UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended June 30, 2024
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition
period from ____________ to ____________
Commission file number 000-55648
INNOVATIVE PAYMENT SOLUTIONS, INC. |
(Exact name of registrant as specified in its charter) |
Nevada | | 33-1230229 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
56B 5th Avenue, Lot 1 #AT, Carmel By The Sea, CA | | 93921 |
(Address of Principal Executive Office) | | (Zip Code) |
(866) 477-4729 |
(Registrant’s telephone number, including area code) |
n/a |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered
pursuant to Section 12(b) of the Act: None
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
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.) Yes ☒ No ☐
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 ☐ |
| Non-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 August 14, 2024, there were 13,984,568 shares of the
Company’s Common Stock issued and outstanding.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Form 10-Q
For the Quarter Ended
June 30, 2024
Index
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.
PART I - FINANCIAL
INFORMATION
Item 1. Financial Statements.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Condensed Consolidated
Balance Sheets
| |
June 30, | | |
December 31, | |
| |
2024 | | |
2023 | |
| |
(Unaudited) | | |
| |
Assets | |
| | |
| |
Current Assets | |
| | |
| |
Cash | |
$ | 79,027 | | |
$ | 50,433 | |
Receivable from equity method investment | |
| 900 | | |
| - | |
Notes receivable - current | |
| 30,072 | | |
| - | |
Other current assets | |
| 17,551 | | |
| 38,818 | |
Total Current Assets | |
| 127,550 | | |
| 89,251 | |
| |
| | | |
| | |
Non-current assets | |
| | | |
| | |
Plant and equipment | |
| 5,942 | | |
| 7,027 | |
Notes receivable, net of unamortized discount of $56,650 | |
| 169,540 | | |
| - | |
Security deposit | |
| 5,000 | | |
| 5,000 | |
Equity method investment | |
| 703,866 | | |
| 703,938 | |
Total Non-Current Assets | |
| 884,348 | | |
| 715,965 | |
Total Assets | |
$ | 1,011,898 | | |
$ | 805,216 | |
| |
| | | |
| | |
Liabilities and Equity (Deficit) | |
| | | |
| | |
| |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
$ | 2,450,100 | | |
$ | 2,023,375 | |
Federal relief loans – current portion | |
| 7,788 | | |
| 9,369 | |
Notes payable, net of unamortized discount of $30,673 and $0, respectively | |
| 1,214,158 | | |
| 1,062,007 | |
Convertible debt, net of unamortized discount of $382,103 and
$432,702, respectively | |
| 4,764,895 | | |
| 3,704,280 | |
Derivative liability | |
| 680,708 | | |
| 1,434,196 | |
Total Current Liabilities | |
| 9,117,649 | | |
| 8,233,227 | |
| |
| | | |
| | |
Non-Current Liabilities | |
| | | |
| | |
Federal relief loans | |
| 150,000 | | |
| 150,000 | |
Total Non-Current Liabilities | |
| 150,000 | | |
| 150,000 | |
| |
| | | |
| | |
Total Liabilities | |
| 9,267,649 | | |
| 8,383,227 | |
| |
| | | |
| | |
Equity (Deficit) | |
| | | |
| | |
Preferred stock, $0.0001 par value, 25,000,000 shares authorized, and 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023. | |
| | | |
| - | |
Common stock, $0.0001 par value; 750,000,000 shares authorized, 13,819,889 issued and outstanding as of June 30, 2024 and December 31, 2023. | |
| 1,382 | | |
| 1,382 | |
Additional paid-in-capital | |
| 51,107,595 | | |
| 50,656,225 | |
Accumulated deficit | |
| (59,364,728 | ) | |
| (58,235,618 | ) |
Total Equity (Deficit) | |
| (8,255,751 | ) | |
| (7,578,011 | ) |
Total Liabilities and Equity (Deficit) | |
$ | 1,011,898 | | |
$ | 805,216 | |
See accompanying notes
to the unaudited condensed consolidated financial statements.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Condensed Consolidated
Statements of Operations
(Unaudited)
| |
Three months ended | | |
Three months ended | | |
Six months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | | |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| |
Net Revenue | |
$ | - | | |
$ | 5 | | |
$ | - | | |
$ | 438 | |
| |
| | | |
| | | |
| | | |
| | |
Cost of Goods Sold | |
| - | | |
| 284 | | |
| - | | |
| 2,369 | |
| |
| | | |
| | | |
| | | |
| | |
Gross loss | |
| - | | |
| (279 | ) | |
| - | | |
| (1,931 | ) |
| |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 407,132 | | |
| 1,057,631 | | |
| 1,033,929 | | |
| 2,007,578 | |
Depreciation and amortization | |
| 542 | | |
| 139,015 | | |
| 1,084 | | |
| 279,705 | |
Total Expense | |
| 407,674 | | |
| 1,196,646 | | |
| 1,035,013 | | |
| 2,287,283 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from Operations | |
| (407,674 | ) | |
| (1,196,925 | ) | |
| (1,035,013 | ) | |
| (2,289,214 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss on convertible notes | |
| (36,305 | ) | |
| (18,478 | ) | |
| (102,352 | ) | |
| (18,478 | ) |
Loss on disposal of assets | |
| (2,600 | ) | |
| - | | |
| (2,600 | ) | |
| - | |
Interest expense | |
| (146,176 | ) | |
| (95,079 | ) | |
| (283,095 | ) | |
| (180,300 | ) |
Interest income | |
| 7,997 | | |
| | | |
| 11,279 | | |
| | |
Amortization of debt discount | |
| (320,346 | ) | |
| (88,687 | ) | |
| (640,245 | ) | |
| (111,654 | ) |
Derivative liability movements | |
| 107,547 | | |
| (1,252,682 | ) | |
| 923,488 | | |
| (311,932 | ) |
Loss before Income Taxes | |
| (797,557 | ) | |
| (2,651,851 | ) | |
| (1,128,538 | ) | |
| (2,911,578 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income Taxes | |
| - | | |
| - | | |
| - | | |
| - | |
Net Loss after income taxes | |
| (797,557 | ) | |
| (2,651,851 | ) | |
| (1,128,538 | ) | |
| (2,911,578 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss from equity method investments | |
| (88 | ) | |
| (1,381 | ) | |
| (572 | ) | |
| (1,381 | ) |
Net loss from continuing operations | |
| (797,645 | ) | |
| (2,653,232 | ) | |
| (1,129,110 | ) | |
| (2,912,959 | ) |
| |
| | | |
| | | |
| | | |
| | |
Discontinued operations | |
| | | |
| | | |
| | | |
| | |
Operating loss from discontinued operations | |
| - | | |
| (25,561 | ) | |
| - | | |
| (40,821 | ) |
Loss on disposal of subsidiary and investment | |
| - | | |
| (495,424 | ) | |
| - | | |
| (495,424 | ) |
| |
| - | | |
| (520,985 | ) | |
| - | | |
| (536,245 | ) |
Net loss | |
| (797,645 | ) | |
| (3,174,217 | ) | |
| (1,129,110 | ) | |
| (3,449,204 | ) |
Net loss attributable to non-controlling interest | |
| - | | |
| - | | |
| - | | |
| 1,597 | |
Net loss attributable to Innovative Payment Solutions, Inc., stockholders | |
$ | (797,645 | ) | |
$ | (3,174,217 | ) | |
$ | (1,129,110 | ) | |
$ | (3,447,607 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share* | |
| | | |
| | | |
| | | |
| | |
Continuing operations* | |
$ | (0.06 | ) | |
$ | (0.21 | ) | |
$ | (0.08 | ) | |
$ | (0.23 | ) |
Discontinued operations* | |
| - | | |
| (0.04 | ) | |
| - | | |
| (0.04 | ) |
| |
$ | (0.06 | ) | |
$ | (0.25 | ) | |
$ | (0.08 | ) | |
$ | (0.27 | ) |
Weighted Average Number of Shares Outstanding – Basic and diluted | |
| 13,819,889 | | |
| 12,596,834 | | |
| 13,819,889 | | |
| 12,580,112 | |
See accompanying notes
to the unaudited condensed consolidated financial statements.
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 | |
| - | | |
$ | - | | |
| 13,819,889 | | |
$ | 1,382 | | |
$ | 50,656,225 | | |
$ | (58,235,618 | ) | |
$ | - | | |
$ | (7,578,011 | ) |
Fair value of warrants issued to convertible debt holders | |
| - | | |
| - | | |
| - | | |
| - | | |
| 44,813 | | |
| - | | |
| - | | |
| 44,813 | |
Fair value of warrants issued on debt extinguishment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 66,047 | | |
| - | | |
| - | | |
| 66,047 | |
Fair value of warrants issued for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 36,207 | | |
| - | | |
| - | | |
| 36,207 | |
Stock based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 94,464 | | |
| - | | |
| - | | |
| 94,464 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (331,465 | ) | |
| - | | |
| (331,465 | ) |
Balance at March 31, 2024 | |
| - | | |
$ | - | | |
| 13,819,889 | | |
$ | 1,382 | | |
$ | 50,897,756 | | |
$ | (58,567,083 | ) | |
$ | - | | |
$ | (7,667,945 | ) |
Fair value of warrants issued to convertible debt holders | |
| - | | |
| - | | |
| - | | |
| - | | |
| 42,863 | | |
| - | | |
| - | | |
| 42,863 | |
Fair value of warrants issued on debt extinguishment | |
| - | | |
| - | | |
| - | | |
| - | | |
| 36,305 | | |
| - | | |
| - | | |
| 36,305 | |
Fair value of warrants issued for services | |
| - | | |
| - | | |
| - | | |
| - | | |
| 36,207 | | |
| - | | |
| - | | |
| 36,207 | |
Stock based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 94,464 | | |
| - | | |
| - | | |
| 94,464 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (797,645 | ) | |
| - | | |
| (797,645 | ) |
Balance at June 30, 2024 | |
| - | | |
$ | - | | |
| 13,819,889 | | |
$ | 1,382 | | |
$ | 51,107,595 | | |
$ | (59,364,728 | ) | |
$ | - | | |
$ | (8,255,751 | ) |
| |
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 | |
| - | | |
$ | - | | |
| 12,563,426 | | |
$ | 1,256 | | |
$ | 48,442,355 | | |
$ | (52,399,858 | ) | |
$ | 1,597 | | |
$ | (3,954,650 | ) |
Fair value of warrants issued to convertible debt holders | |
| - | | |
| - | | |
| - | | |
| - | | |
| 251,856 | | |
| - | | |
| - | | |
| 251,856 | |
Stock based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 130,671 | | |
| - | | |
| - | | |
| 130,671 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (273,390 | ) | |
| (1,597 | ) | |
| (274,987 | ) |
Balance at March 31, 2023 | |
| - | | |
$ | - | | |
| 12,563,426 | | |
$ | 1,256 | | |
$ | 48,824,882 | | |
$ | (52,673,248 | ) | |
$ | - | | |
$ | (3,847,110 | ) |
Conversion of convertible debt | |
| - | | |
| - | | |
| 72,464, | | |
| 7 | | |
| 43,471 | | |
| - | | |
| - | | |
| 43,478 | |
Fair value of warrants issued to convertible debt holders | |
| - | | |
| - | | |
| - | | |
| - | | |
| 130,025 | | |
| - | | |
| - | | |
| 130,025 | |
Fair value of warrants issued for equity method investments | |
| - | | |
| - | | |
| - | | |
| - | | |
| 108,220 | | |
| - | | |
| - | | |
| 108,220 | |
Stock based compensation | |
| - | | |
| - | | |
| - | | |
| - | | |
| 130,671 | | |
| - | | |
| - | | |
| 130,671 | |
Net loss | |
| - | | |
| - | | |
| | | |
| | | |
| | | |
| (3,174,217 | ) | |
| - | | |
| (3,174,217 | ) |
Balance as of June 30, 2023 | |
| - | | |
$ | - | | |
| 12,635,890 | | |
$ | 1,263 | | |
$ | 49,237,269 | | |
$ | (55,847,465 | ) | |
$ | - | | |
$ | (6,608,933 | ) |
See accompanying notes
to unaudited condensed consolidated financial statements.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
| |
Six months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
Net loss | |
$ | (1,129,110 | ) | |
$ | (3,449,204 | ) |
Net loss from discontinued operations | |
| - | | |
| 536,245 | |
Net loss from continuing operations | |
| (1,129,110 | ) | |
| (2,912,959 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Derivative liability movements | |
| (923,488 | ) | |
| 311,932 | |
Depreciation | |
| 1,084 | | |
| 279,705 | |
Amortization of debt discount | |
| 640,245 | | |
| 111,654 | |
Loss on conversion of debt to equity | |
| - | | |
| 18,478 | |
Loss on convertible debt | |
| 102,352 | | |
| - | |
Deemed interest income | |
| (11,207 | ) | |
| - | |
Unrealized loss on equity method investments | |
| 572 | | |
| 1,381 | |
Warrants issued for services | |
| 72,414 | | |
| 72,414 | |
Stock based compensation | |
| 188,928 | | |
| 188,928 | |
Changes in Assets and Liabilities | |
| | | |
| | |
Receivable from equity method investments | |
| (900 | ) | |
| (22,103 | ) |
Receivable from disposal of subsidiary | |
| - | | |
| 18,570 | |
Other current assets | |
| 21,195 | | |
| 77,957 | |
Accounts payable and accrued expenses | |
| 426,727 | | |
| 659,490 | |
Related party payables | |
| - | | |
| 50,000 | |
Interest accruals | |
| 247,793 | | |
| 176,107 | |
Cash used in operating activities – continuing operations | |
| (363,395 | ) | |
| (968,446 | ) |
Cash provided by operating activities – discontinued operations | |
| - | | |
| 35,287 | |
CASH USED IN OPERATING ACTIVITIES | |
| (363,395 | ) | |
| (933,159 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Investment in notes receivable | |
| (188,333 | ) | |
| - | |
Investment in intangibles | |
| | | |
| (44,405 | ) |
Investment in equity method investment | |
| (500 | ) | |
| (200,000 | ) |
Net cash used in investing activities – continuing operations | |
| (188,833 | ) | |
| (244,405 | ) |
Net cash used in investing activities – discontinued operations | |
| - | | |
| (36,231 | ) |
CASH USED IN INVESTING ACTIVITIES | |
| (188,833 | ) | |
| (280,636 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Proceeds from notes payable | |
| 100,000 | | |
| - | |
Proceeds from convertible notes | |
| 718,835 | | |
| 900,000 | |
Repayment of convertible notes | |
| (238,013 | ) | |
| (11,840 | ) |
Repayment of federal relief loans | |
| - | | |
| (2,342 | ) |
Net cash provided by financing activities – continuing operations | |
| 580,822 | | |
| 885,818 | |
Net cash provided by financing activities – discontinued operations | |
| - | | |
| - | |
NET CASH PROVIDED BY FINANCING ACTIVITIES | |
| 580,822 | | |
| 885,818 | |
| |
| | | |
| | |
NET INCRERASE (DECREASE) IN CASH | |
| 28,594 | | |
| (327,977 | ) |
Cash and cash included in assets held for sale at the beginning of the period | |
| 50,433 | | |
| 374,765 | |
CASH AT END OF PERIOD | |
$ | 79,027 | | |
$ | 46,788 | |
RECONCILIATION OF OPENING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | |
| | | |
| | |
Cash | |
$ | 50,433 | | |
$ | 373,822 | |
Cash included in assets held for sale | |
| - | | |
| 943 | |
CASH AT THE BEGINNING OF THE PERIOD | |
$ | 50,433 | | |
$ | 374,765 | |
RECONCILIATION OF CLOSING CASH WITHIN THE BALANCE SHEET TO THE STATEMENT OF CASH FLOWS | |
| | | |
| | |
Cash | |
$ | 79,027 | | |
$ | 46,788 | |
Cash included in assets held for sale | |
| - | | |
| - | |
CASH AT THE END OF THE PERIOD | |
$ | 79,027 | | |
$ | 46,788 | |
CASH PAID FOR INTEREST AND TAXES: | |
| | | |
| | |
Cash paid for income taxes | |
$ | - | | |
$ | - | |
Cash paid for interest | |
$ | 35,302 | | |
$ | 4,191 | |
NON-CASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
Fair value of warrants issued with convertible notes | |
$ | 87,676 | | |
$ | 381,881 | |
Conversion of convertible debt to equity | |
$ | - | | |
$ | 25,000 | |
Fair value of warrants issued for equity method investments | |
$ | - | | |
$ | 108,220 | |
See notes to the unaudited
condensed financial statements.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
1 |
ORGANIZATION AND DESCRIPTION OF BUSINESS |
|
a) |
Organizational History |
On May
12, 2016, Innovative Payment Solutions, Inc., a Nevada corporation (“IPSI” or the “Company”) (originally formed
on September 23, 2013 under the name “Asiya Pearls, Inc.”), entered into an Agreement and Plan of Merger (the “Qpagos
Merger Agreement”) with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a
Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the Qpagos Merger Agreement,
on May 12, 2016, the merger was consummated, and Qpagos Corporation and Merger Sub merged (the Qpagos “Merger”), with Qpagos
Corporation continuing as the surviving corporation of the Merger. On May 27, 2016, the Company’s name was changed from “Asiya
Pearls, Inc.” to “QPAGOS”.
Pursuant to
the 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 $0.0001 per share (the “Common Stock”). Additionally, pursuant to the Qpagos Merger Agreement, upon consummation
of the Merger, the Company assumed all of Qpagos Corporation’s warrants issued and outstanding immediately prior to the Merger,
which were exercisable for an aggregate of approximately 621,920 shares of Common Stock as of the date of the Qpagos Merger.
Prior to and as a condition to the closing of the Qpagos Merger, a then-current holder of 500,000 shares of Common Stock agreed
to return 497,500 shares of Common Stock held by such holder to the Company and such holder retained an aggregate of 2,500 shares
of Common Stock. The other stockholders of the Company retained 500,000 shares of Common Stock. Therefore, immediately following
the Qpagos Merger, Qpagos Corporation’s former stockholders held 4,992,900 shares of Common Stock which represented approximately 91%
of the outstanding Common Stock.
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 1-for-10, effective on November 1, 2019 (the “Reverse
Stock Split”). As a result of the Reverse Stock Split, each ten pre-split shares of Common Stock outstanding automatically combined
into one new share of Common Stock without any further action on the part of the holders, and the number of outstanding shares of Common
Stock was reduced from 320,477,867 shares to 32,047,817 after rounding for fractional shares.
On
December 31, 2019, the Company consummated the disposal of Qpagos Corporation, Qpagos Mexico and Redpag in exchange for 2,250,000 shares
(the “Vivi Shares”) of common stock of Vivi Holdings, Inc. (“Vivi. or “Vivi Holdings”) pursuant to a Stock
Purchase Agreement dated August 5, 2019 (the “SPA”). Of the 2,250,000 shares of Vivi, nine percent (9%) was allocated
as follows: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The transactions contemplated by the SPA closed
on December 31, 2019 after the satisfaction of customary conditions, the receipt of a final fairness opinion and the approval of the Company’s
shareholders. As a result, the Company no longer has any business operations in Mexico and has retained its U.S. operations, currently
based in Carmel By The Sea, California.
On
June 21, 2021. the Company acquired a 10% strategic interest in Frictionless Financial Technologies, Inc. (“Frictionless”).
Frictionless agreed to deliver to the Company, a live fully compliant financial payment Software as a Service solution for use by the
Company as a digital payment platform (which was subsequently branded as IPSIPay) that enables payments within the United States and abroad,
including Mexico, together with a service agreement providing a full suite of product services to facilitate the Company’s anticipated
product offerings. The Company had an irrevocable right to acquire up to an additional 41% of the outstanding common stock of Frictionless
at a purchase price of $300,000 for each 1% acquired.
On
August 26, 2021, the Company formed a new subsidiary, Beyond Fintech, Inc. (“Beyond Fintech”), in which it owns
a 51% stake, with Frictionless owning the remaining 49%. Beyond Fintech acquired an exclusive license to a product known
as Beyond Wallet, to further its objective of providing virtual payment services allowing U.S. persons to transfer funds to Mexico
and other countries.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
1 |
ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
|
a) |
Organizational History (continued) |
On
May 12, 2023, the Company entered into an Agreement with Frictionless (the “May 2023 Frictionless Agreement”) to unwind
the equity ownership stakes that the Company and Frictionless have in each other and in Beyond Fintech. Pursuant to the May 2023 Frictionless
Agreement: (i) the Company assigned to Frictionless all common stock of Frictionless owned by the Company; (ii) the warrant to purchase 1,000,000 shares
of Common Stock previously issued by the Company to Frictionless as of December 30, 2022 was cancelled; (iii) the Company assigned to
Frictionless all shares of common stock of Beyond Fintech owned by the Company (the “Beyond Fintech Shares”); and (iv) the
rights previously granted to the Company to (a) acquire additional equity interests in Frictionless, (b) participate in future financings
of Frictionless and (c) appoint a board member of Frictionless, were terminated. The consideration to the Company for the assignment of
the Beyond Fintech Shares to Frictionless was a credit against potential future services to be provided by Frictionless to the Company
in an amount up to $250,000. As a result of the novation agreement with Frictionless discussed below, the Company no longer utilizes,
and does not expect to utilize, the services of Frictionless for the foreseeable future. The collectability of the remaining credit receivable
of $231,431 has been impaired.
On August 30,
2023, the Company implemented a 1 for 30 reverse stock split of its Common Stock. Unless the context expressly requires otherwise, as
used in this Report, all share and per share numbers reflect such reverse stock split.
On
September 5, 2023, the Company’s entered into a novation agreement whereby it assigned all its rights and interest in its e-wallet
product, IPSIPay, and its receivables and payables due from and to Frictionless, related to IPSIPay, to a third party in order to concentrate
all of its efforts on the IPSIPay Express LLC (“IPSIPay Express”) joint venture. See note 1(b) for further information.
|
b) |
Description of current business |
The
Company is currently a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express,
developing a new account-to-account payment application called Instant Settlement in RealTime as well as traditional credit card processing
services. The Company has in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that
enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.
IPSIPay
Express
On
April 28, 2023, the Company formed a new company called IPSIPay Express. This entity was formed as a Delaware limited liability company
joint venture with OpenPath, Inc. (“OpenPath”) and EfinityPay, LLC (“EfinityPay”, and the Company, collectively
with OpenPath and EfinityPay, the “Members”) to develop and market a proprietary consumer to merchant real-time
payment platform initially focused on the fast-growing online gaming and entertainment sectors.
On
June 19, 2023, the Company entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”) with OpenPath
and EfinityPay to jointly provide for the governance of and rights of the Members with respect to IPSIPay Express. The effective date
of the Operating Agreement is April 28, 2023.
IPSIPay
Express was formed by the Members with the initial business purposes of providing credit card processing solutions and also a proprietary
solution for real time bank-to-bank payment transactions in a manner that provides seamless and frictionless consumer and merchant experiences,
with an initial focus on merchants operating in gaming and entertainment sectors. Such solutions are collectively referred to herein as
“IPEX.”
Pursuant
to the Operating Agreement, the Company agreed to contribute cash to or on behalf IPSIPay Express to be used for the IPEX business in
the aggregate amount of up to $1,500,000 (the “IPSI Capital Contribution”). The Company is required to make the IPSIPay
Capital Contribution in three tranches of $500,000 (each, a “Tranche”), or such lesser amounts as may be unanimously
approved by the Board of Managers of IPSIPay Express. With the full funding of each Tranche, the Company will automatically receive an 11.11%
membership interest in IPSIPay Express (or a pro rata portion thereof if less than a full Tranche is funded), and OpenPath and EfinityPay’s
percentage interest in IPSIPay Express will be reduced pro rata accordingly. Should the Company contribute the full IPSI Capital Contribution,
the Members will each own one-third (1/3) of the membership interests in IPSIPay Express. The IPSI Capital Contribution has been or will
be made by the following dates and in the following amounts: (i) $200,000 of the initial Tranche was paid by the Company on June
21, 2023; (ii) the $300,000 balance of the initial Tranche was paid on August 4, 2023; (iii) the second $500,000 Tranche was
paid in September 2023 and (iv) the third $500,000 Tranche was expected to be paid on or before November 30, 2023. In late 2023,
the Company agreed with its joint venture partners that such investment was not required as the joint venture is not operational as yet.
The need for any additional advances will be addressed with the joint venture partners once IPEX becomes operational and begins generating
revenue, our current shareholding in the joint venture remains at 22%.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
1 |
ORGANIZATION AND DESCRIPTION OF BUSINESS (continued) |
|
b) |
Description of current business (continued) |
Simultaneously
with the funding of the initial Tranche, the Company issued to each of OpenPath and EfinityPay a five-year Common Stock purchase warrant
(the “IPEX Warrant”) to purchase 133,334 shares of Common Stock with an exercise price of $0.45 per share.
We are still obligated to issue to each of OpenPath and EfinityPay an additional IPEX Warrant to purchase 199,999 shares of
Common Stock with an exercise price equal to the average public closing price of the Common Stock for the three trading days immediately
prior to the funding of the initial Tranche. Simultaneously with the funding of the second Tranche, we are obligated to issue to each
of OpenPath and EfinityPay an additional IPEX Warrant to purchase 166,667 shares of Common Stock with an exercise price equal
to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the second Tranche.
Should we decide to fund a third Tranche, we will be obligated to issue to each of OpenPath and EfinityPay an additional IPEX Warrant
to purchase 166,667 shares of Common Stock with an exercise price equal to the average public closing price of the Common Stock
for the three trading days immediately prior to the funding of the third Tranche. If the full IPSI Capital Contribution is funded, OpenPath
and EfinityPay will receive IPEX Warrants to purchase an aggregate of 1,333,334 shares of Common Stock.
2 |
ACCOUNTING POLICIES AND ESTIMATES |
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 six months ended June 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 June 30, 2024, include the financial statements of the Company. The unaudited condensed consolidated financial
statements as of June 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 51% interest in Beyond Fintech. Therefore the Company currently has no subsidiaries.
All significant inter-company accounts
and transactions have been eliminated in the unaudited condensed consolidated financial statements.
The
accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.
All
amounts referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
The
preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the unaudited condensed consolidated financial
statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes
are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from
those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives
for plant and equipment, the fair value of long-lived investments, the fair value of warrants and stock options granted for services or
compensation, convertible notes and amendments thereto, derivative liabilities, the valuation allowance for deferred tax assets due to
continuing operating losses and the allowance for doubtful accounts.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements,
which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from our estimates.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only
be resolved when one or more future events occur or fail to occur.
The
Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the Company’s unaudited condensed consolidated financial statements.
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable
and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve
guarantees, in which case the guarantee would be disclosed.
| e) | Fair Value of Financial Instruments |
The
Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs
used in measuring fair value as follows:
Level
1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level
2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated
by observable market data.
Level
3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
The
carrying amounts reported in the balance sheets for cash, accounts receivable, other current assets, other assets, accounts payable, accrued
liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company
has identified the short-term convertible notes and certain warrants attached to certain of the notes that are required to be presented
on the balance sheets at fair value in accordance with the accounting guidance.
ASC
825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless
a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. We evaluate the fair value of variably priced derivative liabilities on a quarterly
basis and report any movements thereon in earnings.
| f) | Risks and Uncertainties |
The Company’s operations
and prospects are and will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks,
including the potential risk of business failure. There are also significant risks and uncertainties associated with the Company’s
proposed merger with Business Warrior Corporation, a Wyoming corporation (“Business Warrior”) (see Notes 6 and 19 for further
information). Further, the ongoing wars in Ukraine and between Israel and Hamas and the global inflationary environment which has resulted
in significant interest rate increases in the U.S and abroad has resulted in a general tightening in the credit markets, lower levels
of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These
conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, vendors and the Company
to accurately forecast and plan future business activities, which may have an adverse impact on its business and financial condition
and may hamper the Company’s ability to generate revenue and access usual sources of liquidity on reasonable terms.
The
Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary
measures, and rates and methods of taxation, among other things.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
| g) | Recent accounting pronouncements |
The
Financial Accounting Standards Board (“FASB”) issued additional updates during the quarter ended June 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.
No segmental information
is required as the Company has only one operating segment.
| 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 June 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 June 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 June 30,
2024 and 2023.
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 20%,
and there is no substantial influence. Under the cost method, the stock purchased is recorded on a balance sheet as a non-current asset
at the historical acquisition/purchase price, and is not modified unless shares are sold, additional shares are purchased or there is
evidence of the fair market value of the investment declining below carrying value. Any dividends received are recorded as income.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
Plant
and equipment is stated at cost, less accumulated depreciation. Plant and equipment with costs greater than $1,000 are capitalized
and depreciated. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated
useful lives of the assets are as follows:
Description | | Estimated Useful Life |
| | |
Computer equipment | | 3 years |
| | |
Office equipment | | 10 years |
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.
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.
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 $0 and $438 for the six months ended June 30, 2024 and 2023, respectively.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
| o) | Share-Based Payment Arrangements |
Generally,
all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at
their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based
compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the
fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in operating expenses in the consolidated statement of operations.
Prior to the Company’s
reverse merger which took place on May 12, 2016, all share-based payments were based on management’s estimate of market value of
the Company’s equity. The factors considered in determining 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.
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 June 30, 2024 and December 31, 2023, there have been no interest or penalties incurred
on income taxes.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
2 |
ACCOUNTING POLICIES AND ESTIMATES (continued) |
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 six months ended June 30, 2024, the Company had
a net loss of $1.1 million In connection with preparing the unaudited condensed consolidated financial statements for the six months ended
June 30, 2024, management evaluated the risks described in Note 2(f) above on the Company’s business and its future liquidity for
the next twelve months from the date of issuance of these financial statements.
The
accompanying financial statements for the period ended June 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 becomes profitable. Management’s plans to continue as a going concern
include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances
that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing
on a timely basis, the Company will be required to delay, and reduce the scope of the Company’s development and operations. Continuing
as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. The
accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
The Company has determined
that there is substantial doubt about their ability to continue as a going concern.
4 |
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 10% ownership interest in Frictionless); (ii) the warrant to purchase 30,000,000 shares
of Common Stock previously issued by the Company to Frictionless as of December 30, 2022 was cancelled; (iii) the Company assigned to
Frictionless all shares of common stock of Beyond Fintech owned by the Company (representing a 51% ownership interest in Beyond Fintech)
(the “Beyond Fintech Shares”); and (iv) the rights previously granted to the Company to (a) acquire additional equity interests
in Frictionless, (b) participate in future financings of Frictionless and (c) appoint a board member of Frictionless were terminated.
The consideration to the Company for the assignment of the Beyond Fintech Shares to Frictionless is $250,000, which will be paid by Frictionless
exclusively in the form of 20% credits against invoices for work done by Frictionless for the Company for the 18-month period following
the closing under the existing software services between the Company and Frictionless. The May 2023 Frictionless Agreement has customary
representations, indemnification and mutual release provisions. The closing of the transactions contemplated by the May 2023 Frictionless
Agreement occurred on May 12, 2023.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
4 |
DISPOSAL OF INVESTMENT IN FRICTIONLESS AND BEYOND FINTECH (continued) |
The assets
and liabilities disposed of were as follows:
| |
Amount | |
Assets | |
| |
| |
| |
Current Assets | |
| |
Cash | |
$ | 339 | |
| |
| | |
Non-current assets | |
| | |
Intangible assets | |
| 327,211 | |
Security deposit | |
| 15,000 | |
Investment | |
| 500,000 | |
| |
| 842,211 | |
Total assets | |
| 842,550 | |
| |
| | |
Liabilities | |
| | |
| |
| | |
Current Liabilities | |
| | |
Accounts payable | |
| 97,126 | |
| |
| | |
Net assets sold | |
| 745,424 | |
Proceeds due on disposal | |
| (250,000 | ) |
Net loss on disposal | |
$ | 495,424 | |
5 |
DISCONTINUED OPERATIONS |
In
the prior year, effective May 12, 2023, the Company disposed of its investment in Beyond Fintech.
The
statement of operations from discontinued operations is as follows:
| |
Three months ended | | |
Three months ended | | |
Six months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | | |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| |
Net Revenue | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Cost of Goods Sold | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Gross loss | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| - | | |
| 25,561 | | |
| - | | |
| 40,821 | |
Depreciation and amortization | |
| - | | |
| - | | |
| - | | |
| - | |
Total Expense | |
| - | | |
| 25,561 | | |
| - | | |
| 40,821 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations before income taxes | |
| - | | |
| (25,561 | ) | |
| - | | |
| (40,821 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income Taxes | |
| - | | |
| - | | |
| - | | |
| - | |
Loss from discontinued operations, net of taxation | |
$ | - | | |
$ | (25,561 | ) | |
$ | - | | |
$ | (40,821 | ) |
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 $226,190, which includes an original issue discount equal to $67,857, for net proceeds to Business Warrior
of $158,333. The loan is memorialized by a secured promissory note (the “Business Warrior Note”). The Business Warrior Note
does not accrued interest, except in the case of an event of default, which case interest accrues at 15% per annum. The Business
Warrior Note matures on the earlier to occur of December 31, 2025 and the date that Business Warrior securities are listed on a national
securities exchange. The Business Warrior Note may be prepaid at any time for an amount equal to 110% of the then principal and accrued
interest. The Company has the right to exchange the Business Warrior Note for securities issued by Business Warrior in any subsequent
private placement by Business Warrior. The principal and accrued interest under Business Warrior Note is convertible into common stock
of Business Warrior at a price equal to $0.0036 per share, subject to certain adjustments and potential resets. Business Warrior’s
obligations under the Business Warrior Note are guaranteed by Business Warrior’s subsidiaries and secured by a lien on Business
Warrior’s accounts receivable.
The
debt discount on the Business Warrior’s note is amortized as income utilizing the effective interest rate method.
On June 19,
2024, the Company (utilizing a portion of the proceeds from the issuance of convertible notes)
loaned additional funds to Business Warrior in the principal amount of $30,000 (the “June Business Warrior Note”). The June
Business Warrior Note accrues interest at 8% per annum and matures on November 1, 2024. The June Business Warrior Note plus any accrued
interest may be prepaid at any time without penalty.
Loans
receivable consists of the following:
Description | | Interest Rate | | | Maturity
date | | Principal | | | Accrued Interest | | | Unamortized debt discount | | | June 30, 2024 Amount, net | |
Business Warrior Corporation | | | 0.0 | % | | December 31, 2025 | | $ | 226,190 | | | $ | - | | | $ | (56,650 | ) | | $ | 169,540 | |
| | | 8.0 | % | | November 1, 2024 | | | 30,000 | | | | 72 | | | | - | | | | 30,072 | |
Total convertible notes payable | | | | | | | | $ | 256,190 | | | $ | 72 | | | $ | (56,650 | ) | | $ | 199,612 | |
Disclosed as follows: | | | | | | | | | | | | | | | | | | | | | | |
Current portion of notes receivable | | | | | | | | | | | | | | | | | | | | $ | 30,072 | |
Long-term portion of notes receivable | | | | | | | | | | | | | | | | | | | | | 169,540 | |
| | | | | | | | | | | | | | | | | | | | $ | 199,612 | |
Discount
amortized to income as deemed interest during the three months and six months ended June 30, 2024 was $7,925 and $11,207,
respectively.
Interest
earned for the three and six months ended June 30, 2024 was $72.
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
$250,000, together with the logo, use of name and implementation of the product into the Company’s technology. The Company owned 51%
of Beyond Fintech with the other 49% owned by Frictionless. Prior to the disposal of Beyond Fintech to Frictionless the Company spent
an additional 77,211 on the software to further enhance the Beyond Wallet product offering. On May 12, 2023, Beyond Fintech
was sold to Frictionless.
During
the year ended December 31, 2021, the Company paid gross proceeds of $375,000 to Frictionless for the development of the IPSIPay
wallet, prior to the novation of the rights and obligation to a third party, the company spent an additional $1,171,805 to facilitate
the functioning of the IPSIPay software in the cloud environment. On September 5, 2023, the Company novated all its rights and obligations
to its IPSIPay wallet to a third party.
Amortization expense was $0 and $128,348 for
the three months ended June 30, 2024 and 2023, respectively, and $0 and $254,204 for the six months ended June 30, 2024 and 2023,
respectively.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 June 30, 2024, the initial Tranche of $500,000 and the second Tranche of $500,000 of capital contributions
was paid by the Company to or on behalf of IPSIPay Express.
The
Company accounts for its investment in IPSIPay Express in accordance with ASC 323, Investments – Equity Method and Joint
Ventures, the movement in equity method investments related to IPSIPay Express for the period ended June 30, 2024 and December 31, 2023
is as follows:
| |
June 30, 2024 | | |
December 31, 2023 | |
Cash contribution to IPSIPay Express | |
$ | 999,500 | | |
$ | 999,000 | |
Fair value of warrants issued to third party joint venture partners | |
| 108,220 | | |
| 108,220 | |
| |
| 1,107,720 | | |
| 1,107,220 | |
Prior period equity loss from joint venture | |
| (403,282 | ) | |
| (403,282 | ) |
Current period equity income (loss) from joint venture | |
| (572 | ) | |
| - | |
| |
$ | 703,866 | | |
$ | 703,938 | |
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 lease commenced on April 1, 2021 and is for a twelve-month period, terminating on April 1, 2022. Following
the expiry of the lease term, the landlord has agreed to continue the lease on a month-to-month basis at $4,800 per month. On January
1, 2023, the Company entered into a new month-to-month lease, with a 90-day termination clause, for a monthly rental of $5,088. The lease
was terminated effective August 31, 2023.
The
Company applied the practical expedient whereby operating leases with a duration of twelve months or less are expensed as incurred.
Total
Lease Cost
Individual
components of the total lease cost incurred by the Company is as follows:
| | Six months ended June 30, 2024 | | | Six months ended June 30, 2023 | |
Operating lease expense | | $ | - | | | $ | 30,528 | |
Other lease information:
| | Six months ended June 30, 2024 | | | Six months ended June 30, 2023 | |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating leases | | $ | - | | | $ | (30,528 | ) |
| | | | | | | | |
Remaining lease term – operating lease | | | | | | | Monthly | |
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
Small
Business Administration Disaster Relief loan
On
July 7, 2020, the Company received a Small Business Economic Injury Disaster loan amounting to $150,000, bearing interest at 3.75%
per annum and repayable in monthly installments of $731 commencing twelve months after inception with the balance of interest and
principal repayable on July 7, 2050. The loan is secured by all tangible and intangible assets of the Company. The proceeds are to be
used for working capital purposes to alleviate economic injury caused by the COVID-19 pandemic.
The
company has accrued interest of $7,788 and $9,369 on this loan as of June 30, 2024 and December 31, 2023, respectively.
Notes
payable consists of the following:
Description | | Interest Rate | | | Maturity date | | Principal | | | Accrued Interest | | | Unamortized debt discount | | | June 30, 2024 Amount, net | | | December 31, 2023 Amount, net | |
Cavalry Fund I LP | | | 10.00 | % | | July 30, 2024 | | $ | 482,000 | | | $ | 73,371 | | | $ | - | | | $ | 555,371 | | | $ | 531,004 | |
Mercer Street Global Opportunity Fund, LLC | | | 10.00 | % | | July 30, 2024 | | | 482,000 | | | | 73,371 | | | | - | | | | 555,371 | | | | 531,003 | |
2023 and 2024 notes | | | 8.00 to 12.00 | % | | February 28, 2025 to March 14, 2025 | | | 133,333 | | | | 756 | | | | (30,673 | ) | | | 103,416 | | | | - | |
Total notes payable | | | | | | | | $ | 1,097,333 | | | $ | 147,498 | | | $ | (30,673 | ) | | $ | 1,214,158 | | | $ | 1,062,007 | |
Interest expense totaled $25,123 and
$24,368 for the three months ended June 30, 2024 and 2023, respectively, and $49,491 and $48,468 for the six months ended June
30, 2024 and 2023, respectively.
Amortization of debt discount totaled
$2,660 and $0 for the three months ended June 30, 2024 and 2023, respectively, and $2,660 and $0 for the six months ended June
30, 2024 and 2023, respectively.
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
$500,500 and $500,500 from Cavalry and Mercer, respectively, in exchange for the issuance of: (i) Original Issue Discount 12.5%
Convertible Notes (the “Notes” and each a “Note”) in the principal amount of $572,000 to each of Cavalry
and Mercer; and (ii) five-year warrants (the “Original Warrants”) issued to each of Cavalry and Mercer to purchase 2,486,957 shares
of Common Stock at an exercise price of $0.24 per share.
In
terms of the December 30, 2022 Note Amendment Transaction, described in more detail in Note 9 below, the Original Warrants issued on February
16, 2021 were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $482,000 (the “Exchange
Notes”) to each of Cavalry and Mercer. This exchange caused the cancellation of the Original Warrants for all purposes. The Company
accounted for the aggregate value of the notes issued of $964,000, less the fair value of the warrants exchanged for these notes of $43,608,
totaling $920,392 as a component of the loss on convertible debt.
The
Exchange Notes have a maturity date of December 30, 2023 and carry an interest rate of ten percent (10%). The Company shall
have the right, but not the obligation, in lieu of a cash payment upon maturity of the Exchange Notes, to issue 51,901,711 shares
of Common Stock, as adjusted for any stock splits, dividends or other similar corporate events, in full satisfaction of its obligations
under each of the Exchange Notes (or any pro rata portion of such number of shares in partial satisfaction of such obligations). The Company
is under no legal obligation to reserve such number of shares for future issuance.
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.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
11 |
NOTES PAYABLE (continued) |
2024
Notes
Between May 29, 2024 and June
14, 2024, the Company entered into two Securities Purchase Agreements with a single accredited investor (the “2024 Notes”),
pursuant to which the Company issued two promissory notes totaling $133,333 for gross proceeds of $100,000, including an aggregate original
issuance discount of $33,333.
The
2023 Notes and the 2024 Notes mature between February 28, 2025 and March 14, 2025 and bear interest at 8.5% per annum.
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 120% of the cash amount of the Note, at the note holder’s discretion.
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 August 16, 2022. Additionally, on August 30, 2022, the Company entered agreements for an additional
maturity date extension to November 16, 2022. In consideration for the second extension, the Company agreed to (i) increase the principal
amount outstanding and due to Cavalry and Mercer under the Cavalry/Mercer Notes by twenty percent (20%) and (ii) issue to each of Cavalry
and Mercer a new five-year warrant (each, an “Extension Warrant”) to purchase an additional 100,000 shares of Common
Stock at an exercise price of $4.50 per share. The Extension Warrant contains the same terms and provisions in all material respects
as the Original Warrants, except for difference in exercise price.
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 $4.50 to $0.345 per share (such reduced conversion price being the current conversion price of the Notes give the passage of the November 16, 2022 maturity date of the Cavalry/Mercer Notes). As a result of this change in conversion price, under the existing terms of the Cavalry/Mercer Notes, the 100,000 shares of Common Stock underlying the Extension Warrants was increased to 1,304,348 shares; |
| (2) | The Original Warrants issued on February 16, 2021 were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $482,000 (the “Exchange Notes”). This exchange caused the cancellation of the Original Warrants for all purposes. The Exchange Notes have a maturity date of December 30, 2023 and carry an interest rate of ten percent (10%). The Company shall have the right, but not the obligation, in lieu of a cash payment upon maturity of the Exchange Notes, to issue 1,730,057 shares of Common Stock, as adjusted for any stock splits, dividends or other similar corporate events, in full satisfaction of its obligations under each of the Exchange Notes (or any pro rata portion of such number of shares in partial satisfaction of such obligations). The Company is under no legal obligation to reserve such number of shares for future issuance; |
|
(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 $1.80 per share or above were amended effective December 30, 2022 to reduce such forced exercise price to $1.20 per share; and |
|
(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. |
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 $2,264,784, or $1,132,392 for each of Cavalry and Mercer. In addition, as a result of the reduction in the conversion
price of the Cavalry/Mercer Notes, certain other warrants held by third parties have their exercise price of such warrants reduced to
$0.345 per share. All of the shares of our Common Stock underlying the Cavalry/Mercer Notes as amended and all warrants held by Cavalry
and Mercer as adjusted were registered for resale pursuant to a registration statement that was declared effective on February 6, 2023.
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 $836,414, the reduction in the conversion price of the Cavalry/Mercer Notes from $4.50 to $0.345 per share, which was
valued at $1,499,577 using a Black-Scholes valuation model, the issuance of additional warrants to the Cavalry and Mercer valued
at $238,182 using a Black-Scholes valuation model and the conversion of certain warrants held by Cavalry and Mercer to notes payable,
resulting in an additional charge of $920,392, consisting of a mark-to-market warrant cost of $43,608 and the value of the notes
of $964,000 (see note 11 above) and the value of full rachet provisions of certain of the warrants issued to the Cavalry
and Mercer amounting to $841,003 (see note 14 below), the amendment of the Cavalry/Mercer Notes was determined to be a debt extinguishment.
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.
Convertible
notes payable consists of the following:
Description | | Interest
Rate | | | Maturity
date | | Principal | | | Accrued
Interest | | | Unamortized
debt discount | | | June 30,
2024
Amount, net | | | December 31,
2023
Amount, net | |
Cavalry Fund I LP | | | 10.0 | % | | April 30, 2024 | | $ | 898,980 | | | $ | 55,687 | | | $ | - | | | $ | 954,667 | | | $ | 909,218 | |
Mercer Street Global Opportunity Fund, LLC | | | 10.0 | % | | April 30, 2024 | | | 991,754 | | | | 198,149 | | | | - | | | | 1,189,903 | | | | 1,139,764 | |
Red Road Holdings Corporation* | | | 29.32 | % | | June 15, 2024 | | | - | | | | - | | | | - | | | | - | | | | 41,771 | |
| | | 27.77 | % | | July 30, 2024 | | | 18,050 | | | | 363 | | | | (1,900 | ) | | | 16,513 | | | | 18,683 | |
| | | 32.04 | % | | September 30, 2024 | | | 30,348 | | | | 745 | | | | (9,796 | ) | | | 21,297 | | | | 3,109 | |
| | | 24.98 | % | | December 30, 2024 | | | 88,500 | | | | 5,604 | | | | (59,542 | ) | | | 34,562 | | | | - | |
| | | 24.51 | % | | March 30, 2025 | | | 125,080 | | | | 503 | | | | (122,830 | ) | | | 2,753 | | | | - | |
Quick Capital, LLC* | | | 11.12 | % | | September 30, 2024 | | | 59,410 | | | | 1,511 | | | | (6,640 | ) | | | 54,281 | | | | - | |
| | | 11.03 | % | | November 28, 2024 | | | 57,144 | | | | 1,417 | | | | (21,011 | ) | | | 37,550 | | | | - | |
2023 and 2024 convertible notes | | | 8.0 to 12.0 | % | | May 22, 2024 to February 21, 2025 | | | 2,435,001 | | | | 178,752 | | | | (160,384 | ) | | | 2,453,369 | | | | 1,591,735 | |
Total convertible notes payable | | | | | | | | $ | 4,704,267 | | | $ | 442,731 | | | $ | (382,103 | ) | | $ | 4,764,895 | | | $ | 3,704,280 | |
Interest expense totaled $119,079 and
$69,320 for the three months ended June 30, 2024 and 2023, respectively, and $229,848 and $129,057 for the six months ended
June 30, 2024 and 2023, respectively.
Amortization of debt discount totaled
$317,686 and $88,687 for the three months ended June 30, 2024 and 2023, respectively, and $637,585 and $111,654 for the six
months ended June 30, 2024 and 2023, respectively.
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.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 $500,500, after
an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest
at 10% per annum and maturing on February 16, 2022. The Note was convertible into shares of Common Stock at an initial conversion
price of $0.23 per share, in addition, the Company issued a warrant exercisable for 82,899 shares of Common Stock
at an initial exercise price of $7.20 per share.
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 (20%) and (ii) issue a new five-year warrant to purchase an additional 100,000 shares of
Common Stock at an exercise price of $4.50 per share. In consideration of the December 30, 2022 extension, the Company agreed to
the following terms; (i) the conversion price of the Note was reduced from $4.50 to $0.345 per share; (ii) Cavalry agreed (a)
not to convert all or any portion of the Notes until after March 30, 2023 and (b) waive any events of default under the Note and the SPA;
(iii) the Company agreed to and registered the shares of Common Stock underlying the Note and the shares underlying all warrants held
by Cavalry for resale with the Securities and Exchange Commission and filed the registration statement to satisfy the Company’s
registration obligation.
Between
August 24, 2023 and November 20, 2023, Cavalry converted $139,726 of interest and $192,774 of interest into 963,769 shares
of Common Stock at a conversion price of $0.345 per share realizing a loss on conversion of $42,210.
On
February 27, 2024, the maturity date of the notes was extended to April 30, 2024, with an automatic one-month extension each month
until such time as the note is declared to be in default, all other terms remain the same as the previous notes. Based on an
analysis performed in terms of ASC470, the amendment to the agreement was determined to be a debt modification, there were no
expenses incurred on the amendment and interest will be accrued at the effective interest rate.
The
balance of the Cavalry Note plus accrued interest at June 30, 2024 was $954,667.
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 $500,500, after
an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest
at 10% per annum and maturing on February 16, 2022. The Note is convertible into shares of Common Stock at an initial conversion
price of $6.90 per share, in addition, the Company issued a warrant exercisable for 82,899 shares of Common Stock
at an initial exercise price of $7.20 per share.
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 (20%) and (ii) issue a new five-year warrant to purchase an additional 100,000 shares of
Common Stock at an exercise price of $4.50 per share. In consideration of the December 30, 2022 extension, the Company agreed to
the following terms; (i) the conversion price of the Note was reduced from $4.50 to $0.345 per share; (ii) Mercer agreed (a)
not to convert all or any portion of the Notes until after March 30, 2023 and (b) waive any events of default under the Note and the SPA;
(iii) the Company agreed to and registered the shares of Common Stock underlying the Note and the shares underlying all warrants held
by Mercer for resale with the Securities and Exchange Commission and filed the registration statement to satisfy the Company’s registration
obligation.
Between
May 19, 2023 and August 30, 2023, Mercer converted an aggregate of $100,000 into 289,856 shares of Common Stock at a conversion
price of $0.345 per share, realizing a loss on conversion of $48,551.
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.
The
balance of the Mercer Note plus accrued interest at June 30, 2024 was $1,189,903.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 $125,000, after an original issue discount and fees of $21,900 in exchange for the issuance of a $146,900 Convertible Note (“RRH Note 1”), bearing interest at 13%, which interest is earned on issuance of the note, an effective interest rate of 29.3%, and maturing on June 15, 2024. The RRH Note 1 has mandatory monthly repayments of $18,444 which commenced on October 14, 2023. The RRH Note 1 is convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion. The RRH1 was repaid in full during the current quarter. |
| | |
| ● | On October 19, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $60,000, after an original issue discount and fees of $13,450 in exchange for the issuance of a $73,450 Convertible Note (“RRH Note 2”), bearing interest at 13%, which interest is earned on issuance of the note, an effective interest rate of 27.8%, and maturing on July 30, 2024. The RRH Note 2 has mandatory monthly repayments of $9,222 which commenced on November 30, 2023. The RRH Note 2 is convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion. The balance of the RRH Note 2 plus accrued interest at June 30, 2024 was $16,513, net of unamortized debt discount of $1,900. |
| | |
| ● | On December 20, 2023, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $50,000, after an original issue discount and fees of $13,250 in exchange for the issuance of a $63,250 Convertible Note (“RRH Note 3”), bearing interest at 15%, which interest is earned on issuance of the note, an effective interest rate of 32.0%, and maturing on September 30, 2024. The RRH Note 3 has mandatory monthly repayments of $8,082. The RRH Note 3 is convertible into shares of Common Stock at a variable conversion rate of 60% of the lowest trading price twenty trading days before conversion. The balance of the RRH Note 3 plus accrued interest at June 30, 2024 was $21,297, net of unamortized debt discount of $9,796. |
| | |
| ● | On April 2, 2024, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $70,000, after an original issue discount and fees of $18,500 in exchange for the issuance of a $88,500 Convertible Note (“RRH Note 4”), bearing interest at 15%, which interest is earned on issuance of the note, an effective interest rate of 24.98%, and maturing on December 30, 2024. The RRH Note 4 has mandatory repayments of $61,065 on September 30, 2024 and $13,570 per month on October 30, 2024, November 30, 2024 and December 30, 2024. The RRH Note 4 is convertible into shares of Common Stock at a variable conversion rate of 65% of the lowest trading price ten trading days before conversion. The balance of the RRH Note 4 plus accrued interest at June 30, 2024 was $34,562, net of unamortized debt discount of $59,542. |
| | |
| ● | On June 25, 2024, the Company closed a transaction with RRH pursuant to which the Company received net proceeds of $100,000, after an original issue discount and fees of $25,080 in exchange for the issuance of a $125,080 Convertible Note (“RRH Note 5”), bearing interest at 15%, which interest is earned on issuance of the note, an effective interest rate of 24.51%, and maturing on March 30, 2025. The RRH Note 4 has mandatory repayments of $93,498 on December 30, 2024 and $16,782 per month on January 30, 2025, February 28, 2025 and March 30, 2025. The RRH Note 5 is convertible into shares of Common Stock at a variable conversion rate of 65% of the lowest trading price ten trading days before conversion. The balance of the RRH Note 5 plus accrued interest at June 30, 2024 was $2,753, net of unamortized debt discount of $122,830. |
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
12 |
CONVERTIBLE NOTES PAYABLE (continued) |
Quick
Capital, LLC
| ● | On March 4, 2024, the Company closed a transaction with Quick Capital, LLC pursuant to which the Company received net proceeds of $94,000, after an original issue discount and fees of $20,286 in exchange for the issuance of a $114,286 Convertible Note, bearing interest at an effective interest rate of 11.12% per annum, which interest is earned on issuance of the note, and maturing on September 4, 2024. The Note is convertible into shares of Common Stock at an initial conversion price of $0.345 per share, in addition, the Company issued a warrant exercisable for 357,764 shares of Common Stock at an initial exercise price of $0.345 per share. The balance of the Quick Capital
note plus accrued interest at June 30, 2024 was $54,281, net of unamortized debt discount of $6,640. |
| | |
| ● | On May 28, 2024, the Company closed a transaction with Quick Capital, LLC pursuant to which the Company received net proceeds of $46,500, after an original issue discount and fees of $10,644 in exchange for the issuance of a $57,144 Convertible Note, bearing interest at an effective interest rate of 11.03% per annum, which interest is earned on issuance of the note, and maturing on November 28, 2024. The Note is convertible into shares of Common Stock at an initial conversion price of $0.345 per share, in addition, the Company issued a warrant exercisable for 178,882 shares of Common Stock at an initial exercise price of $0.345 per share. The balance of the Quick Capital
note plus accrued interest at June 30, 2024 was $37,550, net of unamortized debt discount of $21,011. |
2023
and 2024 Convertible Notes
Between
February 13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors (the “2023
Notes”), and between February 6, 2024 and May 3, 2024 (the “2024 Notes”), the Company entered into Securities Purchase
Agreements with 7 accredited investors, pursuant to which the Company received an aggregate of $2,026,666 from the 2023
Notes and $408,335 from the 2024 Notes, in gross proceeds in private placements through the issuance of:
|
● |
Convertible Promissory Notes (the “2023 Notes and 2024 Notes”); and |
| ● | five-year warrants to purchase an aggregate 5,696,586 shares of Common Stock (the “2023 Warrants”) and an aggregate of 289,856 shares of Common Stock (the “2024 Warrants”), at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). |
The
2023 Notes and the 2024 Notes mature between 3.5 months and 12 months, bear interest at rates between 8% and 12% per annum and
are convertible into shares of Common Stock at a conversion price of $0.345 per share (as adjusted for stock splits, stock combinations,
dilutive issuances and similar events). The 2023 Notes and 2024 Notes may be prepaid at any time without penalty. The Company is under
no obligation to register the shares of Common Stock underlying the 2023 Notes and the 2024 Notes or the 2023 Warrants for public resale.
The
2023 Notes, the 2024 Notes and the 2023 Warrants contain conversion limitations providing that a holder thereof may not convert the 2023
Notes and 2024 Notes or exercise the 2023 Warrants or the 2024 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 4.99% (the “Maximum Percentage”) of the outstanding
shares of the Common Stock immediately after giving effect to such conversion or exercise. A holder may increase or decrease its beneficial
ownership limitation upon notice to the Company provided that in no event such limitation exceeds 9.99%, and that any increase shall
not be effective until the 61st day after such notice.
On
December 14, 2023, two notes totaling $225,000 which matured on December 31, 2023 were rolled over for an additional 3 months to
March 30, 2024. In exchange for the roll-over, the Company issued the note holders warrants exercisable for 292,463 shares of
Common Stock at an exercise price of $0.345 per share. On May 4, 2024, the maturity date of the $200,000 note was further extended
to June 14, 2024, and the maturity date of the $25,000 note was further extended to June 30, 2024. In exchange for the maturity date
extension, the Company issued to note holders warrants exercisable for 292,463 shares of Common Stock at an exercise price of
$0.345 per share.
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 387,673 shares
of Common Stock at an exercise price of $0.345 per share. The modification was assessed in terms of ASC 470 and determined to be
a debt extinguishment, resulting in the warrant value of $66,047 being expensed as a loss on convertible notes.
At
June 30, 2024, notes with a principal amount of $390,000 and accrued interest thereon on $36,000 have matured. No further extensions
on notes that have matured or are expected to mature prior to and subsequent to the date of this Report have been requested or granted.
Pursuant to the Merger Agreement entered into with Business Warrior on July 28, 2024 and as a condition precedent to the consummation
of the merger contemplated thereunder, the Company is negotiating with all of its convertible note holders to exchange such convertible
notes for a newly issued Series A Convertible Preferred Stock of the Company. The terms of the exchange and such Series A Convertible
Preferred Stock are still to be determined and are subject to Company stockholder approval. See Note 19 for further information.
The balance of the 2023 Notes
and the 2024 Notes plus accrued interest at June 30, 2024 was $2,453,369, net of unamortized debt discount of $160,384.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 $416,317 and $268,873, respectively, but limited to the cash value of the convertible notes of $235,000 and $170,000, respectively,
using a Black-Scholes valuation model.
The net movement on the derivative
liability for the three months ended June 30, 2024 was a net mark-to-market credit of $107,547 and for the six months ended June
30, 2024 was a net market credit of $923,488, determined by using a Black-Scholes valuation model.
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Three months
ended
June 30,
2024 |
|
|
Year ended
December 31,
2023 |
|
Conversion price |
|
|
$ 0.0684 to $0.345 |
|
|
|
$ 0.104 to $0.345 |
|
Risk free interest rate |
|
|
4.40 to 5.49 % |
|
|
|
3.60 to 5.55 |
% |
Expected life of derivative liability |
|
|
1 to 41 months |
|
|
|
3.5 to 47 months |
|
Expected volatility of underlying stock |
|
|
153.82 to 201.11 |
% |
|
|
158.72 to 217.01 |
% |
Expected dividend rate |
|
|
0 |
% |
|
|
0 |
% |
The
movement in derivative liability is as follows:
|
|
June 30,
2024 |
|
|
December 31,
2023 |
|
Opening balance |
|
$ |
1,434,196 |
|
|
$ |
2,550,642 |
|
Derivative financial liability arising from convertible note and warrants |
|
|
170,000 |
|
|
|
385,000 |
|
Fair value adjustment to derivative liability |
|
|
(923,488 |
) |
|
|
(1,501,446 |
) |
|
|
$ |
680,708 |
|
|
$ |
1,434,196 |
|
The
Company has total authorized Common Stock of 750,000,000 shares with a par value of $0.0001 each. The Company had 13,819,889 shares
of Common Stock issued and outstanding as of June 30, 2024 and December 31, 2023.
On
May 19, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 72,464 shares of Common
Stock for the conversion of $25,000 of convertible debt, refer Note 12 above.
On
August 16, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 72,464 shares of
Common Stock for the conversion of $25,000 of convertible debt, refer Note 11 above.
On
August 24, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 173,914 shares
of Common Stock for the conversion of $60,000 of interest on convertible debt, refer Note 11 above.
On
August 30, 2023, the Company effectuated a 1 for 30 reverse stock split, resulting in the issuance of an additional 2,838 shares
to existing stockholders due to rounding of existing shareholdings. All share amounts disclosed in the unaudited condensed consolidated
financial statements have been adjusted to reflect the Company’s 1 for 30 reverse stock split effectuated on August 30, 2023.
On
August 31, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 144,928 shares
of Common Stock for the conversion of $50,000 of convertible debt, refer note 11 above.
On
November 8, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 289,855 shares
of Common Stock for the conversion of $100,000 of convertible debt, refer note 11 above.
On
November 20, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 500,000 shares
of Common Stock for the conversion of $172,500 of convertible debt, refer note 11 above.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
| 14 | STOCKHOLDERS’ EQUITY
(continued) |
| b. | Restricted stock awards |
A
summary of restricted stock activity during the period January 1, 2023 to June 30, 2024 is as follows:
| |
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 | |
| 783,167 | | |
$ | 1.50 | | |
| 170,792 | | |
$ | 1.47 | | |
| 612,375 | | |
$ | 1.50 | |
Granted and issued | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Vested | |
| - | | |
| - | | |
| (170,792 | ) | |
| (1.47 | ) | |
| 170,792 | | |
| 1.47 | |
Outstanding December 31, 2023 | |
| 783,167 | | |
$ | 1.50 | | |
| - | | |
$ | - | | |
| 783,167 | | |
$ | 1.50 | |
Granted and issued | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Vested | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding June 30, 2024 | |
| 783,167 | | |
$ | 1.50 | | |
| - | | |
$ | - | | |
| 783,167 | | |
$ | 1.50 | |
The
restricted stock granted, issued and exercisable at June 30, 2024 is as follows:
| | |
Restricted Stock Granted and Vested | |
Grant date Price | | |
Number Granted* | | |
Weighted Average Fair Value per Share* | |
$ | 1.47 | | |
| 683,167 | | |
$ | 1.47 | |
$ | 1.50 | | |
| 33,333 | | |
| 1.50 | |
$ | 1.65 | | |
| 66,667 | | |
| 1.65 | |
| | | |
| 783,167 | | |
$ | 1.50 | |
The
Company has recorded an expense of $0 for the three and six months ended June 30, 2024 and 2023.
The
Company has authorized 25,000,000 shares of preferred stock with a par value of $0.0001 authorized. No preferred
stock was issued and outstanding as of June 30, 2024 and December 31, 2023.
Between
February 13, 2023 and November 27, 2023, the Company entered into Securities Purchase Agreements with 30 accredited investors, as disclosed
in note 11 above. In terms of these Securities Purchase Agreements, the Company issued five-year warrants to purchase an aggregate 5,696,586 shares
of the Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances
and similar events). The Company is under no obligation to register the shares of Common Stock underlying the 2023 Notes or the 2023 Warrants
for public resale.
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 33,334 shares of Common Stock at an exercise price of $1.50 per share.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
| 14 | STOCKHOLDERS’ EQUITY
(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 133,334 shares of Common Stock with an exercise of $0.45 per share. The Company is
obligated to issue each of OpenPath and EfinityPay additional IPEX Warrants to purchase 199,999 shares of Common Stock at a
price equal to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the
remaining initial Tranche. Simultaneously with the funding of the second Tranche in September 2023, the Company became obligated to issue
to each of OpenPath and EfinityPay an additional IPEX Warrant to purchase 166,667 shares of Common Stock with an exercise price
equal to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the second
Tranche. Simultaneously with the funding of the third Tranche, the Company will issue to each of OpenPath and EfinityPay an additional
IPEX warrant to purchase 166,667 shares of Common Stock with an exercise price equal to the average public closing price of
the Common Stock for the three trading days immediately prior to the funding of the third Tranche. If the full IPSI Capital Contribution
is funded, OpenPath and EfinityPay will receive IPEX Warrants to purchase an aggregate of 1,333,334 shares of Common Stock.
See note 1(b) above. As of the date of this Report, it is not expected that the full IPSI Capital Contribution will be required to be
funded.
On
December 14, 2023, the maturity date of two notes totaling $225,000 which matured on December 31, 2023 were extended for an additional
3 months to March 30, 2024. In exchange for the maturity date extension, the Company issued the note holders five-year warrants exercisable
for 292,463 shares of Common Stock at an exercise price of $0.345 per share. On May 4, 2024, the maturity date of the $200,000
note was further extended to June 14, 2024, and the maturity date of the $25,000 note was further extended to June 30, 2024.
In exchange for the maturity date extension, the Company issued to note holders warrants exercisable for 292,463 shares of Common
Stock at an exercise price of $0.345 per share.
During
2023, warrants exercisable for 33,334 shares expired as unexercised and an additional warrant exercisable for 1,000,000 shares
of Common Stock was forfeited on the disposal of Frictionless and Beyond Fintech.
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 357,764 shares
of the Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances
and similar events). The Company is under no obligation to register the shares of Common Stock underlying the Note or the Warrant, for
public resale.
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 387,673 shares
of Common Stock at an exercise price of $0.345 per share.
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 468,738 shares
of the Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances
and similar events). The Company is under no obligation to register the shares of Common Stock underlying the Note or the Warrant, for
public resale.
On May 4, 2024, the maturity
date of two notes totaling $225,000 which originally matured on December 31, 2023 and
which maturity dates were extended to March 30, 2024, on May 4, 2024, the maturity date of the $200,000 note was further extended to June
14, 2024, and the maturity date of the $25,000 note was further extended to June
30, 2024. In exchange for the maturity date extension, on June 14, 2024, the Company issued to note
holders warrants exercisable for 292,463 shares of Common Stock at an exercise
price of $0.345 per share.
The
2023 and 2024 Warrants contain conversion limitations providing that a holder thereof may not exercise the Warrants to the extent that,
if after giving effect to such exercise, the holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum
Percentage”) of the outstanding shares of the Common Stock immediately after giving effect to such exercise. A holder may increase
or decrease its beneficial ownership limitation upon notice to the Company provided that in no event such limitation exceeds 9.99%,
and that any increase shall not be effective until the 61st day after such notice.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
| 14 | STOCKHOLDERS’ EQUITY
(continued) |
The
fair value of the warrants granted and issued, as described above, were determined by using a Black Scholes valuation model using the
following assumptions:
| |
Six months ended June 30, 2024 | |
Exercise price | |
$ | 0.345 | |
Risk free interest rate | |
| 3.84 to 4.56 | % |
Expected life | |
| 5 years | |
Expected volatility of underlying stock | |
| 190.50 to 191.17 | % |
Expected dividend rate | |
| 0 | % |
A
summary of warrant activity during the period January 1, 2023 to June 30, 2024 is as follows:
|
|
Shares
Underlying
Warrants* |
|
|
Exercise
price per
share* |
|
|
Weighted
average
exercise
price* |
|
Outstanding January 1, 2023 |
|
|
5,186,376 |
|
|
$ |
0.345 – 5.625 |
|
|
$ |
0.9000 |
|
Granted |
|
|
6,289,051 |
|
|
|
0.345 – 1.50 |
|
|
|
0.3556 |
|
Forfeited |
|
|
(33,334 |
) |
|
|
1.50 |
|
|
|
1.5000 |
|
Cancelled on disposal of investment in Frictionless and Beyond Fintech |
|
|
(1,000,000 |
) |
|
|
0.345 |
|
|
|
0.3450 |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding December 31, 2023 |
|
|
10,442,093 |
|
|
$ |
0.345 – 5.625 |
|
|
$ |
0.6265 |
|
Granted |
|
|
1,506,638 |
|
|
|
0.345 |
|
|
|
0.345 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Outstanding June 30, 2024 |
|
|
11,948,731 |
|
|
$ |
0.345 – 5.625 |
|
|
$ |
0.5910 |
|
The
warrants outstanding and exercisable at June 30, 2024 are as follows:
| | | Warrants Outstanding* | | | Warrants Exercisable* | |
Exercise Price* | | | Number
Outstanding* | | | Weighted
Average
Remaining
Contractual
life in years | | | Weighted
Average
Exercise
Price* | | | Number
Exercisable* | | | Weighted
Average
Exercise
Price* | | | Weighted
Average
Remaining
Contractual
life in years | |
$ | 0.345 | | | | 10,562,280 | | | | 3.82 | | | | | | | | 10,562,280 | | | | | | | | 3.82 | |
$ | 0.450 | | | | 266,668 | | | | 3.98 | | | | | | | | 266,668 | | | | | | | | 3.98 | |
$ | 1.035 | | | | 500,000 | | | | 1.02 | | | | | | | | 500,000 | | | | | | | | 1.02 | |
$ | 1.500 | | | | 33,334 | | | | 4.12 | | | | | | | | 33,334 | | | | | | | | 4.12 | |
$ | 4.50 | | | | 505,560 | | | | 1.71 | | | | | | | | 505,560 | | | | | | | | 1.71 | |
$ | 5.625 | | | | 80,889 | | | | 1.71 | | | | | | | | 80,889 | | | | | | | | 1.71 | |
| | | | | 11,948,731 | | | | 3.61 | | | $ | 0.5910 | | | | 11,948,731 | | | $ | 0.5910 | | | | 3.61 | |
The
warrants outstanding have an intrinsic value of $0 as of June 30, 2024 and 2023.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
14 |
STOCKHOLDERS’ EQUITY (continued) |
On
June 18, 2018, the Company established its 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to promote the
interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants of the Company
with appropriate incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire
a proprietary interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate
objectives. The Plan terminates after a period of ten years in June 2028.
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 26,667 shares of Common Stock. The maximum number of shares of Common
Stock awarded to any individual during any fiscal year may not exceed 100,000 shares of Common Stock.
On
October 22, 2021, the Company established its 2021 Stock Incentive Plan (“2021 Plan”). The purpose of the Plan is to promote
the interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants, advisors
and service providers of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ
or service of the Company, to acquire a proprietary interest in the long-term success of the Company and to reward the performance of
individuals in fulfilling long-term corporate objectives. The Plan terminates after a period of ten years in August 2031.
The
2021 Plan is administered by the Board 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 1,766,667 shares of Common Stock.
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 23,891 shares of Common Stock due to the previous resignation or termination
of employees and officers whose stock options were not exercised in accordance with the terms allowed under the plan and were therefore
canceled.
A
summary of option activity during the period January 1, 2023 to June 30, 2024 is as follows:
| |
Shares Underlying options* | | |
Exercise price per share* | | |
Weighted average exercise price* | |
Outstanding January 1, 2023 | |
| 1,543,891 | | |
$ | 1.20 to 12.00 | | |
$ | 4.47 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| (23,889 | ) | |
$ | 1.20 to 12.00 | | |
| 5.41 | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding December 31, 2023 | |
| 1,520,002 | | |
$ | 1.20 to 12.00 | | |
$ | 4.46 | |
Granted | |
| - | | |
| - | | |
| - | |
Forfeited/Cancelled | |
| (6,667 | ) | |
| 1.20 | | |
| 1.20 | |
Exercised | |
| - | | |
| - | | |
| - | |
Outstanding June 30, 2024 | |
| 1,513,335 | | |
$ | 1.20 to 12.00 | | |
$ | 4.47 | |
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
14 |
STOCKHOLDERS’ EQUITY (continued) |
|
e. |
Stock options (continued) |
The
options outstanding and exercisable at June 30, 2024 are as follows:
| | | Options Outstanding* | | | Options Exercisable* | |
Exercise Price* | | | Number
Outstanding* | | | Weighted
Average
Remaining
Contractual
life in years | | | Weighted
Average
Exercise
Price* | | | Number
Exercisable* | | | Weighted
Average
Exercise
Price* | | | Weighted
Average
Remaining
Contractual
life in years | |
$ | 1.20 | | | | 13,334 | | | | 8.21 | | | | | | | | 13,334 | | | | | | | | 8.21 | |
$ | 4.50 | | | | 1,500,001 | | | | 7.44 | | | | | | | | 1,472,224 | | | | | | | | 7.45 | |
| | | | | 1,513,335 | | | | 7.45 | | | $ | 4.47 | | | | 1,485,558 | | | $ | 4.47 | | | | 7.45 | |
The
options outstanding have an intrinsic value of $0 as of June 30, 2024 and 2023.
The option expense was $94,464 and $94,465 for
the three months ended June 30, 2024 and 2023, respectively, and $188,928 and $188,928 for the six months ended June 30, 2024
and 2023, respectively.
15 |
LOSS ON CONVERTIBLE NOTES |
The
loss on convertible notes consists of the following:
| |
Three months ended | | |
Three months ended | | |
Six months ended | | |
Six months ended | |
| |
June 30, | | |
June 30, | | |
June 30, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
Expense on extension of maturity date of convertible notes | |
| 36,305 | | |
| - | | |
| 102,352 | | |
| - | |
Loss on conversion of convertible notes | |
| - | | |
| 18,478 | | |
| | | |
| 18,478 | |
| |
| 36,305 | | |
| 18,478 | | |
| 102,352 | | |
| 18,478 | |
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 387,673 shares of Common Stock, the modification
of the terms and the issue of the new warrants was assessed as a debt extinguishment.
On
May 4, 2024, the maturity date of two notes totaling $225,000 which originally matured
on December 31, 2023 and which maturity dates were extended to March 30, 2024, on May 4, 2024, the maturity date of the $200,000 note
was further extended to June 14, 2024, and the maturity date of the $25,000 note was
further extended to June 30, 2024. In exchange for the maturity date extension, on June
14, 2024, the Company issued to note holders warrants exercisable for 292,463 shares
of Common Stock, the modification of the terms and the issue of the new warrants was assessed as a debt extinguishment.
The
debt extinguishments resulted in a charge of $36,305 and $102,352 for the three and six months ended June 30, 2024, respectively.
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 six months ended June 30, 2024 and 2023 all
warrants options and convertible debt securities were excluded from the computation of diluted net loss per share.
Dilutive
shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because
their affect would have been anti-dilutive for the three and six months ended June 30, 2024 and 2023 are as follows:
| |
Three and six months ended June 30, 2024 (Shares) | | |
Three and six months ended June 30, 2023 (Shares) | |
Convertible debt | |
| 17,120,766 | | |
| 10,016,110 | |
Stock options | |
| 1,513,335 | | |
| 1,543,891 | |
Warrants to purchase shares of Common Stock | |
| 11,948,731 | | |
| 6,630,882 | |
| |
| 30,582,832 | | |
| 18,190,883 | |
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
17 |
RELATED PARTY TRANSACTIONS |
The
following transactions were entered into with related parties during the six months ended June 30, 2024:
William
Corbett
An
option expense for options still vesting for Mr. Corbett was $66,587 for each of the three months ended June 30, 2024 and 2023, and
$133,174 for each of the six months ended June 30, 2024 and 2023.
Richard
Rosenblum
An
option expense for options still vesting for Mr. Rosenblum was $27,877 for each of the three months ended June 30, 2024 and 2023
and $55,754 for each of the six months ended June 30, 2024 and 2023.
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 May
22, 2024 and May 3, 2025. The Company may settle certain of the notes payable, at its option by the issue of shares of
its Common Stock and should the convertible notes not be converted to Common Stock prior to their maturity dates, the Company may need
to repay the principal and interest outstanding on these notes.
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 $0.0001 per share, of Business Warrior (“Business Warrior Common Stock”), other than treasury
shares and shares as to which appraisal rights have been exercised, will be automatically converted into the right to receive a number
of shares of Common Stock equal to the Applicable Per Share Portion (as defined in the BW Merger Agreement) of the BW Merger Consideration
(as defined below), (ii) each outstanding share of preferred stock of Business Warrior (“Business Warrior Preferred Stock”),
other than treasury shares and shares as to which appraisal rights have been exercised, will be automatically converted into the right
to receive a number of shares of Common Stock equal to the Applicable Per Share Portion (as defined in the BW Merger Agreement) of the
BW Merger Consideration (as defined below) had such share of Business Warrior Preferred Stock been converted into shares of Business Warrior
Common Stock immediately prior to the Effective Time and (iii) any other options, warrants or rights to subscribe for or purchase any
capital stock of Business Warrior or securities convertible into or exchangeable for, or that otherwise confer on the holder any right
to acquire any capital stock of Business Warrior, if not exercised or converted prior to the Effective Time, shall be cancelled, retired
and terminated.
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 (45%) of the Common Stock outstanding immediately following the Closing, and after giving effect to the conversion,
exercise or cancellation of the Business Warrior Preferred Stock and other Business Warrior securities referred to above.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
19 |
SUBSEQUENT EVENTS (continued) |
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).
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
19 |
SUBSEQUENT EVENTS (continued) |
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.
INNOVATIVE PAYMENT SOLUTIONS, INC.
Notes to Condensed
Consolidated Financial Statements
(Unaudited)
19 |
SUBSEQUENT EVENTS (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.
Appointment of Executive Chairman
and Removal of Chief Executive Officer
On July 25, 2024, the Board, pursuant
to the powers of the Board provided for under applicable Nevada law and the Company’s bylaws (the “Bylaws”), approved
the creation of the new officer position of Executive Chairman. The Board appointed William D. Corbett, the current Chairman of the Board
of the Company, to the office of Executive Chairman and removed Mr. Corbett as the Company’s Chief Executive Officer. On such date,
the Board also approved the duties and responsibilities of the office of Executive Chairman.
Also, on July 25, 2024, the Board,
pursuant to the powers of the Board provided for under applicable Nevada law and the Bylaws, appointed Richard Rosenblum, the current
President and Chief Financial Officer of the Company, as the Company’s “principal executive officer” for all general
corporate purposes and for Securities and Exchange Commission reporting purposes. The Board also, in furtherance of Mr. Rosenblum’s
appointment as principal executive officer of the Company, elected to leave the office of Chief Executive Officer of the Company unfilled.
August
2024 Promissory Note
On
August 9, 2024, the Company entered into a Securities Purchase Agreement with a single accredited investor, pursuant to which the Company
issued a promissory note with a principal amount totaling $88,889 for gross proceeds of $66,667, including an aggregate original issuance
discount of $22,222. The note matures on May 9, 2025 and bears interest at 8% per annum. The note is convertible into shares of Common
Stock at a conversion price of $0.10 per share at any time (which conversion price was then adjusted to $0.084 due to the note conversion
described below).
Note
Conversion and Adjustment to Existing Notes and Warrants
On
August 9, 2024, the Company received a conversion notice from the holder of RRH Note 2 (see Note 12) pursuant to which $13,833 of the
remaining principal, interest and late payment penalty under the RRH 2 Note was converted into 164,679 shares of Common Stock at a conversion
price of $0.084 per share.
As
a result of the conversion of the RRH Note 2, all other outstanding promissory notes and warrants of the Company that contain price-based
anti-dilution protection had the conversion prices of such notes and the exercise price of such warrants adjusted to $0.084 per share
and certain warrants of the Company that contain “full ratchet” antidilution price protection had the number of shares exercisable
for such warrants increased by the full rachet provision and the conversion prices of such warrants adjusted to $0.084 per share.
Convertible
notes with an aggregate principal and interest balance outstanding on August 9, 2024 of $2,165,578 have such price-based anti-dilution
protection. Based on the conversion by the RRH Note 2 as described above, the conversion price of these notes will reset to $0.084, resulting
in an increase in the potential amount of shares of Common Stock issuable on conversion from 6,277,036 to 25,780,685, an increase of 19,503,649.
In addition, certain warrants exercisable for 3,145,342 shares of common stock at an exercise price of $0.345 per share, have a full rachet
provision which results in an increase in the number of shares of Common Stock exercisable for such warrants by 9,773,027 to a total number
of shares of Common Stock exercisable for such warrants of 12,918,369. In addition to this, certain warrants exercisable for 457,897 shares
of common stock have exercise price protection which will reduce the exercise price of these warrants to $0.084 per share from $0.345
per share, resulting in a decrease in potential proceeds receivable from the exercise price of such warrants by $119,511.
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.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
All references to “we,”
“us,” “our” and the “Company” refer to Innovative Payment Solutions, Inc., a Delaware corporation
and its consolidated subsidiaries unless the context requires otherwise.
Overview
We
are a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new
account-to-account payment application called Instant Settlement in RealTime (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 19 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 second half of 2024 seeking appropriate shareholder approvals of this transaction 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 effect our results of operations in the coming periods.
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:
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Current market prices of our equity |
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Risk free interest rates; |
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Expected remaining life of the derivative liability; |
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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 June 30, 2024 and
2023
Net revenue
We recorded minimal revenues
of $0 and $5 during the three months ended June 30, 2024 and 2023, respectively. 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, once the merger is consummated with Business Warrior we will generate revenues through the merged
entity.
Cost of goods sold
We did not have any revenues
or cost of goods sold for the three months ended June 30, 2024. Cost of goods sold was $284 for the three months ended June 30, 2023 and
consisted primarily of bank and merchant related fees and chargebacks.
General and administrative expenses
General and administrative expenses were $407,132 and $1,057,631 for
the three months ended June 30, 2024 and 2023, respectively, a decrease of $650,499 or 61.5%. The decrease is primarily due to the following:
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(i) |
Legal fees were $66,069 and $236,832 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $170,763 or 72.1%. 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. |
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(ii) |
Professional fees were $14,270 and $226,870 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $212,600 or 93.7%. 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. |
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(iii) |
Salaries and wages were $204,990 and $280,778 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $75,788 or 27.0%. 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 corporate taxes related to cash payments actually made to officers |
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(iv) |
Audit fees were $12,500 and $107,000 for the three months ended June 30, 2024 and 2023, a decrease of $94,500 or 88.3%, primarily due to the timing of invoices received for services provided by our external auditors. |
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(v) |
Insurance expense was $313 and $46,648 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $46,335 or 99.3%. This is primarily due to the suspension of insurance coverage during the current period as no business is being conducted during this development phase. |
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(vi) |
Selling and marketing expenses were $73,167 and $90,683 for
the three months ended June 30, 2024 and 2023, respectively, a decrease of $17,516 or 19.3%. the decrease is primarily due the decrease
in social media marketing expenses. |
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(vii) |
The balance of the general and administrative expenses was $35,823 and $68,820 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $32,997 or 47.9%. Which is made up of several individually insignificant items. |
Depreciation and
amortization
Depreciation
was $542 and $139,015 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $138,473, primarily due to the prior
period depreciation of the software platform and purchased software of $138,475 prior to the novation of the platform to ta third party
during the prior year.
Loss on convertible
notes
Loss
on convertible notes was $36,305 and $18,478 for the three months ended June 30, 2024 and 2023, respectively, an increase of $17,827 or
96.5%. The loss on convertible notes during the current year related to extension warrants issued to certain noteholders to extend the
maturity date of their notes, the value of the warrants was determined to be a debt extinguishment and were therefore expensed. In the
prior year, the loss on debt conversion related to the conversion of $25,000 of convertible debt into 2,173,913 shares of common stock.
Interest expense,
net
Interest
expense was $146,176 and $95,079 for the three months ended June 30, 2024 and 2023, respectively, an increase of $51,097 or 53.7%. The
increase is related to the additional $402,335 of new convertible note funding and $133,333 of promissory note funding during the current
year for working capital purposes.
Amortization
of debt discount
Amortization of debt discount was $320,346 and $88,687 for the three
months ended June 30, 2024 and 2023, respectively, an increase of $231,659 or 261.2%. 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 $107,547 and $(1,252,682) for the three months ended June 30, 2024 and 2023, respectively, a net movement of
$1,360,229 or 108.6%. The derivative liability arose due to the issuance of convertible securities and warrants with a fundamental transaction
clause allowing for a cash settlement of the convertible note at the option of the holder, as well as variable rate conversion options
on several new notes issued during the current year. The credit during the current period represents a decrease in the mark-to-market
value of the derivative liability due to a decrease in the share price and the increase in interest rates over the prior year.
Net loss from
equity method investment
Net
loss from equity method investment was $88 and $1,381 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $1,293
or 93.6%. The expenses incurred in the equity method investment are minimal as operations have not started.
Net loss from
continuing operations
Net loss from continuing operations was $797,557 and $2,653,232 for
the three months ended June 30, 2024 and 2023, respectively, a decrease in loss of $1,855,675 or 69.9%. The decrease is primarily due
to the decrease in general and administrative expenses, the decrease in depreciation and amortization, and the increase in the derivative
liability movement, offset by an increase in interest expense and amortization of debt discount, as discussed in detail above.
Operating loss
from discontinued operations
Operating
loss from discontinued operations was $0 and $25,561 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $25,561
or 100.0%. On May 12, 2023, the Company entered into an Agreement with Frictionless to unwind the equity ownership stakes that the
Company and Frictionless have in each other and in Beyond Fintech. The Company assigned to Frictionless all common stock of Frictionless
owned by the Company and all shares of common stock of Beyond Fintech owned by the Company.
Loss on disposal
of subsidiary
Loss
on disposal of subsidiary was $0 and $495,424 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $495,424
or 100.0%. On May 12, 2023, the Company entered into an Agreement with Frictionless to unwind the equity ownership stakes that the
Company and Frictionless have in each other and in Beyond Fintech. The Company assigned to Frictionless all common stock of Frictionless
owned by the Company and all shares of common stock of Beyond Fintech owned by the Company. The consideration to the Company for the assignment
of the Beyond Fintech Shares to Frictionless was $250,000, resulting in a net loss on disposal of $495,424.
Net loss
Net loss was $797,645 and $3,174,217 for the three months ended June
30, 2024 and 2023, respectively, a decrease of $2,376,572 or 74.9%. The decrease is primarily attributable to the decrease in net loss
from continuing operations, and the increase in loss from disposal of subsidiary and investment, as discussed in detail above.
Results
of Operations for the Six Months Ended June 30, 2024 and June 30, 2023
Net revenue
We did not have any revenues
during the six months ended June 30, 2024 and minimal revenues of $438 for the six months ended June 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, once the merger is consummated with Business Warrior we will generate
revenues through the merged entity.
Cost of goods sold
We did not have any revenues
or cost of goods sold for the six months ended June 30, 2024. Cost of goods sold was $2,369 for the six months ended June 30, 2023 and
consisted primarily of bank and merchant related fees and chargebacks.
General and administrative
expenses
General and administrative expenses were $1,033,929 and $2,007,578
for the six months ended June 30, 2024 and 2023, respectively, a decrease of $973,649 or 48.5%. The decrease is primarily due to the following:
|
(i) |
Legal fees were $218,664 and $372,355 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $153,691 or 41.3%. 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. |
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(ii) |
Professional fees were $23,834 and $452,006 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $428,172 or 94.7%. 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. |
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(iii) |
Salaries and wages were $473,993 and $560,542 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $86,549 or 15.4%. 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 corporate taxes related to cash payments actually made to officers. |
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(iv) |
Audit fees were $92,500 and $107,000 for the six months ended June 30, 2024 and 2023, a decrease of $14,500 or 13.6%, primarily due to the timing of invoices received for services provided by our external auditors. |
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(v) |
Insurance expense was $626 and $93,295 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $92,669 or 99.3%. This is primarily due to the suspension of insurance coverage during the current period as no business is being conducted during this development phase. |
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(vi) |
Selling and marketing expenses were $148,874 and $260,642 for
the six months ended June 30, 2024 and 2023, respectively, a decrease of $111,768 or 42.9%. the decrease is primarily due the decrease
in social marketing expenses. |
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|
(vii) |
The balance of the general and administrative expenses was $75,438 and $161,738 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $86,300 or 53.4%. Which is made up of several individually insignificant items. |
Depreciation
Depreciation
was $1,084 and $279,705 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $278,621 or 99.6%, primarily due
to the depreciation of the software platform and purchased software of $271,079, prior to the novation of the platform to ta third party
during the prior year.
Loss on convertible notes
Loss
on convertible notes was $102,352 and $18,478 for the six months ended June 30, 2024 and 2023, respectively an increase of $83,874 or
453.9%. The loss on convertible notes during the current year related to extension warrants issued to certain noteholders to extend the
maturity date of their notes by 6 months, the value of the warrants was determined to be a debt extinguishment and were therefore expensed.
In the prior year, the loss on debt conversion related to the conversion of $25,000 of convertible debt into 2,173,913 shares of common
stock.
Interest expense,
net
Interest
expense was $283,095 and $180,300 for the six months ended June 30, 2024 and 2023, respectively, an increase of $102,795 or 57.0%. The
increase is related to the additional $402,335 of new convertible note funding and $133,333 of promissory note funding during the current
year for working capital purposes.
Amortization of
debt discount
Amortization of debt discount was $640,245 and $111,654 for the six
months ended June 30, 2024 and 2023, respectively, an increase of $528,591 or 473.4%. 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 $923,488 and $(311,932) for the six months ended June 30, 2024 and 2023, respectively, an increase of $1,135,420
or 364.0%. The derivative liability arose due to the issuance of convertible securities and warrants with a fundamental transaction clause
allowing for a cash settlement of the convertible note at the option of the holder, as well as variable rate conversion options on several
new notes issued during the current year. The credit during the current period represents a decrease in the mark-to-market value of the
derivative liability due to a decrease in the share price and the increase in interest rates over the prior year.
Net loss from
equity method investment
Net
loss from equity method investment was $572 and $1,381 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $809
or 58.6%. The expenses incurred in the equity method investment are minimal as operations have not started.
Net loss from
continuing operations
Net loss from continuing operations was $1,129,110 and $2,912,959 for
the six months ended June 30, 2024 and 2023, respectively, a decrease of $1,783,849 or 61.2%. The decrease is primarily due to the decrease
in general and administrative expenses, the decrease in depreciation and amortization, and the increase in the derivative liability movement,
offset by an increase in interest expense and amortization of debt discount, as discussed in detail above.
Operating loss
from discontinued operations
Operating
loss from discontinued operations was $0 and $40,821 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $40,821
or 100.0%. On May 12, 2023, the Company entered into an Agreement with Frictionless to unwind the equity ownership stakes that the
Company and Frictionless have in each other and in Beyond Fintech. The Company assigned to Frictionless all common stock of Frictionless
owned by the Company and all shares of common stock of Beyond Fintech owned by the Company.
Loss on disposal
of subsidiary
Loss
on disposal of subsidiary was $0 and $495,424 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $495,424
or 100.0%. On May 12, 2023, the Company entered into an Agreement with Frictionless to unwind the equity ownership stakes that the
Company and Frictionless have in each other and in Beyond Fintech. The Company assigned to Frictionless all common stock of Frictionless
owned by the Company and all shares of common stock of Beyond Fintech owned by the Company. The consideration to the Company for the assignment
of the Beyond Fintech Shares to Frictionless was $250,000, resulting in a net loss on disposal of $495,424.
Net loss
Net loss was $1,129,110 and $3,449,204 for the six months ended June
30, 2024 and 2023, respectively, a decrease of $2,320,094 or 67.3%. 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 discussed in detail above.
Liquidity and Capital Resources
To
date, our primary sources of cash have been funds raised primarily from the sale of our debt and equity securities.
We have an accumulated deficit
of $59.4 million through June 30, 2024 and incurred negative cash flow from operations of $0.4 million for the six months ended June 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 20% 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
June 30, 2024, we had cash of $79,027 and working capital deficit of $9.0 million, including a derivative liability of $0.7 million. After
eliminating the derivative liability our working capital deficit is $8.3 million.
We
used cash of $0.4 million and $0.9 million in operations for the six months ended June 30, 2024 and 2023, respectively. Overall cash used
in operations decreased by $0.5 million due to cost containment to preserve cash balances.
We invested $0.2 million in Business Warrior in the form of notes receivable
for strategic purposes during the six months ended June 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 $0.2 million in our equity method investment.
We
generated cash of $0.8 million from promissory notes and convertible notes and repaid $0.2 million of convertible notes during the current
period. In the prior year we generated $0.9 million from convertible notes and repaid $0.01 million
At June 30, 2024, we had outstanding convertible notes, including interest
thereon of $4.8 million, net of unamortized debt discount of $0.4 million and outstanding promissory notes, including interest thereon
of $1.2 million, net of unamortized debt discount of $0.03 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
$0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events), to variable conversion prices
of 60% of lowest trading prices over a 20-trading day period. Should the investors choose not to convert these convertible notes, we may
need to repay these notes together with interest thereon which will impact on our liquidity.
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.
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 June 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 June 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.
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 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.
On May 25, 2022, the parties
held a mediation in an attempt to resolve the matters. The mediation was unsuccessful.
On October 26, 2022, OSHA
scheduled a hearing on Ms. Rey’s and Mr. Perez’s appeal for April 5, 2023. On November 8, 2022, the claimants’ counsel
informed us that all five former employees intended to exercise their right to file a lawsuit in federal court and asked if prior counsel
would stipulate to dismissal of Rey’s and Perez’s OSHA claims without prejudice. Pursuant to that agreement and stipulation,
dismissal without prejudice was filed on November 10, 2022.
On November 7, 2022, the same
five employees filed a lawsuit, not in federal court, but in the California Superior Court for the County of Los Angeles, against our
company and the same individuals against whom they had asserted their OSHA claim. The complaint asserted claims for, among other things,
breach of contract, failure to pay wages and failure to reimburse expenses under the California Labor Code and asserting retaliation claims
under the California Labor Code. On December 16, 2022, the same five employees filed an amended complaint dropping all defendants from
the case except Mr. Corbett and our company. The amended complaint asserts claims for violations of California Labor Code Section 1102.5;
wrongful termination in violation of public policy; breach of contract; breach of covenant of good faith and fair dealing; violation of
California Labor Code Section 201; waiting time penalties (Cal. Lab. Code Sections 201 & 203) and violation of California Labor Code
Section 2802
We and Mr. Corbett, the sole
remaining individual defendant, 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 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. After the former employees failed to initiate arbitration,
Defendants through prior counsel filed a motion to compel the appointment of an arbitrator, which was scheduled for hearing on January
2, 2024. On October 27, 2023, Plaintiffs, Perez, and Rey filed a petition for writ of mandate with the California Court of Appeal, seeking
review of Judge Crowfoot’s order granting our motion to compel arbitration. The California Court of Appeal denied the petition for
writ of mandate on November 1, 2023. On December 15, 2023, all five former employees filed a demand for arbitration. We withdrew our motion
to compel appointment of an arbitration.
Upon motion of our company
and Mr. Corbett, on January 10, 2024, the U.S. District Court for the Central District of California stayed all proceedings in the Federal
Action until the arbitration is completed.
Plaintiffs Naum Voloshin,
Andrey Novikov, and Alexander Voloshin asserted, in the Federal Action, that they are entitled to damages in the following amounts: Naum
Voloshin: $950,000 plus an unstated amount of lost wages and emotional distress damages. The claim is premised upon Mr. Voloshin earning
$15,000 per month and a claim that he was entitled to receive 333,334 shares of Common Stock (after giving effect to our August 2023 reverse
stock split) on or about June 29, 2021 that he would have sold on July 1, 2021 for $2.85 per share on July 1, 2021 for $950,000. Andrey
Novikov: $285,000 plus emotional distress and punitive damages. The claim is premised upon Mr. Novikov earning $15,000 per month and a
claim that he was entitled to receive 100,000 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or
about June 29, 2021, that he would have sold at $2.85 per share on July 1, 2021 for $285,000. Alexander Voloshin: $263,000 plus emotional
distress and punitive damages. The claim is premised upon an alleged two-year contract signed in May 2021 that paid him $7,000 per month
and that promised him 333,334 shares of Common Stock (after giving effect to our August 2023 reverse stock split) on or about June 29,
2021. Naum Voloshin claims he would have sold those shares on or about July 1, 2021, for $2.85 per share for $950,000. We have not received
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. Present counsel will likely seek dismissal of Mr. Corbett as a party-defendant and the statutory
claims of two out-of-state defendants. Once the legal issues are settled, depositions will be scheduled and completed.
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 receive 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 will be resolved by the AAA arbitration process. 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.
No date for final arbitration
hearing in the Minkovich matter has yet been scheduled.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Between February 6, 2024 and
June 25, 2024, we entered into Securities Purchase Agreements with 9 accredited investors, pursuant to which we received an aggregate
of $718,835 in gross proceeds from the Investors through the initial closing of a private placement issuance of:
|
● |
Convertible Notes Promissory (the “Notes” and each a “Note”); and |
|
● |
five-year warrants (the “Warrants” and each a “Warrant”) to purchase an aggregate 826,502 shares of the Company’s Common Stock at an exercise price of $0.345 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). |
The Notes mature between 6
months and 12 months, and bear interest at rates from 8% to 24.98% per annum and are convertible into shares of Common Stock at conversion
price ranging from a fixed conversion price of $0.345 per share to variable conversion prices ranging from 60% to 65% of the lowest trading
prices over a period of ten to twenty trading days (as adjusted for stock splits, stock combinations, dilutive issuances and similar events).
The Notes may be prepaid
at any time without penalty. The Company is under no obligation to register the shares of Common Stock underlying the Notes or the Warrants
for public resale, pursuant to Section 4(a)(2) of the Securities Act.
On
August 9, 2024, the Company entered into a Securities Purchase Agreement with a single accredited investor, pursuant to which the Company
issued a promissory note totaling $88,889 for gross proceeds of $66,667, including an aggregate original issuance discount of $22,222.
The note matures on May 9, 2025 and bears interest at 8% per annum. The note is convertible into shares of Common Stock at a conversion
price of $0.10 per share at any time.
On
August 9, 2024, the Company received a conversion notice from a convertible noteholder, converting $13,833 of the remaining principal
and interest of a convertible note into 164,679 shares of Common Stock at a conversion price of $0.084 per share. As a result of the
conversion price of this note, all other outstanding promissory notes and warrants of the Company that contained price protection had
the conversion prices of such notes and the exercise price of such warrants adjusted to $0.084 per share and certain warrants of the
Company that contain “full ratchet” antidilution price protection had the number of shares exercisable for such warrants
increased by the full rachet provision and the conversion prices of such warrants adjusted to $0.084 per share.
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.
None.
Item 6. Exhibits
Exhibit No. |
|
Exhibit Description |
3.1 |
|
Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-192877) filed with the Securities and Exchange Commission on December 16, 2013) |
3.2 |
|
Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2021) |
3.3 |
|
Certificate of Amendment to Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 2, 2016) |
3.4 |
|
Certificate of Amendment to Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 6, 2018) |
3.5 |
|
Certificate of Amendment to the Articles of Incorporation of the Company (Name Change) (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2019) |
3.6 |
|
Certificate of Correction to the Certificate of Amendment to the Articles of Incorporation of the Company, dated August 24, 2023, to effect a 1-for-30 reverse stock split (Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 30, 2023) |
31.1* |
|
Certification of Richard Rosenblum, President and Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule15d-14(a) |
32.1* |
|
Certification of Richard Rosenblum, President and Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002 |
101.INS |
|
Inline XBRL Instance Document.* |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document.* |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document.* |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
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: August 14, 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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2024-08-09
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In connection with the Quarterly Report of
Innovative Payment Solutions, Inc. (the “Registrant”) on Form 10-Q for the quarterly period ended June 30, 2024, as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Rosenblum, certify, pursuant to
18 U.S.C. §1350, as adopted pursuant to Section. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: