The accompanying notes
are an integral part of these audited consolidated financial statements.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1
|
ORGANIZATION AND DESCRIPTION OF BUSINESS
|
On May 12, 2016, Innovative Payment
Solutions, Inc. (formerly known as QPAGOS and Asiya Pearls, Inc.), a Nevada corporation (“IPSI” or the “Company”),
entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Corporation, a Delaware corporation
(“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of IPSI (“Merger
Sub”). Pursuant to the Merger Agreement, on May 12, 2016, the merger was consummated, and Qpagos Corporation and Merger
Sub merged (the “Merger”), with Qpagos Corporation continuing as the surviving corporation of the Merger.
Pursuant to the Merger Agreement,
upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior
to the Merger was converted into the right to receive two shares of IPSI common stock, par value $0.0001 per share (the “Common
Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, IPSI assumed all of Qpagos Corporation’s
warrants issued and outstanding immediately prior to the Merger, which were exercisable for approximately 621,920 shares of Common
Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the Merger, the then-current
IPSI stockholder of 500,000 shares of Common Stock agreed to return to IPSI 497,500 shares of Common Stock held by such holder
to IPSI and the then-current IPSI stockholder retained an aggregate of 2,500 shares of Common Stock and the other stockholders
of IPSI retained 500,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former
stockholders held 4,992,900 shares of IPSI common stock which represented approximately 91% of the outstanding Common Stock.
The Merger was treated as a reverse
acquisition of IPSI, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation was
treated as the acquirer for accounting and financial reporting purposes while IPSI was treated as the acquired entity for accounting
and financial reporting purposes.
Qpagos Corporation (“Qpagos”)
was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos,
S.A.P.I. de C.V. (“Qpagos Mexico”) and Redpag Electrónicos S.A.P.I. de C.V. (“Redpag”). Each of
the entities were incorporated in November 2013 in Mexico.
Qpagos Mexico was formed to process
payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as a distributor.
On May 27, 2016 Asiya changed its
name to QPAGOS.
On June 1, 2016, the board of directors
of QPAGOS (the “Board”) changed the Company’s fiscal year end from October 31 to December 31.
On November 1, 2019, the Company
changed its name from QPAGOS to Innovative Payment Solutions, Inc.
Also on November 1, 2019, immediately
following the name change, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect
a reverse split of the Company’s common stock, par value $0.0001 per share (the “common stock”) at a ratio of
1-for-10, effective on November 1, 2019 (the Reverse Stock Split”). As a result of the Reverse Stock Split, each ten pre-split
shares of common stock outstanding automatically combined into one new share of common stock without any further action on the
part of the holders, and the number of outstanding shares of common stock was reduced from 320,477,867 shares to 32,047,817 after
rounding for fractional shares.
On December 31, 2019, Innovative
Payment Solutions consummated the disposal of Qpagos Corporation, Qpagos Mexico and Redpag in exchange for 2,250,000 shares (the
“Vivi Shares”) of common stock of Vivi Holdings, Inc. (“Vivi” or “Vivi Holdings”) pursuant
to a Stock Purchase Agreement dated August 5, 2019 (the “SPA”). Of the 2,250,000 shares of Vivi, nine percent (9%)
was allocated as follows: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The SPA was closed on December
31, 2019 after the satisfaction of customary conditions, the receipt of a final fairness opinion and the approval of the Company’s
shareholders. Innovative Payment Solutions no longer has any business operations in Mexico and has retained its U.S. operations
based in Calabasas, California.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
1
|
ORGANIZATION AND DESCRIPTION OF BUSINESS (continued)
|
|
b)
|
Description of the business
|
Subsequent to the merger of Qpagos
Corporation into IPSI and until the divestiture of Qpagos Corporation, Qpagos Mexico and Redpag, the Company’s focus was
on the operations of Qpagos Corporation in Mexico. The Company’s current focus is on providing physical and virtual payment
services to the United States market, leveraging the knowledge it obtained from the operations of Qpagos Corporation. On December
31, 2019, the Company consummated the disposal of Qpagos Corporation, including the two Mexican subsidiaries, Qpagos Mexico and
Redpag pursuant to the SPA, in exchange for 2,250,000 shares of common stock of Vivi Holdings, of which nine percent (9%) was
allocated to the following: Gaston Pereira (5%), Andrey Novikov (2.5%), and Joseph Abrams (1.5%). The SPA was closed on December
31, 2019 after the satisfaction of customary conditions, the receipt of a final fairness opinion and the approval of the Company’s
shareholders. The Company no longer has any business operations in Mexico and has retained its U.S. operations based in Northridge,
California.
Qpagos Corporation, through its
subsidiaries Qpagos Mexico and Redpag, provided physical and virtual payment services to the Mexican market. Qpagos Corporation
provided an integrated network of kiosks, terminals and payment channels that enabled consumers in Mexico to deposit cash, convert
it into a digital form and remit the funds to any merchant in our network quickly and securely. Qpagos Mexico helped consumers
and merchants connect more efficiently in markets and consumer segments, such as Mexico, that are largely cash-based and lack
convenient alternatives for consumers to pay for goods and services in physical, online and mobile environments.
In March 2020, the outbreak of COVID-19
(also known as the coronavirus) caused by a novel strain of the coronavirus was recognized as a pandemic by the World Health Organization,
and the outbreak has become increasingly widespread in the United States, including in each of the areas in which the Company
operates. While, to date, the Company has not been required to stop operating, management is evaluating its use of its office
space, virtual meetings and the like.
The Company provides an integrated
network of kiosks, terminals and payment channels that enable consumers to deposit cash, convert it into a digital form and remit
the funds to any merchant in its network quickly and securely. The Company has plans to roll out 50 kiosks in Southern California
to provide digital payments for the unbanked and underbanked using self-service kiosks and an E wallet ecosystem. The kiosks are
currently located in the Company’s warehouses in Southern California awaiting installation. Due to measures imposed by the
local governments in areas affected by COVID-19, businesses have been suspended due to local and state stay-at-home orders intended
to contain the COVID-19 outbreak and many people have been forced to work from home in those areas. As a result, installation
of the Company’s network of kiosks, terminals and payment channels in Southern California has been delayed, which has had
an adverse impact on the Company’s business and financial condition and has hampered its ability to generate revenue and
access usual sources of liquidity on reasonable terms.
The Company has been following the
recommendations of local health authorities to minimize exposure risk for its employees for the past several weeks, including
the temporary closures of its offices and having employees work remotely to the extent possible, which has to an extent adversely
affected their efficiency. As a result, the Company’s books and records were not easily accessible, resulting in delays
in preparation and completion of its financial statements.
The Company continues to monitor
the impact of the COVID-19 outbreak closely. The extent to which the COVID-19 outbreak will continue to impact the Company’s
operations, ability to obtain financing or future financial results is uncertain.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
The accompanying
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”).
All amounts
referred to in the notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
b)
|
Principles of Consolidation
|
The consolidated
financial statements include the financial statements of the Company and its subsidiary in which it has a majority voting interest.
All significant inter-company accounts and transactions have been eliminated in the consolidated financial statements.
Effective
December 31, 2019, the Company disposed of Qpagos Corporation, Qpagos S.A.P.I. de CV and Redpag Electronicos, S.A.P.I. de CV,
these entities are reported as discontinued operations in these consolidated financial statements.
The entities
included in these consolidated financial statements are as follows:
Innovative
Payment Solutions, Inc. - Parent Company
Qpagos
Corporation - 100% owned – disposed of effective December 31, 2019.
Qpagos,
S.A. P.I de C.V., a Mexican entity (99.996% owned) – disposed of effective December 31, 2019.
Redpag
Electrónicos, S.A. P.I. de C.V., a Mexican entity (99.990% owned) – disposed of effective December 31, 2019.
The financial
statements of the Company’s discontinued Mexican operations are measured using local currencies as their functional currencies.
The Company
translates the assets and liabilities of its discontinued Mexican subsidiaries at the exchange rates in effect at year end and
the results of operations at the average rate throughout the year. 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 to customers
are in Mexico.
The preparation
of 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 consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
and the amounts of revenues and expenses that are not readily apparent from other sources. Actual results could differ from those
estimates and judgments. In particular, significant estimates and judgments include those related to, the estimated useful lives
for plant and equipment, the fair value of long-lived investments, the fair value of warrants and stock options granted for services
or compensation, estimates of the probability and potential magnitude of contingent liabilities, derivative liabilities, the valuation
allowance for deferred tax assets due to continuing operating losses and the allowance for doubtful accounts.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management
considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from our estimates.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Certain
conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which
will only be resolved when one or more future events occur or fail to occur.
The Company’s
management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If the
assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s 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, accounts receivable, other current assets, other assets, accounts payable, accrued
liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The
Company has identified the short-term convertible notes and certain warrants attached to certain of the notes that are required
to be presented on the balance sheets at fair value in accordance with the accounting guidance.
ASC 825-10
“Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. We evaluate the fair value of variably priced derivative
liabilities on a quarterly basis and report any movements thereon in earnings.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE 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 December 2019, the Financial
Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes
(Topic 740), the Amendments in this update reduce the complexity in accounting for income taxes by removing certain exceptions
to accounting for income taxes and deferred taxes and simplifying the accounting treatment of franchise taxes, a step up in the
tax basis of goodwill as part of business combinations, the allocation of current and deferred tax to a legal entity not subject
to tax in its own financial statements, reflecting changes in tax laws or rates in the annual effective rate in interim periods
that include the enactment date and minor codification improvements.
This ASU is effective for fiscal
years and interim periods beginning after December 15, 2020.
The effects of this ASU on the Company’s
financial statements is not considered to be material.
In August 2020, 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
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.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
No segmental
information is required as the Company, during the years ended December 31, 2020 and 2019 only had one segment of business from
which it derived revenue, providing physical and virtual payment services in the Mexican Market. This business segment was discontinued
on December 31, 2019 and no revenue has been derived from activities in the US market as yet.
|
j)
|
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 December 31, 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 December 31, 2020 and 2019, the balance did
not exceed the federally insured limit.
|
k)
|
Accounts Receivable and Allowance for Doubtful Accounts
|
Accounts
receivable are reported at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period
the related revenue is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables
based on a number of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience
is an integral part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly
assesses the state of its billing operations in order to identify issues, which may impact the collectability of these receivables
or reserve estimates. Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense.
Receivables deemed uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off.
Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no
recoveries during the period ended December 31, 2020 and 2019.
The Company’s non-marketable
equity securities are investments in privately held companies without readily determinable market values. The carrying value of
our non-marketable equity securities is adjusted to fair value for observable transactions for identical or similar investments
of the same issuer or impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities,
realized and unrealized, are recognized in other income (expense), net. Non-marketable equity securities that have been remeasured
during the period are classified within Level 3 in the fair value hierarchy because the Company estimates the value based on valuation
methods using the observable transaction price at the transaction date and other unobservable inputs including volatility, rights,
and obligations of the securities the Company holds. The cost method is used when the Company has a passive, long-term investment
that doesn’t result in influence over the Company. The cost method is used when the investment results in an ownership stake
of less than 20%, and there is no substantial influence. Under the cost method, the stock purchased is recorded on a balance sheet
as a non-current asset at the historical acquisition/purchase price, and is not modified unless shares are sold, additional shares
are purchased or there is evidence of the fair market value of the investment declining below carrying value. Any dividends received
are recorded as income.
The Company recorded an impairment
charge of $1,019,960 and $0 on its non-marketable equity securities for the years ended December 31, 2020 and 2019, 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.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Plant and
equipment is stated at cost, less accumulated depreciation. Plant and equipment with costs greater than $1,000 are capitalized
and depreciated. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated
useful lives of the assets are as follows:
Description
|
|
Estimated Useful Life
|
|
|
|
Kiosks
|
|
7 years
|
|
|
|
Computer equipment
|
|
3 years
|
|
|
|
Leasehold improvements
|
|
Lesser of estimated useful life or life of lease
|
|
|
|
Office equipment
|
|
10 years
|
The cost
of repairs and maintenance is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.
Assets
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets
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 year ended December 31, 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 year ended December 31, 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.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
|
●
|
Revenue from the sale of kiosks.
|
During the year ended December
31, 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.
|
p)
|
Share-Based Payment Arrangements
|
Generally,
all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured
at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest.
Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based
payments is recorded in operating expenses in the consolidated statement of operations.
Prior to
the Company’s reverse merger which took place on May 12, 2016, all share-based payments were based on management’s
estimate of market value of the Company’s equity. The factors considered in determining 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.
|
q)
|
Derivative Liabilities
|
ASC 815
generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a)
the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re- measured at fair value under otherwise applicable generally accepted accounting principles with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception
to this rule when the host instrument is deemed to be conventional, as described.
Prior to
December 31, 2019, the Company’s primary operations were based in Mexico and enacted tax laws in Mexico are used in the
calculation of income taxes, the holding company is based in the US and currently enacted US tax laws are used in the calculation
of income taxes.
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred
tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest
and penalties on income taxes as interest expense or penalties expense. As of December 31, 2020, and 2019, there have been no
interest or penalties incurred on income taxes.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2
|
ACCOUNTING POLICIES AND ESTIMATES (continued)
|
Comprehensive
income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding
transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the
periods presented includes translation adjustment and net loss.
|
t)
|
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.
The Company has incurred net losses
since its inception and anticipates net losses and negative operating cash flows for the near
future. For the year ended December 31, 2020, the Company had a net loss of $ $27,629,575 and had $94,703 in cash. In connection with
preparing the consolidated financial statements for the year ended December 31, 2020, management evaluated the extent of the impact from
the COVID-19 pandemic on the Company’s business and its future liquidity for the next twelve months through March 31, 2022.
Management
has executed the following to address the Company’s liquidity over the next twelve months from the filing of this Annual Report:
|
●
|
The
Company received net proceeds of $1,788,500 after an original issue discount of $255,500
upon our issuance of Senior Secured Convertible Notes in the principal amount of $2,044,000,
bearing interest at 10% per annum and maturing on February 16, 2022.
|
|
●
|
Between
February 18, 2021 and March 9, 2021 warrants for 44,074,285 shares were exercised by investors
at an exercise price of $0.05 per share, for gross proceeds of $2,203,714.
|
|
●
|
On
March 17, 2021, we entered into Securities Purchase Agreements (the “SPAs”) with
several institutional investors, pursuant to which we sold to the Investors in a private
placement (i) 30,333,334 shares of our common stock (the “Shares”) and (ii) warrants
(the “Warrants”) to purchase up to an aggregate of 15,166,667 shares of our common
stock for gross proceeds of approximately $4,550,000. The combined purchase price for one
share of common stock and associated Warrant was $0.15.
|
The
funding the Company received will be used primarily for development of technology, the digital payment platform and marketing, as well
as for working capital and general corporate purposes.
If
the Company is required to raise additional funds by issuing equity securities, its stockholders would experience dilution. Additional
debt financing, if available, may involve covenants restricting its operations or its ability to incur additional debt. Any additional
debt financing or additional equity that the Company raises may contain terms that are not favorable to it or its stockholders and require
significant debt service payments, which diverts resources from other activities.
Based on this current business plan,
the Company believes its existing cash is sufficient to conduct planned operations for one year from the issuance of the December 31,
2020 financial statements.
4
|
PROFIT ON DISPOSAL OF SUBSIDIARIES
|
Effective
December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corporation, to Vivi Holdings,
Inc. (“Vivi”), together with its ownership interest of 99.9% of Qpagos Corporations’ two Mexican entities: QPagos
S.A.P.I. de C.V. and Redpag Electrónicos S.A.P.I. de C.V. (the “Sale”). The Sale was conducted pursuant to
a Stock Purchase Agreement (the “Purchase Agreement”) between the Company and Vivi, dated August 5, 2019. The Purchase
Agreement contains customary representations, warranties and covenants made by Company and Vivi.
As consideration
for the Acquisition, and in accordance with the Purchase Agreement, Vivi issued an aggregate of 2,250,000 fully-paid and non-assessable
shares of its common stock (the “Shares”) 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. In addition, in connection with the closing of
the Sale, the Company received an unsecured non-interest bearing promissory note from Qpagos Corporation. relating to refunds
of certain Value Added Tax amounts anticipated to be received for tax years 2015 through 2019 (each, a “VAT Refund”)
from the Mexican Tax Administration, or the applicable Mexican governmental authority. QPAGOS Corporation. has agreed to diligently
file the VAT Refund for tax years 2015 through 2019 and to pay the Company forty-six percent of each VAT Refund received by it,
up to $130,000.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
4
|
PROFIT ON DISPOSAL OF SUBSIDIARIES (continued)
|
The Company
no longer has any business operations in Mexico and has retained its U.S. operations based in Calabasas, California.
|
|
Year
ended
December 31,
2019
|
|
|
|
|
|
Proceeds on disposal
|
|
|
|
|
Shares in Vivi Holdings, Inc.
|
|
$
|
1,120,836
|
|
Promissory note from Qpagos Corporation
|
|
|
130,000
|
|
Kiosks to be transferred to Innovative Payment Solutions
|
|
|
50,000
|
|
Gross proceeds
|
|
|
1,300,836
|
|
|
|
|
|
|
Vivi Holdings, Inc. shares distributed as deal related fees
|
|
|
(100,875
|
)
|
Deal related expenses
|
|
|
(28,328
|
)
|
Net proceeds
|
|
$
|
1,171,633
|
|
|
|
|
|
|
Assets disposed of:
|
|
|
|
|
Cash
|
|
$
|
59,551
|
|
Inventory
|
|
|
150,117
|
|
Accounts receivable
|
|
|
10,863
|
|
Recoverable IVA and tax credits
|
|
|
170,981
|
|
Other current assets
|
|
|
186,093
|
|
Intangible assets
|
|
|
39,417
|
|
Plant and equipment
|
|
|
178,778
|
|
Other non-current assets
|
|
|
12,849
|
|
|
|
|
808,649
|
|
Liabilities assumed by purchaser
|
|
|
|
|
Accounts payable and other payables
|
|
|
(355,652
|
)
|
Notes payable
|
|
|
(43,000
|
)
|
IVA and other taxes payable
|
|
|
(14,923
|
)
|
Advances from customers
|
|
|
(195,344
|
)
|
Net
|
|
|
(608,919
|
)
|
Net assets sold
|
|
$
|
199,730
|
|
Net profit realized on disposal
|
|
$
|
971,903
|
|
5
|
DISCONTINUED OPERATIONS
|
Effective
December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corp to Vivi. The operations
of Qpagos Corp and its two Mexican entities; QPagos S.A.P.I. de C.V. and Redpag Electrónicos S.A.P.I. de C.V, which represent
substantially all of its assets, are reported as discontinued operations.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
5
|
DISCONTINUED OPERATIONS (continued)
|
The statement
of operations from discontinued operations is as follows:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
11,480,637
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
11,525,223
|
|
|
|
|
|
|
Gross loss
|
|
|
(44,586
|
)
|
|
|
|
|
|
General and administrative
|
|
|
953,491
|
|
Depreciation and amortization and impairment costs
|
|
|
45,360
|
|
Total Expense
|
|
|
998,851
|
|
|
|
|
|
|
Loss from Operations
|
|
|
(1,043,437
|
)
|
|
|
|
|
|
Other income
|
|
|
6,648
|
|
Foreign currency gain
|
|
|
383,542
|
|
Loss before taxation
|
|
|
(653,247
|
)
|
Taxation
|
|
|
-
|
|
Loss from discontinued operations, net of taxation
|
|
$
|
(653,247
|
)
|
Investment
in Vivi Holdings, Inc.
Effective
December 31, 2019, the Company sold 100% of the outstanding common stock of its subsidiary, Qpagos Corp, together with its 99.9%
ownership interest of Qpagos Corporations’ two Mexican entities: QPagos S.A.P.I. de C.V. and Redpag Electrónicos
S.A.P.I. de C.V, to Vivi.
As consideration
for the disposal Vivi issued an aggregate of 2,250,000 Shares of its common stock as follows: 2,047,500 Shares to the Company;
56,250 Shares to the Company’s designee, Mr. Andrey Novikov; 33,750 Shares to the Company’s designee, the Joseph W. &
Patricia G. Abrams Family Trust; and 112,500 Shares to the Company’s designee, Mr. Gaston Pereira.
Due to
the lack of available information, the Vivi Shares were valued by a modified market method, whereby the value of the assets disposed
of were determined by management using the enterprise value of the entire Company less the liabilities and assets retained by
the Company.
As of December 31, 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 December 31, 2020.
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
Investment in Vivi Holdings, Inc.
|
|
$
|
1,019,961
|
|
|
$
|
1,019,961
|
|
Impairment provision
|
|
|
(1,019,960
|
)
|
|
|
-
|
|
|
|
$
|
1
|
|
|
$
|
1,019,961
|
|
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Right of use assets
Right of use assets included in the unaudited condensed
consolidated Balance Sheet are as follows:
|
|
December 31,
2020
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
Right of use assets, operating leases, net of amortization
|
|
$
|
51,926
|
|
Total Lease Cost
Individual components of the total
lease cost incurred by the Company is as follows:
|
|
Year ended
December 31,
2020
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
41,423
|
|
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
|
|
|
|
|
2021
|
|
|
47,340
|
|
2022
|
|
|
7,890
|
|
|
|
|
55,230
|
|
Imputed interest
|
|
|
(3,304
|
)
|
Total operating lease liability
|
|
$
|
51,926
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
Current portion
|
|
$
|
44,134
|
|
Non-current portion
|
|
|
7,792
|
|
|
|
$
|
51,926
|
|
Other lease information:
|
|
Year
ended
December 31,
2020
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
(41,423
|
)
|
|
|
|
|
|
Remaining lease term – operating lease
|
|
|
14 months
|
|
|
|
|
|
|
Discount rate – operating lease
|
|
|
10.0
|
%
|
Payroll Protection Program loan
On May 7, 2020, the Company received
a Payroll Protection Program (“PPP”) loan through its bankers, Wells Fargo Bank, amounting to $60,292 earning interest
at 1% per annum, maturing on May 5, 2022 and repayable in installments of $2,538 commencing on November 5, 2020. The Company may
apply for the loan to be forgiven in whole or in part based on the loan being utilized for payroll costs, continuation of healthcare
benefits, mortgage interest payments, rent, utility and interest payments on any other debt obligation. The Company anticipates
that the loan will be forgivable and therefore no interest has been accrued on this loan.
Small Business Administration
Disaster Relief loan
On July 7, 2020, the Company received
a Small Business Economic Injury Disaster loan amounting to $150,000, bearing interest at 3.75% per annum and repayable in monthly
installments of $731 commencing twelve months after inception with the balance of interest and principal repayable on July 7,
2050. The loan is secured by all tangible and intangible assets of the Company. The proceeds are to be used for working capital
purposes to alleviate economic injury caused by the COVID-19 pandemic.
The company has accrued interest
of $2,727 on this loan as of December 31, 2020.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Loans payable consisted of the
following:
Description
|
|
Interest
Rate
|
|
|
Maturity
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanislav Minaychenko
|
|
|
4.0
|
%
|
|
September 16, 2020
|
|
$
|
14,530
|
|
|
$
|
23,930
|
|
Maxim Pukhoskiy
|
|
|
4.0
|
%
|
|
June 16, 2020
|
|
|
8,041
|
|
|
|
17,683
|
|
Dieter Busenhart
|
|
|
10.0
|
%
|
|
January 17, 2021
|
|
|
1,062
|
|
|
|
-
|
|
Alexander Motorin
|
|
|
4.0
|
%
|
|
December 23, 2020
|
|
|
-
|
|
|
|
20,018
|
|
Total loans payable
|
|
|
|
|
|
|
|
$
|
23,633
|
|
|
$
|
61,631
|
|
Interest expense totaled $1,558
and $7,513 for the year ended December 31, 2020 and 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 year ended December
31, 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 December 31, 2020 was $14,530.
Subsequent to year end on February
22, 2021, the balance of the promissory note, including interest thereon was repaid.
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 year ended December
31, 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 December 31, 2020 was $8,041.
Subsequent to year end on February
22, 2021, the balance of the promissory note, including interest thereon was repaid.
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 December 31, 2020 was $1,062.
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.
INNOVATIVE PAYMENT
SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE
|
Convertible notes payable consists
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized
|
|
|
December 31,
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
|
|
|
|
3,542
|
|
|
|
(33,485
|
)
|
|
|
33,057
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
15,041
|
|
|
|
(157,892
|
)
|
|
|
157,149
|
|
|
|
-
|
|
|
|
|
10
|
%
|
|
July 31, 2021
|
|
|
300,000
|
|
|
|
12,750
|
|
|
|
(95,502
|
)
|
|
|
217,248
|
|
|
|
-
|
|
|
|
|
10
|
%
|
|
September 24, 2021
|
|
|
114,000
|
|
|
|
3,061
|
|
|
|
(83,392
|
)
|
|
|
33,669
|
|
|
|
-
|
|
|
|
|
10
|
%
|
|
August 5, 2021
|
|
|
100,000
|
|
|
|
4,055
|
|
|
|
(40,502
|
)
|
|
|
63,553
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mercer Street Global Opportunity Fund,
LLC
|
|
|
10
|
%
|
|
August 3, 2021
|
|
|
400,000
|
|
|
|
16,438
|
|
|
|
(127,543
|
)
|
|
|
288,895
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinz Capital Special Opportunities
Fund LP
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Iroquois Master Fund Ltd.
|
|
|
10
|
%
|
|
September 16, 2021
|
|
|
228,000
|
|
|
|
6,621
|
|
|
|
(161,786
|
)
|
|
|
72,835
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Geist
|
|
|
10
|
%
|
|
October 20, 2021
|
|
|
28,600
|
|
|
|
564
|
|
|
|
(22,958
|
)
|
|
|
6,206
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bellridge Capital LP.
|
|
|
10
|
%
|
|
November 25, 2021
|
|
|
286,000
|
|
|
|
2,821
|
|
|
|
(257,792
|
)
|
|
|
31,029
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
convertible notes payable
|
|
|
|
|
|
|
|
$
|
1,819,600
|
|
|
$
|
64,893
|
|
|
$
|
(980,852
|
)
|
|
$
|
903,641
|
|
|
$
|
359,362
|
|
Interest expense, including penalty
interest totaled $366,964 and $188,159 for the years ended December 31, 2020 and 2019, respectively.
Amortization of debt discount totaled
$1,065,879 and $1,349,071 for the years ended December 31, 2020 and 2019, respectively.
The convertible notes have variable
conversion prices based on a discount to market price of trading activity over a specified period of time. The variable conversion
features were valued using a Black Scholes valuation model. The difference between the fair market value of the common stock and
the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative
financial liability.
INNOVATIVE
PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
The total value of the beneficial
conversion feature recorded as a debt discount during the years ended December 31, 2020 and 2019 was $1,406,369 and $882,448,
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 December 31,
2020 was $33,057, after unamortized debt discount of $33,485.
|
|
|
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
GS Capital Partners,
LLC
|
●
|
On August 14, 2018, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $150,000 to GS Capital Partners, LLC. The note
had a maturity date of August 14, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note up to
180 days, provided it made 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 1,743,227 shares of common stock at an average conversion price of $0.031 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 $17,741 was
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 could 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
had a maturity date of February 4, 2020 and a coupon of 8% per annum. The Company could not prepay the note. The outstanding
principal amount of the note was convertible after 180 days, at the election of the holder into shares of the Company’s
common stock at a conversion price equal to 62% of the lowest three trading prices during the previous ten (10) trading
days.
On December 19, 2019, the Company
repaid the principal sum of $48,000 on the convertible note. On January 14, 2020, the Company repaid the principal sum
of $48,000 and accrued interest and penalty interest of $33,030, thereby extinguishing the note.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Crown Bridge Partners
|
●
|
On August 31, 2018, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note had
a maturity date of August 31, 2019 and a coupon of 8% per annum. The Company had the right to prepay the note for the
first 180 days, subject to a penalty ranging from 10% to 35% of the prepayment, dependent upon the timing of the prepayment.
The outstanding principal amount of the note was convertible at any time and from time to time at the election of the
holder into shares of the Company’s common stock at a conversion price equal to 60% of the lowest trading price
during the previous ten (10) trading days.
As of August 31, 2019 the note
was in default and interest accrued at the default interest rate of 12% per annum and the note holder may require the
Company to pay a penalty of 50% of the value of the note outstanding, including default interest.
On March 11, 2020, the Company
received a conversion notice from Crown Bridge Partners, converting an aggregate principal amount of $7,586 and fees thereon
of $500, at a conversion price of $0.01444 into 560,000 shares of common stock.
On August 31, 2020, the Company
repaid the remaining principal and interest on the note of $24,032, thereby extinguishing the note.
|
|
●
|
On October 16, 2018, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $27,500 to Crown Bridge Partners. The note has
a maturity date of October 16, 2019 and a coupon of 8% per annum. The Company may not prepay the note. The outstanding
principal amount of the note is convertible after 180 days, at the election of the holder into shares of the Company’s
common stock at a conversion price equal to 60% of the lowest trading price during the previous fifteen (15) trading days.
As of October 31, 2019 the note
was in default and accrued interest at the default interest rate of 12% per annum and the note holder may require the
Company to pay a penalty of 50% of the value of the note outstanding, including default interest.
On August 31, 2020, the Company
repaid the remaining principal and interest on the note of $31,587, thereby extinguishing the note.
On December 10, 2020, The Company issued Crown Bridge 1,500,000
shares to settle a dispute relating to the repayment of the convertible note and the conversion rights relating to that note.
|
Odyssey Funding, LLC
|
●
|
On November 15, 2019, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $200,000 to Odyssey Funding, LLC. The note has
a maturity date of November 15, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with
prepayment penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180
days, at the election of the holder into shares of the Company’s common stock at a conversion price equal to 58%
of the lowest trading price during the previous fifteen trading days.
On August 3, 2020, the Company
repaid the principal and interest on the note, including penalty interest thereon of $207,421, thereby extinguishing the
note.
|
|
●
|
On January 13, 2020, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $100,000 to Odyssey Funding, LLC. The note had
a maturity date of January 13, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment
penalties ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the
election of the holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest
trading price during the previous fifteen trading days.
On July 17, 2020, the Company
repaid the principal and interest on the note, including penalty interest thereon of $152,349, thereby extinguishing the
note.
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Black Ice Advisors, LLC
On November 25, 2019, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $52,500 to Black Ice Advisors, LLC. The note had a maturity
date of November 25, 2020 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties
ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the
holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the
previous fifteen trading days.
Between May 27, 2020 and June
8, 2020, the Company received notices of conversion from Black Ice Advisors, LLC converting $37,000 of principal into 1,970,588
shares of common stock at an average conversion price of $0.0188. The Company incurred a loss on conversion of $38,371.
On July 9, 2020, the Company
repaid the remaining principal and interest on the note, including penalty interest thereon of $25,975, thereby extinguishing
the note.
Adar Alef, LLC
On February 5, 2020, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $105,000 to Adar Alef, LLC. The note had a maturity
date of February 5, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties
ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the
holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the
previous fifteen trading days.
On August 5, 2020, the Company
repaid principal and interest on the note, including penalty interest thereon of $78,765.
On September 9, 2020, in terms
of a conversion notice received, Adar Alef, LLC converted $55,563 of principal and interest into 5,556,250 shares of common stock,
thereby extinguishing the note.
LG Capital Funding, LLC
On February 24, 2020, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $78,750 to LG Capital Funding LLC. The note has a maturity
date of February 24, 2021 and a coupon of 10% per annum. The Company had the right to prepay the note with prepayment penalties
ranging from 120% to 145%. The outstanding principal amount of the note was convertible after 180 days, at the election of the
holder into shares of the Company’s common stock at a conversion price equal to 58% of the lowest trading price during the
previous fifteen trading days.
On August 25, 2020, the Company
repaid the principal and interest on the note, including penalty interest thereon of $119,819, thereby extinguishing the note.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
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 December 31, 2020 was $157,149, after unamortized debt discount of $157,892.
|
|
●
|
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 December 31, 2020 was $217,248, after unamortized debt discount of $95,502.
|
|
●
|
On September 24, 2020, the Company
closed a transaction with Cavalry pursuant to which the Company received net proceeds of $99,750, after certain expenses
in exchange for the issuance of a $114,000 Senior Secured Convertible Note (the “Third 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 December 31, 2020 was $33,669, after unamortized debt discount of $83,392.
|
|
●
|
On October 20, 2020, Cavalry entered
into an Assignment and Transfer agreement whereby the Senior Secured Convertible Note with a face value of $100,000, bearing
interest at 10% per annum and maturing on August 5, 2021, together with the warrant exercisable over 2,857,143 shares
of common stock at an initial exercise price of $0.05 per share, was acquired by Cavalry. The Note is convertible into
shares of common stock at an initial conversion price of $0.035 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 December 31, 2020 was $63,553, after unamortized debt discount of $40,502.
|
In connection with the Securities
Purchase Agreement entered into for the issuance 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 was 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.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
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 December 31, 2020 was $288,895, after unamortized debt discount of $127,543.
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.
On October 20, 2020, Pinz entered
into an assignment and transfer agreement with Cavalry, whereby the convertible note and the warrants issued in conjunction with
this convertible note were assigned to Cavalry.
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 December 31, 2020 was $72,835, after unamortized debt discount of $161,786.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
10
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Mark Geist
On October 20, 2020, the Company
closed a transaction with Mark Geist., pursuant to which the Company received net proceeds of $25,025 after an original issue
discount of $3,575 in exchange for the issuance of a $28,600 Senior Secured Convertible Note, bearing interest at 10% per annum
and maturing on October 20, 2021. The note 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.
The balance of the note plus
accrued interest at December 31, 2020 was $6,206, after unamortized debt discount of $22,958.
Bellridge Capital LP.
On November 25, 2020, the Company
closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $250,250 after an original
issue discount of $35,750 in exchange for the issuance of a $286,000 Senior Secured Convertible Note, bearing interest at 10%
per annum and maturing on November 25, 2021, the 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 8171,429 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 December 31, 2020 was $31,029, after unamortized debt discount of $257,792.
Certain of the short-term convertible
notes disclosed in note 10 above and certain warrants disclosed in note 12 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 year ended December
31, 2020, an additional $1,406,369 was raised as a derivative liability on variably priced convertible notes.
The value of this derivative
financial liability was re-assessed at December 31, 2020, and $654,471 was charged to the statement of operations and comprehensive
loss, respectively. The value of the derivative liability will be re-assessed at each financial reporting period, with any movement
thereon recorded in the statement of operations in the period in which it is incurred.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following assumptions were
used in the Black-Scholes valuation model:
|
|
Year ended December 31, 2020
|
|
|
Year ended
December 31,
2019
|
|
Conversion price
|
|
$
|
0.015 to 2.00
|
|
|
$
|
0.02 to 2.00
|
|
Risk free interest rate
|
|
|
0.09 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
|
|
|
171.7 to 222.6
|
%
|
|
|
148.5 to 224.3
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The movement in derivative
liability is as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Opening balance
|
|
$
|
905,576
|
|
|
$
|
1,833,672
|
|
Derivative financial liability arising from convertible note
|
|
|
1,406,369
|
|
|
|
1,053,842
|
|
Fair value adjustment to derivative liability
|
|
|
654,471
|
|
|
|
(1,981,938
|
)
|
|
|
$
|
2,966,416
|
|
|
$
|
905,576
|
|
Certain
of the short-term convertible notes disclosed in note 10 above and note 14 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. Due to the variable
priced conversion rights, all convertible notes and any warrants attached thereto, issued subsequent to the variable priced conversion
notes 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. The value of this derivative financial liability was re-assessed at December 31, 2020
and 2019, and $654,471 was charged to the statement of operations and comprehensive loss and $1,981,938 was credited to the statement
of operations and comprehensive loss, respectively. The value of the derivative liability will be re-assessed at each financial
reporting period, with any movement thereon recorded in the statement of operations in the period in which it is incurred.
The
Company has authorized 500,000,000 common shares with a par value of $0.0001 each. The Company has issued and outstanding 193,637,747
and 128,902,124 shares of common stock as of December 31, 2020 and 2019, respectively, after giving effect to a 10 for
1 reverse stock split. The Company retroactively adjusted all share amounts and per share amounts in these financial statements
to give effect to the reverse stock split.
On
November 1, 2019, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a reverse
split of Company’s common stock at a ratio of 1-for-10 (the “Reverse Stock Split”), effective on November 1,
2019. As a result of the Reverse Stock Split, each ten (10) pre-split shares of common stock outstanding was automatically combined
into one (1) new share of common stock without any further action on the part of the holders, and the number of outstanding shares
common stock was reduced from 320,477,867 shares to 32,047,886 shares, after taking into account rounding up for fractional shares.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
12
|
STOCKHOLDERS’ EQUITY (continued)
|
|
|
|
a.
|
Common Stock (continued)
|
The
following common shares were issued by the Company during the year ended December 31, 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 1,298,554 shares of common stock valued at $39,000.
|
|
|
|
|
●
|
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.
|
|
|
|
|
●
|
The Company granted a previous convertible note holder 1,500,000
shares valued at $45,000 in settlement of a contractual dispute.
|
|
|
|
|
b.
|
Restricted stock awards
|
The following restricted stock
awards were made during the year ended December 31, 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 Executive Officer in terms of an employment agreement entered into with him. These restricted shares of common stock, granted
on June 24, 2020, are subject to forfeiture restrictions and which forfeiture restriction lapses 33%, 33% and 34% on the first, second
and third anniversary of the June 24, 2020 date of grant, 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 December 31, 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 $502,128 for the year ended December 31, 2020 relating to the restricted stock awards.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
12
|
STOCKHOLDERS’ EQUITY (continued)
|
|
|
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 December
31, 2020 and December 31, 2019.
In connection with the subscription
agreement entered into with an investor, a three year warrant exercisable for 1,000,000 shares of common stock was granted to
the investor, together with 1,000,000 shares of common stock for subscription proceeds of $25,000.
In terms of the Senior Secured
convertible notes entered into with various noteholders as described in note 10 above, the Company issued five year warrants exercisable
for a total of 51,188,572 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.
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:
|
|
Year ended
December 31,
2020
|
|
Conversion price
|
|
$
|
0.05
|
|
Risk free interest rate
|
|
|
0.21% to 0.36
|
%
|
Expected life of
|
|
|
4.5 to 5.0 years
|
|
Expected volatility of underlying stock
|
|
|
212.9 to 215.1
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
12
|
STOCKHOLDERS’ EQUITY (continued)
|
|
|
A summary of warrant activity
during the period January 1, 2019 to December 31, 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
|
|
|
51,188,572
|
|
|
|
0.05
|
|
|
|
0.05
|
|
Forfeited/Cancelled
|
|
|
(852,775
|
)
|
|
|
2.00 to 6.25
|
|
|
|
5.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2020
|
|
|
51,188,572
|
|
|
$
|
0.05
|
|
|
$
|
0.05
|
|
The warrants outstanding and
exercisable at December 31, 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
|
|
$
|
0.05
|
|
|
|
51,188,572
|
|
|
|
4.61
|
|
|
|
|
|
|
|
51,188,572
|
|
|
|
0.05
|
|
|
|
4.61
|
|
The warrants outstanding have
an intrinsic value of $0 and $0 as of December 31, 2020 and 2019, respectively.
On June 18, 2018, the Company
established its 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to promote the interests of the
Company and the stockholders of the Company by providing directors, officers, employees and consultants of the Company with appropriate
incentives and rewards to encourage them to enter into and continue in the employ or service of the Company, to acquire a proprietary
interest in the long-term success of the Company and to reward the performance of individuals in fulfilling long-term corporate
objectives. The Plan terminates after a period of ten years in June 2028.
The Plan is administered by
the Board of Directors or a Committee appointed by the Board of Directors who have the authority to administer the Plan and to
exercise all the powers and authorities specifically granted to it under the Plan.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
12
|
STOCKHOLDERS’ EQUITY (continued)
|
|
|
|
e.
|
Stock options (continued)
|
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 year ended December 31, 2020.
A summary of option activity
during the period January 1, 2019 to December 31, 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 December 31, 2020
|
|
|
100,000
|
|
|
$
|
0.40
|
|
|
$
|
0.40
|
|
The options outstanding and
exercisable at December 31, 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
|
|
|
|
8.00
|
|
|
$
|
0.40
|
|
|
|
100,000
|
|
|
$
|
0.4
|
|
|
|
8.00
|
|
The options outstanding have
an intrinsic value of $0 and $0 as of December 31, 2020 and 2019, respectively.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s primary operations are based in the US and currently enacted tax laws in the US are used in the calculation of
income taxes.
Federal
Income Tax - United States
On
December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed
into law by President Trump. The TCJA contains significant changes to corporate income taxation, including but not limited to
the reduction of the corporate income tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction
for interest expense to 30% of earnings (except for certain small businesses), limitation of the deduction for net operating losses
to 80% of current year taxable income and generally eliminating net operating loss carrybacks, allowing net operating losses to
carryforward without expiration, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated,
elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments
instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including
changes to the orphan drug tax credit and changes to the deductibility of research and experimental expenditures that will be
effective in the future). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal
tax law is uncertain, including to what extent various states will conform to the newly enacted federal tax law.
Income
taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
are measured using the currently enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred
tax assets that, based on available evidence, are not expected to be realized. It is the Company’s policy to classify interest
and penalties on income taxes as interest expense or penalties expense. As of December 31, 2020 and 2019, there have been no interest
or penalties incurred on income taxes.
In
the prior year, the Company’s primary operations were based in Mexico and enacted tax laws in Mexico were used in the calculation
of income taxes, the holding company was based in the US and enacted US tax laws were used in the calculation of income taxes.
Federal
Corporate Income Tax (“CIT”) - Mexico
CIT
applies to Mexican resident taxpayers’ income from worldwide sources, as well as to foreign residents on the income attributed
to their permanent establishments (“Pes”) located in Mexico. The federal CIT rate is 30%.
All
corporate entities, including associations of a civil nature, branches, etc., are subject to the tax rules applicable to Mexican
corporations (unless specifically ruled out).
Provisions
to recognize the effects of inflation for tax purposes in the areas of monetary assets and liabilities (annual monetary adjustment)
and depreciable assets are provided in the Mexican Income Tax Law, even though recent inflation rates have been stable at low
levels
The
provision for income taxes consists of the following:
|
|
|
Year ended
December 31,
2020
|
|
|
|
Year ended
December 31,
2019
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
13
|
INCOME TAXES (continued)
|
A
reconciliation of the U.S. Federal statutory income tax to the effective income tax is as follows:
|
|
Year ended
December 31,
2020
|
|
|
Year ended
December 31,
2019
|
|
Continuing operations
|
|
|
|
|
|
|
Tax expense at the federal statutory rate
|
|
$
|
(1,143,354
|
)
|
|
$
|
(850,030
|
)
|
State tax expense, net of federal tax effect
|
|
|
(79,743
|
)
|
|
|
-
|
|
Permanent differences
|
|
|
453,667
|
|
|
|
772,183
|
)
|
Prior year net operating loss true up
|
|
|
487,927
|
|
|
|
-
|
|
Temporary timing differences
|
|
|
-
|
|
|
|
27,299
|
|
|
|
|
(281,503
|
)
|
|
|
(50,548
|
)
|
Deferred income tax asset valuation allowance
|
|
|
281,503
|
|
|
|
50,548
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
Tax expense at the federal statutory rate
|
|
$
|
-
|
|
|
$
|
66,918
|
)
|
State tax expense, net of federal tax effect
|
|
|
-
|
|
|
|
-
|
|
Effect of foreign operations
|
|
|
-
|
|
|
|
(27,739
|
|
Effect of income tax rate change
|
|
|
-
|
|
|
|
-
|
|
Permanent timing differences
|
|
|
-
|
|
|
|
(1,834,306
|
)
|
Temporary timing differences
|
|
|
-
|
|
|
|
63,004
|
|
|
|
|
-
|
|
|
|
(1,732,123
|
)
|
Deferred income tax asset valuation allowance
|
|
|
-
|
|
|
|
1,732,123
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant
components of the Company’s deferred income tax assets are as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Other
|
|
|
246,069
|
|
|
|
27,299
|
)
|
Net operating losses
|
|
|
3,999,612
|
|
|
|
3,936,879
|
|
Valuation allowance
|
|
|
(4,245,681
|
)
|
|
|
(3,964,178
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The valuation
allowance for deferred income tax assets as of December 31, 2020 and December 31, 2019 was $4,245,681 and $3,964,178,
respectively. The net change in the deferred income tax assets valuation allowance was an increase of $281,503 primarily attributable
to a prior year tax return to provision true-up of federal and Florida State NOL of $4,700,761 and $14,045,383 respectively.
As of December 31, 2020,
the prior three years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.
As of December
31, 2020, and 2019, the Company had available for income tax purposes approximately $16.3 million in federal and state net operating
loss carry forwards, which may be available to offset future taxable income. $7.9 million of the net operating losses will begin to expire
in 2035 through 2037 and $8.4 million has an indefinite life. Due to the uncertainty of the utilization and recoverability of the loss
carryforwards and other deferred tax assets, Management has determined a full valuation allowance for the deferred tax assets, since
it is more likely than not that the deferred tax assets will not be realizable.
The Company’s
ability to utilize the United States Federal operating loss carryforwards may be subject to an annual limitation if pursuant to IRC Section
382/383 of the Internal Revenue Code of 1986, as amended, if a change of ownership has occurred. Management does not believe if an ownership
change has occurred under IRC Section 382/383, but is evaluating, if such change has occurred. If such change has occurred, it is also
possible that the loss carryforward could be eliminated.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
14
|
EQUITY BASED COMPENSATION
|
Equity based compensation
is made up of the following:
|
|
Year ended December 31,
2020
|
|
|
Year ended December 31,
2019
|
|
Incentive stock awards
|
|
$
|
502,128
|
|
|
|
-
|
|
Stock issued for services rendered
|
|
|
88,000
|
|
|
|
162,254
|
|
|
|
$
|
590,128
|
|
|
$
|
162,254
|
|
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 years ended December 31, 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 years ended December 31, 2020 and 2019 are as follows:
|
|
Year ended
December 31,
2020
(Shares)
|
|
|
Year ended
December 31,
2019
(Shares)
|
|
Convertible debt
|
|
|
56,486,677
|
|
|
|
28,557,283
|
|
Stock options
|
|
|
100,000
|
|
|
|
100,000
|
|
Warrants to purchase shares of common stock
|
|
|
51,188,572
|
|
|
|
852,775
|
|
|
|
|
107,775,249
|
|
|
|
29,510,058
|
|
16
|
RELATED PARTY TRANSACTIONS
|
The
following transactions were entered into with related parties:
Andrey
Novikov
On
April 8, 2020 and December 18, 2020, in terms of the employment agreement entered into with Mr. Novikov, the Company issued 282,146
and 1,016,408 shares of common stock to Mr. Novikov, valued at an aggregate principal sum of $39,000.
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 valued at an aggregate principal
sum of $88,000.
The Company has the following
related party payables:
Description
|
|
December
31,
2020
|
|
|
December 31,
2019
|
|
Strategic IR
|
|
|
4,000
|
|
|
|
-
|
|
|
|
$
|
4,000
|
|
|
$
|
-
|
|
The amount owing to Strategic
IR is for services rendered to the Company by Strategic IR during the year ended December 31, 2020. Strategic IR was paid $60,000
and $60,000 for consulting services to the Company during the year ended December 31, 2020 and 2019, respectively.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
William Corbett
Effective June 24, 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 restricted shares of common stock, granted on June 24, 2020, which are subject to forfeiture restrictions
and which forfeiture restriction lapses 33%, 33% and 34% on the first, second and third anniversary of the June 24, 2020 date of grant.
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.
LOANS PAYABLE
Description
|
|
Interest Rate
|
|
|
Maturity Date
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Vladimir Skigin
|
|
|
4
|
%
|
|
December 12, 2020
|
|
|
-
|
|
|
|
30,026
|
|
Loans payable - Related parties
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
30,026
|
|
Interest expense amounted to
$23 and $23,248 for the years ended December 31, 2020 and 2019, respectively.
Vladimir Skigin
Mr. Skigin was considered to
be a related party as his shareholding and that of the Companies under his control exceeded 5%.
On December 23, 2019, in terms
of a debt purchase agreement entered into with Waketec OU, Mr. Skigin acquired $30,000 of the promissory note issued to Waketec
OU by Qpagos Corporation. On December 23, 2019, the Company entered into a debt settlement agreement whereby the Company agreed
to the assignment of the debt owed to Mr. Skigin by Qpagos Corporation to the Company in exchange for a new promissory note in
the principal amount of $30,000 issued by the Company. The promissory note is unsecured, bears interest at 4% per annum and matures
on December 23, 2020. The balance of the promissory note, including interest thereon at December 31, 2019 is $30,026.
On January 7, 2020, the Company
entered into a debt exchange agreement with Mr. Skigin, whereby the aggregate principal sum of $30,000 plus accrued interest of
$49 was exchanged for 1,502,466 shares of common stock at an issue price of $0.02 per share, realizing a loss on exchange of $30,049.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
17
|
COMMITMENTS AND CONTINGENCIES
|
The Company has property lease
commitments disclosed under note 7 above.
The Company may have an obligation
to repay certain convertible notes and accrued interest thereon, on maturity date, if these notes are not converted into equity
prior to maturity date as disclosed under note 10 above.
Convertible note funding
On February 3, 2021, the Company
closed a transaction with Iroquois Master Fund Ltd., pursuant to which the Company received net proceeds of $199,500, after an
original issue discount of $28,500 in exchange for the issuance of a $228,000 Senior Secured Convertible Note, bearing interest
at 10% per annum and maturing on February 3, 2022, the note is convertible into shares of common stock at an initial conversion
price of 0.045 per share, in addition, the Company issued a warrant exercisable for 5,066,667 shares of common stock at an initial
exercise price of $0.05 per share.
On February 3, 2021, the Company
closed a transaction with Mercer, pursuant to which the Company received net proceeds of $250,250, after an original issue discount
of $35,750 in exchange for the issuance of a $286,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing
on February 3, 2022, the note is convertible into shares of common stock at an initial conversion price of 0.045 per share, in
addition, the Company issued a warrant exercisable for 6,355,556 shares of common stock at an initial exercise price of $0.05
per share.
On February 3, 2021, the Company
closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $150,500, after an original issue discount
of $21,500 in exchange for the issuance of a $172,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing
on February 3, 2022, the note is convertible into shares of common stock at an initial conversion price of 0.045 per share, in
addition, the Company issued a warrant exercisable for 3,822,223 shares of common stock at an initial exercise price of $0.05
per share.
On February 16, 2021, the Company
closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $180,250, after an original
issue discount of $25,750 in exchange for the issuance of a $206,000 Senior Secured Convertible Note, bearing interest at 10%
per annum and maturing on February 16, 2022, the note is convertible into shares of common stock at an initial conversion price
of 0.045 per share, in addition, the Company issued a warrant exercisable for 4,577,778 shares of common stock at an initial exercise
price of $0.05 per share.
On February 16, 2021, the Company
closed a transaction with Bellridge Capital LP., pursuant to which the Company received net proceeds of $787,500, after an original
issue discount of $112,500 in exchange for the issuance of a $900,000 Senior Secured Convertible Note, bearing interest at 10%
per annum and maturing on February 16, 2022, the note is convertible into shares of common stock at an initial conversion price
of 0.23 per share, in addition, the Company issued a warrant exercisable for 3,913,044 shares of common stock at an initial exercise
price of $0.24 per share.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18
|
SUBSEQUENT EVENTS (continued)
|
Convertible note funding
(continued)
On February 16, 2021, the Company
closed a transaction with Cavalry, pursuant to which the Company received net proceeds of $500,500, after an original issue discount
of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing
on February 16, 2022, the note is convertible into shares of common stock at an initial conversion price of 0.23 per share, in
addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24
per share.
On February 16, 2021, the Company
closed a transaction with Mercer, pursuant to which the Company received net proceeds of $500,500, after an original issue discount
of $71,500 in exchange for the issuance of a $572,000 Senior Secured Convertible Note, bearing interest at 10% per annum and maturing
on February 16, 2022, the note is convertible into shares of common stock at an initial conversion price of 0.23 per share, in
addition, the Company issued a warrant exercisable for 2,486,957 shares of common stock at an initial exercise price of $0.24
per share.
Debt conversions
Between January 4, 2021 and
February 3, 2021, the Company received conversion notices from Cavalry, converting the aggregate principal amount of $300,000
and accrued interest thereon of $16,639, relating to a convertible note entered into on July 1, 2020 into 9,046,826 shares of
common stock at a conversion price of $0.035 per share, thereby extinguishing the note.
Between January 4, 2021 and
February 9, 2021, the Company received conversion notices from Mercer, converting the aggregate principal amount of $400,000 and
accrued interest thereon of $19,411, relating to a convertible note entered into on August 3, 2020 into 11,983,170 shares of common
stock at a conversion price of $0.035 per share, thereby extinguishing the note.
Between January 5, 2021 and
February 5, 2021, the Company received conversion notices from Iroquois Master Fund Ltd., converting the aggregate principal amount
of $228,000 relating to a convertible note entered into on September 16, 2020 into 6,514,288 shares of common stock at a conversion
price of $0.035 per share, the interest accrued on the note remains outstanding.
On January 15, 2021, the Company
received a conversion notice from Mark Geist, converting the aggregate principal amount of $28,600 and accrued interest thereon
of $561, relating to a convertible note entered into on October 20, 2020 into 833,172 shares of common stock at a conversion price
of $0.035 per share, thereby extinguishing the note.
On February 6, 2021, the Company
received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $286,000 and accrued interest
thereon of $5,720, relating to a convertible note entered into on November 25, 2020 into 8,334,857 shares of common stock at a
conversion price of $0.035 per share, thereby extinguishing the note.
Between February 8, 2021 and
February 12, 2021, the Company received conversion notices from Cavalry, converting the aggregate principal amount of $300,000
and accrued interest thereon of $16,083, relating to a convertible note entered into on July 31, 2020 into 9,030,953 shares of
common stock at a conversion price of $0.035 per share, thereby extinguishing the note.
On February 16, 2021, the Company
received a conversion notice from Bellridge Capital, LP. converting the aggregate principal amount of $206,000, relating to a
convertible note entered into on the same day into 4,577,778 shares of common stock at a conversion price of $0.045 per share,
thereby extinguishing the note.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
18
|
SUBSEQUENT EVENTS (continued)
|
Debt conversions (continued)
On February 18, 2021, the Company
received a conversion notice from Cavalry, converting the aggregate principal amount of $114,000 and accrued interest thereon
of $4,623, relating to a convertible note entered into on September 24, 2020 into 3,389,238 shares of common stock at a conversion
price of $0.035 per share, thereby extinguishing the note.
On February 19, 2021, , the
Company received a conversion notice from Iroquois Master Fund Ltd., converting the aggregate principal amount of $228,000 relating
to a convertible note entered into on February 3, 2021 into 5,066,667 shares of common stock at a conversion price of $0.045 per
share, the interest accrued on the note remains outstanding.
On February 22, 2021, the Company
received a conversion notice from Cavalry, converting the aggregate principal amount of $100,000 and accrued interest thereon
of $5,583, relating to a convertible note entered into on August 5, 2020 by Pinz and acquired by Cavalry on October 20, 2020,
into 3,016,667 shares of common stock at a conversion price of $0.035 per share, the interest accrued on the note remains outstanding.
Debt Repayments
On February 16, 2021 and February
22, 2021, the Company repaid the aggregate principal sum of $286,000 and interest thereon of $1,033, owing on the convertible note it
had entered into with Mercer on February 3, 2021, thereby extinguishing the note
On February 17, 2021, the Company
repaid the aggregate principal sum of $172,000 owing on the convertible note it had entered into on February 3, 2021. The accrued
interest of $669, remains outstanding.
Warrant proceeds
Between February 18, 2021 and
March 9, 2021 warrants for 44,074,285 shares were exercised at an exercise price of $0.05 per share, for gross proceeds of $2,203,714.
Related Party transactions
On February 22, 2021, the Board
of Directors of the Company appointed William Corbett, its Chief Executive Officer and Interim Chief Financial Officer, as its
Chairman of the Board and issued him a five-year warrant to purchase 20,000,000 shares of the Company’s common stock at
an exercise price of $0.24. The Board also agreed to increase Mr. Corbett’s monthly base salary to $30,000 and to pay the
independent directors of the Company an annual director’s fee of $12,000.
On February 22, 2021, the Board
also awarded each of its directors, James Fuller and Andrey Novikov, options under the Company’s 2018 Stock Incentive Plan
to purchase 208,333 shares of the Company’s common stock. The options are exercisable for a period of ten years from the
date of grant, vest in full on the date of grant and have an exercise price of $0.24 per share.
Securities Purchase Agreements
On March 17, 2021, the Company,
entered into Securities Purchase Agreements (the “SPAs”) with several institutional investors, pursuant to which the
Company agreed to sell to the Investors in a private placement (i) 30,333,334 shares of its common stock (the “Shares”)
and (ii) warrants (the “Warrants”) to purchase up to an aggregate of 15,166,667 shares of its common stock for gross
proceeds of approximately $4,550,000. The combined purchase price for one share of common stock and associated Warrant is $0.15.
The Company intends to use
the net proceeds primarily for development of the Company’s technology, digital payment platform and marketing, as well
as for working capital and general corporate purposes.
INNOVATIVE PAYMENT SOLUTIONS, INC.
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
18
|
SUBSEQUENT EVENTS (continued)
|
Securities Purchase Agreements
(continued)
The Warrants are exercisable
for a period of five years from the date of issuance and have an exercise price of $0.15 per share, subject to adjustment as set
forth in the Warrants for stock splits, stock dividends, recapitalizations and similar events. The Investors may exercise the
Warrants on a cashless basis if after the six month anniversary of date of issuance the shares of common stock underlying the
Warrants (the “Warrant Shares”) are not then registered pursuant to an effective registration statement. Each Investor
has contractually agreed to restrict its ability to exercise the Warrants such that the number of shares of the Company’s
common stock held by the Investor and its affiliates after such exercise does not exceed the beneficial ownership limitation set
forth in the Warrants which may not exceed initially 4.99% or 9.99% of the Company’s then issued and outstanding shares
of common stock.
In connection with the SPAs, the Company entered into Registration
Rights Agreements (“RRAs”), dated March 11, 2021, with each of the Investors pursuant to which the Company is obligated to
file a registration statement (the “Registration Statement”) with the SEC to register for resale the Shares and Warrant Shares
within twenty days following the date upon which the Company files its Annual Report on Form 10-K for the fiscal year ended December 31,
2020, and use all commercially reasonable efforts to have the Registration Statement declared effective by the SEC within sixty days after
the Registration Statement is filed (or, in the event of a “full review” by the SEC, within seventy five days after the Registration
Statement is filed). The Company will be obligated to pay certain liquidated damages to the investors if the Company fails to file the
resale registration statement when required, fails to cause the Registration Statement to be declared effective by the SEC when required,
of if the Company fails to maintain the effectiveness of the Registration Statement.
The SPAs and the RRAs contain
customary representations, warranties, conditions and indemnification obligations of the parties, which were made only for purposes
of such SPAs and RRAs as of specific dates and solely for the benefit of the parties. The SPAs and RRAs may be subject to limitations
agreed upon by the contracting parties.
Pursuant to an engagement letter
(the “Engagement Letter”), dated as of March 6, 2021, by and between the Company and H.C. Wainwright & Co., LLC
(“Wainwright”), the Company engaged Wainwright to act as the Company’s exclusive placement agent in connection
with the private placement. Pursuant to the engagement agreement, the Company agreed to pay Wainwright a cash fee of 8.0% of the
gross proceeds raised by the Company in the private placement. The Company also agreed to pay Wainwright (i) a management fee
equal to 1.0% of the gross proceeds raised in the private placement; (ii) $35,000 for non-accountable expenses and (iii) up to
$50,000 for fees and expenses of legal counsel and other out-of-pocket expenses. In addition, the Company agreed to issue to Wainwright
(or its designees) placement agent warrants (the “Placement Agent Warrants”) to purchase a number of shares equal
to 8.0% of the aggregate number of Shares sold under the Purchase Agreement or warrants to purchase an aggregate of up to 2,426,667
shares of the Company’s common stock. The Placement Agent Warrants generally will have the same terms as the Warrants, except
they will have an exercise price of $0.1875.
Other than disclosed above,
the Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued
and has concluded that no such events or transactions took place that would require disclosure herein.