UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number 000-55648

 

INNOVATIVE PAYMENT SOLUTIONS, INC

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   33-1230229
(State or Other Jurisdiction of
Incorporation or Organization)
  (I.R.S. Employer
Identification No.)
     

56B 5th Street, Lot 1

Carmel By The Sea, CA

  93921
Address of Principal Executive Offices   Zip Code

 

(866) 477-4729

Registrant’s Telephone Number, Including Area Code

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

19355 Business Center Drive., #9, Northridge CA 91324

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Number of shares of common stock outstanding as of August 11, 2021 was 356,451,678.

 

 

 

 

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

The COVID-19 pandemic has required the management of Innovative Payment Solutions, Inc. (the “Company”) to focus its attention on responding to the challenges presented by the COVID-19 pandemic, including ensuring continuous operations, and adjusting the Company’s operations to address changes in the virtual payments industry.

 

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 the installation of a suitable payment platform which is currently under development. As a result, installation of the Company’s network of kiosks, terminals and payment channels in Southern California continues to be delayed, which has had an adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue.

 

The Company continues to monitor the continuous impact of COVID-19 closely. The extent to which COVID-19 will continue to impact the Company’s operations, ability to obtain financing or future financial results is uncertain.

 

 

 

 

Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In particular, statements contained in this Report, including but not limited to, the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities; our future results of operations and financial position, business strategy and plan prospects, or costs and objectives of management for future acquisitions, are forward-looking statements. These forward-looking statements relate to our future plans, objectives, expectations and intentions and may be identified by words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “seeks,” “goals,” “estimates,” “predicts,” “potential” and “continue” or similar words. Readers are cautioned that these forward-looking statements are based on our current beliefs, expectations and assumptions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed, projected or implied in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

 

NOTE REGARDING COMPANY REFERENCES

 

Throughout this Report, “IPSI,” the “Company,” “we,” “us” and “our” refer to Innovative Payment Solutions, Inc.

 

 

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

Index

 

    Page
PART I. FINANCIAL INFORMATION    
Item 1. Condensed Financial Statements (unaudited)   F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   1
Item 3. Quantitative and Qualitative Disclosures About Market Risks   5
Item 4. Controls and Procedures   5
       
PART II. OTHER INFORMATION    
Item 1. Legal Proceedings   6
Item 1A. Risk Factors   6
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   7
Item 3. Defaults Upon Senior Securities   7
Item 4. Mine Safety Disclosures   7
Item 5. Other Information   7
Item 6. Exhibits   8

 

i

 

 

Item 1.

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

TABLE OF CONTENTS

 

June 30, 2021

 

Condensed Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020   F-2
Condensed Statements of Operations and Comprehensive Loss for the three months and six months ended June 30, 2021 and 2020 (unaudited)   F-3
Condensed Statements of Changes in Stockholders’ Deficit for the three months and six months  ended June 30, 2021 and 2020 (unaudited)   F-4
Condensed Statements of Cash Flows for the six months ended June 30, 2021 and 2020, (unaudited)   F-5
Notes to the Unaudited Condensed Financial Statements   F-6 – F-29

 

F-1

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

CONDENSED BALANCE SHEETS

 

    June  30,     December 31,  
    2021     2020  
Assets            
             
Current Assets            
Cash   $ 7,271,669     $ 94,703  
Other current assets     13,899       5,270  
Total Current Assets     7,285,568       99,973  
                 
Non-current assets                
Plant and equipment     38,083       37,500  
Right of use asset    
-
      51,926  
Security deposit     4,800       4,000  
Investment     500,001       1  
Total Non-Current Assets     542,884       93,427  
Total Assets   $ 7,828,452     $ 193,400  
                 
Liabilities and Stockholders’ Equity (Deficit)                
                 
Current Liabilities                
Accounts payable and accrued liabilities   $ 422,222     $ 461,577  
Related party payables     4,000       4,000  
Federal relief loans     60,292       60,292  
Loans payable     571       23,633  
Convertible debt, net of unamortized discount of $1,293,600 and $980,852, respectively     836,016       903,641  
Operating lease liability    
-
      44,134  
Derivative liability     2,399,326       2,966,416  
Total Current Liabilities     3,722,427       4,463,693  
                 
Non-Current Liabilities                
Federal relief loans     155,517       152,728  
Operating lease liability    
-
      7,792  
Total Non-Current Liabilities     155,517       160,520  
Total Liabilities     3,877,944       4,624,213  
                 
Stockholders’ Equity (Deficit)                
Preferred stock, $0.0001 par value, 25,000,000 shares authorized, and 0 shares issued and outstanding as of June 30, 2021 and December 31, 2020.    
-
     
-
 
Common stock, $0.0001 par value; 500,000,000 shares authorized, 356,451,678 and 193,637,747 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.     35,644       19,363  
Additional paid-in-capital     43,054,824       23,179,399  
Accumulated deficit     (39,139,960 )     (27,629,575 )
Total Stockholders’ Equity (Deficit)     3,950,508       (4,430,813 )
Total Liabilities and Stockholders’ Equity   $ 7,828,452     $ 193,400  

 

See notes to the unaudited condensed financial statements.

 

F-2

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Three months ended     Three months ended     Six
months ended
    Six
months ended
 
    June 30,     June 30,     June 30,     June 30,  
    2021     2020     2021     2020  
                         
Net Revenue   $
-
    $
-
    $
-
    $
-
 
                                 
Cost of Goods Sold    
-
     
-
     
-
     
-
 
                                 
Gross profit    
-
     
-
     
-
     
-
 
                                 
General and administrative     1,719,770       297,764       6,709,441       952,663  
Depreciation and amortization     4,484       4,167       8,651       4,167  
Total Expense     1,724,254       301,931       6,718,092       956,830  
                                 
Loss from Operations     (1,724,254 )     (301,931 )     (6,718,092 )     (956,830 )
                                 
Investment impairment charge    
-
      (509,979 )    
-
      (1,019,960 )
Loss on debt conversion    
-
      (79,467 )     (5,184,447 )     (150,274 )
Loss on settlement of liabilities    
-
     
-
     
-
      (50,082 )
Interest expense     (53,371 )     (29,750 )     (120,684 )     (84,088 )
Amortization of debt discount     (509,600 )     (213,101 )     (2,623,252 )     (373,178 )
Derivative liability movements     2,170,946       176,490       3,136,090       278,611  
Other (expense) income    
-
      (20,000 )    
-
      (20,000 )
Loss before Income Taxes     (116,279 )     (977,738 )     (11,510,385 )     (2,375,801 )
                                 
Income Taxes    
-
     
-
     
-
     
-
 
                                 
Net Loss     (116,279 )     (977,738 )     (11,510,385 )     (2,375,801 )
                                 
Basic and diluted loss per share     (0.00 )     (0.01 )     (0.04 )     (0.02 )
                                 
Weighted Average Number of Shares Outstanding – Basic and diluted     347,857,137       158,738,117       301,820,387       155,830,492  

 

See notes to the unaudited condensed financial statements

 

F-3

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021 AND 2020

  

                            Additional           Total  
    Preferred Stock     Common Stock     Paid-in     Accumulated     Stockholders’  
    Shares     Amount     Shares*     Amount*     Capital*     Deficit     Deficit  
Balance as of December 31, 2020         -     $
       -
      193,637,747     $ 19,363     $ 23,179,399     $ (27,629,575 )   $ (4,430,813 )
Warrants exercised     -       -       44,074,284       4,407       2,199,307      
-
      2,203,714  
Share subscriptions     -       -       30,333,334       3,033       4,546,967      
-
      4,550,000  
Share issue expenses     -      
-
      -      
-
      (501,100 )    
-
      (501,100 )
Conversion of debt to equity     -      
-
      61,793,616       6,179       7,437,488      
-
      7,443,668  
Fair value of warrants issued as compensation     -      
-
      -      
-
      4,327,899      
-
      4,327,899  
Stock based compensation     -      
-
      2,500,000       250       213,499      
-
      213,749  
Net loss     -      
-
      -      
-
     
-
      (11,394,106 )     (11,394,106 )
Balance as of March 31, 2021     -     $
-
      332,338,981     $ 33,233     $ 41,403,459     $ (39,023,681 )   $ 2,413,011  
Warrants exercised     -       -       16,112,698       1,611       804,024       -       805,635  
Shares issued for services     -       -       8,000,000       800       775,200       -       776,000  
Stock based compensation     -       -       -       -       72,141       -       72,141  
Net loss     -       -                               (116,279 )     (116,279 )
Balance as of June 30, 2021     -     $ -        356,451,679     $ 35,644     $  43,054,824     $  (39,139,960 )   $ 3,950,508  

 

    Preferred Stock     Common Stock     Additional Paid-in     Accumulated     Accumulated
Other Comprehensive
    Total Stockholders’  
    Shares     Amount     Shares*     Amount*     Capital*     Deficit     Income     Deficit  
                                                 
Balance as of December 31, 2019     -     $
-
      128,902,124     $ 12,890     $ 21,579,022     $  (22,185,031 )   $ -     $ (593,119 )
Settlement of liabilities     -      
-
      2,504,110       250       99,914      
-
      -       100,164  
Conversion of debt to equity     -      
-
      1,692,764       169       105,966      
-
      -       106,135  
Shares issued for services     -      
-
      535,714       54       29,946      
-
      -       30,000  
Share subscriptions     -      
-
      1,400,000       140       32,860      
-
      -       33,000  
Stock based compensation     -      
-
      2,000,000       200       87,800      
-
      -       88,000  
Fair value of Restricted Stock Awards     -      
-
      20,495,000       2,050       311,781       -       -       313,831  
Net loss     -      
-
      -      
-
     
-
      (1,398,063 )     -       (1,398,063 )
Balance as of March 31, 2020     -      
-
      157,529,712       15,753       22,247,289       (23,583,094 )    
-
      (1,320,052 )
Conversion of debt to equity     -      
-
      5,330,737       533       154,933       -       -       155,466  
Shares issued for services     -      
-
      282,146       28       13,472      
-
     
-
      13,500  
Fair value of Restricted Stock Awards     -      
-
      -      
-
      62,765      
-
     
-
      62,765  
Net income     -      
-
      -      
-
     
-
      (977,738 )    
-
      (977,738 )
Balance as of June 30, 2020                      $
      -
       163,142,595     $ 16,314     $  22,478,459     $ (24,560,832 )   $
          -
    $ (2,066,059 )

 

See notes to the unaudited condensed financial statements.

  

F-4

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Six months
ended
    Six months
ended
 
    June 30,     June 30,  
    2021     2020  
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (11,510,385 )   $ (2,375,801 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Derivative liability movements     (3,136,090 )     (278,611 )
Depreciation     8,651       4,167  
Amortization of debt discount     2,623,252       373,178  
Investment impairment charge    
-
      1,019,960  
Loss on conversion of debt to equity     5,184,447       150,274  
Loss on settlement of liabilities    
-
      50,082  
Deposit forfeited     4,000      
-
 
Shares issued for services     776,000       43,500  
Stock based compensation     4,613,789       464,596  
Amortization of right of use asset     17,857       14,342  
Changes in Assets and Liabilities                
Other current assets     (8,629 )     38,993  
Accounts payable and accrued expenses     (39,355 )     184,635  
Operating lease liabilities     (17,857 )     (14,342 )
Interest accruals     91,120       51,055  
CASH USED IN OPERATING ACTIVITIES     (1,393,200 )     (273,972 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Investment in Frictionless Financial Technologies Inc.     (500,000 )    
-
 
Deposits paid     (4,800 )    
-
 
Plant and equipment purchased     (9,234 )     (50,000 )
NET CASH USED IN INVESTING ACTIVITIES     (514,034 )     (50,000 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from share issuances     4,550,000       33,000  
Share issue expenses     (501,100 )    
-
 
Proceeds from warrants exercised     3,009,349      
-
 
Repayment of loans payable     (22,049 )     (20,000 )
Repayment of convertible notes     (521,000 )     (48,000 )
Proceeds from short term notes and convertible notes     2,569,000       296,250  
Proceeds from federal relief funds    
-
      60,292  
NET CASH PROVIDED BY FINANCING ACTIVITIES     9,084,200       321,542  
                 
NET INCREASE (DECREASE) IN CASH     7,176,966       (2,430 )
CASH AT BEGINNING OF PERIOD     94,703       2,979  
CASH AT END OF PERIOD   $ 7,271,669     $ 549  
                 
CASH PAID FOR INTEREST AND TAXES:                
Cash paid for income taxes   $
-
    $
-
 
Cash paid for interest   $ 29,563     $ 33,030  
NON CASH INVESTING AND FINANCING ACTIVITIES                
De-recognition of right of use lease on early termination   $ (34,070 )   $
-
 
Recognition of right of use lease   $
-
    $ 86,741  
Conversion of convertible debt to equity   $ 2,259,221     $ 261,601  
Settlement of liabilities with equity   $
-
    $ 100,164  
Debt discount on convertible debt   $ 2,569,000     $ 326,750  

  

See notes to the unaudited condensed financial statements.

 

F-5

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

1 ORGANIZATION AND DESCRIPTION OF BUSINESS

 

a) Organization

 

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 621,920 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 500,000 shares of Common Stock agreed to return to IPSI 497,500 shares of Common Stock held by such holder and the then-current IPSI stockholder retained an aggregate of 2,500 shares of Common Stock and the other stockholders of IPSI retained 500,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former stockholders held 4,992,900 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.

 

F-6

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED 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.

 

c) COVID-19 Outbreak

 

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. The Company has continued operating and is in the process of developing a payment platform for installation in its kiosks which it expects to deploy in the Southern Californian market in the medium term.

 

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 the installation of a suitable payment platform which is currently under development. As a result, installation of the Company’s network of kiosks, terminals and payment channels in Southern California continues to be delayed, which has had an adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue.

 

The Company continues to monitor the continuous impact of COVID-19 closely. The extent to which COVID-19 will continue to impact the Company’s operations, ability to obtain financing or future financial results is uncertain.

 

F-7

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES

 

a) Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three and six months ended June 30, 2021 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this Quarterly Report on Form 10-Q (“Report”) should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2020, included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021.

 

All amounts referred to in the notes to the unaudited condensed financial statements are in United States Dollars ($) unless stated otherwise.

 

b) Use of Estimates

 

The preparation of 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 financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives for plant and equipment, the fair value of long-lived investments, the fair value of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating losses and the allowance for doubtful accounts.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the 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.

 

c) Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur.

 

The Company’s management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s 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-8

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

d) 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.

 

On June 22, 2021. the Company made a strategic investment of $500,000 in Frictionless Financial Technologies, Inc. (”Frictionless”), whereby Frictionless will provide the Company with software to run its payment platform. The investment is recent and the technology has not been developed as yet. In future periods, the company will evaluate this investment at fair value using Level 3 inputs based on the Company’s estimate of market value.

 

The carrying amounts reported in the balance sheets for cash, accounts receivable, other current assets, other assets, accounts payable, accrued liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company has identified the short-term convertible notes and certain warrants attached to certain of the notes that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

 

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company evaluates the fair value of variably priced derivative liabilities on a quarterly basis and report any movements thereon in earnings.

 

e) 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 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.

 

F-9

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

f) Recent accounting pronouncements

 

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 financial statements upon adoption.

 

g) Reporting by Segment

 

No segmental information is required as the Company has not generated any revenue for the six months ended June 30, 2021 and 2020 and only has one operating segment.

 

h) Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2021 and December 31, 2020, respectively, the Company had no cash equivalents.

 

The Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution in the United States. The balance at times may exceed federally insured limits. At June 30, 2021, the balance exceeded the federally insured limit by $7,021,669 and at December 31, 2020, the balance did not exceed the federally insured limit.

 

i) Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates. Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries during the period ended June 30, 2021 and December 31, 2020.

 

j) Investments

 

The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values. The carrying value of our non-marketable equity securities is adjusted to fair value for observable transactions for identical or similar investments of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense), net. Non-marketable equity securities that have been remeasured during the period are classified within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, rights, and obligations of the securities the Company holds. The cost method is used when the Company has a passive, long-term investment that doesn’t result in influence over the Company. The cost method is used when the investment results in an ownership stake of less than 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 $1,019,960 on its non-marketable equity securities for the year ended December 31, 2020. 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.

 

F-10

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

k) Plant and Equipment

 

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   7 years
     
Furniture and fixtures   7 years
     
Computer equipment   3 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.

 

l) Long-Term Assets

 

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets

 

m) Revenue Recognition

 

The Company’s revenue recognition policy is consistent with the requirements of FASB ASC 606, Revenue.

 

The Company’s revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those services. The Company derives its revenues from the sale of its services, as defined below. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its revenue transactions:

 

i. identify the contract with a customer;

 

ii. identify the performance obligations in the contract;

 

iii. determine the transaction price;

 

iv. allocate the transaction price to performance obligations in the contract; and

 

v. recognize revenue as the performance obligation is satisfied.

 

The Company had no revenues during the three and six months ended June 30, 2021 and 2020.

 

F-11

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED 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 statement of operations.

 

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.

 

o) Derivative Liabilities

 

ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.

 

p) Income Taxes

 

The Company is based in the US and currently enacted US tax laws are used in the calculation of income taxes.

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of June 30, 2021 and December 31, 2020, there have been no interest or penalties incurred on income taxes.

 

q) Comprehensive income

 

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, there is no comprehensive income for the periods presented.

 

F-12

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

3 LIQUIDITY MATTERS

 

The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the six months ended June 30, 2021, the Company had a net loss of $11,510,385 and had $7,271,669 in cash. In connection with preparing the financial statements for the six months ended June 30, 2021, management evaluated the extent of the impact from the COVID-19 pandemic on the Company’s business and its future liquidity for the next twelve months through August 13, 2022.

 

Management has executed the following to address the Company’s liquidity during the six months ended June 30, 2021:

 

The Company received net proceeds of $1,788,500 after an original issue discount of $255,500 upon its issuance of Senior Secured Convertible Notes in the principal amount of $2,044,000, bearing interest at 10% per annum and maturing on February 16, 2022.

 

Between February 18, 2021 and June 23, 2021 warrants for 60,186,982 shares were exercised by investors at an exercise price of $0.05 per share, for gross proceeds of $3,009,349.

 

On March 17, 2021, the Company entered into Securities Purchase Agreements (the “SPAs”) with several institutional investors, pursuant to which we sold to the Investors in a private placement (i) 30,333,334 shares of our common stock (the “Shares”) and (ii) warrants (the “Warrants”) to purchase up to an aggregate of 15,166,667 shares of our common stock for gross proceeds of approximately $4,550,000. The combined purchase price for one share of common stock and associated Warrant was $0.15.

 

The funding the Company received will be used primarily for development of technology, the digital payment platform and marketing, as well as for working capital and general corporate purposes.

 

If the Company is required to raise additional funds by issuing equity securities, its stockholders would experience dilution. Additional debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require significant debt service payments, which diverts resources from other activities.

 

Based on this current business plan, the Company believes its existing cash is sufficient to conduct planned operations for one year from the issuance of the June 30, 2021 financial statements.

 

F-13

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

4 INVESTMENT

 

Investment in Frictionless Financial Technologies Inc.

 

On June 22, 2021, the Company entered into a Stock Purchase Agreement (the “SPA”) with Frictionless Financial Technologies Inc. (“Frictionless”), to purchase 150 common shares for gross proceeds of $500,000, representing 11.3% of the outstanding common shares (which percentage holding will decrease to 10% upon the issuance of the remaining authorized but unissued shares). In terms of the SPA, Frictionless agreed to deliver to the Company on or before August 30, 2021, a live fully compliant financial payment Software as a Service solution for use by the Company as a digital payment platform that enables payments within the United states and abroad, including Mexico, together with a service agreement providing a full suite of product services to facilitate to Company’s anticipated product offerings.

 

The company has undertaker to issue Frictionless a non-restricted, non-dilutable 5 year warrant to purchase 30,000.000 shares of common stock in the Company at an exercise price of $0.15 per share, upon delivery of the financial payment software.

 

In the event that Frictionless is unable to deliver the financial payment software on or before June 15, 2022, Frictionless shall immediately refund the $500,000 to the Company, provided non-delivery is not due to Frictionless trademark issues, non-approval by the Company or banking related issues.

 

The Company may appoint one member to the Board of Frictionless, as long as the Company is the holder of the common stock acquired in Frictionless.

 

The Company has an irrevocable right to acquire up to an additional 41% of the outstanding common stock of Frictionless at a purchase price of $300,000 for each 1% acquired.

 

The shares in Frictionless are unlisted as of June 30, 2021.

 

Investment in Vivi Holdings, Inc.

 

Effective December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corp, together with its 99.9% ownership interest of Qpagos Corporations’ two Mexican entities: QPagos S.A.P.I. de C.V. and Redpag Electrónicos S.A.P.I. de C.V, 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 June 30, 2021 and June 30, 2020, the Company impaired the carrying value of the investment in Vivi Holdings, Inc by $0 and $1,019,960, respectively, based on Vivi’s indicated timeline for its proposed IPO and fund raising activities, largely impacted by the COVID-19 pandemic. The total impairment as of June 30, 2021 and December 31, 2020 was $1,019,960.

 

The shares in Vivi Holdings, Inc., are unlisted as of June 30, 2021.

 

    June 30,
2021
    December 31,
2020
 
Investment in Frictionless Technologies, Inc.   $ 500,000     $
                  -
 
Investment in Vivi Holdings, Inc.   $ 1       1  
      500,001       1  

 

F-14

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

5 LEASES

 

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 its 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.

 

Effective June 1, 2021, the Company entered into a Mutual Termination of Lease Agreement with the landlord. The security deposit of $4,000 was forfeited.

 

On March 22, 2021, the Company entered into a real property lease for an office located at 56B 5th Street, Lot 1 Carmel By The Sea, California. The lease commenced on April 1, 2021 and is for a twelve month period, terminating on April 1, 2022. The Company applied the practical expedient whereby operating leases with a duration of twelve months or less are expensed as incurred.

 

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.

 

Right of use assets

 

Right of use assets are included in the unaudited condensed Balance Sheet are as follows:

 

   

June 30,

2021

    December 31,
2020
 
Non-current assets            
Right of use assets, operating leases, net of amortization   $
             -
    $ 51,926  

 

Total Lease Cost

 

Individual components of the total lease cost incurred by the Company is as follows:

 

   

Six Months Ended
June 31,

2021

    Six months ended
June 30,
2020
 
Operating lease expense   $ 17,857     $ 17,753  

 

F-15

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

5 LEASES (continued)

 

Other lease information:

 

    Six months ended
June 30,
2021
 
Cash paid for amounts included in the measurement of lease liabilities      
Operating cash flows from operating leases   $ (39,070 )
Remaining lease term – operating lease     9 months  
Discount rate – operating lease     10 %

 

6 FEDERAL RELIEF LOANS

 

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 and therefore no interest has been accrued on this loan.

 

The company has not made any payments on this loan and is in the process of applying for forgiveness of the loan balance.

 

Small Business Administration Disaster Relief loan

 

On July 7, 2020, the Company received a Small Business Economic Injury Disaster loan amounting to $150,000, bearing interest at 3.75% per annum and repayable in monthly installments of $731 commencing twelve months after inception with the balance of interest and principal repayable on July 7, 2050. The loan is secured by all tangible and intangible assets of the Company. The proceeds are to be used for working capital purposes to alleviate economic injury caused by the COVID-19 pandemic.

 

The company has accrued interest of $5,517 on this loan as of June 30, 2021.

 

7 LOANS PAYABLE

 

Loans payable consisted of the following:

 

Description   Interest
Rate
    Maturity     June 30,
2021
    December 31,
2020
 
Stanislav Minaychenko     4.0 %   September 16, 2020     $
-
    $ 14,530  
Maxim Pukhoskiy     4.0 %   June 16, 2020      
-
      8,041  
Dieter Busenhart     10.0 %   January 17, 2021       571       1,062  
Total loans payable                 $ 571     $ 23,633  

 

Interest expense totaled $0 and $238 for the three months ended June 30, 2021 and 2020, respectively, and $134 and $561 for the six months ended June 30, 2021 and 2020, respectively.

 

F-16

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

7 LOANS PAYABLE (continued)

 

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 six months ended June 30, 2021, the Company repaid the aggregate principal sum of $13,893 and interest thereon of $717, thereby extinguishing the note.

 

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 six months ended June 30, 2021, the Company repaid the aggregate principal sum of $7,656 and interest thereon of $429, thereby extinguishing the note.

 

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.

 

During the six months ended June 30, 2021, the Company repaid the aggregate principal sum of $500.

 

The balance remaining on the promissory note consists of accrued interest of $571.

 

8 CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

  

Description   Interest
Rate
    Maturity date   Principal     Accrued
Interest
    Unamortized
debt
discount
   

June 30,
2021

Amount, net

   

December 31,
2020

Amount,
net

 
Power Up Lending Group     12 %   July 13, 2021   $
-
    $
-
    $
-
    $
-
    $ 33,057  
                                                     
Cavalry Fund I LP     10 %   June 30, 2021    
-
     
-
     
-
     
-
      157,149  
      10 %   July 31, 2021    
-
     
-
     
-
     
-
      217,248  
      10 %   September 24, 2021    
-
     
-
     
-
     
-
      33,669  
      10 %   August 5, 2021    
-
     
-
     
-
     
-
      63,553  
      10 %   February 3, 2022    
-
      669      
-
      669      
-
 
      10 %   February 16, 2022     572,000       21,291       (362,005 )     231,286      
-
 
                                                     
Mercer Street Global Opportunity Fund, LLC     10 %   August 3, 2021    
-
     
-
     
-
     
-
      288,895  
      10 %   February 3, 2022    
-
     
-
     
-
     
-
     
-
 
      10 %   February 16, 202     572,000       21,291       (362,005 )     231,286      
-
 
                                                     
Iroquois Master Fund Ltd.     10 %   September 16, 2021    
-
      8,041      
-
      8,041       72,835  
      10 %   February 3, 2022    
-
      823      
-
      823      
-
 
                                                     
Mark Geist     10 %   October 20, 2021    
-
     
-
     
-
     
-
      6,206  
                                                     
Bellridge Capital LP.     10 %   November 25, 2021    
-
     
-
     
-
     
-
      31,029  
      10 %   February 16, 2022    
-
     
-
     
-
     
-
     
-
 
      10 %   February 16, 2022     900,000       33,500       (569,589 )     363,911      
-
 
                                                     
Total convertible notes payable               $ 2,044,000     $ 85,615     $ (1,293,599 )   $ 836,016     $ 903,641  

 

F-17

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Interest expense totaled $51,667 and $29,535 and amortization of debt discount totaled $509,600 and $213,100 for the three months ended June 30, 2021 and 2020, respectively, and interest expense totaled $117,459 and $83,526 and amortization of debt discount totaled $2,623,252 and $373,178 for the six months ended June 30, 2021 and 2020, 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.

 

The total value of the beneficial conversion feature recorded as a debt discount during the six months ended June 30, 2021 and 2020 was $2,569,000 and $326,750, respectively.

 

Power Up Lending Group Ltd

 

 

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 had a maturity date of July 13, 2021 and a coupon of 12% per annum. The Company could prepay the note with prepayment penalties that ranged from 115% to 135%. 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 61% of the lowest trading price during the previous fifteen trading days.

 

On January 11, 2021, the Company repaid the principal sum of $63,000 and accrued interest and penalty interest thereon of $27,083, 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 Cavalry 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 Cavalry Note was 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 Cavalry Note could 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 could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

Between January 4, 2021 and February 3, 2021, the Company received conversion notices from Cavalry, converting the aggregate principal amount of $300,000 and accrued interest thereon of $16,639 into 9,046,826 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Initial Cavalry Note.

 

F-18

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Cavalry Fund LLP (continued)

 

 

Cavalry had agreed to purchase an additional $300,000 Senior Secured Convertible Note (the “Second Cavalry Note”); from the Company upon the same terms as the Initial Cavalry Note, within three trading days of a registration statement registering the shares of the Company’s common stock issuable under the Initial Cavalry Note and upon exercise of the Warrants that had been issued 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 Cavalry Note could 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 could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Second Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

Between February 8, 2021 and February 12, 2021, the Company received conversion notices from Cavalry, converting the aggregate principal amount of $300,000 and accrued interest thereon of $16,083 into 9,030,953 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Second Cavalry Note.

 

 

On September 24, 2020, the Company closed a transaction with 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 Cavalry Note”), with an original issue discount of $14,000, bearing interest at 10% per annum and maturing on September 24, 2021, the Third Cavalry Note was 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 Cavalry Note could 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 could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Third Cavalry Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

On February 18, 2021, the Company received a conversion notice from Cavalry, converting the aggregate principal amount of $114,000 and accrued interest thereon of $4,623 into 3,389,238 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Third Cavalry Note.

 

 

On October 20, 2020, Cavalry entered into an Assignment and Transfer agreement whereby the Senior Secured Convertible Note with a face value of $100,000, bearing interest at 10% per annum and maturing on August 5, 2021, together with the warrant exercisable over 2,857,143 shares of common stock at an initial exercise price of $0.05 per share, was acquired by Cavalry (the “Transferred note”). The Transferred Note was convertible into shares of common stock at an initial conversion price of $0.035 per share.

 

The transferred Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the Transferred Note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Transferred note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

On February 22, 2021, the Company received a conversion notice from Cavalry, converting the aggregate principal amount of $100,000 and accrued interest thereon of $5,583 into 3,016,667 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Transferred Note.

 

F-19

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Cavalry Fund LLP (continued)

 

 

On February 3, 2021, the Company closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $150,500, after an original issue discount of $21,500 in exchange for the issuance of a $172,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 3, 2022 (the Fourth Cavalry Note”). The fourth Cavalry Note is convertible into shares of common stock at an initial conversion price of 0.045 per share, in addition, the Company issued a warrant exercisable for 3,822,223 shares of common stock at an initial exercise price of $0.05 per share.

 

On February 17, 2021, the Company repaid the aggregate principal sum of $172,000 owing on the Fourth Cavalry Note it had entered into on February 3, 2021. The accrued interest of $669, remains outstanding.

 

 

On February 16, 2021, the Company closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $500,500, after an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022 (the Fifth Cavalry Note”). The Fifth Cavalry Note is convertible into shares of common stock at an initial conversion price of 0.23 per share, in addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24 per share.

 

The balance of the Fifth Cavalry Note plus accrued interest at June 30, 2021 was $231,286, after unamortized debt discount of $362,005.

 

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 Initial Mercer Note”). The Initial Mercer Note was 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 Initial Mercer note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Mercer Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

Between January 4, 2021 and February 9, 2021, the Company received conversion notices from Mercer, converting the aggregate principal amount of $400,000 and accrued interest thereon of $19,411, relating to the Initial Mercer Note entered into on August 3, 2020 into 11,983,170 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Initial Mercer Note.

 

 

On February 3, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $250,250, after an original issue discount of $35,750 in exchange for the issuance of a $286,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 3, 2022 (the Second Mercer Note”). The second Mercer Note was convertible into shares of common stock at an initial conversion price of 0.045 per share, in addition, the Company issued a warrant exercisable for 6,355,556 shares of common stock at an initial exercise price of $0.05 per share.

 

On February 16, 2021 and February 22, 2021, the Company repaid the aggregate principal sum of $286,000 and interest thereon of $1,033, owing on the Second Mercer Note it had entered into with Mercer on February 3, 2021, thereby extinguishing the Second Mercer Note.

 

F-20

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Mercer Street Global Opportunity Fund, LLC (continued)

  

 

On February 16, 2021, the Company closed a transaction with Mercer, pursuant to which the Company received net proceeds of $500,500, after an original issue discount of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022 (the Third Mercer Note”). The Third Mercer Note is convertible into shares of common stock at an initial conversion price of 0.23 per share, in addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24 per share.

 

The balance of the Third Mercer Note plus accrued interest at June 30, 2021 was $231,286, after unamortized debt discount of $362,005.

 

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 Initial Iroquois Note”). The Initial Iroquois 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 Initial Iroquois Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Iroquois Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

Between January 5, 2021 and February 5, 2021, the Company received conversion notices from Iroquois Master Fund Ltd., converting the aggregate principal amount of $228,000 relating to the Initial Iroquois Note entered into on September 16, 2020 into 6,514,288 shares of common stock at a conversion price of $0.035 per share. The accrued interest of $8,041 on the Initial Iroquois Note remains outstanding.

 

 

On February 3, 2021, 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 February 3, 2022 (the Second Iroquois Note”). The Second Iroquois Note was convertible into shares of common stock at an initial conversion price of 0.045 per share, in addition, the Company issued a warrant exercisable for 5,066,667 shares of common stock at an initial exercise price of $0.05 per share.

 

On February 19, 2021, the Company received a conversion notice from Iroquois Master Fund Ltd., converting the aggregate principal amount of $228,000 into 5,066,667 shares of common stock at a conversion price of $0.045 per share. The accrued interest of $823 on the Second Iroquois Note remains outstanding.

 

F-21

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Mark Geist

 

On October 20, 2020, the Company closed a transaction with Mark 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 was 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 could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

On January 15, 2021, the Company received a conversion notice from Mark Geist, converting the aggregate principal amount of $28,600 and accrued interest thereon of $561 into 833,172 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the note.

 

Bellridge Capital LP.

 

  On November 25, 2020, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $250,250 after an original issue discount of $35,750 in exchange for the issuance of a $286,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on November 25, 2021 (the “Initial Bellridge Note”). The Initial Bellridge Note was 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 8,171,429 shares of common stock at an initial exercise price of $0.05 per share.

 

The Initial Bellridge Note could be prepaid at any time for the first 90 days at face value plus accrued interest. From day 91 through day 180, the note could be prepaid in an amount equal to 115% of the principal amount plus accrued interest. From day 181 through day 365, it could be prepaid in an amount equal to 125% of the principal amount plus accrued interest. The Initial Bellridge Note contained certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets.

 

On February 6, 2021, the Company received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $286,000 and accrued interest thereon of $5,720 into 8,334,857 shares of common stock at a conversion price of $0.035 per share, thereby extinguishing the Initial Bellridge Note.

 

  On February 16, 2021, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $180,250, after an original issue discount of $25,750 in exchange for the issuance of a $206,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022, (the “Second Bellridge Note”). The Second Bellridge Note was convertible into shares of common stock at an initial conversion price of 0.045 per share, in addition, the Company issued a warrant exercisable for 4,577,778 shares of common stock at an initial exercise price of $0.05 per share.

 

On February 16, 2021, the Company received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $206,000, relating to a convertible note entered into on the same day into 4,577,778 shares of common stock at a conversion price of $0.045 per share, thereby extinguishing the Second Bellridge Note.

 

F-22

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

8 CONVERTIBLE NOTES PAYABLE (continued)

 

Bellridge Capital LP. (continued)

 

 

On February 16, 2021, the Company closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $787,500, after an original issue discount of $112,500 in exchange for the issuance of a $900,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on February 16, 2022 (the “Third Bellridge Note”). The Third Bellridge Note is convertible into shares of common stock at an initial conversion price of 0.23 per share, in addition, the Company issued a warrant exercisable for 3,913,044 shares of common stock at an initial exercise price of $0.24 per share.

 

The Third Bellridge 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 Third Bellridge Note plus accrued interest at June 30, 2021 was $363,911, after unamortized debt discount of $569,589.

 

9 DERIVATIVE LIABILITY

 

Certain of the short-term convertible notes disclosed in note 8 above and certain warrants disclosed in note 10 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 six months ended June 30, 2021, an additional $2,569,000 was raised as a derivative liability on convertible notes and warrants.

 

The value of this derivative financial liability was re-assessed at June 30, 2021, and $3,136,090 was credited 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.

 

The following assumptions were used in the Black-Scholes valuation model:

 

    Six months
Ended
June 30,
2021
    Year
Ended
December 31,
2020
 
Conversion price   $ 0.05 to 0.24     $ 0.015 to 2.00  
Risk free interest rate     0.07 to 0.92 %     0.09 to 1.53 %
Expected life of derivative liability     1 to 5 years       1 to 12 months  
Expected volatility of underlying stock     181.31 to 215.33 %     171.7 to 222.6 %
Expected dividend rate     0 %     0 %

 

The movement in derivative liability is as follows:

 

    June 30,
2021
    December 31,
2020
 
Opening balance   $ 2,966,416     $ 905,576  
Derivative financial liability arising from convertible note     2,569,000       1,406,369  
Fair value adjustment to derivative liability     (3,136,090 )     (654,471 )
    $ 2,399,326     $ 2,966,416  

 

F-23

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

10 STOCKHOLDERS’ EQUITY

 

  a. Common Stock

 

The Company has authorized 500,000,000 common shares with a par value of $0.0001 each. The Company has issued and outstanding 356,451,678 and 193,637,747 shares of common stock as of June 30, 2021 and December 31, 2020, respectively.

 

The following shares of common stock were issued by the Company during the six months ended June 30, 2021:

 

In terms of debt conversion notices received between January 5, 2021 and February 23, 2021, the Company issued an aggregate of 61,793,616 shares of common stock for the conversion of $2,259,221 of convertible debt and interest thereon, realizing a loss on conversion of $5,184,447.

 

In terms of warrant exercise notices received between February 18, 2021 and June 23 2021, the Company issued 60,186,982 shares of common stock for gross proceeds of $3,009,349.

 

On March 17, 2021, the Company, entered into Securities Purchase Agreements with several institutional investors, pursuant to which the Company agreed to sell to the Investors in a private placement (i) 30,333,334 shares of its common stock (the “Shares”) and (ii) warrants (the “Warrants”) to purchase up to an aggregate of 15,166,667 shares of its common stock for gross proceeds of approximately $4,550,000. The combined purchase price for one share of common stock and associated Warrant is $0.15.

 

Pursuant to an engagement letter dated as of March 6, 2021, by and between the Company and H.C. Wainwright & Co., LLC (“Wainwright”), the Company engaged Wainwright to act as the Company’s exclusive placement agent in connection with the private placement. Pursuant to the engagement agreement, the Company agreed to pay Wainwright a cash fee of 8.0% of the gross proceeds raised by the Company in the private placement. The Company also agreed to pay Wainwright (i) a management fee equal to 1.0% of the gross proceeds raised in the private placement; (ii) $35,000 for non-accountable expenses and (iii) up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses. In addition, the Company agreed to issue to Wainwright (or its designees) placement agent warrants (the “Placement Agent Warrants”) to purchase a number of shares equal to 8.0% of the aggregate number of Shares sold under the Purchase Agreement or warrants to purchase an aggregate of up to 2,426,667 shares of the Company’s common stock. The Placement Agent Warrants generally will have the same terms as the Warrants, except they will have an exercise price of $0.1875.

 

On April 5, 2021, the Board of directors approved advisory board agreements with four individuals, each agreement for a period of two years form the effective date of the agreement and may be terminated by each party with 30 days’ notice. As compensation the Company awarded each advisory board member 2,000,000 restricted shares of common stock, the restricted shares of common stock vest as to 75% on the effective date and 25% on the anniversary date of the agreement.

 

b. Restricted stock awards

 

On December 15, 2020, in terms of an employment agreement entered into with an employee, the Company granted 2,500,000 restricted shares of which 1,000,000 vested on January 1, 2021 and the remaining 1,500,000 shares vest over a period of two years.

 

The restricted stock granted and exercisable at June 30, 2021 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       10,247,500     $ 0.049  
  0.05       2,500,000       0.050       1,000,000       0.050  
          22,995,000     $ 0.049       11,247,500       0.049  

 

The Company has recorded an expense of $72,141 and $62,765 for the three months ended June 30, 2021 and 2020, respectively, and $194,282 and $376,596 for the six months ended June 30, 2021 and 2020, respectively.

 

F-24

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

10 STOCKHOLDERS’ EQUITY (continued)

 

c. Preferred Stock

 

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 June 30, 2021 and December 31, 2020.

 

d. Warrants

 

In terms of the Senior Secured convertible notes entered into with various noteholders as described in note 8 above, the Company issued five year warrants exercisable for a total of 28,709,182 shares of common stock at initial exercise prices ranging from $0.05 to $0.24 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 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.

 

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.

 

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.

 

On February 22, 2021, the Board of Directors of the Company appointed William Corbett, its Chief Executive Officer and Interim Chief Financial Officer, as its Chairman of the Board and issued him a five-year warrant to purchase 20,000,000 shares of the Company’s common stock at an exercise price of $0.24, valued at $4,327,899 and expensed as stock based compensation during the current period.

 

In connection with the Securities Purchase Agreements with several institutional investors, disclosed in 9(a) above, the Company sold warrants to purchase up to an aggregate of 15,166,667 shares of its common stock. The combined purchase price for one share of common stock and associated Warrant is $0.15. The warrants were valued at $2,028,509 using a Black Scholes valuation model and using the assumptions disclosed below.

 

The Warrants are exercisable for a period of five years from the date of issuance and have an exercise price of $0.15 per share, subject to adjustment as set forth in the Warrants for stock splits, stock dividends, recapitalizations and similar events. The Investors may exercise the Warrants on a cashless basis if after the six month anniversary of date of issuance the shares of common stock underlying the Warrants (the “Warrant Shares”) are not then registered pursuant to an effective registration statement. Each Investor has contractually agreed to restrict its ability to exercise the Warrants such that the number of shares of the Company’s common stock held by the Investor and its affiliates after such exercise does not exceed the beneficial ownership limitation set forth in the Warrants which may not exceed initially 4.99% or 9.99% of the Company’s then issued and outstanding shares of common stock.

 

Pursuant to an engagement letter dated as of March 6, 2021, by and between the Company and Wainwright, the Company engaged Wainwright to act as the Company’s exclusive placement agent in connection with the private placement, discussed above. The Company agreed to issue to Wainwright (or its designees) Placement Agent Warrants to purchase an aggregate of up to 2,426,667 shares of the Company’s common stock. The Placement Agent Warrants generally will have the same terms as the Warrants, except they will have an exercise price of $0.1875. The warrants were valued at $323,924 using a Black Scholes valuation model and using the assumptions disclosed below.

 

F-25

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

10 STOCKHOLDERS’ EQUITY (continued)

 

d. Warrants (continued)

 

The fair value of the warrants granted and issued were determined by using a Black Scholes valuation model using the following assumptions:

 

    Six months
ended
June 30,
2021
 
Exercise price   $ 0.05 to 0.24  
Risk free interest rate     0.46% to 0.92 %
Expected life     5.0 years  
Expected volatility of underlying stock     213.84 to 215.33 %
Expected dividend rate     0 %

 

A summary of warrant activity during the period January 1, 2020 to June 30, 2021 is as follows:

 

    Shares
Underlying
Warrants
    Exercise
price per
share
    Weighted
average
exercise
price
 
Outstanding January 1, 2020     852,775     $ 2.00 to 6.25     $ 5.10  
Granted     51,188,572       0.05       0.05  
Forfeited/Cancelled     (852,775 )       2.00 to 6.25       5.10  
Exercised    
-
      -      
-
 
Outstanding December 31, 2020     51,188,572     $ 0.05     $ 0.05  
Granted     66,302,515         0.05 to 0.24       0.16  
Forfeited/Cancelled    
-
      -      
     -
 
Exercised     (60,186,982 )     0.05       0.05  
Outstanding June 30, 2021     57,304,105     $ 0.05 – 0.24     $ 0.16  

 

The warrants outstanding and exercisable at June 30, 2021 are as follows:

 

      Warrants Outstanding     Warrants Exercisable  
Exercise
Price*
    Number
Outstanding
    Weighted
Average
Remaining
Contractual life
in years
    Weighted
Average
Exercise Price
    Number
Exercisable
    Weighted
Average
Exercise Price
    Weighted
Average
Remaining
Contractual
life in years
 
$ 0.05       10,823,813       4.28               10,823,813               4.28  
  0.15       15,166,667       4.69               15,166,667               4.69  
  0.1875       2,426,667       4.72               2,426,667               4.72  
  0.24       28,886,958       4.65               28,886,958               4.65  
          57,304,105       4.60       0.16       57,304,105       0.16       4.60  

 

The warrants outstanding have an intrinsic value of $519,543 and $0 as of June 30, 2021 and December 31, 2020, respectively.

 

F-26

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

10 STOCKHOLDERS’ EQUITY (continued)

 

e. Stock options

 

On June 18, 2018, the Company established its 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to promote the interests of the Company and the stockholders of the Company by providing directors, officers, employees and consultants of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate objectives. The Plan terminates after a period of 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 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.

 

On February 22, 2021, the Board awarded each of its directors, James Fuller and Andrey Novikov, options under the Company’s 2018 Stock Incentive Plan to purchase 208,333 shares of the Company’s common stock. The options are exercisable for a period of ten years from the date of grant, vest in full on the date of grant and have an exercise price of $0.24 per share.

 

No options were granted for the year ended December 31, 2020.

 

A summary of option activity during the period January 1, 2020 to June 30, 2021 is as follows:

 

    Shares
Underlying
options
    Exercise
price per
share
    Weighted
average
exercise
price
 
Outstanding January 1, 2020     100,000     $ 0.40     $ 0.40  
Granted    
-
      -      
-
 
Forfeited/Cancelled    
-
      -      
-
 
Exercised    
-
      -      
-
 
Outstanding December 31, 2020     100,000       0.40       0.40  
Granted     416,666       0.24       0.24  
Forfeited/Cancelled    
-
      -      
-
 
Exercised    
-
      -      
-
 
Outstanding June 30, 2021     516,666        $ 0.24 to 0.40     $ 0.27  

 

The options outstanding and exercisable at June 30, 2021 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
 
  0.24       416,666       9.65               416,666               9.65  
  0.40       100,000       7.50               100,000               7.50  
          516,666       9.24     $ 0.27       516,666     $ 0.27       9.24  

 

The options outstanding have an intrinsic value of $0 and $0 as of June 30, 2021 and December 31, 2020, respectively.

 

F-27

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

11 NET LOSS PER SHARE

 

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 three and six months ended June 30, 2021 and 2020 all warrants, options and convertible debt securities were excluded from the computation of diluted net loss per share.

 

Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive for the three and six months ended June 30, 2021 and 2020 are as follows:

 

    Three and
six months ended
June 30,
2021
(Shares)
    Three and
six months ended
June 30,
2020
(Shares)
 
Convertible debt     13,626,666       99,663,682  
Stock options     516,666       100,000  
Warrants to purchase shares of common stock     57,304,104       1,534,145  
      76,025,215       101,297,827  

 

12 RELATED PARTY TRANSACTIONS

 

The following transactions were entered into with related parties:

 

James Fuller

 

On February 22, 2021, the Board awarded James Fuller options under the Company’s 2018 Stock Incentive Plan to purchase 208,333 shares of the Company’s common stock. The options are exercisable for a period of ten years from the date of grant, vest in full on the date of grant and have an exercise price of $0.24 per share.

 

Andrey Novikov

 

On February 22, 2021, the Board awarded Andrey Novikov options under the Company’s 2018 Stock Incentive Plan to purchase 208,333 shares of the Company’s common stock. The options are exercisable for a period of ten years from the date of grant, vest in full on the date of grant and have an exercise price of $0.24 per share.

 

William Corbett

 

On February 22, 2021, the Board of Directors of the Company appointed William Corbett, its Chief Executive Officer and Interim Chief Financial Officer, as its Chairman of the Board and issued him a five-year warrant to purchase 20,000,000 shares of the Company’s common stock at an exercise price of $0.24. The Board also agreed to increase Mr. Corbett’s monthly base salary to $30,000.

 

F-28

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

13 COMMITMENTS AND CONTINGENCIES

 

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 lease was terminated by mutual consent with effect from June 1, 2021.

 

On March 22, 2021, the Company entered into a real property lease for an office located at 56B 5th Street, Lot 1 Carmel By The Sea, California. The lease commenced on April 1, 2021 and is for a twelve month period, terminating on April 1, 2022.

 

    Amount  
Undiscounted minimum future lease payments      
Total instalments due:      
Remainder of 2021   $ 28,800  
2022     19,200  
    $ 48,000  

 

14 SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through the date the financial statements were issued, other than disclosed above, we did not identify any other subsequent events that would have required adjustment or disclosure in the financial statements.

 

F-29

 

 

Item 2.

 

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with and is qualified in its entirety by our audited annual financial statements and the related notes thereto, each of which appear on Form 10-K filed with the SEC on March 31, 2021. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading “Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Actual results could differ materially from those projected in the forward-looking statements. The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Innovative Payment Solutions, Inc.

 

Overview and Financial Condition

 

We are a provider of next generation digital payment solutions and services to businesses and consumers. Our business model has substantially changed during the course of 2020. We have focused on developing a technology driven digital infrastructure via IPSIPay Platform and IPSIPay applications and have plans to launch various digital payment cryptocurrency products, including, IPSI Pay, IPSI Stable Coin, IPSI Wallet and IPSI Payroll, using blockchain technology. We are developing a flexible ecosystem that will enable businesses and customers to adopt and utilize IPSIPay prepaid card services, integrated payment service solutions in US and Mexico, money transfer to and from US swiftly at minimal cost compared to traditional money transfer service providers, utilizing stable dollar backed coins thus allowing small businesses and consumers to have access to various payment routes previously not available to them. We also intend to use our kiosk payment system and service in US.

 

We intend to continue to expand our operations in the United States with a focus initially on Southern California. We are also exploring acquisition opportunities that we believe will be accretive to our business.

 

We offer a simple payment solution for consumers and businesses. We have 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 our warehouses in Southern California awaiting installation. Due to measures imposed by the local governments in areas affected by the novel coronavirus outbreak (“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 our network of kiosks, terminals and payment channels in Southern California has been delayed, which has had an adverse impact on our business and financial condition and has hampered our ability to generate revenue. During this delay, the Company decided to take measures to reengineer its kiosks to provide for additional functionality and features, which reengineering should be complete by the time of installation, assuming no further delays due to the COVID-19 pandemic or otherwise.

 

Management Discussion and Analysis of financial condition

 

The discussion and analysis of our financial condition and results of operations is based upon the unaudited condensed financial statements as of June 30, 2021 and 2020, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates are based on our historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions.

 

1

 

 

Results of Operations for the Three Months Ended June 30, 2021 and June 30, 2020

 

Net revenue

 

We did not have revenues during the three months ended June 30, 2021 and June 30, 2020.We anticipate that we will recommence generating revenue once we are able to install our kiosks, the timing of which is uncertain due to the development of our payment platform software and the COVID-19 pandemic.

 

Cost of goods sold

 

As we did not have revenues during the three months ended June 30, 2021 and June 30, 2020, we anticipate that we will begin to recognize cost of goods sold once we are able to install our kiosks, the timing of which is uncertain due to the development of our payment platform software and the COVID-19 pandemic.

  

General and administrative expenses

 

General and administrative expenses were $1,719,770 and $297,764 for the three months ended June 30, 2021 and 2020, respectively, an increase of $1,422,506 or 477.7%. The increase is primarily due to the following: (i) the issuance of restricted stock to four advisory board members with a related expense of $776,000; (ii) an increase in payroll related expenses of $513,895, including a severance provision of $294,000 and an increase in our CEO salary expense of $52,500 and additional headcount employed during the current year; and (iii) the remaining increase of $132,611 consists of several individually immaterial expenses related to the increase in business activity in preparation for the development of our payment platform software.

 

Depreciation

 

Depreciation was $4,484 and $4,167 for the three months ended June 30, 2021 and 2020, respectively, an increase of $317 or 7.6%. Depreciation during the current period consists primarily of depreciation on the kiosks received from Qpagos Mexico.

 

Investment impairment charge

 

Investment impairment charge was $0 and $509,979 for the three months ended June 30, 2021 and 2020, respectively. The Company raised an impairment charge in the prior year against the investment in Vivi Holdings Inc, as Vivi continues to not meet any of its indicated milestones concerning its proposed IPO and fund raising efforts.

 

Loss on debt conversion

 

Loss on debt conversion was $0 and $79,467 for the three months ended June 30, 2021 and 2020, respectively, a decrease of $79,467 or 100.0%. The loss on debt conversion represents a loss realized in the prior year on the conversion of convertible notes into equity at conversion prices ranging from 38% to 40% below current market prices. During the three months ended June 30, 2020, $76,000 of principal and interest was converted into equity.

 

Interest expense, net

 

Interest expense was $53,371 and $29,750 for the three months ended June 30, 2021 and 2020, respectively, an increase of $23,621 or 79.4%. The increase is primarily due to the increase in the principal outstanding of convertible debt from $856,664 in the prior year to $2,044,000 in the current year.

 

Amortization of debt discount

 

Amortization of debt discount was $509,600 and $213,101 for the three months ended June 30, 2021 and 2020, respectively, an increase of $296,499 or 139.1%. The increase is primarily due to the increase in the debt discount of $2,569,000 associated with the increase in convertible debt over the prior year.

 

Derivative liability movements

 

Derivative liability movements were $2,170,946 and $176,490 for the three months ended June 30, 2021 and 2020, respectively, an increase of $1,994,456 or 1130.1%. The derivative liability arose due to the issuance of convertible securities with variable conversion prices and no floor conversion price. The charge during the current period represents the mark-to-market of the derivative liability outstanding as of June 30, 2021.

  

Net loss

 

Net loss was $116,279 and $977,738 for the three months ended June 30, 2021 and 2020, respectively, a decrease in loss of $861,459 or 88.1%. While there was an increase in general and administrative expenses and an increase in amortization expense, a decrease resulted from such increases being offset by the derivative liability movement, discussed in detail above.

  

2

 

 

Results of Operations for the Six Months Ended June 30, 2021 and June 30, 2020

 

Net revenue

 

We did not have revenues during the six months ended June 30, 2021 and June 30, 2020.We anticipate that we will recommence generating revenue once we are able to install our kiosks, the timing of which is uncertain due to the development of our payment platform software and the COVID-19 pandemic.

 

Cost of goods sold

 

As we did not have revenues during the six months ended June 30, 2021 and June 30, 2020, we anticipate that we will begin to recognize cost of goods sold once we are able to install our kiosks, the timing of which is uncertain due to the development of our payment platform software and the COVID-19 pandemic.

  

General and administrative expenses

 

General and administrative expenses were $6,709,441 and $952,663 for the six months ended June 30, 2021 and 2020, respectively, an increase of $5,756,778 or 604.3%. The increase is primarily due to the following; (i) the increase in stock based compensation expense of $4,237,193 related to the fair value of warrants exercisable for 20,000,000 shares of common stock granted to our CEO, and Chairman on February 22, 2021, 2,500,000 non-plan restricted shares granted to an employee on December 15, 2020, which began vesting on January 1, 2021, and stock options exercisable for 416,666 shares of common stock granted to our directors on February 22, 2021; (ii) severance expense of $294,000 accrued during the current period for employees who were terminated; (iii) increase in payroll expenses of $320,206 related to the increase in headcount and our CEO’s salary during the current year as activity increases towards launching the payment platform currently being developed; (iv) the issuance of restricted stock to four advisory board members with a related expense of $776,000; and (v) the remaining increase of $133,863 consists of several individually immaterial expenses related to the increase in business activity in preparation for the development of our payment platform software.

 

Depreciation

 

Depreciation was $8,651 and $4,167 for the six months ended June 30, 2021 and 2020, respectively, an increase of $4,484 or 107.6%. Depreciation during the current period consists primarily of depreciation on the kiosks received from Qpagos Mexico. The increase in depreciation is primarily due to the kiosks being acquired in the second quarter of 2020 and were only amortized for one quarter, during the current year these kiosks have been amortized for two quarters.

 

Investment impairment charge

 

Investment impairment charge was $0 and $1,019,960 for the six months ended June 30, 2021 and 2020, respectively, in the prior year the Company raised an impairment charge against the investment in Vivi Holdings Inc, as Vivi continues to not meet any of its indicated milestones concerning its proposed IPO and fund raising efforts.

 

Loss on debt conversion

 

Loss on debt conversion was $5,184,447 and $150,274 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $5,034,173. The loss on debt conversion during the current year represents a loss realized on the conversion of convertible notes, into equity at fixed conversion prices which ranged from $0.035 to $0.05 per share, when the stock price ranged from $0.05 per share to $0.22 per share, resulting in a significant loss. A total of $2,259,221 was converted from convertible debt to equity during the six months ended June 30, 2021.

 

Loss on settlement of liabilities

 

Loss on settlement of liabilities was $0 and $50,082 for the six months ended June 30, 2021 and 2020, respectively, a decrease of $50,082 or 100.0%. The loss on settlement of liabilities in the prior year represents the settlement of certain promissory notes during the current period by the issuance of 1,692,764 shares of common stock at a discount to market prices.

 

Interest expense, net

 

Interest expense was $120,684 and $84,088 for the six months ended June 30, 2021 and 2020, respectively, an increase of $36,596 or 43.5%. The increase is primarily due to the increase in the principal outstanding of convertible debt from $856,664 in the prior year to $2,044,000 in the current year.

 

3

 

 

Amortization of debt discount

 

Amortization of debt discount was $2,623,252 and $373,178 for the six months ended June 30, 2021 and 2020, respectively, an increase of $2,250,074 or 602.9%. The increase is primarily due to the accelerated amortization of debt discount related to notes converted to equity during the first quarter of the current year, in addition, the increase is also due to the increase in the debt discount of $2,569,000 associated with the increase in convertible debt over the prior year.

 

Derivative liability movements

 

Derivative liability movements were $3,136,090 and $278,611 for the six months ended June 30, 2021 and 2020, respectively. The derivative liability arose due to the issuance of convertible securities with variable conversion prices and no floor conversion price. The charge during the current period represents the mark-to-market of the derivative liability outstanding as of June 30, 2021.

  

Net loss

 

Net loss was $11,510,385 and $2,375,801 for the six months ended June 30, 2021 and 2020, respectively, an increase in loss of $9,134,584 or 384.5%. The increase is due to the increase in general and administrative expenses, the loss realized on the conversion of convertible debt and the amortization of debt discount, offset by the movement in derivative liabilities, discussed in detail above.

 

Liquidity and Capital Resources

 

To date, our primary sources of cash have been funds raised primarily from the sale of our debt and equity securities.

 

We incurred an accumulated deficit of $39,139,960 through June 30, 2021 and incurred negative cash flow from operations of $1,393,200 for the six months ended June 30, 2021. The new direction of the Company into the US payment services market will require us to spend, substantial amounts in connection with implementing our business strategy, including our planned product development effort and we will be required to raise additional funding.

 

To meet our financing needs, we have raised net convertible debt funding of $2,048,000, received proceeds from warrant exercises of $2,780,460 and additional gross proceeds $4,550,000 from a private placement of equity securities, we believe we have sufficient funding to implement our business strategy in the US market.

 

At June 30, 2021, we had cash of $7,271,669 and working capital of $3,563,140, including a derivative liability of $2,399,326. After eliminating the derivative liability our working capital is $5,962,466. Due to the COVID-19 pandemic our ability to generate revenue has been significantly impacted and it is difficult to determine when we my start to generate revenue from operations.

 

We utilized cash of $1,393,200 and $273,972 in operations for the six months ended June 30, 2021 and 2020, respectively. Overall cash utilized in operations increased by $1,119,228, primarily due to the increase in corporate overhead as we ready ourselves for our new technology platform.

 

We invested $500,000 in the common stock of Frictionless Financial Technologies Inc. which has been contracted to develop our payment platform for the Mexican and other markets. This is a strategic investment and we expect a platform to be ready to utilize within the current year.

 

Cash provided by financing activities for the six months ended June 30, 2021 was primarily comprised of gross proceeds of $4,550,000 from the private placement on March 17, 2021, $3,009,349 from warrants exercised and $2,569,000 from convertible debt issued, we utilized $501,100 for share issue expenses and repaid convertible debt of $521,000 during the period.

 

At June 30, 2021, we had outstanding notes in the principal amount of $2,044,000. The notes were issued on February 16, 2021 and may be prepaid at any time for the first 90 days in an amount equal to 115% of the principal amount plus accrued interest. From day 91 through day 180, the Notes may be prepaid in an amount equal to 120% 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 notes contain certain covenants, such as restrictions on: (i) distributions on capital stock, (ii) stock repurchases, and (iii) sales and the transfer of assets. The notes mature in 12 months, bears interest at a rate of 10% per annum, and are initially convertible into our common stock at a conversion price of $0.23 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events). Upon the occurrence of an event of default under the notes, the respective holder has the right to be prepaid at 140% of the outstanding principal balance and accrued interest, and interest accrues at 18% per annum (or the maximum amount permitted by law). In addition, if an event of default under a note has occurred, regardless of whether it has been cured or remains ongoing, such Note will thereafter be convertible at 65% of the lowest closing price of our common stock for the last 10 consecutive trading days.

 

4

 

 

Other than amounts owed under convertible notes, we have a commitment for a property lease which expires in April 2022.

 

The amount of future minimum lease payments under operating leases are as follows:

 

    Amount    
Undiscounted minimum future lease payments      
Total instalments due:      
Remainder of 2021   $ 28,800  
2022     19,200  
    $ 48,000  

 

Capital Expenditures

 

Our capital expenditure will depend on our ability to roll out kiosks to serve the US market, we anticipate we could spend up to $1,000,000 in acquiring hardware in the next twelve month period.

 

Off Balance Sheet Arrangements

 

None

 

Item 3. Quantitative and Qualitative Disclosures About Market Risks

 

None.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that due to insufficient controls over review and accounting for certain complex transactions, that the Company’s disclosure controls and procedures as of June 30, 2021 were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, to allow timely decisions regarding required disclosure. The Company intends to retain additional individuals to remedy the ineffective controls. We have begun to take actions that we believe will substantially remediate the material weaknesses identified. In response to the identification of our material weaknesses, we are in the process of expanding our finance and accounting staff. However, we cannot assure you that our internal control over financial reporting, as modified, will enable us to identify or avoid material weaknesses in the future.

 

(b) Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

5

 

 

Part II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business.

 

We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

 

Item 1A. Risk Factors

 

Not applicable.

 

6

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Except as described below or as disclosed in Current Reports on Form 10-Q, we did not have any unregistered sales of equity securities during the six months ended June 30, 2021.

 

As described above, we issued notes in the aggregate principal amount of $2,936,000 in February 2021 convertible into 28,709,182 shares of our common stock and warrants to purchase an aggregate of 28,709,182 shares of common stock.

 

The Company issued an aggregate of 61,793,616 shares of common stock upon the conversion of $2,259,221 of convertible debt and interest thereon between January 5, 2021 and February 23, 2021.

 

The Company issued 60,186,982 shares of common stock upon the exercise of warrants between February 18, 2021 and June 23, 2021.

 

All sales to persons in each of the transactions set forth above were issued relying on the exemption provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder for the offer and sale of securities not involving a public offering, except for debt conversions which were effected relying on Section 3(a)(9) of the Securities Act as the common stock was exchanged by us with our existing security holders exclusively and no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange. The recipients of securities in each of these transactions relying on Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor within the meaning of Rule 501 of Regulation D under the Securities Act and had adequate access, through employment, business or other relationships, to information about us.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

7

 

 

Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit No.   Description
31.1*   Certification of William Corbett, Chief Executive Officer, pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*   Certification of Richard Rosenblum, Chief Financial Officer, pursuant to Rule 13a-14(a) or Rule15d-14(a)
32.1*   Certification of William Corbett, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Richard Rosenblum, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document.*
101.SCH   Inline XBRL Taxonomy Extension Schema Document.*
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).*

 

* Filed herewith

 

8

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Innovative Payment Solutions, Inc.
     
Date: August 12, 2021 By: /s/ William Corbett
    William Corbett
    Chief Executive Officer
    (Principal Executive Officer)

 

  By: /s/ Richard Rosenblum
    Richard Rosenblum
    Chief Financial Officer
    (Principal Financial Officer)

 

 

9

 

 

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