NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS
|
On May 12, 2016, Innovative
Payment Solutions, Inc. (formerly known as QPAGOS and Asiya Pearls, Inc.), a Nevada corporation (“IPSI” or the “Company”),
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Corporation, a Delaware corporation
(“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of IPSI (“Merger
Sub”). Pursuant to the Merger Agreement, on May 12, 2016, the merger was consummated, and Qpagos Corporation
and Merger Sub merged (the “Merger”), with Qpagos Corporation continuing as the surviving corporation of the Merger.
Pursuant to the Merger Agreement,
upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior
to the Merger was converted into the right to receive two shares of IPSI common stock, par value $0.0001 per share (the “Common
Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, IPSI assumed all of Qpagos Corporation’s
warrants issued and outstanding immediately prior to the Merger, which were exercisable for approximately 6,219,200 pre reverse
split (621,920 post reverse split that was effected in November 2019) shares of Common Stock, respectively, as of the date of
the Merger. Prior to and as a condition to the closing of the Merger, the then-current IPSI stockholder of 5,000,000 pre reverse
split (500,000 post reverse split that was effected in November 2019) shares of Common Stock agreed to return to IPSI 4,975,000
pre reverse split (497,500 post reverse split that was effected in November 2019) shares of Common Stock held by such holder to
IPSI and the then-current IPSI stockholder retained an aggregate of 25,000 pre reverse split (2,500 post reverse split that was
effected in November 2019) shares of Common Stock and the other stockholders of IPSI retained 5,000,000 pre reverse split (500,000
post reverse split that was effected in November 2019) shares of Common Stock. Therefore, immediately following the Merger, Qpagos
Corporation’s former stockholders held 49,929,000 pre reverse split (4,992,900 post reverse split that was effected in November
2019) shares of IPSI common stock which represented approximately 91% of the outstanding Common Stock.
The Merger was treated as a
reverse acquisition of IPSI, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation
was treated as the acquirer for accounting and financial reporting purposes while IPSI was treated as the acquired entity for
accounting and financial reporting purposes.
Qpagos Corporation (“Qpagos”)
was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos,
S.A.P.I. de C.V. (“Qpagos Mexico”) and Redpag Electrónicos S.A.P.I. de C.V. (“Redpag”). Each of
the entities were incorporated in November 2013 in Mexico.
Qpagos Mexico was formed to
process payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as a
distributor.
On May 27, 2016 Asiya changed
its name to QPAGOS.
On June 1, 2016, the board
of directors of QPAGOS (the “Board”) changed the Company’s fiscal year end from October 31 to December 31.
On November 1, 2019, the Company
changed its name from QPAGOS to Innovative Payment Solutions, Inc.
Also on November 1, 2019, 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 Company’s common stock, par value $0.0001 per share (the “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, Innovative
Payment Solutions 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 SPA was 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. Innovative Payment Solutions no longer has any business operations in Mexico and has retained its U.S. operations
based in Calabasas, California.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS (continued)
|
|
b)
|
Description of
the business
|
Subsequent to the merger of
Qpagos Corporation into IPSI and until the divestiture of Qpagos Corporation, Qpagos Mexico and Redpag, the Company’s focus
was on the operations of Qpagos Corporation in Mexico. The Company’s current focus is on providing physical and virtual
payment services to the United States market, leveraging the knowledge it obtained from the operations of Qpagos Corporation.
On December 31, 2019, the Company consummated the disposal of Qpagos Corporation, including the two Mexican subsidiaries, Qpagos
Mexico and Redpag pursuant to the SPA, in exchange for 2,250,000 shares of common stock of Vivi Holdings, of which nine percent
(9%) was allocated to the following: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The SPA was 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. The Company no longer has any business operations in Mexico and has retained its U.S. operations
based in Northridge, California.
Qpagos Corporation, through
its subsidiaries Qpagos Mexico and Redpag, provided physical and virtual payment services to the Mexican market. Qpagos Corporation
provided an integrated network of kiosks, terminals and payment channels that enabled consumers in Mexico to deposit cash, convert
it into a digital form and remit the funds to any merchant in our network quickly and securely. Qpagos Mexico helped consumers
and merchants connect more efficiently in markets and consumer segments, such as Mexico, that are largely cash-based and lack
convenient alternatives for consumers to pay for goods and services in physical, online and mobile environments.
In March 2020, the outbreak of COVID-19
(also known as the coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization,
and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company operates.
While, to date, the Company has not been required to stop operating, management is evaluating its use of its office space, virtual
meetings and the like.
The Company provides an integrated
network of kiosks, terminals and payment channels that enable consumers to deposit cash, convert it into a digital form and remit
the funds to any merchant in its network quickly and securely. The Company has plans to roll out 50 kiosks in Southern California
to provide digital payments for the unbanked and underbanked using self-service kiosks and an E wallet ecosystem. The kiosks are
currently located in the Company’s warehouses in Southern California awaiting installation. Due to measures imposed by the
local governments in areas affected by COVID-19, businesses have been suspended due to local and state stay-at-home orders intended
to contain the COVID-19 outbreak and many people have been forced to work from home in those areas. As a result, installation of
the Company’s network of kiosks, terminals and payment channels in Southern California has been delayed, which has had an
adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue and access
usual sources of liquidity on reasonable terms.
The Company has been following the
recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including the
temporary closures of its offices and having employees work remotely to the extent possible, which has to an extent adversely affected
their efficiency. As a result, the Company’s books and records were not easily accessible, resulting in delays in preparation
and completion of its financial statements. Further, the various governmental mandatory closures of businesses in these locations
have precluded the Company’s personnel, particularly its senior accounting staff, from obtaining access to its books and
records necessary to prepare the Company’s financial statements to be included in this Report.
The Company continues to monitor
the impact of the COVID-19 outbreak closely. The extent to which the COVID-19 outbreak will continue to impact the Company’s
operations, ability to obtain financing or future financial results is uncertain.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES
|
The accompanying unaudited
condensed consolidated 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 consolidated 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 consolidated
financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary,
for a fair presentation of those financial statements. The results of operations and cash flows for the three and nine months
ended September 30, 2020 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, 2019, included in the Annual Report on Form 10-K as filed with the Securities and Exchange
Commission (the “SEC”) on May 14, 2020 (the “2019 10-K”).
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 include the financial statements of the Company. In the prior year the financial statements included the
Company and its wholly owned subsidiary and its indirect subsidiaries. All significant inter-company accounts and transactions
have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements
are as follows:
Entity
|
|
Percentage
owned
|
|
|
Country
|
|
|
Disposed of
|
|
|
|
|
|
|
|
|
|
Innovative Payment Solutions, Inc
|
|
|
-
|
|
|
|
USA
|
|
|
-
|
Qpagos Corporation
|
|
|
100
|
%
|
|
|
USA
|
|
|
December 31, 2019
|
Qpagos, S.A.P.I de C.V.
|
|
|
99.996
|
%
|
|
|
Mexico
|
|
|
December 31, 2019
|
Redpag Electrónicos, S.A.P.I. de C.V
|
|
|
99.990
|
%
|
|
|
Mexico
|
|
|
December 31, 2019
|
The financial statements of
the Company’s discontinued Mexican operations in the prior period are measured using local currencies as their functional
currencies.
The Company translated the
assets and liabilities of its discontinued Mexican subsidiaries at the exchange rates in effect at the period end and the results
of operations at the average rate throughout the period. The translation adjustments are recorded directly as a separate component
of stockholders’ equity, while transaction gains (losses) are included in net income (loss). All sales were to customers
located in Mexico.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES
AND ESTIMATES (continued)
|
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 materially from those estimates and judgments. In particular, significant estimates and judgments include those related
to; the estimated useful lives for plant and equipment, investment valuation, the fair value of warrants and stock options granted
for services or compensation, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities,
the valuation allowance for deferred tax assets due to continuing operating losses, those related to revenue recognition 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.
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 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.
|
f)
|
Fair Value of Financial Instruments
|
The Company adopted the guidance
of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level 1-Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted
quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by
observable market data.
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The carrying amounts reported
in the balance sheets for the investment in Vivi Holdings Inc., was evaluated at fair value using Level 3 Inputs based on the
Company’s estimate of the market value of the entities disposed to Vivi Holdings, Inc. Vivi Holdings Inc., does not have
sufficient information available to assess the current market price of its equity.
The carrying amounts reported
in the balance sheets for cash, other current assets, other assets, accounts payable, accrued liabilities, and notes payable,
approximate fair value due to the relatively short period to maturity for these instruments. The Company has identified the short-term
convertible notes and certain warrants attached to certain of the notes that are required to be presented on the balance sheets
at fair value in accordance with the accounting guidance.
ASC 825-10 “Financial
Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value
(fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. The Company evaluates the fair value of variably priced derivative
liabilities on a quarterly basis and report any movements thereon in earnings.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES
AND ESTIMATES (continued)
|
|
g)
|
Risks and Uncertainties
|
The Company’s operations
will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including
the potential risk of business failure. The recent global Covid-19 breakout has caused an economic crisis which may result in
a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme
volatility in credit, equity and fixed income markets. These conditions may not only limit the Company’s access to capital,
but also make it difficult for its customers, vendors and the Company to accurately forecast and plan future business activities.
In addition, businesses have been suspended due to quarantines intended to contain this outbreak and many people have been forced
to work from home in those areas. As a result, installation of the Company’s network of kiosks, terminals and payment
channels in Southern California has been delayed, which has had an adverse impact on its business and financial condition
and has hampered 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.
|
h)
|
Recent accounting
pronouncements
|
In August
2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-06, debt with Conversion and Other
Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), certain
accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed
from the guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are
accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.
This ASU
is effective for fiscal years and interim periods beginning after December 15, 2021.
The effects
of this ASU on the Company’s condensed consolidated financial statements is currently being assessed and is expected to
have an impact on the treatment of certain convertible instruments and the derivative liabilities associated with these convertible
instruments.
The FASB
issued several additional updates during the period, none of these standards are either applicable to the Company or require adoption
at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.
|
i)
|
Cash and Cash Equivalents
|
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September
30, 2020 and December 31, 2019, respectively, the Company had no cash equivalents.
The Company minimizes credit
risk associated with cash by periodically evaluating the credit quality of its primary financial institution in the United States.
The balance at times may exceed federally insured limits. At September 30, 2020 and December 31, 2019, the balance did not exceed
the federally insured limit.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES
AND ESTIMATES (continued)
|
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.
The Company recorded an impairment
charge of $0 and $1,019,960 on its non-marketable equity securities for the three and nine months ended September 30, 2020, respectively.
The impairment charge was based on management’s determination that due to the lack of ability, to date, by Vivi Holdings
(“Vivi”) to fulfill its capital raising requirements and implement its business strategy that there is a significant
risk that Vivi may not be able to meet its obligations.
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
|
|
|
|
Kiosks
|
|
3 years
|
|
|
|
Computer equipment
|
|
3 years
|
|
|
|
Leasehold improvements
|
|
Lesser of estimated useful life or life of lease
|
|
|
|
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.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES
AND ESTIMATES (continued)
|
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 the following
sources of revenue during the nine months ended September 30, 2019 which was recognized on the basis described below.
|
●
|
Revenue from
the sale of services.
|
Prepaid services were acquired
from providers and were sold to end-users through kiosks that the Company owned or kiosks that were owned by third parties. The
Company recognized the revenue on the sale of these services when the end-user deposited funds into the terminal and the prepaid
service was delivered to the end-user. The revenue was recognized at the gross value, including margin, of the prepaid service
to the Company, net of any value-added tax which was collected on behalf of the Mexican Revenue Authorities.
|
●
|
Payment processing
provided to end-users
|
The Company provides a secure
means for end-users to pay for certain services, such as utilities through its kiosks. During the nine months ended September
30, 2019, the Company earned either a fixed per-transaction fee or a fixed percentage of the service sold. The Company acted as
a collection agent and recognized the payment processing fee, net of any value-added taxes collected on behalf of the Mexican
Revenue Authorities (with respect to revenue generated prior to the sale of the Mexican operations), when the funds were deposited
into the kiosk and the customer had settled his liability or had acquired a prepaid service.
|
●
|
Revenue from
the sale of kiosks.
|
During the nine months ended
September 30, 2019, the Company imported, assembled and sold kiosks that were used to generate the revenues discussed above. Revenues
were recognized on the full value of the kiosks sold, net of any sales taxation collected on behalf of the Revenue authorities,
when the customers took delivery of the kiosk and all the risks and rewards of ownership were passed to the customer.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES
AND ESTIMATES (continued)
|
|
n)
|
Share-Based Payment Arrangements
|
Generally, all forms of share-based
payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation
awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair
value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in operating expenses in the consolidated statement of operations.
Prior to the Merger on May
12, 2016, all share-based payments were based on management’s estimate of market value of the Company’s equity. The
factors considered in determining managements estimate of market value includes, assumptions of future revenues, expected cash
flows, market acceptability of our technology and the current market conditions. These assumptions are complex and highly subjective,
compounded by the business being in its early stage of development in a new market with limited data available.
Where equity transactions with
arms-length third parties, who had applied their own assumptions and estimates in determining the market value of our equity,
had taken place prior to and within a reasonable time frame of any share-based payments, the value of those share transactions
have been used as the fair value for any share-based equity payments.
Where equity transactions with
arms-length third parties, included both shares and warrants, the value of the warrants have been eliminated from the unit price
of the securities using a Black-Scholes valuation model to determine the value of the warrants. The assumptions used in the Black
Scholes valuation model includes market related interest rates for risk-free government issued treasury securities with similar
maturities; the expected volatility of the Company’s common stock based on companies operating in similar industries and
markets; the estimated stock price of the Company; the expected dividend yield of the Company and; the expected life of the warrants
being valued.
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.
|
o)
|
Derivative Liabilities
|
ASC topic 815: Derivatives
and Hedging (“topic 815”) generally provides three criteria that, if met, require companies to bifurcate conversion
options from their host instruments and account for them as free standing derivative financial instruments. These three criteria
include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly
and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both
the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally
accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with
the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of
ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
|
p)
|
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.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
These financial statements have
been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities
in the normal course of business for the foreseeable future. The Company has incurred an operating loss since inception resulting
in an accumulated deficit of $26,267,538 as of September 30, 2020 and has not generated sufficient revenue to cover its operating
expenditure, raising substantial doubt about the Company’s ability to continue as a going concern. In addition to operational
expenses, as the Company executes its US business plan, additional capital resources will be required. The Company will need to
raise capital in the near term in order to continue operating and executing its new US business plan. The ability to continue as
a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing
to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company has acquired
kiosks that it plans to deploy in the US market and establish a payment solution to certain demographic sectors, thereby generating
revenues in the US market with an expected improvement in margins. In addition, the Company intends to raise additional equity
or loan funds to meet its short-term working capital needs. The accompanying financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result from the possible inability of the Company to continue as a going concern for at least the next twelve
months from the date the financial statements were issued.
4
|
DISCONTINUED
OPERATIONS
|
Effective December 31, 2019,
the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corporation to Vivi. The operations of Qpagos
Corporation and its two Mexican entities; Qpagos Mexico and Redpag which represent substantially all of its assets, are reported
as discontinued operations.
The statement of operations
from discontinued operations is as follows:
|
|
Three months
ended
September 30,
|
|
|
Nine months
ended
September 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
3,480,878
|
|
|
$
|
7,550,475
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
3,767,192
|
|
|
|
7,748,178
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
(286,314
|
)
|
|
|
(197,703
|
)
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
278,960
|
|
|
|
832,623
|
|
Depreciation and amortization and impairment costs
|
|
|
11,276
|
|
|
|
33,885
|
|
Total Expense
|
|
|
290,236
|
|
|
|
866,508
|
|
|
|
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(576,550
|
)
|
|
|
(1,064,211
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(866
|
)
|
|
|
1,007
|
|
Foreign currency loss
|
|
|
(15,436
|
)
|
|
|
(21,412
|
)
|
Loss before taxation
|
|
|
(592,852
|
)
|
|
|
(1,084,616
|
)
|
Taxation
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations, net of taxation
|
|
|
(592,852
|
)
|
|
$
|
(1,084,616
|
)
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Investment in Vivi Holdings,
Inc.
Effective December 31, 2019,
the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corporation, together with its 99.9% ownership
interest of Qpagos Mexico and Redpag, to Vivi.
As consideration for the disposal
Vivi issued an aggregate of 2,250,000 Shares of its common stock as follows: 2,047,500 Shares to the Company; 56,250 Shares to
the Company’s designee, Mr. Andrey Novikov; 33,750 Shares to the Company’s designee, the Joseph W. & Patricia
G. Abrams Family Trust; and 112,500 Shares to the Company’s designee, Mr. Gaston Pereira.
Due to the lack of available
information, the Vivi Shares were valued by a modified market method, whereby the value of the assets disposed of were determined
by management using the enterprise value of the entire Company less the liabilities and assets retained by the Company.
As of September 30, 2020, the
Company impaired the carrying value of the investment in Vivi by $1,019,960 based on Vivi’s lack of ability to execute on
its proposed IPO and fund raising activities, largely impacted by the COVID-19 pandemic.
The shares in Vivi are unlisted
as of September 30, 2020.
|
|
September
30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Investment in Vivi Holdings, Inc.
|
|
$
|
1,019,961
|
|
|
$
|
1,019,961
|
|
Impairment provision
|
|
|
(1,019,960
|
)
|
|
|
-
|
|
|
|
$
|
1
|
|
|
$
|
1,019,961
|
|
Adoption of ASC Topic 842, “Leases”
On January 1, 2019,
the Company adopted Topic 842 using the prospective transition method applied to leases that were in place as of January 1,
2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior
period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic
840.
The Company entered into a
real property lease for office and warehouse space located at 19355 Business Center Drive in Northridge California, Los Angeles
County. The lease commenced on February 15, 2020 and expires on February 28, 2022, monthly rental expense is $3,945 per month
with no escalations during the term of the lease.
The initial value of the right-of-use
asset was $86,741 and the operating lease liability was $86,741. The Company monitors for events or changes in circumstances that
require a reassessment of our lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment
is made to the carrying amount of the corresponding right-of-use asset unless doing so would reduce the carrying amount of the
right-of-use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right-of-use
asset balance is recorded as a loss in the statement of operations.
Discount Rate
To determine the present value
of minimum future lease payments for operating leases at February 15, 2020, the Company was required to estimate a rate of interest
that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment (the “incremental borrowing rate” or “IBR”).
The Company determined the
appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain
lease-specific circumstances. For the reference rate, the Company used the 5 year ARM interest rate at the time of entering into
the agreement and compared that rate to the Company’s weighted average cost of funding at the time of entering into the
operating lease. The Company determined that 10.00% was an appropriate incremental borrowing rate to apply to its real-estate
operating lease.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Right of use assets
Right of use assets included in the unaudited
condensed consolidated Balance Sheet are as follows:
|
|
September
30,
2020
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
Right of use assets, operating leases, net of amortization
|
|
$
|
62,290
|
|
Total Lease Cost
Individual components of the
total lease cost incurred by the Company is as follows:
|
|
Nine
months
ended
September 30,
2020
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
29,588
|
|
Maturity of Operating Leases
The amount of future minimum
lease payments under operating leases are as follows:
|
|
Amount
|
|
Undiscounted minimum future lease payments
|
|
|
|
Total instalments due:
|
|
|
|
2020
|
|
$
|
11,835
|
|
2021
|
|
|
47,340
|
|
2022
|
|
|
7,890
|
|
|
|
|
67,065
|
|
Imputed interest
|
|
|
(4,775
|
)
|
Total operating lease liability
|
|
$
|
62,290
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
43,049
|
|
Non-current portion
|
|
|
19,241
|
|
|
|
$
|
62,290
|
|
Other lease information:
|
|
Nine
months
ended
September 30,
2020
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
(29,588
|
)
|
|
|
|
|
|
Remaining lease term – operating lease
|
|
|
17
months
|
|
|
|
|
|
|
Discount rate – operating lease
|
|
|
10.0
|
%
|
Payroll Protection Program loan
On May 7, 2020, the Company
received a Payroll Protection Program (“PPP”) loan through its bankers, Wells Fargo Bank, amounting to $60,292 earning
interest at 1% per annum, maturing on May 5, 2022 and repayable in installments of $2,538 commencing on November 5, 2020. The
Company may apply for the loan to be forgiven in whole or in part based on the loan being utilized for payroll costs, continuation
of healthcare benefits, mortgage interest payments, rent, utility and interest payments on any other debt obligation. The Company
anticipates that the loan will be forgivable.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
|
FEDERAL RELIEF LOANS (continued)
|
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.
Loans payable consisted of
the following:
Description
|
|
Interest
Rate
|
|
|
Maturity
|
|
September
30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanislav Minaychenko
|
|
|
4.0
|
%
|
|
September 16, 2020
|
|
|
14,390
|
|
|
|
23,930
|
|
Maxim Pukhoskiy
|
|
|
4.0
|
%
|
|
June 16, 2020
|
|
|
7,963
|
|
|
|
17,683
|
|
Dieter Busenhart
|
|
|
10.0
|
%
|
|
January 17, 2021
|
|
|
1,050
|
|
|
|
-
|
|
Alexander Motorin
|
|
|
4.0
|
%
|
|
December 23, 2020
|
|
|
-
|
|
|
|
20,018
|
|
Total loans payable
|
|
|
|
|
|
|
|
$
|
23,403
|
|
|
$
|
61,631
|
|
Interest expense totaled $767
and $1,148 for the three and nine months ended September 30, 2020, respectively, and $1,328 and $6,803 for the three and nine
months ended September 30, 2019, respectively.
Stanislav Minaychenko
On December 17, 2019, in
terms of a settlement agreement entered into between the Company, Qpagos Corporation and Stanislav Minaychenko, the Company
issued a promissory note to Mr. Minaychenko in settlement of $23,893 owing to him in terms of a service agreement dated
September 1, 2015. The promissory note bears interest at 4% per annum, is unsecured and matures on June 16, 2020.
During the nine months ended
September 30, 2020, the Company repaid an aggregate principal amount of $10,000.
On July 1, 2020, the Company
entered into an extension agreement with Stanislav Minaychenko, extending the maturity date to September 16, 2020.
The note is currently in default
as we were unable to pay the outstanding balance by September 16, 2020. The note has no default penalties and we anticipate repaying
the note as soon as we have sufficient funds.
The balance of the promissory
note, including interest thereon at September 30, 2020 is $14,390.
Maxim Pukhoskiy
On December 17, 2019, in terms
of a settlement agreement entered into between the Company, Qpagos Corporation and Maxim Pukhoskiy, the Company issued a promissory
note to Mr. Pukhoskiy in settlement of $17,856 owing to him in terms of a service agreement dated May 1, 2015. The promissory
note bears interest at 4% per annum, is unsecured and matures on June 16, 2020.
During the nine months ended
September 30, 2020, the Company repaid an aggregate principal amount of $10,000.
The note is currently in default
as we were unable to pay the outstanding balance by June 16, 2020. The note has no default penalties and we anticipate repaying
the note as soon as we have sufficient funds.
The balance of the promissory
note, including interest thereon at September 30, 2020 is $7,963.
Dieter Busenhart
On July 17, 2020, the Company
issued a promissory note to Dieter Busenhart in the aggregate principal amount of $50,000 for net proceeds of $50,000, bearing
interest at 10% per annum and maturing on January 17, 2021.
Between August 5, 2020 and
September 16, 2020, the Company repaid $49,500 of the principal outstanding.
The balance of the promissory
note, including interest thereon at September 30, 2020 is $1,050.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
8
|
LOANS PAYABLE (continued)
|
Alexander Motorin
On December 23, 2019, in terms
of a debt purchase agreement entered into with Waketec OU, Mr. Motorin acquired $20,000 of the promissory note issued to Waketec
OU by Qpagos Corporation. On December 23, 2019, the Company entered into a debt settlement agreement whereby the company agreed
to the assignment of the debt owed to Mr. Motorin by Qpagos Corporation to the Company in exchange for a new promissory note in
the principal amount of $20,000 issued by the Company. The promissory note is unsecured, bears interest at 4% per annum and matures
on December 23, 2020.
On January 7, 2020, the Company
entered into a debt exchange agreement whereby the aggregate principal sum of $20,000 plus accrued interest of $33 was exchanged
for 1,001,644 shares of common stock at an issue price of $0.02 per share, realizing a loss on exchange of $20,033.
9
|
CONVERTIBLE NOTES PAYABLE
|
Convertible notes payable consists
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Description
|
|
Interest
rate
|
|
Maturity
Date
|
|
Principal
|
|
|
Accrued
interest
|
|
|
debt
discount
|
|
|
Balance,
net
|
|
|
Balance,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group
|
|
12%
|
|
November 12, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,643
|
|
|
|
12%
|
|
December 23, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,543
|
|
|
|
12%
|
|
January 22, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12%
|
|
July 13, 2021
|
|
|
63,000
|
|
|
|
1,636
|
|
|
|
(49,364
|
)
|
|
|
15,272
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GS Capital Partners, LLC
|
|
8%
|
|
August 14, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,557
|
|
|
|
8%
|
|
August 14, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
174,789
|
|
|
|
8%
|
|
February 4, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
49,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crown Bridge Partners, LLC
|
|
8%
|
|
August 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,803
|
|
|
|
8%
|
|
October 16, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Odyssey Funding LLC
|
|
10%
|
|
November 15, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
27,658
|
|
|
|
10%
|
|
January 13, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Black Ice Advisors, LLC
|
|
10%
|
|
November 25, 2020
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adar Alef, LLC
|
|
10%
|
|
February 5, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LG Capital Funding LLC
|
|
10%
|
|
February 24, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cavalry Fund I LP
|
|
10%
|
|
June 30, 2021
|
|
|
300,000
|
|
|
|
7,479
|
|
|
|
(202,193
|
)
|
|
|
105,286
|
|
|
|
-
|
|
|
|
10%
|
|
July 31, 2021
|
|
|
300,000
|
|
|
|
5,014
|
|
|
|
(126,476
|
)
|
|
|
178,538
|
|
|
|
-
|
|
|
|
10%
|
|
September 24, 2021
|
|
|
114,000
|
|
|
|
187
|
|
|
|
(112,126
|
)
|
|
|
2,061
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mercer Street Global Opportunity Fund, LLC
|
|
10%
|
|
August 3, 2021
|
|
|
400,000
|
|
|
|
6,356
|
|
|
|
(168,885
|
)
|
|
|
237,471
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinz Capital Special Opportunities Fund LP
|
|
10%
|
|
August 5, 2021
|
|
|
100,000
|
|
|
|
1,534
|
|
|
|
(52,372
|
)
|
|
|
49,162
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iroquois Master Fund Ltd.
|
|
10%
|
|
September 16, 2021
|
|
|
228,000
|
|
|
|
875
|
|
|
|
(219,255
|
)
|
|
|
9,620
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible
notes payable
|
|
|
|
|
|
$
|
1,505,000
|
|
|
$
|
23,081
|
|
|
$
|
(930,671
|
)
|
|
$
|
597,410
|
|
|
$
|
359,362
|
|
Interest expense, including
penalty interest totaled $241,652 and $324,953 for the three and nine months ended September 30, 2020, respectively and $324,953
and $158,500 for the three and nine months ended September 30, 2019, respectively.
Amortization of debt discount
totaled $428,282 and $799,451 for the three and nine months ended September 30, 2020, respectively and $801,460 and $1,500,143
for the three and nine months ended September 30, 2019, respectively.
The convertible notes have
variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable
conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the common
stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to
derivative financial liability.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
The total value of the beneficial
conversion feature recorded as a debt discount during the three and nine months ended September 30, 2020 was $1,144,484 and $1,471,234,
respectively and for the three and nine months ended September 30, 2019 was $33,327 and $1,027,684, respectively.
Power Up Lending Group
Ltd
|
●
|
On November 21, 2019, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $93,000 to Power up Lending Group Ltd. The note has a maturity
date of November 12, 2020 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from
115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares
of the Company’s common stock at a conversion price equal to 61% of the lowest three trading prices during the previous fifteen
trading days.
Between June 16, 2020 and June 22, 2020,
the Company received notices of conversion from Power Up Lending Group converting $39,000 of principal into 3,360,149 shares
of common stock at an average conversion price of $0.0116. The Company incurred a loss on conversion of $41,096.
Between July 8, 2020 and July 20, 2020,
the Company repaid the remaining principal and interest outstanding of $59,580, thereby extinguishing the note.
|
|
●
|
On December 23, 2019, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $63,000 to Power up Lending Group Ltd. The note has a maturity
date of December 23, 2020 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from
115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares
of the Company’s common stock at a conversion price equal to 61% of the lowest three trading prices during the previous fifteen
trading days.
On July 8, 2020, the Company repaid the
remaining principal and interest on the note, including penalty interest thereon of $90,447, thereby extinguishing the note.
|
|
●
|
On January 22, 2020, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $43,000 to Power Up Lending Group Ltd. The note has a maturity
date of January 22, 2021 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from
115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares
of the Company’s common stock at a conversion price equal to 61% of the lowest trading price during the previous fifteen
trading days.
On July 15, 2020, the Company repaid the
remaining principal and interest on the note, including penalty interest thereon of $63,294, thereby extinguishing the note.
|
|
●
|
On July 13, 2020, the Company issued a
Convertible Promissory Note in the aggregate principal amount of $63,000 to Power Up Lending Group Ltd for net proceeds of $60,000
after certain expenses. The note has a maturity date of July 13, 2021 and a coupon of 12% per annum. The Company may prepay the
note with prepayment penalties ranging from 115% to 135%. The outstanding principal amount of the note is convertible after 180
days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 61% of the lowest
trading price during the previous fifteen trading days.
The balance of the note plus accrued interest
at September 30, 2020 was $15,272. After unamortized debt discount of $49,364.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
GS Capital Partners, LLC
|
●
|
On August 14, 2018, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $150,000 to GS Capital Partners, LLC. The note had a maturity
date of August 14, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note up to 180 days, provided it
makes a pre-payment penalty as specified in the note. The outstanding principal amount of the note was convertible at any time
after the six-month anniversary of the note, at the election of the holder into shares of the Company’s common stock at a
conversion price equal to 62% of lowest trading bid prices during the previous ten (10) trading days, including the date the notice
of conversion is received.
Between August 12, 2019 and September 11,
2019, the Company received notices of conversion from GS Capital Partners converting $50,000 of principal and $3,945 of interest
into 17,432,265 pre reverse split (1,743,227 post reverse split that was effected in November 2019) shares of common stock at an
average conversion price of $0.00309 pre reverse stock split ($0.031 post reverse stock split that was effected in November 2019)
per share. The Company incurred a loss on conversion of $56,315.
As of August 14, 2019, the note was in default
and accrued interest at the default interest rate of 24% per annum.
On December 30, 2019, the Company repaid
the principal sum of $90,000 on the convertible note.
On January 28, 2020, in terms of a conversion
notice received, the remaining principal balance of $10,000 plus accrued interest thereon of $17,741was converted into 1,132,764
shares of common stock at a conversion price of $0.02449, thereby extinguishing the note.
|
|
●
|
On September 11, 2018, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $150,000 to GS Capital Partners, LLC. The note has a maturity
date of August 14, 2019 and a coupon of 8% per annum. The note may not be prepaid. The outstanding principal amount of the note
was convertible at any time after the six month anniversary of the note, at the election of the holder into shares of the Company’s
common stock at a conversion price equal to 62% of lowest trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received.
As of August 14, 2019 the note was in default
and accrued interest at the default interest rate of 24% per annum.
On July 20, 2020, in terms of a conversion
notice received from GS Capital Partners, converting an aggregate principal amount of $35,000 and interest thereon of $10,418 at
a conversion price of $0.0083 per share into 5,466,723 shares of common stock.
On August 10, 2020, the Company repaid
the remaining principal and interest on the note, including penalty interest thereon of $150,704, thereby extinguishing the note.
|
|
●
|
On February 4, 2019, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $96,000 to GS Capital Partners LLC. The note has a maturity
date of February 4, 2020 and a coupon of 8% per annum. The Company may not prepay the note. The outstanding principal amount of
the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion
price equal to 62% of the lowest three trading prices during the previous ten (10) trading days.
On December 19, 2019, the Company repaid
the principal sum of $48,000 on the convertible note.
On January 14, 2020, the Company repaid
the principal sum of $48,000 and accrued interest and penalty interest of $33,030, thereby extinguishing the note.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
Crown Bridge Partners
|
●
|
On August 31, 2018, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note had a maturity date
of August 31, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note for the first 180 days, subject to
a penalty ranging from 10% to 35% of the prepayment, dependent upon the timing of the prepayment. The outstanding principal amount
of the note was convertible at any time and from time to time at the election of the holder into shares of the Company’s
common stock at a conversion price equal to 60% of the lowest trading price during the previous ten (10) trading days.
As of August 31, 2019 the note was in default
and interest accrued at the default interest rate of 12% per annum and the note holder may require the Company to pay a penalty
of 50% of the value of the note outstanding, including default interest.
On March 11, 2020, the Company received
a conversion notice from Crown Bridge Partners, converting an aggregate principal amount of $7,586 and fees thereon of $500, at
a conversion price of $0.01444 into 560,000 shares of common stock.
On August 31, 2020, the Company repaid
the remaining principal and interest on the note of $24,032, thereby extinguishing the note.
|
|
●
|
On October 16, 2018, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note has a maturity date
of October 16, 2019 and a coupon of 8% per annum. The Company may not prepay the note. The outstanding principal amount of the
note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion
price equal to 60% of the lowest trading price during the previous fifteen (15) trading days.
As of October 31, 2019 the note was in
default and accrued interest at the default interest rate of 12% per annum and the note holder may require the Company to pay a
penalty of 50% of the value of the note outstanding, including default interest.
On August 31, 2020, the Company repaid
the remaining principal and interest on the note of $31,587, thereby extinguishing the note.
|
Odyssey Funding, LLC
|
●
|
On November 15, 2019, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $200,000 to Odyssey Funding, LLC. The note has a maturity date
of November 15, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging
from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into
shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen
trading days.
On August 3, 2020, the Company repaid the
principal and interest on the note, including penalty interest thereon of $207,421, thereby extinguishing the note.
|
|
●
|
On January 13, 2020, the Company issued
a Convertible Promissory Note in the aggregate principal amount of $100,000 to Odyssey Funding, LLC. The note had a maturity date
of January 13, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging
from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into
shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen
trading days.
On July 17, 2020, the Company repaid the
principal and interest on the note, including penalty interest thereon of $152,349, thereby extinguishing the note.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
Black Ice Advisors, LLC
On November 25, 2019, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $52,500 to Black Ice Advisors, LLC. The note had a maturity
date of November 25, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties
ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the
holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the
previous fifteen trading days.
Between May 27, 2020 and June
8, 2020, the Company received notices of conversion from Black Ice Advisors, LLC converting $37,000 of principal into 1,970,588
shares of common stock at an average conversion price of $0.0188. The Company incurred a loss on conversion of $38,371.
On July 9, 2020, the Company
repaid the remaining principal and interest on the note, including penalty interest thereon of $25,975, thereby extinguishing the
note.
Adar Alef, LLC
On February 5, 2020, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $105,000 to Adar Alef, LLC. The note had a maturity date
of February 5, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging
from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into
shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen
trading days.
On August 5, 2020, the Company
repaid principal and interest on the note, including penalty interest thereon of $78,765.
On September 9, 2020, in terms
of a conversion notice received, Adar Alef, LLC converted $55,563 of principal and interest into 5,556,250 shares of common stock,
thereby extinguishing the note.
LG Capital Funding, LLC
On February 24, 2020,
the Company issued a Convertible Promissory Note in the aggregate principal amount of $78,750 to LG Capital Funding LLC. The note
has a maturity date of February 24, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment
penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election
of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during
the previous fifteen trading days.
On August 25, 2020, the Company
repaid the principal and interest on the note, including penalty interest thereon of $119,819, thereby extinguishing the note.
Cavalry Fund LLP
|
●
|
On July 1, 2020, the Company closed a transaction
with Cavalry Fund I LP (“Cavalry”), pursuant to which the Company received net proceeds of $246,600, after certain
expenses in exchange for the issuance of a $300,000 Senior Secured Convertible Note (“Initial Note”), with an original
issue discount of 12.5% or $37,500, bearing interest at 10% per annum and maturing on June 30, 2021, the initial Note is convertible
into shares of common stock at an initial conversion price of $0.035 per share, in addition, the Company issued a warrant exercisable
over 8,571,428 shares of common stock at an initial exercise price of $.0.05 per share.
The Initial Note may be prepaid at any
time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Initial Note may be prepaid in
an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount
equal to 125% of the principal amount plus accrued interest. The Initial Note contains certain covenants, such as restrictions
on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the Initial Note plus accrued interest at September
30, 2020 was $105,286, after unamortized debt discount of $202,193.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
Cavalry Fund LLP (continued)
|
●
|
Cavalry had agreed to purchase an additional
$300,000 Senior Secured Convertible Note (the “Second Note”); from the Company upon the same terms as the Initial Note,
within three trading days of a registration statement registering the shares of the Company’s common stock issuable under
the Notes and upon exercise of the Warrants being declared effective by the SEC. On July 28, 2020 the registration statement was
declared effective and on July 31, 2020, the Company received the additional net proceeds of $262,500. In addition, the Company
issued a warrant exercisable over 8,571,429 shares of common stock at an initial exercise price of $0.05 per share.
The Second Note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Second Note may be prepaid in an amount
equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal
to 125% of the principal amount plus accrued interest. The Second Note contains certain covenants, such as restrictions on: (i)
distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the Second Note plus accrued interest at September
30, 2020 was $178,538, after unamortized debt discount of $126,476.
|
|
●
|
On September 24, 2020, the Company closed
a transaction with Cavalry Fund I LP (“Cavalry”), pursuant to which the Company received net proceeds of $99,750, after
certain expenses in exchange for the issuance of a $114,000 Senior Secured Convertible Note (the “Third Note”), with
an original issue discount of $14,000, bearing interest at 10% per annum and maturing on September 24, 2021, the Third Note is
convertible into shares of common stock at an initial conversion price of $0.035 per share, in addition, the Company issued a warrant
exercisable over 3,257,143 shares of common stock at an initial exercise price of $0.05 per share.
The Third Note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Third Note may be prepaid in an amount
equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal
to 125% of the principal amount plus accrued interest. The Third Note contains certain covenants, such as restrictions on: (i)
distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the Third Note plus accrued
interest at September 30, 2020 was $2,061, after unamortized debt discount of $112,126.
|
In connection with the Securities
Purchase Agreement, the Company entered into for the sale of the initial Note and the Second Note, the Company entered into a Registration
Rights Agreement, dated June 30, 2020 with Cavalry pursuant to which it is obligated to file a registration statement with the
SEC within sixty (60) days after the date of the agreement to register the resale by the Investor of the Conversion Shares and
Warrant Shares, and use all commercially reasonable efforts to have the registration statement declared effective by the SEC within
seventy five (75) days after the registration statement is filed.
The Company has pledged substantially
all of its assets as security for amounts due under the Initial Note, Second Note and Third Note, upon the terms and subject to
the conditions set forth in a Security Agreement, dated June 30, 2020, between the Company and Cavalry.
Mercer Street Global opportunity
Fund, LLC
On August 3, 2020, the Company
closed a transaction with Mercer Street Global Opportunity Fund, LLC, (“Mercer”), pursuant to which the Company received
net proceeds of $350,000, after an original issue discount of $50,000 in exchange for the issuance of a $400,000 Senior Secured
Convertible Note, bearing interest at 10% per annum and maturing on August 3, 2021, the note is convertible into shares of common
stock at an initial conversion price of 0.035 per share, in addition, the Company issued a warrant exercisable over 11,428,571
shares of common stock at an initial exercise price of $0.05 per share.
The note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note may be prepaid in an amount equal
to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 125%
of the principal amount plus accrued interest. The note contains certain covenants, such as restrictions on: (i) distributions
on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the note plus
accrued interest at September 30, 2020 was $237,471, after unamortized debt discount of $168,885.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
9
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
Pinz Capital Special Opportunities
Fund, LP
On August 5, 2020, the Company
closed a transaction with Pinz Capital Special Opportunities Fund, LP (“Pinz”), pursuant to which the Company received
net proceeds of $87,500, after an original issue discount of $12,500 in exchange for the issuance of a $100,000 Senior Secured
Convertible Note, bearing interest at 10% per annum and maturing on August 5, 2021, the note is convertible into shares of common
stock at an initial conversion price of 0.035 per share, in addition, the Company issued a warrant exercisable over 2,857,143 shares
of common stock at an initial exercise price of $0.05 per share.
The note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note may be prepaid in an amount equal
to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 125%
of the principal amount plus accrued interest. The note contains certain covenants, such as restrictions on: (i) distributions
on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the note plus
accrued interest at September 30, 2020 was $49,162, after unamortized debt discount of $52,372.
Iroquois Master Fund Ltd.
On September 16, 2020, the Company
closed a transaction with Iroquois Master Fund Ltd., pursuant to which the Company received net proceeds of $199,500, after an
original issue discount of $28,500 in exchange for the issuance of a $228,000 Senior Secured Convertible Note, bearing interest
at 10% per annum and maturing on September 16, 2021, the note is convertible into shares of common stock at an initial conversion
price of 0.035 per share, in addition, the Company issued a warrant exercisable over 6,514,286 shares of common stock at an initial
exercise price of $0.05 per share.
The note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note may be prepaid in an amount equal
to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 125%
of the principal amount plus accrued interest. The note contains certain covenants, such as restrictions on: (i) distributions
on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.
The balance of the note plus
accrued interest at September 30, 2020 was $9,620, after unamortized debt discount of $219,255.
Certain of the short-term convertible
notes disclosed in note 9 above and certain warrants disclosed in note 11 below, have variable priced conversion rights with no
fixed floor price and will re-price dependent on the share price performance over varying periods of time and certain notes and
warrants have fundamental transaction clauses which might result in cash settlement, due to these factors, all convertible notes
and any warrants attached thereto are valued and give rise to a derivative financial liability, which was initially valued at inception
of the convertible notes using a Black-Scholes valuation model.
During the nine months ended
September 30, 2020, an additional $1,131,094 was raised as a derivative liability on variably priced convertible notes.
The value of this derivative
financial liability was re-assessed at September 30, 2020, and $101,945 was charged to the statement of operations and comprehensive
loss, respectively. The value of the derivative liability will be re-assessed at each financial reporting period, with any movement
thereon recorded in the statement of operations in the period in which it is incurred.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
10
|
DERIVATIVE
LIABILITY Continued)
|
The following assumptions were
used in the Black-Scholes valuation model:
|
|
Nine months
ended
September 30,
2020
|
|
|
Year ended
December 31,
2019
|
|
Conversion price
|
|
$
|
0.016 to 2.00
|
|
|
$
|
0.02 to 2.00
|
|
Risk free interest rate
|
|
|
0.11 to 1.53
|
%
|
|
|
1.53 to 2.59
|
%
|
Expected life of derivative liability
|
|
|
1 to 12 months
|
|
|
|
1 to 12 months
|
|
Expected volatility of underlying stock
|
|
|
11.7 to 222.6
|
%
|
|
|
148.5 to 224.3
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The movement in derivative liability
is as follows:
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
905,576
|
|
|
$
|
1,833,672
|
|
Derivative financial liability arising from convertible note
|
|
|
1,131,094
|
|
|
|
1,053,842
|
|
Fair value adjustment to derivative liability
|
|
|
101,945
|
|
|
|
(1,981,938
|
)
|
|
|
$
|
2,138,615
|
|
|
$
|
905,576
|
|
The Company has authorized 500,000,000
common shares with a par value of $0.0001 each. The Company has issued and outstanding 191,121,339 and 128,902,124 shares of common
stock as of September 30, 2020 and December 31, 2019.
The following common shares were
issued by the Company during the nine months ended September 30, 2020.
|
●
|
In
terms of debt conversion notices received between January 28, 2020 and September 9, 2020, the Company issued an aggregate of 35,002,245
shares of common stock for the conversion of $335,948 of convertible debt, realizing a loss on conversion of $433,610 and in terms
of debt exchange agreements entered into on January 7, 2020, the Company issued an aggregate of 2,504,110 shares of common stock,
in settlement of $50,082 of loans payable, resulting in a net loss on exchange of $50,082.
|
|
●
|
In terms of subscription agreements entered into with investors on February 20, 2020 and March 16, 2020, the Company issued 1,400,000 shares of common stock for gross proceeds of $33,000.
|
|
●
|
In terms of an agreement entered into with a supplier, the Company issued 535,714 shares of common stock valued at $30,000 on grant date, as partial compensation for services provided.
|
|
●
|
In terms of an employment agreement entered into with the Company’s Chief Operating Officer, the Company issued 282,146 shares of common stock valued at $13,500.
|
|
●
|
The Company granted a director 2,000,000 shares of common stock for services to be rendered as a director of the Company, these shares were valued at grant date at $88,000.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
11
|
STOCKHOLDERS’
EQUITY (continued)
|
|
b.
|
Restricted stock awards
|
The following restricted stock
awards were made during the nine months ended September 30, 2020.
|
(a)
|
An
aggregate of 5,123,750 shares of restricted common stock were issued to our Chief Executive Officer in terms of an employment
agreement entered into with him. These shares are restricted and were fully vested on January 1, 2020. These restricted shares
were valued at $251,064 or $0.049 per share, the market price of the Company’s common stock on grant date.
|
|
(b)
|
An
aggregate of 15,371,250 shares of restricted common stock were issued to our Chief Operating Officer in terms of an employment
agreement entered into with him. These shares are restricted and vest over a three year period commencing on December 31, 2020.
These restricted shares were valued at $753,191 or $0.049 per share, the market price of the Company’s common stock on grant
date.
|
The restricted stock granted
and exercisable at September 30, 2020 is as follows:
|
|
|
Restricted Stock Granted
|
|
|
Restricted Stock Vested
|
|
Grant date Price
|
|
|
Number
Granted
|
|
|
Weighted
Average
Fair Value per
Share
|
|
|
Number
Vested
|
|
|
Weighted
Average
Fair Value per
Share
|
|
$
|
0.049
|
|
|
|
20,495,000
|
|
|
$
|
0.049
|
|
|
|
5,123,750
|
|
|
$
|
0.049
|
|
The Company has recorded an expense
of $62,766 and $439,362 for the three months and nine months ended September 30, 2020, respectively, relating to the restricted
stock awards.
The Company has authorized 25,000,000
shares of preferred stock with a par value of $0.0001 authorized, no preferred stock is issued and outstanding as of September
30, 2020 and December 31, 2019.
In connection with the subscription
agreement entered into with an investor, a three year warrant exercisable for 1,000,000 shares of common stock was granted to the
investor, together with 1,000,000 shares of common stock for subscription proceeds of $25,000.
In terms of the Senior Secured
convertible notes entered into with various noteholders as described in note 9 above, the Company issued five year warrants exercisable
for a total of 41,200,000 shares of common stock at an initial exercise price of $0.05 per share. The warrants have a cashless
exercise option and an exercise limitation based on a certain beneficial ownership percentage of 4.99% which may be adjusted to
9.99%. The Company has a mandatory exercise right if the closing price of the common stock trades above $0.15 per share for ten
consecutive days and trading volume is at least $250,000. The exercise price of the warrant is adjustable under the following conditions;
i) subsequent equity sales are at a price below the exercise price of the warrant; ii) the Company issues options with an exercise
price lower than the exercise price of the warrants; iii) issues convertible securities which are convertible into common stock
at a price lower than the warrant exercise price; and iv) the option exercise price or rate of conversion for convertible securities
results in a lower exercise price than the exercise price of the warrants.
As long as the senior secured
convertible debt which resulted in these warrant being issued, is still outstanding, the warrants will have a full rachet increase
right upon a change in the exercise price of the warrant as described above. The increase in warrants will be determined by multiplying
the exercise price of the warrant immediately before a change in exercise price has occurred by the number of warrants outstanding,
and dividing the product obtained by the revised exercise price.
The warrant holders also have
the option to acquire subsequent rights offering rights, under certain circumstances and is entitled to pro-rata distributions
made by the Company in assets or securities other than common stock.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
11
|
STOCKHOLDERS’
EQUITY (continued)
|
The warrants include a fundamental
transaction clause which will give the warrant holder the right on an as converted basis to the proceeds which common shareholders
would be entitled to as a result of a fundamental transaction. Notwithstanding the aforementioned rights, provided the warrants
are not registered under an effective registration statement, the holder of the warrant has the right to receive cash equal to
the Black-Scholes value of the unexercised portion of the warrant in accordance with the terms of the warrant agreement.
The fair value of the warrants
issued were determined by using a Black Scholes valuation model using the following assumptions:
|
|
Nine months ended
September 30,
2020
|
|
Conversion price
|
|
$
|
0.05
|
|
Risk free interest rate
|
|
|
1.35
|
%
|
Expected life of derivative liability
|
|
|
3 years
|
|
Expected volatility of underlying stock
|
|
|
190.4 to 216.9
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
A summary of warrant activity
during the period January 1, 2019 to September 30, 2020 is as follows:
|
|
Shares
Underlying
Warrants*
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding January 1, 2019
|
|
|
852,775
|
|
|
$
|
2.00
to 6.25
|
|
|
$
|
5.10
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2019
|
|
|
852,775
|
|
|
$
|
2.00
to 6.25
|
|
|
$
|
5.10
|
|
Granted
|
|
|
42,200,000
|
|
|
|
0.05
|
|
|
|
0.05
|
|
Forfeited/Cancelled
|
|
|
(536,775
|
)
|
|
|
2.00 to 6.25
|
|
|
|
4.42
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding September 30, 2020
|
|
|
42,516,000
|
|
|
$
|
0.05
to 6.25
|
|
|
$
|
0.10
|
|
The warrants outstanding and
exercisable at September 30, 2020 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
|
|
$
|
6.25
|
|
|
|
316,000
|
|
|
|
0.12
|
|
|
|
|
|
|
|
316,000
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
42,200,000
|
|
|
|
4.80
|
|
|
|
|
|
|
|
42,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,516,000
|
|
|
|
4.76
|
|
|
$
|
0.10
|
|
|
|
42,516,000
|
|
|
$
|
0.10
|
|
|
|
4.76
|
|
The warrants outstanding have
an intrinsic value of $0 and $0 as of September 30, 2020 and December 31, 2019.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
|
11
|
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 of Directors or a Committee appointed by the Board of Directors who have the authority to administer the Plan and to exercise
all the powers and authorities either specifically granted to it under the Plan.
The maximum number of securities
available under the Plan is 800,000 shares of common stock. The maximum number of shares of common stock awarded to any individual
during any fiscal year may not exceed 100,000 shares of common stock.
No options were granted for the
three and nine months ended September 30, 2020.
A summary of option activity
during the period January 1, 2019 to September 30, 2020 is as follows:
|
|
Shares
Underlying
options
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding January 1, 2019
|
|
|
200,000
|
|
|
$
|
0,40
|
|
|
$
|
0,40
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2019
|
|
|
100,000
|
|
|
|
0.40
|
|
|
|
0.40
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding September 30, 2020
|
|
|
100,000
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
The options outstanding and exercisable
at September 30, 2020 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
|
|
|
0.40
|
|
|
|
100,000
|
|
|
|
8.50
|
|
|
$
|
0.40
|
|
|
|
100,000
|
|
|
$
|
0.4
|
|
|
|
8.50
|
|
The options outstanding have
an intrinsic value of $0 and $0 as of September 30, 2020 and December 31, 2019.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Basic loss per share is based
on the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares
as determined above plus common stock equivalents. The computation of diluted net loss per share does not assume the issuance of
common shares that have an anti-dilutive effect on net loss per share. For the nine months ended September 30, 2020 and
2019 all warrants, options and convertible debt securities were excluded from the computation of diluted net loss per share.
Dilutive shares which could
exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect
would have been anti-dilutive for the three and nine months ended September 30, 2020 and 2019 are as follows:
|
|
Three and nine
months ended
September 30,
2020
(Shares)
|
|
|
Three and nine
months ended
September 30,
2019
(Shares)
|
|
|
|
|
|
|
|
|
Convertible debt
|
|
|
43,659,481
|
|
|
|
54,292,074
|
|
Stock options
|
|
|
100,000
|
|
|
|
200,000
|
|
Warrants to purchase shares of common stock
|
|
|
42,659,520
|
|
|
|
852,775
|
|
|
|
|
86,419,001
|
|
|
|
55,344,849
|
|
|
13
|
RELATED
PARTY TRANSACTIONS
|
The following transactions were
entered into with related parties:
James Fuller
On March 18, 2020, the Company
granted Mr. Fuller, a director of the Company, 2,000,000 shares of restricted common stock in terms of the Stock Incentive Plan.
William Corbett
Effective January 1, 2020, the
Company granted Mr. Corbett, the Chief Executive Officer of the Company, a total of 20,495,000 restricted shares of common stock
of which 5,123,750 vested immediately and a further 15,371,250 which vest annually and equally over a three year period commencing
on December 31, 2020.
Effective June 24, 2020, the
Company entered into an executive employment agreement with William Corbett, (the “Corbett Employment Agreement”) to
employ Mr. Corbett as the Company’s Chief Executive Officer for a term of three (3) years, provide for an annual base salary
of $150,000, provide for a signing bonus of $25,000, structure for a bonus of up to 50% of base salary upon the Company’s
achievement of $2,000,000 EBITDA and additional performance bonus payments as may be determined by the Company’s board of
directors and provide for severance in the event of a termination without cause in amount equal to equal to fifty percent (50%)
of his annual base salary rate then in effect, provided that if such termination without cause occurs after an Acquisition of the
Company, Mr. Corbett will be entitled to receive severance in an amount equal to equal to 100% of his annual base salary rate then
in effect.
The Corbett Employment Agreement
provides for the grant to Mr. Corbett of 5,123,750 shares of the Company’s common stock, which are fully vested and not subject
to forfeiture.
On June 24, 2020, the Company
entered into a restricted stock agreement with Mr. Corbett pursuant to which the Company granted him a restricted stock award of
15,371,250 shares of the Company’s common stock, which forfeiture restriction lapse 33%, 33% and 34%, respectively, on the
first, second and third anniversary of the date of grant.
On June 24, 2020, the Company
entered into an indemnification agreement with Mr. Corbett to indemnify him, in connection with his position of employment with
Company and in the discharge of his duties and responsibilities to Company, to the maximum extent allowed under the laws of the
State of Nevada. The Company is not be required or obligated to indemnify Mr. Corbett to extent it would violate the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
13
|
RELATED PARTY TRANSACTIONS (continued)
|
LOANS PAYABLE
Description
|
|
Interest Rate
|
|
|
Maturity Date
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vladimir Skigin
|
|
|
4
|
%
|
|
December 12, 2020
|
|
|
-
|
|
|
|
30,026
|
|
Loans payable - Related parties
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
30,026
|
|
Interest expense amounted to
$8,413 and $23,248 for the three and nine months ended September 30, 2020 and 2019, respectively.
Vladimir Skigin
Mr. Skigin is considered to
be a related party as his shareholding and that of the Companies under his control exceeds 5%.
On December 23, 2019, in terms
of a debt purchase agreement entered into with Waketec OU, Mr. Skigin acquired $30,000 of the promissory note issued to Waketec
OU by Qpagos Corporation. On December 23, 2019, the Company entered into a debt settlement agreement whereby the Company agreed
to the assignment of the debt owed to Mr. Skigin by Qpagos Corporation to the Company in exchange for a new promissory note in
the principal amount of $30,000 issued by the Company. The promissory note is unsecured, bears interest at 4% per annum and matures
on December 23, 2020. The balance of the promissory note, including interest thereon at December 31, 2019 is $30,026.
On January 7, 2020, the Company
entered into a debt exchange agreement with Mr. Skigin, whereby the aggregate principal sum of $30,000 plus accrued interest of
$49 was exchanged for 1,502,466 shares of common stock at an issue price of $0.02 per share, realizing a loss on exchange of $30,049.
14
|
COMMITMENTS AND CONTINGENCIES
|
The Company entered into a property
lease agreement as disclosed under note 6 above.
The future minimum lease commitments
are as follows:
|
|
Amount
|
|
Undiscounted minimum future lease payments
|
|
|
|
Total instalments due
|
|
$
|
67,065
|
|
Imputed interest
|
|
|
(4,775
|
)
|
Total operating lease liability
|
|
$
|
62,290
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
43,049
|
|
Non-current portion
|
|
|
19,241
|
|
|
|
$
|
62,290
|
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Convertible debt issued
On October 20, 2020, the Company
closed a transaction with Mark Geist (“Geist”), pursuant to which the Company received net proceeds of $25,025, after
an original issue discount of $3,575 in exchange for the issuance of a $28,600 Senior Secured Convertible Note, bearing interest
at 10% per annum and maturing on October 20, 2021, the note is convertible into shares of common stock at an initial conversion
price of $0.035 per share, in addition, the Company issued a warrant exercisable over 817,143 shares of common stock at an initial
exercise price of $0.05 per share.
The note may be prepaid at any time
for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note may be prepaid in an amount equal
to 115% of the principal amount plus accrued interest. From day 181 through day 365, it may be prepaid in an amount equal to 125%
of the principal amount plus accrued interest. The note contains certain covenants, such as restrictions on: (i) distributions
on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.