between $0.10 and $0.345 to $0.084 per share of common stock.
Between March 12, 2024 and June 14, 2024, the Company issued five-year warrants exercisable for 680,136 shares of the Company’s common stock at an exercise price of $0.345 per share, in exchange for extending the maturity date of the underlying convertible notes.
Use of Proceeds from Public Offering of Common Stock
Not applicable.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INNOVATIVE PAYMENT SOLUTIONS, INC. | ||
| Date: November 12, 2024 | By: | /s/ Richard Rosenblum |
| Richard Rosenblum | ||
| Principal Officer, President & Chief Financial Officer | ||
| (Principal Executive Officer, Principal Financial and Accounting Officer) | ||
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