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 September 30, 2020

 

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 333-192877

 

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.)
     

19355 Business Center Drive., #9

Northridge, CA

  91324
Address of Principal Executive Offices   Zip Code

 

(818) 864-8404

Registrant’s Telephone Number, Including Area Code

 

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

 

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 November 13, 2020 was 191,121,339. 

 

 

 

 

 

 

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 installation. Due to measures imposed by the local governments in areas affected by COVID-19, businesses have been suspended due to local stay-at-home orders intended to contain the COVID-19 pandemic and many people have been forced to work from home in those areas. As a result, installation of the Company’s network of kiosks, terminals and payment channels in Southern California has been delayed, which has had an adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue and access usual sources of liquidity on reasonable terms, if at all.

 

The Company has been following the recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including the temporary closures of its offices and having employees work remotely to the extent possible, which has to an extent adversely affected their efficiency.

 

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 Consolidated 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 6
Item 3. Defaults Upon Senior Securities 6
Item 4. Mine Safety Disclosures 6
Item 5. Other Information 6
Item 6. Exhibits 7

 

i

 

 

Item 1.

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

TABLE OF CONTENTS

 

September 30, 2020

 

Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 F-2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019 (unaudited) F-3
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three and nine months ended September 30, 2020 and 2019 (unaudited) F-4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, (unaudited) F-5
Notes to the Unaudited Condensed Consolidated Financial Statements F-6–F-30

 

F-1

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2020   2019 
   (Unaudited)     
Assets        
Current Assets        
Cash  $124,404   $2,979 
Other current assets   8,668    55,059 
Total Current Assets   133,072    58,038 
           
Non-current assets          
Investment   1    1,019,961 
Plant and equipment, net   41,667    - 
Right of use asset   62,290    - 
Security deposit   4,000    - 
Total non-current assets   107,958    1,019,961 
Total Assets  $241,030   $1,077,999 
           
Liabilities and Stockholders’ Deficit          
           
Current Liabilities          
Accounts payable  $409,752   $314,523 
Federal relief loans   60,292    - 
Loans payable   23,403    61,631 
Loans payable - Related parties   -    30,026 
Convertible debt, net of unamortized discount of $930,671 and $371,387, respectively   597,410    359,362 
Operating lease liability   43,049      
Derivative liability   2,138,615    905,576 
Total Current Liabilities   3,272,521    1,671,118 
           
Non-current liabilities          
Federal relief loans   151,310    - 
Operating lease liability   19,241    - 
Total Liabilities   3,443,072    1,671,118 
           
Stockholders’ Deficit          
Preferred stock, $0.0001 par value, 25,000,000 shares authorized, and 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019.   -    - 
Common stock, $0.0001 par value; 500,000,000 shares authorized, 191,121,339 and 128,902,124 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.*   19,112    12,890 
Additional paid-in-capital*   23,046,384    21,579,022 
Accumulated deficit   (26,267,538)   (22,185,031)
Total Stockholders’ Deficit   (3,202,042)   (593,119)
Total Liabilities and Stockholders’ Deficit  $241,030   $1,077,999 

 

* After giving effect to a 10 for 1 reverse stock split effective November 1, 2019.

 

See notes to the unaudited condensed consolidated financial statements.

  

F-2

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

   Three months
ended
   Three months
ended
   Nine months
ended
   Nine months
ended
 
   September 30,   September 30,   September 30,   September 30, 
   2020   2019   2020   2019 
                 
Net Revenue  $-   $-   $-   $- 
                     
Cost of Goods Sold   -    -    -    - 
                     
Gross profit   -    -    -    - 
                     
General and administrative   336,879    139,855    1,289,542    493,847 
Depreciation and amortization   4,166    -    8,333    - 
Total Expense   341,045    139,855    1,297,875    493,847 
                     
Loss from Operations   (341,045)   (139,855)   (1,297,875)   (493,847)
                     
Investment impairment charge   -    -    (1,019,960)   - 
Loss on debt conversion   (283,336)   (486,763)   (433,610)   (1,037,822)
Loss on settlement of liabilities   -    -    (50,082)     
Penalty on convertible notes   -    (151,184)   -    (151,184)
Interest expense   (253,487)   (52,650)   (337,575)   (250,995)
Amortization of debt discount   (428,282)   (487,606)   (801,460)   (1,500,143)
Derivative liability movements   (380,556)   123,598    (101,945)   986,011 
Other (expense) income   (20,000)   -    (40,000)   - 
Loss before Income Taxes from continuing operations   (1,706,706)   (1,194,460)   (4,082,507)   (2,447,980)
                     
Income Taxes   -    -    -    - 
                     
Net Loss from continuing operations   (1,706,706)   (1,194,460)   (4,082,507)   (2,447,980)
                     
Loss from discontinued operations, net of income taxes   -    (592,852)   -    (1,084,616)
                     
Net Loss  $(1,706,706)  $(1,787,312)  $(4,082,507)   (3,532,596)
                     
Basic and diluted loss per share*                    
Continuing operations  $(0.01)  $(0.05)  $(0.02)   (0.15)
Discontinued operations  $-   $(0.02)  $-    (0.07)
   $(0.01)  $(0.07)  $(0.02)   (0.22)
Weighted Average Number of Shares Outstanding *                    
Basic and diluted   181,960,300    24,977,520    164,604,005    15,933,974 
                     
Other Comprehensive gain                    
Foreign currency translation adjustment   -    (2,286)   -    15,438 
                     
Total Comprehensive income (loss)  $(1,706,706)  $(1,789,598)  $(4,082,507)  $(3,517,158)

 

* After giving effect to a 10 for 1 reverse stock split effective November 1, 2019.

 

See notes to the unaudited condensed consolidated financial statements

 

F-3

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

 

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

 

   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 loss   -    -    -    -    -    (977,738)   -    (977,738)
Balance as of June 30, 2020        -    163,142,595    16,314    22,478,459    (24,560,832)   -    (2,066,059)
Conversion of debt to equity   -    -    27,978,744    2,798    505,159    -    -    507,957 
Fair value of Restricted Stock Awards   -    -    -    -    62,766    -    -    62,766 
Net loss   -    -    -    -    -    (1,706,706)   -    (1,706,706)
Balance at September 30, 2020   -   $-    191,121,339   $19,112   $23,046,384   $(26,267,538)  $-   $(3,202,042)

 

                    Additional       Accumulated
Other
   Total 
   Preferred Stock   Common Stock   Paid-in   Accumulated   Comprehensive   Stockholders’ 
   Shares   Amount   Shares*   Amount*   Capital*   Deficit   Income   Deficit 
                                 
Balance as of December 31, 2018   -   $     -    8,883,952   $8,88   $14,865,765   $(18,455,925)  $380,907   $(3,208,365)
Conversion of debt to equity   -    -    2,437,616    2,44    677,719    -    -    677,963 
Translation adjustment   -    -    -    -    -    -    10,019    10,019 
Net loss   -    -    -    -    -    (866,843)   -    (866,843)
Balance as of March 31, 2019   -   $-    11,321,568   $1,132   $15,543,484   $(19,322,768)  $390,926   $(3,387,226)
Conversion of debt to equity   -    -    3,517,084    352    371,578    -    -    371,930 
Shares issued for services             82,572    8    162,246    -    -    162,254 
Translation adjustment   -    -    -    -    -    -    7,705    7,705 
Net loss   -    -    -    -    -    (878,441)   -    (878,441)
                                         
Balance as of June 30, 2019   -   $-    14,921,224   $1,492   $16,077,308   $(20,201,209)  $398,631   $(3,723,778)
Conversion of debt to equity   -    -    15,476,673    1,548    943,993    -    -    945,541 
Share subscriptions   -    -    650,000    65    64,935    -    -    65,000 
Translation adjustment   -    -    -    -    -    -    (2,286)   (2,286)
Net loss   -    -    -    -    -    (1,787,312)   -    (1,787,312)
Balance at September 30, 2019   -    -    31,047,897    3,105    17,086,236    (21,988,521)   396,345    (4,502,835)

 

* After giving effect to a 10 for 1 reverse stock split effective November 1, 2019.

  

See notes to the unaudited condensed consolidated financial statements.

 

F-4

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   Nine months
ended
   Nine months
ended
 
   September 30,   September 30, 
   2020   2019 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(4,082,507)  $(3,532,596)
Less: net loss from discontinued operations   -    1,084,616 
Net loss from continuing operations   (4,082,507)   (2,447,980)
Adjustments to reconcile net loss to net cash used in operating activities:          
Derivative liability movements   101,945    (986,011)
Depreciation   8,333    - 
Amortization of debt discount   801,460    1,500,143 
Investment impairment charge   1,019,960    - 
Loss on conversion of debt to equity   433,610    1,037,822 
Loss on settlement of liabilities   50,164    - 
Penalty on convertible notes   -    150,000 
Convertible notes issued for services   -    53,516 
Shares issued for services   43,500    - 
Stock based compensation   527,362    162,254 
Amortization of right of use asset   24,451    - 
Changes in Assets and Liabilities          
Other current assets   42,390    1,441 
Accounts payable and accrued expenses   95,227    416,573 
Operating lease liabilities   (24,451)   - 
Interest accruals   7,253    220,934 
Cash used in operating activities – continuing operations   (951,303)   108,692 
Cash used in operating activities – discontinued operations   -    (632,428)
CASH USED IN OPERATING ACTIVITIES   (951,303)   (523,736)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Plant and equipment purchased   (50,000)   - 
Net cash used in investing activities – continuing operations   (50,000)   - 
Net cash used in investing activities – discontinued operations   -    (2,441)
NET CASH USED IN INVESTING ACTIVITIES   (50,000)   (2,441)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from share issuances   33,000    - 
Proceeds from loans payable   85,000    199,455 
Repayment of loans payable   (104,500)   - 
Repayment of convertible notes   (703,164)   - 
Proceeds from short term notes and convertible notes   1,602,100    300,327 
Proceeds from federal relief funds   210,292    - 
NET CASH PROVIDED BY FINANCING ACTIVITIES   1,122,728    499,782 
           
Effect of exchange rate changes on cash and cash equivalents   -    8,408 
           
NET DECREASE IN CASH   121,425    (17,987)
CASH AT BEGINNING OF PERIOD   2,979    71,294 
CASH AT END OF PERIOD  $124,404   $53,307 
           
CASH PAID FOR INTEREST AND TAXES:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $340,242   $- 
NON CASH INVESTING AND FINANCING ACTIVITIES          
Recognition of right of use lease  $86,741   $- 
Conversion of convertible debt to equity  $769,558   $1,022,612 
Settlement of liabilities with equity  $100,164   $74,662 

 

See notes to the unaudited condensed consolidated financial statements.

 

F-5

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED 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 6,219,200 pre reverse split (621,920 post reverse split that was effected in November 2019) shares of Common Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the Merger, the then-current IPSI stockholder of 5,000,000 pre reverse split (500,000 post reverse split that was effected in November 2019) shares of Common Stock agreed to return to IPSI 4,975,000 pre reverse split (497,500 post reverse split that was effected in November 2019) shares of Common Stock held by such holder to IPSI and the then-current IPSI stockholder retained an aggregate of 25,000 pre reverse split (2,500 post reverse split that was effected in November 2019) shares of Common Stock and the other stockholders of IPSI retained 5,000,000 pre reverse split (500,000 post reverse split that was effected in November 2019) shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former stockholders held 49,929,000 pre reverse split (4,992,900 post reverse split that was effected in November 2019) shares of IPSI common stock which represented approximately 91% of the outstanding Common Stock.

 

The Merger was treated as a reverse acquisition of IPSI, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation was treated as the acquirer for accounting and financial reporting purposes while IPSI was treated as the acquired entity for accounting and financial reporting purposes.

 

Qpagos Corporation (“Qpagos”) was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos, S.A.P.I. de C.V. (“Qpagos Mexico”) and Redpag Electrónicos S.A.P.I. de C.V. (“Redpag”). Each of the entities were incorporated in November 2013 in Mexico.

 

Qpagos Mexico was formed to process payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as a distributor.  

 

On May 27, 2016 Asiya changed its name to QPAGOS.

 

On June 1, 2016, the board of directors of QPAGOS (the “Board”) changed the Company’s fiscal year end from October 31 to December 31.

 

On November 1, 2019, the Company changed its name from QPAGOS to Innovative Payment Solutions, Inc.

 

Also on November 1, 2019, immediately following the name change, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a reverse split of the Company’s common stock, par value $0.0001 per share (the “common stock”) at a ratio of 1-for-10, effective on November 1, 2019 (the Reverse Stock Split”). As a result of the Reverse Stock Split, each ten pre-split shares of common stock outstanding automatically combined into one new share of common stock without any further action on the part of the holders, and the number of outstanding shares of common stock was reduced from 320,477,867 shares to 32,047,817 after rounding for fractional shares.

 

On December 31, 2019, Innovative Payment Solutions consummated the disposal of Qpagos Corporation, Qpagos Mexico and Redpag in exchange for 2,250,000 shares (the “Vivi Shares”) of common stock of Vivi Holdings, Inc. (“Vivi” or “Vivi Holdings”) pursuant to a Stock Purchase Agreement dated August 5, 2019 (the “SPA”). Of the 2,250,000 shares of Vivi, nine percent (9%) was allocated as follows: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The SPA was closed on December 31, 2019 after the satisfaction of customary conditions, the receipt of a final fairness opinion and the approval of the Company’s shareholders. Innovative Payment Solutions no longer has any business operations in Mexico and has retained its U.S. operations based in Calabasas, California.

 

F-6

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1 ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)

  

  b) Description of the business

 

Subsequent to the merger of Qpagos Corporation into IPSI and until the divestiture of Qpagos Corporation, Qpagos Mexico and Redpag, the Company’s focus was on the operations of Qpagos Corporation in Mexico. The Company’s current focus is on providing physical and virtual payment services to the United States market, leveraging the knowledge it obtained from the operations of Qpagos Corporation. On December 31, 2019, the Company consummated the disposal of Qpagos Corporation, including the two Mexican subsidiaries, Qpagos Mexico and Redpag pursuant to the SPA, in exchange for 2,250,000 shares of common stock of Vivi Holdings, of which nine percent (9%) was allocated to the following: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The SPA was closed on December 31, 2019 after the satisfaction of customary conditions, the receipt of a final fairness opinion and the approval of the Company’s shareholders. The Company no longer has any business operations in Mexico and has retained its U.S. operations based in Northridge, California.

 

Qpagos Corporation, through its subsidiaries Qpagos Mexico and Redpag, provided physical and virtual payment services to the Mexican market. Qpagos Corporation provided an integrated network of kiosks, terminals and payment channels that enabled consumers in Mexico to deposit cash, convert it into a digital form and remit the funds to any merchant in our network quickly and securely. Qpagos Mexico helped consumers and merchants connect more efficiently in markets and consumer segments, such as Mexico, that are largely cash-based and lack convenient alternatives for consumers to pay for goods and services in physical, online and mobile environments.

  

  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. While, to date, the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like.

 

The Company provides an integrated network of kiosks, terminals and payment channels that enable consumers to deposit cash, convert it into a digital form and remit the funds to any merchant in its network quickly and securely. The Company has plans to roll out 50 kiosks in Southern California to provide digital payments for the unbanked and underbanked using self-service kiosks and an E wallet ecosystem. The kiosks are currently located in the Company’s warehouses in Southern California awaiting installation. Due to measures imposed by the local governments in areas affected by COVID-19, businesses have been suspended due to local and state stay-at-home orders intended to contain the COVID-19 outbreak and many people have been forced to work from home in those areas. As a result, installation of the Company’s network of kiosks, terminals and payment channels in Southern California has been delayed, which has had an adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue and access usual sources of liquidity on reasonable terms.

 

The Company has been following the recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including the temporary closures of its offices and having employees work remotely to the extent possible, which has to an extent adversely affected their efficiency. As a result, the Company’s books and records were not easily accessible, resulting in delays in preparation and completion of its financial statements. Further, the various governmental mandatory closures of businesses in these locations have precluded the Company’s personnel, particularly its senior accounting staff, from obtaining access to its books and records necessary to prepare the Company’s financial statements to be included in this Report.

 

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

 

F-7

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

2 ACCOUNTING POLICIES AND ESTIMATES

 

  a) Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments), which the Company considers necessary, for a fair presentation of those financial statements. The results of operations and cash flows for the three and nine months ended September 30, 2020 may not necessarily be indicative of results that may be expected for any succeeding quarter or for the entire fiscal year. The information contained in this Report should be read in conjunction with the audited financial statements of IPSI for the year ended December 31, 2019, included in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (the “SEC”) on May 14, 2020 (the “2019 10-K”). 

 

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

 

  b) Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the financial statements of the Company. In the prior year the financial statements included the Company and its wholly owned subsidiary and its indirect subsidiaries. All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in these consolidated financial statements are as follows:

 

Entity  Percentage
owned
   Country   Disposed of
            
Innovative Payment Solutions, Inc   -    USA   -
Qpagos Corporation   100%   USA   December 31, 2019
Qpagos, S.A.P.I de C.V.   99.996%   Mexico   December 31, 2019
Redpag Electrónicos, S.A.P.I. de C.V   99.990%   Mexico   December 31, 2019

 

  c) Mexican Operations

 

The financial statements of the Company’s discontinued Mexican operations in the prior period are measured using local currencies as their functional currencies.

 

The Company translated the assets and liabilities of its discontinued Mexican subsidiaries at the exchange rates in effect at the period end and the results of operations at the average rate throughout the period. The translation adjustments are recorded directly as a separate component of stockholders’ equity, while transaction gains (losses) are included in net income (loss). All sales were to customers located in Mexico.

 

F-8

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

  

  d) Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are evaluated on an ongoing basis, that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ materially from those estimates and judgments. In particular, significant estimates and judgments include those related to; the estimated useful lives for plant and equipment, investment valuation, the fair value of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating losses, those related to revenue recognition and the allowance for doubtful accounts.

  

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate could change in the near-term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.

 

  e) 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 consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

  f) Fair Value of Financial Instruments

 

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the balance sheets for the investment in Vivi Holdings Inc., was evaluated at fair value using Level 3 Inputs based on the Company’s estimate of the market value of the entities disposed to Vivi Holdings, Inc. Vivi Holdings Inc., does not have sufficient information available to assess the current market price of its equity.

 

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

 

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

 

F-9

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

  g) Risks and Uncertainties

 

The Company’s operations will be subject to significant risks and uncertainties including financial, operational, regulatory, and other risks, including the potential risk of business failure. The recent global Covid-19 breakout has caused an economic crisis which may result in a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These conditions may not only limit the Company’s access to capital, but also make it difficult for its customers, vendors and the Company to accurately forecast and plan future business activities. In addition, businesses have been suspended due to quarantines intended to contain this outbreak and many people have been forced to work from home in those areas. As a result, installation of the Company’s network of kiosks, terminals and payment channels in Southern California has been delayed, which has had an adverse impact on its business and financial condition and has hampered the Company’s ability to generate revenue and access usual sources of liquidity on reasonable terms.

 

The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

  

  h) Recent accounting pronouncements

 

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-06, debt with Conversion and Other Options (subtopic 470-20): and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), certain accounting models for convertible debt instruments with beneficial conversion features or cash conversion features are removed from the guidance and for equity instruments the contracts affected are free standing instruments and embedded features that are accounted for as derivatives, the settlement assessment was simplified by removing certain settlement requirements.

 

This ASU is effective for fiscal years and interim periods beginning after December 15, 2021.

 

The effects of this ASU on the Company’s condensed consolidated financial statements is currently being assessed and is expected to have an impact on the treatment of certain convertible instruments and the derivative liabilities associated with these convertible instruments.

 

The FASB issued several additional updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.

  

  i) Cash and Cash Equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At September 30, 2020 and December 31, 2019, respectively, the Company had no cash equivalents.

 

The Company minimizes credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution in the United States. The balance at times may exceed federally insured limits. At September 30, 2020 and December 31, 2019, the balance did not exceed the federally insured limit.

 

F-10

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

   

  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 $0 and $1,019,960 on its non-marketable equity securities for the three and nine months ended September 30, 2020, respectively. The impairment charge was based on management’s determination that due to the lack of ability, to date, by Vivi Holdings (“Vivi”) to fulfill its capital raising requirements and implement its business strategy that there is a significant risk that Vivi may not be able to meet its obligations.

 

  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   3 years
     
Computer equipment   3 years
     
Leasehold improvements   Lesser of estimated useful life or life of lease
     
Office equipment   10 years

 

The cost of repairs and maintenance is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

  

  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.

 

F-11

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

  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 the following sources of revenue during the nine months ended September 30, 2019 which was recognized on the basis described below.

 

  Revenue from the sale of services.

 

Prepaid services were acquired from providers and were sold to end-users through kiosks that the Company owned or kiosks that were owned by third parties. The Company recognized the revenue on the sale of these services when the end-user deposited funds into the terminal and the prepaid service was delivered to the end-user. The revenue was recognized at the gross value, including margin, of the prepaid service to the Company, net of any value-added tax which was collected on behalf of the Mexican Revenue Authorities.

 

  Payment processing provided to end-users

 

The Company provides a secure means for end-users to pay for certain services, such as utilities through its kiosks. During the nine months ended September 30, 2019, the Company earned either a fixed per-transaction fee or a fixed percentage of the service sold. The Company acted as a collection agent and recognized the payment processing fee, net of any value-added taxes collected on behalf of the Mexican Revenue Authorities (with respect to revenue generated prior to the sale of the Mexican operations), when the funds were deposited into the kiosk and the customer had settled his liability or had acquired a prepaid service.

 

  Revenue from the sale of kiosks.

 

During the nine months ended September 30, 2019, the Company imported, assembled and sold kiosks that were used to generate the revenues discussed above. Revenues were recognized on the full value of the kiosks sold, net of any sales taxation collected on behalf of the Revenue authorities, when the customers took delivery of the kiosk and all the risks and rewards of ownership were passed to the customer.

 

F-12

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2 ACCOUNTING POLICIES AND ESTIMATES (continued)

 

  n) Share-Based Payment Arrangements

 

Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded in operating expenses in the consolidated statement of operations.

 

Prior to the Merger on May 12, 2016, all share-based payments were based on management’s estimate of market value of the Company’s equity. The factors considered in determining managements estimate of market value includes, assumptions of future revenues, expected cash flows, market acceptability of our technology and the current market conditions. These assumptions are complex and highly subjective, compounded by the business being in its early stage of development in a new market with limited data available.

 

Where equity transactions with arms-length third parties, who had applied their own assumptions and estimates in determining the market value of our equity, had taken place prior to and within a reasonable time frame of any share-based payments, the value of those share transactions have been used as the fair value for any share-based equity payments.

 

Where equity transactions with arms-length third parties, included both shares and warrants, the value of the warrants have been eliminated from the unit price of the securities using a Black-Scholes valuation model to determine the value of the warrants. The assumptions used in the Black Scholes valuation model includes market related interest rates for risk-free government issued treasury securities with similar maturities; the expected volatility of the Company’s common stock based on companies operating in similar industries and markets; the estimated stock price of the Company; the expected dividend yield of the Company and; the expected life of the warrants being valued.

 

Subsequent to the Company’s reverse merger which took place on May 12, 2016, the Company has utilized the market value of its common stock as quoted on the OTCQB, as an indicator of the fair value of its common stock in determining share- based payment arrangements.

 

  o) Derivative Liabilities

 

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

 

  p) Reclassification of prior year presentation

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

 

F-13

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3 GOING CONCERN

 

These financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred an operating loss since inception resulting in an accumulated deficit of $26,267,538 as of September 30, 2020 and has not generated sufficient revenue to cover its operating expenditure, raising substantial doubt about the Company’s ability to continue as a going concern. In addition to operational expenses, as the Company executes its US business plan, additional capital resources will be required. The Company will need to raise capital in the near term in order to continue operating and executing its new US business plan. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company has acquired kiosks that it plans to deploy in the US market and establish a payment solution to certain demographic sectors, thereby generating revenues in the US market with an expected improvement in margins. In addition, the Company intends to raise additional equity or loan funds to meet its short-term working capital needs. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern for at least the next twelve months from the date the financial statements were issued.

  

4 DISCONTINUED OPERATIONS

 

Effective December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corporation to Vivi. The operations of Qpagos Corporation and its two Mexican entities; Qpagos Mexico and Redpag which represent substantially all of its assets, are reported as discontinued operations.

  

The statement of operations from discontinued operations is as follows:

 

   Three months
ended
September 30,
   Nine months
ended
September 30,
 
   2019   2019 
         
Net Revenue  $3,480,878   $7,550,475 
           
Cost of Goods Sold   3,767,192    7,748,178 
           
Gross profit   (286,314)   (197,703)
           
General and administrative   278,960    832,623 
Depreciation and amortization and impairment costs   11,276    33,885 
Total Expense   290,236    866,508 
           
Loss from Operations   (576,550)   (1,064,211)
           
Other income (expense)   (866)   1,007 
Foreign currency loss   (15,436)   (21,412)
Loss before taxation   (592,852)   (1,084,616)
Taxation   -    - 
Loss from discontinued operations, net of taxation   (592,852)  $(1,084,616)

   

F-14

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

5 INVESTMENT

 

Investment in Vivi Holdings, Inc.

 

Effective December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corporation, together with its 99.9% ownership interest of Qpagos Mexico and Redpag, to Vivi.

 

As consideration for the disposal Vivi issued an aggregate of 2,250,000 Shares of its common stock as follows: 2,047,500 Shares to the Company; 56,250 Shares to the Company’s designee, Mr. Andrey Novikov; 33,750 Shares to the Company’s designee, the Joseph W. & Patricia G. Abrams Family Trust; and 112,500 Shares to the Company’s designee, Mr. Gaston Pereira.

 

Due to the lack of available information, the Vivi Shares were valued by a modified market method, whereby the value of the assets disposed of were determined by management using the enterprise value of the entire Company less the liabilities and assets retained by the Company.

 

As of September 30, 2020, the Company impaired the carrying value of the investment in Vivi by $1,019,960 based on Vivi’s lack of ability to execute on its proposed IPO and fund raising activities, largely impacted by the COVID-19 pandemic.

 

The shares in Vivi are unlisted as of September 30, 2020.

 

   September 30,
2020
   December 31,
2019
 
         
Investment in Vivi Holdings, Inc.  $1,019,961   $1,019,961 
Impairment provision   (1,019,960)   - 
   $1   $1,019,961 

 

6 LEASES

 

Adoption of ASC Topic 842, “Leases”

 

On January 1, 2019, the Company adopted Topic 842 using the prospective transition method applied to leases that were in place as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840.

 

The Company entered into a real property lease for office and warehouse space located at 19355 Business Center Drive in Northridge California, Los Angeles County. The lease commenced on February 15, 2020 and expires on February 28, 2022, monthly rental expense is $3,945 per month with no escalations during the term of the lease.

 

The initial value of the right-of-use asset was $86,741 and the operating lease liability was $86,741. The Company monitors for events or changes in circumstances that require a reassessment of our lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding right-of-use asset unless doing so would reduce the carrying amount of the right-of-use asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative right-of-use asset balance is recorded as a loss in the statement of operations.

 

Discount Rate

 

To determine the present value of minimum future lease payments for operating leases at February 15, 2020, the Company was required to estimate a rate of interest that it would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

 

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate, the Company used the 5 year ARM interest rate at the time of entering into the agreement and compared that rate to the Company’s weighted average cost of funding at the time of entering into the operating lease. The Company determined that 10.00% was an appropriate incremental borrowing rate to apply to its real-estate operating lease.

 

F-15

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

6 LEASES (continued)

 

Right of use assets

 

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

 

   September 30,
2020
 
     
Non-current assets     
Right of use assets, operating leases, net of amortization  $62,290 

 

Total Lease Cost

 

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

 

   Nine months
ended
September 30,
2020
 
      
Operating lease expense  $29,588 

 

Maturity of Operating Leases

 

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

 

   Amount 
Undiscounted minimum future lease payments    
Total instalments due:    
2020  $11,835 
2021   47,340 
2022   7,890 
    67,065 
Imputed interest   (4,775)
Total operating lease liability  $62,290 
      
Disclosed as:     
Current portion  $43,049 
Non-current portion   19,241 
   $62,290 

 

Other lease information:

 

  

Nine months
ended

September 30,
2020

 
     
Cash paid for amounts included in the measurement of lease liabilities    
Operating cash flows from operating leases  $(29,588)
      
Remaining lease term – operating lease   17 months 
      
Discount rate – operating lease   10.0%

 

7 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.

F-16

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7 FEDERAL RELIEF LOANS (continued)

 

Small Business Administration Disaster Relief loan

 

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

 

8 LOANS PAYABLE

 

Loans payable consisted of the following:

 

Description  Interest
Rate
   Maturity  September 30,
2020
   December 31,
2019
 
                
Stanislav Minaychenko   4.0%  September 16, 2020   14,390    23,930 
Maxim Pukhoskiy   4.0%  June 16, 2020   7,963    17,683 
Dieter Busenhart   10.0%  January 17, 2021   1,050    - 
Alexander Motorin   4.0%  December 23, 2020   -    20,018 
Total loans payable          $23,403   $61,631 

 

Interest expense totaled $767 and $1,148 for the three and nine months ended September 30, 2020, respectively, and $1,328 and $6,803 for the three and nine months ended September 30, 2019, respectively.

 

Stanislav Minaychenko

 

On December 17, 2019, in terms of a settlement agreement entered into between the Company, Qpagos Corporation and Stanislav Minaychenko, the Company issued a promissory note to Mr. Minaychenko in settlement of $23,893 owing to him in terms of a service agreement dated September 1, 2015. The promissory note bears interest at 4% per annum, is unsecured and matures on June 16, 2020.

 

During the nine months ended September 30, 2020, the Company repaid an aggregate principal amount of $10,000.

 

On July 1, 2020, the Company entered into an extension agreement with Stanislav Minaychenko, extending the maturity date to September 16, 2020.

 

The note is currently in default as we were unable to pay the outstanding balance by September 16, 2020. The note has no default penalties and we anticipate repaying the note as soon as we have sufficient funds.

 

The balance of the promissory note, including interest thereon at September 30, 2020 is $14,390.

 

Maxim Pukhoskiy

 

On December 17, 2019, in terms of a settlement agreement entered into between the Company, Qpagos Corporation and Maxim Pukhoskiy, the Company issued a promissory note to Mr. Pukhoskiy in settlement of $17,856 owing to him in terms of a service agreement dated May 1, 2015. The promissory note bears interest at 4% per annum, is unsecured and matures on June 16, 2020.

 

During the nine months ended September 30, 2020, the Company repaid an aggregate principal amount of $10,000.

 

The note is currently in default as we were unable to pay the outstanding balance by June 16, 2020. The note has no default penalties and we anticipate repaying the note as soon as we have sufficient funds.

 

The balance of the promissory note, including interest thereon at September 30, 2020 is $7,963.

 

Dieter Busenhart

 

On July 17, 2020, the Company issued a promissory note to Dieter Busenhart in the aggregate principal amount of $50,000 for net proceeds of $50,000, bearing interest at 10% per annum and maturing on January 17, 2021.

 

Between August 5, 2020 and September 16, 2020, the Company repaid $49,500 of the principal outstanding.

 

The balance of the promissory note, including interest thereon at September 30, 2020 is $1,050.

 

F-17

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
8 LOANS PAYABLE (continued)

 

Alexander Motorin

 

On December 23, 2019, in terms of a debt purchase agreement entered into with Waketec OU, Mr. Motorin acquired $20,000 of the promissory note issued to Waketec OU by Qpagos Corporation. On December 23, 2019, the Company entered into a debt settlement agreement whereby the company agreed to the assignment of the debt owed to Mr. Motorin by Qpagos Corporation to the Company in exchange for a new promissory note in the principal amount of $20,000 issued by the Company. The promissory note is unsecured, bears interest at 4% per annum and matures on December 23, 2020.

 

On January 7, 2020, the Company entered into a debt exchange agreement whereby the aggregate principal sum of $20,000 plus accrued interest of $33 was exchanged for 1,001,644 shares of common stock at an issue price of $0.02 per share, realizing a loss on exchange of $20,033.

 

9 CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following: 

 

                 Unamortized   September 30,
2020
   December 31,
2019
 
Description  Interest
rate
  Maturity
Date
  Principal   Accrued
interest
   debt
discount
   Balance,
net
   Balance,
net
 
                           
Power Up Lending Group  12%  November 12, 2020   -    -    -    -    11,643 
   12%  December 23, 2020   -    -    -    -    1,543 
   12%  January 22, 2021   -    -    -    -    - 
   12%  July 13, 2021   63,000    1,636    (49,364)   15,272    - 
                                
GS Capital Partners, LLC  8%  August 14, 2019   -    -    -    -    27,557 
   8%  August 14, 2019   -    -    -    -    174,789 
   8%  February 4, 2020   -    -    -    -    49,243 
                                
Crown Bridge Partners, LLC  8%  August 31, 2019   -    -    -    -    30,803 
   8%  October 16, 2019   -    -    -    -    30,387 
                                
Odyssey Funding LLC  10%  November 15, 2020   -    -    -    -    27,658 
   10%  January 13, 2021   -    -    -    -    - 
                                
Black Ice Advisors, LLC  10%  November 25, 2020   -    -    -    -    5,739 
                                
Adar Alef, LLC  10%  February 5, 2021   -    -    -    -    - 
                                
LG Capital Funding LLC  10%  February 24, 2021   -    -    -    -    - 
                                

Cavalry Fund I LP

  10%  June 30, 2021   300,000    7,479    (202,193)   105,286    - 
   10%  July 31, 2021   300,000    5,014    (126,476)   178,538    - 
   10%  September 24, 2021   114,000    187    (112,126)   2,061    - 
                                
Mercer Street Global Opportunity Fund, LLC  10%  August 3, 2021   400,000    6,356    (168,885)   237,471    - 
                                
Pinz Capital Special Opportunities Fund LP  10%  August 5, 2021   100,000    1,534    (52,372)   49,162    - 
                                
Iroquois Master Fund Ltd.  10%  September 16, 2021   228,000    875    (219,255)   9,620    - 
                                
Total convertible notes payable        $1,505,000   $23,081   $(930,671)  $597,410   $359,362 

 

Interest expense, including penalty interest totaled $241,652 and $324,953 for the three and nine months ended September 30, 2020, respectively and $324,953 and $158,500 for the three and nine months ended September 30, 2019, respectively.

 

Amortization of debt discount totaled $428,282 and $799,451 for the three and nine months ended September 30, 2020, respectively and $801,460 and $1,500,143 for the three and nine months ended September 30, 2019, respectively.

 

The convertible notes have variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the common stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative financial liability.

 

F-18

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

  

The total value of the beneficial conversion feature recorded as a debt discount during the three and nine months ended September 30, 2020 was $1,144,484 and $1,471,234, respectively and for the three and nine months ended September 30, 2019 was $33,327 and $1,027,684, respectively.

 

Power Up Lending Group Ltd 

 

 

On November 21, 2019, the Company issued a Convertible Promissory Note in the aggregate principal amount of $93,000 to Power up Lending Group Ltd. The note has a maturity date of November 12, 2020 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from 115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 61% of the lowest three trading prices during the previous fifteen trading days.

 

Between June 16, 2020 and June 22, 2020, the Company received notices of conversion from Power Up Lending Group converting $39,000 of principal into 3,360,149 shares of common stock at an average conversion price of $0.0116. The Company incurred a loss on conversion of $41,096.

 

Between July 8, 2020 and July 20, 2020, the Company repaid the remaining principal and interest outstanding of $59,580, thereby extinguishing the note.

  

 

On December 23, 2019, the Company issued a Convertible Promissory Note in the aggregate principal amount of $63,000 to Power up Lending Group Ltd. The note has a maturity date of December 23, 2020 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from 115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 61% of the lowest three trading prices during the previous fifteen trading days.

 

On July 8, 2020, the Company repaid the remaining principal and interest on the note, including penalty interest thereon of $90,447, thereby extinguishing the note.

 

 

On January 22, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $43,000 to Power Up Lending Group Ltd. The note has a maturity date of January 22, 2021 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from 115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 61% of the lowest trading price during the previous fifteen trading days.

 

On July 15, 2020, the Company repaid the remaining principal and interest on the note, including penalty interest thereon of $63,294, thereby extinguishing the note.

 

 

On July 13, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $63,000 to Power Up Lending Group Ltd for net proceeds of $60,000 after certain expenses. The note has a maturity date of July 13, 2021 and a coupon of 12% per annum. The Company may prepay the note with prepayment penalties ranging from 115% to 135%. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 61% of the lowest trading price during the previous fifteen trading days.

 

The balance of the note plus accrued interest at September 30, 2020 was $15,272. After unamortized debt discount of $49,364.

 

F-19

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

 

GS Capital Partners, LLC

 

 

On August 14, 2018, the Company issued a Convertible Promissory Note in the aggregate principal amount of $150,000 to GS Capital Partners, LLC. The note had a maturity date of August 14, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note up to 180 days, provided it makes a pre-payment penalty as specified in the note. The outstanding principal amount of the note was convertible at any time after the six-month anniversary of the note, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 62% of lowest trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.

 

Between August 12, 2019 and September 11, 2019, the Company received notices of conversion from GS Capital Partners converting $50,000 of principal and $3,945 of interest into 17,432,265 pre reverse split (1,743,227 post reverse split that was effected in November 2019) shares of common stock at an average conversion price of $0.00309 pre reverse stock split ($0.031 post reverse stock split that was effected in November 2019) per share. The Company incurred a loss on conversion of $56,315.

 

As of August 14, 2019, the note was in default and accrued interest at the default interest rate of 24% per annum.

 

On December 30, 2019, the Company repaid the principal sum of $90,000 on the convertible note.

 

On January 28, 2020, in terms of a conversion notice received, the remaining principal balance of $10,000 plus accrued interest thereon of $17,741was converted into 1,132,764 shares of common stock at a conversion price of $0.02449, thereby extinguishing the note. 

 

 

On September 11, 2018, the Company issued a Convertible Promissory Note in the aggregate principal amount of $150,000 to GS Capital Partners, LLC. The note has a maturity date of August 14, 2019 and a coupon of 8% per annum. The note may not be prepaid. The outstanding principal amount of the note was convertible at any time after the six month anniversary of the note, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 62% of lowest trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.

 

As of August 14, 2019 the note was in default and accrued interest at the default interest rate of 24% per annum.

 

On July 20, 2020, in terms of a conversion notice received from GS Capital Partners, converting an aggregate principal amount of $35,000 and interest thereon of $10,418 at a conversion price of $0.0083 per share into 5,466,723 shares of common stock.

 

On August 10, 2020, the Company repaid the remaining principal and interest on the note, including penalty interest thereon of $150,704, thereby extinguishing the note.

 

 

On February 4, 2019, the Company issued a Convertible Promissory Note in the aggregate principal amount of $96,000 to GS Capital Partners LLC. The note has a maturity date of February 4, 2020 and a coupon of 8% per annum. The Company may not prepay the note. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 62% of the lowest three trading prices during the previous ten (10) trading days.

 

On December 19, 2019, the Company repaid the principal sum of $48,000 on the convertible note.

 

On January 14, 2020, the Company repaid the principal sum of $48,000 and accrued interest and penalty interest of $33,030, thereby extinguishing the note.

 

F-20

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

 

Crown Bridge Partners

 

 

On August 31, 2018, the Company issued a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note had a maturity date of August 31, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note for the first 180 days, subject to a penalty ranging from 10% to 35% of the prepayment, dependent upon the timing of the prepayment. The outstanding principal amount of the note was convertible at any time and from time to time at the election of the holder into shares of the Company’s common stock at a conversion price equal to 60% of the lowest trading price during the previous ten (10) trading days.

 

As of August 31, 2019 the note was in default and interest accrued at the default interest rate of 12% per annum and the note holder may require the Company to pay a penalty of 50% of the value of the note outstanding, including default interest.

 

On March 11, 2020, the Company received a conversion notice from Crown Bridge Partners, converting an aggregate principal amount of $7,586 and fees thereon of $500, at a conversion price of $0.01444 into 560,000 shares of common stock.

 

On August 31, 2020, the Company repaid the remaining principal and interest on the note of $24,032, thereby extinguishing the note.

 

 

On October 16, 2018, the Company issued a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note has a maturity date of October 16, 2019 and a coupon of 8% per annum. The Company may not prepay the note. The outstanding principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 60% of the lowest trading price during the previous fifteen (15) trading days.

 

As of October 31, 2019 the note was in default and accrued interest at the default interest rate of 12% per annum and the note holder may require the Company to pay a penalty of 50% of the value of the note outstanding, including default interest.

 

On August 31, 2020, the Company repaid the remaining principal and interest on the note of $31,587, thereby extinguishing the note.

 

Odyssey Funding, LLC

  

 

On November 15, 2019, the Company issued a Convertible Promissory Note in the aggregate principal amount of $200,000 to Odyssey Funding, LLC. The note has a maturity date of November 15, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen trading days.

 

On August 3, 2020, the Company repaid the principal and interest on the note, including penalty interest thereon of $207,421, thereby extinguishing the note.

 

 

On January 13, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $100,000 to Odyssey Funding, LLC. The note had a maturity date of January 13, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen trading days.

 

On July 17, 2020, the Company repaid the principal and interest on the note, including penalty interest thereon of $152,349, thereby extinguishing the note.

 

F-21

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

 

Black Ice Advisors, LLC

 

On November 25, 2019, the Company issued a Convertible Promissory Note in the aggregate principal amount of $52,500 to Black Ice Advisors, LLC. The note had a maturity date of November 25, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen trading days.

 

Between May 27, 2020 and June 8, 2020, the Company received notices of conversion from Black Ice Advisors, LLC converting $37,000 of principal into 1,970,588 shares of common stock at an average conversion price of $0.0188. The Company incurred a loss on conversion of $38,371.

 

On July 9, 2020, the Company repaid the remaining principal and interest on the note, including penalty interest thereon of $25,975, thereby extinguishing the note.

 

Adar Alef, LLC

 

On February 5, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $105,000 to Adar Alef, LLC. The note had a maturity date of February 5, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen trading days.

 

On August 5, 2020, the Company repaid principal and interest on the note, including penalty interest thereon of $78,765.

 

On September 9, 2020, in terms of a conversion notice received, Adar Alef, LLC converted $55,563 of principal and interest into 5,556,250 shares of common stock, thereby extinguishing the note.

 

LG Capital Funding, LLC

 

On February 24, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $78,750 to LG Capital Funding LLC. The note has a maturity date of February 24, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the previous fifteen trading days.

 

On August 25, 2020, the Company repaid the principal and interest on the note, including penalty interest thereon of $119,819, thereby extinguishing the note.

 

Cavalry Fund LLP

  

 

On July 1, 2020, the Company closed a transaction with Cavalry Fund I LP (“Cavalry”), pursuant to which the Company received net proceeds of $246,600, after certain expenses in exchange for the issuance of a $300,000 Senior Secured Convertible Note (“Initial Note”), with an original issue discount of 12.5% or $37,500, bearing interest at 10% per annum and maturing on June 30, 2021, the initial Note is convertible into shares of common stock at an initial conversion price of $0.035 per share, in addition, the Company issued a warrant exercisable over 8,571,428 shares of common stock at an initial exercise price of $.0.05 per share.

 

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

 

The balance of the Initial Note plus accrued interest at September 30, 2020 was $105,286, after unamortized debt discount of $202,193.

 

F-22

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

 

Cavalry Fund LLP (continued)

  

 

Cavalry had agreed to purchase an additional $300,000 Senior Secured Convertible Note (the “Second Note”); from the Company upon the same terms as the Initial Note, within three trading days of a registration statement registering the shares of the Company’s common stock issuable under the Notes and upon exercise of the Warrants being declared effective by the SEC. On July 28, 2020 the registration statement was declared effective and on July 31, 2020, the Company received the additional net proceeds of $262,500. In addition, the Company issued a warrant exercisable over 8,571,429 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

The balance of the Second Note plus accrued interest at September 30, 2020 was $178,538, after unamortized debt discount of $126,476.

 

 

On September 24, 2020, the Company closed a transaction with Cavalry Fund I LP (“Cavalry”), pursuant to which the Company received net proceeds of $99,750, after certain expenses in exchange for the issuance of a $114,000 Senior Secured Convertible Note (the “Third Note”), with an original issue discount of $14,000, bearing interest at 10% per annum and maturing on September 24, 2021, the Third Note is convertible into shares of common stock at an initial conversion price of $0.035 per share, in addition, the Company issued a warrant exercisable over 3,257,143 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

The balance of the Third Note plus accrued interest at September 30, 2020 was $2,061, after unamortized debt discount of $112,126.

 

In connection with the Securities Purchase Agreement, the Company entered into for the sale of the initial Note and the Second Note, the Company entered into a Registration Rights Agreement, dated June 30, 2020 with Cavalry pursuant to which it is obligated to file a registration statement with the SEC within sixty (60) days after the date of the agreement to register the resale by the Investor of the Conversion Shares and Warrant Shares, and use all commercially reasonable efforts to have the registration statement declared effective by the SEC within seventy five (75) days after the registration statement is filed.

 

The Company has pledged substantially all of its assets as security for amounts due under the Initial Note, Second Note and Third Note, upon the terms and subject to the conditions set forth in a Security Agreement, dated June 30, 2020, between the Company and Cavalry.

 

Mercer Street Global opportunity Fund, LLC

 

On August 3, 2020, the Company closed a transaction with Mercer Street Global Opportunity Fund, LLC, (“Mercer”), pursuant to which the Company received net proceeds of $350,000, after an original issue discount of $50,000 in exchange for the issuance of a $400,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on August 3, 2021, the note is convertible into shares of common stock at an initial conversion price of 0.035 per share, in addition, the Company issued a warrant exercisable over 11,428,571 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

The balance of the note plus accrued interest at September 30, 2020 was $237,471, after unamortized debt discount of $168,885.

 

F-23

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

9CONVERTIBLE NOTES PAYABLE (continued)

 

Pinz Capital Special Opportunities Fund, LP

 

On August 5, 2020, the Company closed a transaction with Pinz Capital Special Opportunities Fund, LP (“Pinz”), pursuant to which the Company received net proceeds of $87,500, after an original issue discount of $12,500 in exchange for the issuance of a $100,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on August 5, 2021, the note is convertible into shares of common stock at an initial conversion price of 0.035 per share, in addition, the Company issued a warrant exercisable over 2,857,143 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

The balance of the note plus accrued interest at September 30, 2020 was $49,162, after unamortized debt discount of $52,372.

 

Iroquois Master Fund Ltd.

 

On September 16, 2020, the Company closed a transaction with Iroquois Master Fund Ltd., pursuant to which the Company received net proceeds of $199,500, after an original issue discount of $28,500 in exchange for the issuance of a $228,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on September 16, 2021, the note is convertible into shares of common stock at an initial conversion price of 0.035 per share, in addition, the Company issued a warrant exercisable over 6,514,286 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

The balance of the note plus accrued interest at September 30, 2020 was $9,620, after unamortized debt discount of $219,255.

 

10DERIVATIVE LIABILITY

 

Certain of the short-term convertible notes disclosed in note 9 above and certain warrants disclosed in note 11 below, have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time and certain notes and warrants have fundamental transaction clauses which might result in cash settlement, due to these factors, all convertible notes and any warrants attached thereto are valued and give rise to a derivative financial liability, which was initially valued at inception of the convertible notes using a Black-Scholes valuation model.

 

During the nine months ended September 30, 2020, an additional $1,131,094 was raised as a derivative liability on variably priced convertible notes.

 

The value of this derivative financial liability was re-assessed at September 30, 2020, and $101,945 was charged to the statement of operations and comprehensive loss, respectively. The value of the derivative liability will be re-assessed at each financial reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred.

 

F-24

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10DERIVATIVE LIABILITY Continued)

  

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

 

    Nine months
ended
September 30,
2020
    Year ended
December 31,
2019
 
Conversion price   $ 0.016 to 2.00     $ 0.02 to 2.00  
Risk free interest rate     0.11 to 1.53 %     1.53 to 2.59 %
Expected life of derivative liability     1 to 12 months       1 to 12 months  
Expected volatility of underlying stock     11.7 to 222.6 %     148.5 to 224.3 %
Expected dividend rate     0 %     0 %

 

The movement in derivative liability is as follows:

 

   September 30,
 2020
   December 31,
2019
 
         
Opening balance  $905,576   $1,833,672 
Derivative financial liability arising from convertible note   1,131,094    1,053,842 
Fair value adjustment to derivative liability   101,945    (1,981,938)
   $2,138,615   $905,576 

 

11STOCKHOLDERS’ 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 191,121,339 and 128,902,124 shares of common stock as of September 30, 2020 and December 31, 2019.

 

The following common shares were issued by the Company during the nine months ended September 30, 2020.

 

In terms of debt conversion notices received between January 28, 2020 and September 9, 2020, the Company issued an aggregate of 35,002,245 shares of common stock for the conversion of $335,948 of convertible debt, realizing a loss on conversion of $433,610 and in terms of debt exchange agreements entered into on January 7, 2020, the Company issued an aggregate of 2,504,110 shares of common stock, in settlement of $50,082 of loans payable, resulting in a net loss on exchange of $50,082.

 

  In terms of subscription agreements entered into with investors on February 20, 2020 and March 16, 2020, the Company issued 1,400,000 shares of common stock for gross proceeds of $33,000.

 

  In terms of an agreement entered into with a supplier, the Company issued 535,714 shares of common stock valued at $30,000 on grant date, as partial compensation for services provided.

 

  In terms of an employment agreement entered into with the Company’s Chief Operating Officer, the Company issued 282,146 shares of common stock valued at $13,500.

 

  The Company granted a director 2,000,000 shares of common stock for services to be rendered as a director of the Company, these shares were valued at grant date at $88,000.

 

F-25

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

11STOCKHOLDERS’ EQUITY (continued)

 

  b. Restricted stock awards

 

The following restricted stock awards were made during the nine months ended September 30, 2020.

 

(a)An aggregate of 5,123,750 shares of restricted common stock were issued to our Chief Executive Officer in terms of an employment agreement entered into with him. These shares are restricted and were fully vested on January 1, 2020. These restricted shares were valued at $251,064 or $0.049 per share, the market price of the Company’s common stock on grant date.

  

(b)An aggregate of 15,371,250 shares of restricted common stock were issued to our Chief Operating Officer in terms of an employment agreement entered into with him. These shares are restricted and vest over a three year period commencing on December 31, 2020. These restricted shares were valued at $753,191 or $0.049 per share, the market price of the Company’s common stock on grant date.

 

The restricted stock granted and exercisable at September 30, 2020 is as follows:

 

    Restricted Stock Granted   Restricted Stock Vested 
Grant date Price   Number
Granted
   Weighted
Average
Fair Value per
Share
   Number
Vested
   Weighted
Average
Fair Value per
Share
 
$0.049    20,495,000   $0.049    5,123,750   $0.049 

 

The Company has recorded an expense of $62,766 and $439,362 for the three months and nine months ended September 30, 2020, respectively, relating to the restricted stock awards.

  

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 September 30, 2020 and December 31, 2019.

 

  d. Warrants

 

In connection with the subscription agreement entered into with an investor, a three year warrant exercisable for 1,000,000 shares of common stock was granted to the investor, together with 1,000,000 shares of common stock for subscription proceeds of $25,000.

 

In terms of the Senior Secured convertible notes entered into with various noteholders as described in note 9 above, the Company issued five year warrants exercisable for a total of 41,200,000 shares of common stock at an initial exercise price of $0.05 per share. The warrants have a cashless exercise option and an exercise limitation based on a certain beneficial ownership percentage of 4.99% which may be adjusted to 9.99%. The Company has a mandatory exercise right if the closing price of the common stock trades above $0.15 per share for ten consecutive days and trading volume is at least $250,000. The exercise price of the warrant is adjustable under the following conditions; i) subsequent equity sales are at a price below the exercise price of the warrant; ii) the Company issues options with an exercise price lower than the exercise price of the warrants; iii) issues convertible securities which are convertible into common stock at a price lower than the warrant exercise price; and iv) the option exercise price or rate of conversion for convertible securities results in a lower exercise price than the exercise price of the warrants.

 

As long as the senior secured convertible debt which resulted in these warrant being issued, is still outstanding, the warrants will have a full rachet increase right upon a change in the exercise price of the warrant as described above. The increase in warrants will be determined by multiplying the exercise price of the warrant immediately before a change in exercise price has occurred by the number of warrants outstanding, and dividing the product obtained by the revised exercise price.

 

The warrant holders also have the option to acquire subsequent rights offering rights, under certain circumstances and is entitled to pro-rata distributions made by the Company in assets or securities other than common stock.

 

F-26

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

11STOCKHOLDERS’ EQUITY (continued)

 

  d. Warrants (continued)

 

The warrants include a fundamental transaction clause which will give the warrant holder the right on an as converted basis to the proceeds which common shareholders would be entitled to as a result of a fundamental transaction. Notwithstanding the aforementioned rights, provided the warrants are not registered under an effective registration statement, the holder of the warrant has the right to receive cash equal to the Black-Scholes value of the unexercised portion of the warrant in accordance with the terms of the warrant agreement.

 

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

 

   Nine months ended
September 30,
2020
 
Conversion price  $0.05 
Risk free interest rate   1.35%
Expected life of derivative liability   3 years 
Expected volatility of underlying stock   190.4 to 216.9%
Expected dividend rate   0%

 

A summary of warrant activity during the period January 1, 2019 to September 30, 2020 is as follows:

 

   Shares
Underlying
Warrants*
   Exercise
price per
share
   Weighted
average
exercise
price
 
Outstanding January 1, 2019   852,775   $2.00 to 6.25   $5.10 
Granted   -    -    - 
Forfeited/Cancelled   -    -    - 
Exercised   -    -    - 
Outstanding December 31, 2019   852,775   $2.00 to 6.25   $5.10 
Granted   42,200,000    0.05    0.05 
Forfeited/Cancelled   (536,775)   2.00 to 6.25    4.42 
Exercised   -    -    - 
Outstanding September 30, 2020   42,516,000   $0.05 to 6.25   $0.10 

 

The warrants outstanding and exercisable at September 30, 2020 are as follows:

 

    Warrants Outstanding   Warrants Exercisable 
Exercise
Price*
   Number
Outstanding
   Weighted
Average
Remaining
Contractual
life in years
   Weighted
Average
Exercise
Price
   Number
Exercisable
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
life in years
 
$6.25    316,000    0.12         316,000           
$0.05    42,200,000    4.80         42,200,000           
      42,516,000    4.76   $0.10    42,516,000   $0.10    4.76 

  

The warrants outstanding have an intrinsic value of $0 and $0 as of September 30, 2020 and December 31, 2019.

 

F-27

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

11STOCKHOLDERS’ 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 either specifically granted to it under the Plan.

 

The maximum number of securities available under the Plan is 800,000 shares of common stock. The maximum number of shares of common stock awarded to any individual during any fiscal year may not exceed 100,000 shares of common stock.

  

No options were granted for the three and nine months ended September 30, 2020. 

  

A summary of option activity during the period January 1, 2019 to September 30, 2020 is as follows:

 

   Shares
Underlying
options
   Exercise
price per
share
   Weighted
average
exercise
price
 
Outstanding January 1, 2019   200,000   $0,40   $0,40 
Granted   -    -    - 
Forfeited/Cancelled   (100,000)   -    - 
Exercised   -    -    - 
Outstanding December 31, 2019   100,000    0.40    0.40 
Granted   -    -    - 
Forfeited/Cancelled   -    -    - 
Exercised   -    -    - 
Outstanding September 30, 2020   100,000   $0.40   $0.40 

 

The options outstanding and exercisable at September 30, 2020 are as follows:

 

    Options Outstanding   Options Exercisable 
Exercise
Price*
   Number Outstanding*   Weighted
Average
Remaining
Contractual
life in years
   Weighted
Average
Exercise
Price*
   Number
Exercisable
   Weighted
Average
Exercise
Price*
   Weighted
Average
Remaining Contractual
life in years
 
 0.40    100,000    8.50   $0.40    100,000   $0.4    8.50 

 

The options outstanding have an intrinsic value of $0 and $0 as of September 30, 2020 and December 31, 2019.

 

F-28

 

  

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

12NET 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 nine months ended September 30, 2020 and 2019 all warrants, options and convertible debt securities were excluded from the computation of diluted net loss per share.

 

Dilutive shares which could exist pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would have been anti-dilutive for the three and nine months ended September 30, 2020 and 2019 are as follows:

 

   Three and nine 
months ended
September 30,
2020
(Shares)
   Three and nine 
months ended
September 30,
2019
(Shares)
 
         
Convertible debt   43,659,481    54,292,074 
Stock options   100,000    200,000 
Warrants to purchase shares of common stock   42,659,520    852,775 
    86,419,001    55,344,849 

    

13RELATED PARTY TRANSACTIONS

 

The following transactions were entered into with related parties:

 

James Fuller

 

On March 18, 2020, the Company granted Mr. Fuller, a director of the Company, 2,000,000 shares of restricted common stock in terms of the Stock Incentive Plan.

 

William Corbett

 

Effective January 1, 2020, the Company granted Mr. Corbett, the Chief Executive Officer of the Company, a total of 20,495,000 restricted shares of common stock of which 5,123,750 vested immediately and a further 15,371,250 which vest annually and equally over a three year period commencing on December 31, 2020.  

 

Effective June 24, 2020, the Company entered into an executive employment agreement with William Corbett, (the “Corbett Employment Agreement”) to employ Mr. Corbett as the Company’s Chief Executive Officer for a term of three (3) years, provide for an annual base salary of $150,000, provide for a signing bonus of $25,000, structure for a bonus of up to 50% of base salary upon the Company’s achievement of $2,000,000 EBITDA and additional performance bonus payments as may be determined by the Company’s board of directors and provide for severance in the event of a termination without cause in amount equal to equal to fifty percent (50%) of his annual base salary rate then in effect, provided that if such termination without cause occurs after an Acquisition of the Company, Mr. Corbett will be entitled to receive severance in an amount equal to equal to 100% of his annual base salary rate then in effect.

 

The Corbett Employment Agreement provides for the grant to Mr. Corbett of 5,123,750 shares of the Company’s common stock, which are fully vested and not subject to forfeiture.

 

On June 24, 2020, the Company entered into a restricted stock agreement with Mr. Corbett pursuant to which the Company granted him a restricted stock award of 15,371,250 shares of the Company’s common stock, which forfeiture restriction lapse 33%, 33% and 34%, respectively, on the first, second and third anniversary of the date of grant.

 

On June 24, 2020, the Company entered into an indemnification agreement with Mr. Corbett to indemnify him, in connection with his position of employment with Company and in the discharge of his duties and responsibilities to Company, to the maximum extent allowed under the laws of the State of Nevada. The Company is not be required or obligated to indemnify Mr. Corbett to extent it would violate the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the rules and regulations thereunder.

 

F-29

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

13 RELATED PARTY TRANSACTIONS (continued)

 

LOANS PAYABLE

 

Description  Interest Rate   Maturity Date  September 30,
2020
   December 31,
2019
 
                
Vladimir Skigin   4%  December 12, 2020           -    30,026 
Loans payable - Related parties          $-   $30,026 

 

Interest expense amounted to $8,413 and $23,248 for the three and nine months ended September 30, 2020 and 2019, respectively.

 

Vladimir Skigin

 

Mr. Skigin is considered to be a related party as his shareholding and that of the Companies under his control exceeds 5%.  

 

  Promissory note

 

On December 23, 2019, in terms of a debt purchase agreement entered into with Waketec OU, Mr. Skigin acquired $30,000 of the promissory note issued to Waketec OU by Qpagos Corporation. On December 23, 2019, the Company entered into a debt settlement agreement whereby the Company agreed to the assignment of the debt owed to Mr. Skigin by Qpagos Corporation to the Company in exchange for a new promissory note in the principal amount of $30,000 issued by the Company. The promissory note is unsecured, bears interest at 4% per annum and matures on December 23, 2020. The balance of the promissory note, including interest thereon at December 31, 2019 is $30,026.

 

On January 7, 2020, the Company entered into a debt exchange agreement with Mr. Skigin, whereby the aggregate principal sum of $30,000 plus accrued interest of $49 was exchanged for 1,502,466 shares of common stock at an issue price of $0.02 per share, realizing a loss on exchange of $30,049.

 

14 COMMITMENTS AND CONTINGENCIES

 

The Company entered into a property lease agreement as disclosed under note 6 above.

 

The future minimum lease commitments are as follows:

 

   Amount 
Undiscounted minimum future lease payments    
Total instalments due  $67,065 
Imputed interest   (4,775)
Total operating lease liability  $62,290 
      
Disclosed as:     
Current portion  $43,049 
Non-current portion   19,241 
   $62,290 

 

F-30

 

 

INNOVATIVE PAYMENT SOLUTIONS, INC.

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

15 SUBSEQUENT EVENTS

  

Convertible debt issued

 

On October 20, 2020, the Company closed a transaction with Mark Geist (“Geist”), pursuant to which the Company received net proceeds of $25,025, after an original issue discount of $3,575 in exchange for the issuance of a $28,600 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing on October 20, 2021, the note is convertible into shares of common stock at an initial conversion price of $0.035 per share, in addition, the Company issued a warrant exercisable over 817,143 shares of common stock at an initial exercise price of $0.05 per share.

 

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

 

F-31

 

 

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 May 14, 2020. 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 (this “Report”). 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 solely upon the financial performance of Innovative Payment Solutions, Inc.

 

Overview and Financial Condition

 

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 and access usual sources of liquidity on favorable terms.

 

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 consolidated financial statements for the three and nine months ended September 30, 2020 and 2019, 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.

 

Results of Operations for the Three Months Ended September 30, 2020 and September 30, 2019

 

Net revenue

 

We have treated our Mexican operations as a discontinued operation in these interim financial statements, we have not generated any revenues from our US operations to date. 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 COVID-19 pandemic.

  

Cost of goods sold

 

We have treated our Mexican operations as a discontinued operation in these interim financial statements we have not generated any cost of goods sold from our US operations to date. We anticipate that our cost of goods sold will increase once we are able to install our kiosks.

 

General and administrative expenses

 

General and administrative expenses were $336,879 and $139,855 for the three months ended September 30, 2020 and 2019, respectively, an increase of $197,024 or 140.9%. The increase is primarily due to salaries and wage expenses of $114,360 including restricted stock award expenses for restricted stock issued to our CEO, in the prior period all payroll expenses were for operational personnel located at the Mexican operating sites, an increase in professional fees, including legal fees of $50,572 due to new business development initiatives, the balance of the increase consists of several minor cost increases.

 

1 

 

 

Depreciation

 

Depreciation was $4,166 and $0 for the three months ended September 30, 2020 and 2019, respectively, an increase of $4,166. Depreciation during the current period represents depreciation on the kiosks received from Qpagos Mexico.

 

Loss on debt conversion

 

Loss on debt conversion was $283,336 and $486,763 for the three months ended September 30, 2020 and 2019, respectively, a decrease of $203,427 or 41.8%. The loss on debt conversion represents a loss realized 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 September 30, 2020 and 2019, $224,620 and $458,277 of principal and interest was converted into equity.

 

Interest expense, net

 

Interest expense was $253,487 and $52,650 for the three months ended September 30, 2020 and 2019, respectively, an increase of $200,837 or 381.5%. The increase is primarily due to penalty interest amounting to $211,425 incurred on settlement of several convertible notes before conversion during the current period

 

Amortization of debt discount

 

Amortization of debt discount was $428,282 and $487,606 for the three months ended September 30, 2020 and 2019, respectively, a decrease of $59,324 or 12.2%. The decrease is primarily due to the timing of new debt with associated debt discount issued during the current period, several new convertible loans were advanced to the Company during the second half of the current quarter to settle convertible notes with less favorable terms.

 

Derivative liability movements

 

Derivative liability movements were $(380,556) and $123,598 for the three months ended September 30, 2020 and 2019, 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 September 30, 2020.

  

Net loss from continuing operations

 

We incurred a net loss of $1,706,706 and $1,194,460 for the three months ended September 30, 2020 and 2019 respectively, an increase in loss of $512,246 or 42.9%, primarily due to the increase in general and administrative expenses, the increase in interest expense and the net movement in derivative liabilities offset by a reduction in the loss on debt conversion, as discussed above.

 

Loss from discontinued operations

 

The loss from discontinued operations was $0 and $592,852 the three months ended September 30, 2020 and 2019, respectively. The decrease was due to our sale of our Mexican operations effective December 31, 2019.

 

Net loss

 

Net loss was $1,706,706 and $1,787,312 for the three months ended September 30, 2020 and 2019, respectively, a decrease in loss of $80,606 or 4.5%. The decrease is due to the loss realized on discontinued operations in the prior year offset by the increase in net loss from continuing operations in the current period, discussed in detail above.

 

2 

 

 

Results of Operations for the Nine Months Ended September 30, 2020 and September 30, 2019

 

Net revenue

 

We have treated our Mexican operations as a discontinued operation in these interim financial statements, we have not generated any revenues from our US operations to date. 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 COVID-19 pandemic.

  

Cost of goods sold

 

We have treated our Mexican operations as a discontinued operation in these interim financial statements we have not generated any cost of goods sold from our US operations to date. We anticipate that our cost of goods sold will increase once we are able to install our kiosks.

   

General and administrative expenses

 

General and administrative expenses were $1,289,542 and $493,847 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $795,695 or 161.1%. The increase is primarily due to the issuance of restricted stock to our CEO with a related expense of $439,362, directors fees of $88,000 during the current period, an increase in professional fees of $209,977 related to the development of our platform for the US market and certain payroll expenses of $134,073 incurred during the current period.

 

Depreciation

 

Depreciation was $8,333 and $0 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $8,333. Depreciation during the current period represents depreciation on the kiosks received from Qpagos Mexico.

 

Investment impairment charge

 

Investment impairment charge was $1,019,960 and $0 for the nine months ended September 30, 2020 and 2019, respectively, 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 $433,610 and $1,037,822 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $604,212 or 58.2%. The loss on debt conversion represents a loss realized on the conversion of convertible notes into equity at conversion prices ranging from 38% to 40% below current market prices. During the nine months ended September 30, 2020 and 2019, $335,948 and $953,612, respectively, of principal and interest was converted into equity.

 

Loss on settlement of liabilities

 

Loss on settlement of liabilities was $50,082 and $0 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $50,082. The loss on settlement of liabilities 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 current market prices.

 

Interest expense

 

Interest expense was $337,575 and $250,995 for the nine months ended September 30, 2020 and 2019, respectively, an increase of $86,580 or 34.5%. The increase is primarily due to the penalty interest incurred on the cash settlement of convertible debt resulting in penalty interest of $238,080 offset by a reduction in interest expense due to the timing of new convertible debt taken out during the current period.

 

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Amortization of debt discount

 

Amortization of debt discount was $801,460 and $1,500,143 for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $698,683 or 46.6%. The decrease is primarily due to the timing of new convertible debt advanced during the third quarter of the current period.

 

Derivative liability movements

 

Derivative liability movements were $(101,945) and $986,011 for the nine months ended September 30, 2020 and 2019, 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 September 30, 2020.

  

Net loss from continuing operations

 

We incurred a net loss of $4,082,507 and $2,447,980 for the nine months ended September 30, 2020 and 2019 respectively, an increase in loss of $1,634,527 or 66.8%, primarily due to the increase in general and administrative expenses, the investment impairment charge and the reduction in the derivative liability gain, offset by a reduction in loss on debt conversion and the amortization of debt discount as discussed above.

 

Loss from discontinued operations

 

The loss from discontinued operations was $0 and $1,084,616 the nine months ended September 30, 2020 and 2019, respectively. We sold our Mexican operations effective December 31, 2019.

 

Net loss

 

Net loss was $4,082,507 and $3,532,596 for the nine months ended September 30, 2020 and 2019, respectively, an increase in loss of $549,911 or 15.6%. The increase is due to the increase in net loss from continuing operations offset by the loss from discontinued operations, 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 securities.

 

We incurred an accumulated deficit of $26,267,538 through September 30, 2020 and incurred negative cash flow from operations of $951,303 for the nine months ended September 30, 2020. 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.

 

We will need to generate additional revenue from operations and/or obtain additional financing to pursue our business strategy, which includes expansion in the US market, repay our outstanding note obligations and take advantage of business opportunities that may arise. To meet our financing needs, we are considering multiple alternatives, including, but not limited to, additional equity financings and, debt financings and/or funding from partnerships. There can be no assurance that we will be able to complete any such transactions on acceptable terms or otherwise and may have to significantly curtail our operations.

 

At September 30, 2020, we had cash of $124,404 and a negative working capital of $3,139,449, including a derivative liability of $2,138,615. There is substantial doubt about our ability to continue as a going concern. After eliminating the derivative liability our working capital deficit is $1,000,834. We believe that the current cash balances together with revenue anticipated to be generated from operations will not be sufficient to meet our current working capital needs and as mentioned above, we will seek further funding from either equity issues or further debt funding, should we not be successful, we may have to curtail our operations significantly. 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.

 

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We utilized cash of $951,303 and generated cash of $108,692 from continuing operations for the nine months ended September 30, 2020 and 2019, respectively and utilized cash of $0 and $632,428 from discontinued operations for the nine months ended September 30, 2020 and 2019, respectively. Overall cash utilized in operations increased by $427,567, primarily due to penalty interest incurred on the settlement of convertible debt.

 

We acquired terminals for gross proceeds of $50,000 from Qpagos Corporation during the nine months ended September 30, 2020, in terms of the SPA agreement entered into with Vivi Holdings in December 2019. During the nine months ended September 30, 2019 we had minimal investment activity.

 

Cash provided by financing activities during the nine months ended September 30, 2020 was primarily comprised of $1,602,100 of proceeds from short term notes and convertible notes and to a lesser extent share issuances of $33,000 and proceeds from Federal relief funds of $210,292, which was offset by $807,664 in repayment of loans payable and repayment of convertible notes.  Cash provided by financing activities during the nine months ended September 30, 2019 was primarily comprised of $499,782 of proceeds from short term notes and convertible notes and proceeds from loans payable.  

 

At November 1, 2020, we had outstanding notes in the principal amount of $1,533,600 

 

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

 

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

 

    Amount   
Undiscounted minimum future lease payments    
Total instalments due:    
2020  $11,835 
2021   47,340 
2022   7,890 
    67,065 

 

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, as amended (the “Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”), our principal executive officer who is also its interim Chief Financial Officer (“CFO”), our principal accounting and financial officer, 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 who also serves as its interim CFO concluded that due to a lack of segregation of duties and insufficient controls over review and accounting for certain complex transactions, that the Company’s disclosure controls and procedures as of September 30, 2020 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, who also serves as its interim CFO, as appropriate, 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 September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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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

 

As a smaller reporting company, we are not required to provide disclosure regarding risk factors

 

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

 

Other than as set forth below or as previously disclosed in our filings with the Securities and Exchange Commission, we did not sell any equity securities during the quarter ended September 30, 2020 transactions that were not registered under the Securities Act.

 

Issuance of common stock 

 

In terms of debt conversion notices received between July 8, 2020 and September 9, 2020, we issued an aggregate of 27,798,744 shares of common stock in settlement of $790,527 of convertible notes payable. The shares were issued in reliance upon Section 3(a)(9).

 

Item 3. Defaults Upon Senior Securities

 

As of June 16, 2020, we are in default in payment of a note issued to Maxim Pukhoskiy on December 17, 2019. As of September 30, 2020, the balance of the note plus accrued interest was $7,963.

 

As of September 16, 2020, we are in default in payment of a note issued to Stanislav Minaychenko on December 17, 2019. As of September 30, 2020, the balance of the note plus accrued interest was $14,390.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

EXHIBIT INDEX

 

Exhibit
Number
  Description of Exhibit
4.1   Form of 10% Original Issue discount Senior Secured Note (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed July 2, 2020 (File no. 000-55648))
4.2   Warrant Agreement dated June 30, 2020 (incorporated by reference to exhibit 4.2 to the Current Report on Form 8-K filed July 2, 2020 (File no. 000-55648))
4.3   Warrant Issued to Cavalry Fund I LP, dated July 31, 2020  (incorporated by reference to exhibit 4.2 to the Current Report on Form 8-K filed August 6, 2020 (File no. 000-55648))
4.4   Warrant issued to Mercer Street Global Opportunity Fund, LLC, dated August 3, 2020 (incorporated by reference to exhibit 4.3 to the Current Report on Form 8-K filed August 6, 2020 (File no. 000-55648))
4.5   Warrant issued to Pinz Capital Special Opportunities Fund, LP, dated August 5, 2020 (incorporated by reference to exhibit 4.4 to the Current Report on Form 8-K filed August 6, 2020 (File no. 000-55648))
4.6   Form of 10% Original Issue discount Senior Secured Note (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 21, 2020 (File no. 000-55648))
4.7   Warrant Agreement dated September 16, 2020 (incorporated by reference to exhibit 4.2 to the Current Report on Form 8-K filed September 21, 2020 (File no. 000-55648))
4.8   Form of 10% Original Issue discount Senior Secured Note (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed September 30, 2020 (File no. 000-55648))
4.9   Warrant Agreement dated September 24, 2020 (incorporated by reference to exhibit 4.2 to the Current Report on Form 8-K filed September 30, 2020 (File no. 000-55648))
10.1   Securities Purchase Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed July 2, 2020 (File no. 000-55648))
10.2   Registration Rights Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on July 2, 2020 (File no. 000-55648))
10.3   Security Agreement dated June 30, 2020 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed July 2, 2020 (File no. 000-55648))
10.4   Securities Purchase Agreement between the Registrant and Mercer Street Global Opportunity Fund, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed August 6, 2020 (File no. 000-55648))
10.5   Amended and Restated Security Agreement dated as of August 3, 2020 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on August 6, 2020 (File no. 000-55648))
10.6   Registration Rights Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on August 6, 2020 (File no. 000-55648))
10.7   Registration Rights Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed on August 6, 2020 (File no. 000-55648))
10.8   Securities Purchase Agreement between the Registrant and Iroquois Master Fund Ltd (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 21, 2020 (File no. 000-55648))
10.9   Registration Rights Agreement between the Registrant and Iroquois Master Fund Ltd Cavalry Fund I LP (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on September 21, 2020 (File no. 000-55648))
10.10   Securities Purchase Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed September 30, 2020 (File no. 000-55648))
10.11   Registration Rights Agreement between the Registrant and Cavalry Fund I LP (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on September 30, 2020 (File no. 000-55648))
31.1   Certification of William Corbett, Chief Executive Officer and Interim Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of William Corbett, Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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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: November 13, 2020 By: /s/ William Corbett
    William Corbett
    Chief Executive Officer and
Interim Chief Financial Officer
    (Principal Executive Officer and
Principal Accounting and Financial Officer)

 

 

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