IPSID Innovative Payment Solutions Inc (QB)

On May 12, 2016, Innovative Payment Solutions, Inc., a Nevada corporation (“IPSI” or the “Company”) (originally formed on September 23, 2013 under the name “Asiya Pearls, Inc.”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”). Pursuant to the 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. On May 27, 2016, the Company’s name was changed from “Asiya Pearls, Inc.” to “QPAGOS”.

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 the Company’s common stock, par value $0.0001 per share (the “Common Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, the Company assumed all of Qpagos Corporation’s warrants issued and outstanding immediately prior to the Merger, which were exercisable for an aggregate of approximately 621,920 shares of Common Stock as of the date of the Merger. Prior to and as a condition to the closing of the Merger, a then-current holder of 500,000 shares of Common Stock agreed to return 497,500 shares of Common Stock held by such holder to the Company and such holder retained an aggregate of 2,500 shares of Common Stock. The other then stockholders of the Company retained 500,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former stockholders held 4,992,900 shares of Common Stock which represented approximately 91% of the outstanding Common Stock.

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

Qpagos Corporation was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos, S.A.P.I. de C.V. (“Qpagos Mexico”) and Redpag Electrónicos S.A.P.I. de C.V. (“Redpag”). Each of the entities were incorporated in November 2013 in Mexico. Qpagos Mexico was formed to process payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as a distributor. 

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

On November 1, 2019, the Company changed its corporate name from “QPAGOS” to “Innovative Payment Solutions, Inc.” Additionally, and immediately following the name change, the Company filed a Certificate of Change with the Secretary of State of the State of Nevada to effect a reverse split of the then outstanding Common Stock at a ratio of 1-for-10, effective on November 1, 2019 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each ten pre-split shares of Common Stock outstanding automatically combined into one new share of Common Stock without any further action on the part of the holders, and the number of outstanding shares of Common Stock was reduced from 320,477,867 shares to 32,047,817 after rounding for fractional shares.

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

The Company is currently a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express (as defined below), developing a new account-to-account payment application called Instant Settlement in RealTime as well as traditional credit card processing services. The Company has in the past (under the name IPSIPay) and may in the future develop and operate “e-wallets” that enable consumers to deposit cash, convert it into a digital form and remit funds quickly and securely.

The Company’s financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred net losses since its inception and anticipates net losses and negative operating cash flows for the near future. For the nine months ended September 30, 2023 and the year ended December 31, 2022, the Company had a net loss of $4,464,347 and $10,331,424, respectively. In connection with preparing the unaudited condensed consolidated financial statements for the nine months ended September 30, 2023, management evaluated the risks described in Note 2(f) above on the Company’s business and its future liquidity for the next twelve months from the date of issuance of these financial statements.

The accompanying financial statements for the three and nine months ended September 30, 2023 have been prepared assuming the Company will continue as a going concern, but the ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing, as well as potentially launching and deriving cash from IPEX during 2023 and into 2024. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis (including as required to meet its funding obligations to IPSIPay Express), the Company will be required to delay, reduce the scope of or terminate the Company’s development and operations. Continuing as a going concern is dependent upon its ability to successfully secure other sources of financing and attain cash flow positive and profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company has determined that there currently is substantial doubt about their ability to continue as a going concern.

On May 12, 2023, the Company entered into the May 2023 Frictionless Agreement to unwind the equity ownership stakes that the Company and Frictionless have in each other and in Beyond Fintech. Pursuant to the May 2023 Frictionless Agreement: (i) the Company assigned to Frictionless all common stock of Frictionless owned by the Company (representing a 10% ownership interest in Frictionless); (ii) the warrant to purchase 30,000,000 shares of Common Stock previously issued by the Company to Frictionless as of December 30, 2022 was cancelled; (iii) the Company assigned to Frictionless all shares of common stock of Beyond Fintech owned by the Company (representing a 51% ownership interest in Beyond Fintech) (the “Beyond Fintech Shares”); and (iv) the rights previously granted to the Company to (a) acquire additional equity interests in Frictionless, (b) participate in future financings of Frictionless and (c) appoint a board member of Frictionless were terminated. The consideration to the Company for the assignment of the Beyond Fintech Shares to Frictionless is $250,000, which will be paid by Frictionless exclusively in the form of 20% credits against invoices for work done by Frictionless for the Company for the 18 month period following the closing under the existing software services between the Company and Frictionless. The May 2023 Frictionless Agreement has customary representations, indemnification and mutual release provisions. The closing of the transactions contemplated by the May 2023 Frictionless Agreement occurred on May 12, 2023.

The assets and liabilities disposed of as of May 12, 2023 were as follows:

On September 5, 2023, the Company entered into a novation agreement with a third party whereby the third party assumed all of the Company’s debts, clients, and services and assumes all the rights and responsibilities of the Company under the SAAS Cloud Hosted Services Enablement Master Services Agreement, dated September 9, 2021 (the “SAAS Agreement”), including the information technology, supplier access, billing and rating technology, mobile wallet, debit card enablement, back-office support services, customer service, and consulting services related to the Company’s IPSIPay mobile application.

Pursuant to the novation agreement, Frictionless released the Company from all its obligations, debts, and liabilities under the SAAS Agreement as of September 5, 2023 and consented to the third party assuming these obligations. Each party agreed to indemnify the other party harmless for any damages, claims or expenses incurred by the other party.

The novation agreement also provided the third party a 30-day transition period in which the Company assisted the third party in transferring all the assets and obligations, including existing customers and wallets to the third party, thereafter the third party will no longer be permitted to operate the IPSIPay app under the brand name “IPSIPay”.

Effective May 12, 2023, the Company disposed of its investment in Beyond Fintech pursuant to the May 2023 Frictionless Agreement, as disclosed in note 4 above.

The following assets and liabilities are reported as discontinued operations:

On August 26, 2021, the Company formed Beyond Fintech to acquire a product known as Beyond Wallet from a third party for gross proceeds of $250,000, together with the logo, use of name and implementation of the product into the Company’s technology. The Company owned 51% of Beyond Fintech with the other 49% owned by Frictionless. During the year ended December 31, 2022 and the nine months ended September 30, 2023, an additional $41,320  and $35,891, respectively, was spent on the software to further enhance the Beyond Wallet product offering.  On May 12, 2023, Beyond Fintech was sold to Frictionless (see note 4 above).

During the year ended December 31, 2021, the Company paid gross proceeds of $375,000 to Frictionless for the development of the IPSIPay wallet, and during the year ended December 31, 2022 and the nine months ended September 30, 2023, an additional $1,127,400 and $44,405, respectively, was incurred by the Company to facilitate the functioning of the IPSIPay software in the cloud environment. On September 5, 2023, the Company novated all its rights and obligations to its IPSIPay wallet to a third party (see note 5 above).

Amortization expense was $93,095 and $12,629 for the three months ended September 30, 2023 and 2022, respectively, and $347,298 and $12,629 for the nine months ended September 30, 2023 and 2022, respectively.

On April 28, 2023, the Company formed IPSIPay Express with OpenPath and EFinityPay (see note 1(b) above). As described in note 1(b), the Company has agreed to make the IPSI Capital Contributions to IPSIPay Express. As of September 30, 2023, the initial Tranche of $500,000 and the second Tranche of $500,000 of capital contributions was paid by the Company to or on behalf of IPSIPay Express.

The Company accounts for its investment in IPSIPay Express in accordance with ASC 323, Investments – Equity Method and Joint Ventures, The movement in equity method investments related to IPSIPay Express for the period ended September 30, 2023 is as follow:

Investment in Frictionless Financial Technologies Inc.

On May 12, 2023, the Company assigned to Frictionless all common stock of Frictionless owned by the Company (representing a 10% ownership interest in Frictionless). refer Note 4 above.

On March 22, 2021, the Company entered into a real property lease for an office located at 56B 5^th Street, Lot 1, #AT, Carmel By The Sea, California. The lease commenced on April 1, 2021 and is for a twelve month period, terminating on April 1, 2022. Following the expiry of the lease term, the landlord has agreed to continue the lease on a month-to-month basis at $4,800 per month. On January 1, 2023, the Company entered into a new month-to-month lease, with a 90 day termination clause, for a monthly rental of $5,088. The lease was terminated effective August 31, 2023.

The Company applied the practical expedient whereby operating leases with a duration of twelve months or less are expensed as incurred.

Total Lease Cost

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

Other lease information:

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 Company has repaid an aggregate principal amount of $2,864 and interest of $3,715 as of September 30, 2023. The loan balance outstanding as of September 30, 2023, consists of principal of $147,136 and accrued interest thereon of $14,432, of which $3,295 is disclosed as current.

On February 16, 2021, the Company entered into separate Securities Purchase Agreements (the “Cavalry/Mercer SPAs”), with each of Cavalry Fund I LP (“Cavalry”) and Mercer Street Global Opportunity Fund, LLC (“Mercer”), pursuant to which the Company received $500,500 and $500,500 from Cavalry and Mercer, respectively, in exchange for the issuance of: (i) Original Issue Discount 12.5% Convertible Notes (the “Cavalry/Mercer Notes”) in the principal amount of $572,000 to each of Cavalry and Mercer; and (ii) five-year warrants (the “Original Cavalry/Mercer Warrants”) issued to each of Cavalry and Mercer to purchase 2,486,957 shares of Common Stock at an exercise price of $0.24 per share.

In connection with the December 30, 2022 Note Amendment Transaction, described in more detail in Note 13 below, the Original Cavalry/Mercer Warrants were irrevocably exchanged for 12-month non-convertible promissory notes in the amount of $482,000 (the “Exchange Notes”) to each of Cavalry and Mercer. This exchange caused the cancellation of the Original Cavalry/Mercer Warrants for all purposes. The Company accounted for the aggregate value of the notes issued of $964,000, less the fair value of the Original Cavalry/Mercer Warrants exchanged for these notes of $43,608, totaling $920,392 as a component of the loss on convertible debt.

The Exchange Notes have a maturity date of December 30, 2023 and carry an interest rate of ten percent (10%). The Company shall have the right, but not the obligation, in lieu of a cash payment upon maturity of the Exchange Notes, to issue 51,901,711 shares of Common Stock, as adjusted for any stock splits, dividends or other similar corporate events, in full satisfaction of its obligations under each of the Exchange Notes (or any pro rata portion of such number of shares in partial satisfaction of such obligations). The Company is under no legal obligation to reserve such number of shares for future issuance.

Notes payable to Cavalry and Mercer at September 30, 2023 consists of the following:

Interest expense totaled $24,635 and $0 for the three months ended September 30, 2023 and 2022, respectively, and $73,371 and $0 for the nine months ended September 30, 2023 and 2022, respectively.

December 2022 Note Amendment Transaction

The Company twice extended its indebtedness to each Cavalry and Mercer. On February 3, 2022, the Company agreed to extend the maturity date of the Cavalry/Mercer Notes to August 16, 2022. Additionally, on August 30, 2022, the Company entered agreements for an additional maturity date extension to November 16, 2022. In consideration for the second extension, the Company agreed to (i) increase the principal amount outstanding and due to Cavalry and Mercer under the Cavalry/Mercer Notes by twenty percent (20%) and (ii) issue to each of Cavalry and Mercer a new five-year warrant (each, an “Extension Warrant”) to purchase an additional 3,000,000 shares of Common Stock at an exercise price of $0.15 per share. The Extension Warrant contains the same terms and provisions in all material respects as the Original Warrants, except for difference in exercise price.

On December 30, 2022, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to December 30, 2023. Each of Cavalry and Mercer entered into Note Amendment Letter Agreement with the Company (the “Note Amendment”) pursuant to which the parties agreed to the following:

The parties also acknowledged that the principal and accrued interest under the Cavalry/Mercer Notes as of December 28, 2022 is equal to an aggregate of $2,264,784, or $1,132,392 for each of Cavalry and Mercer. In addition, as a result of the reduction in the conversion price of the Cavalry/Mercer Notes, certain other warrants held by third parties have their exercise price of such warrants reduced to $0.0115 per share. All of the shares of our Common Stock underlying the Cavalry/Mercer Notes as amended and all warrants held by Cavalry and Mercer as adjusted were registered for resale pursuant to a registration statement that was declared effective on February 6, 2023.

The amendments to the Cavalry/Mercer Notes were evaluated in terms of ASC 470, Debt, to determine if the amendments to the Cavalry/Mercer Notes were considered a modification of the debt or an extinguishment of the debt. Based on the penalty interest incurred on the convertible notes of $836,414, the reduction in the conversion price of the Cavalry/Mercer Notes from $0.15 to $0.0115 per share, which was valued at $1,499,577 using a Black-Scholes valuation model, the issuance of additional warrants to the Cavalry and Mercer valued at $238,182 using a Black-Scholes valuation model and the conversion of certain warrants held by Cavalry and Mercer to notes payable, resulting in an additional charge of $920,392, consisting of a mark-to-market warrant cost of $(43,608) and the value of the notes of $964,000 (see note 11 above) and the value of full rachet provisions of certain of the warrants issued to the Cavalry and Mercer amounting to $841,003 (see note 14 below), the amendment of the Cavalry/Mercer Notes was determined to be a debt extinguishment.

The convertible notes and warrants issued by the Company to Cavalry, Mercer and RRH as described herein 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.

On December 30, 2022, the Company entered into the December 2022 Note Amendment transaction (“the Note Amendment”) as fully described under note 12 above. Included in the derivative liability is: (i) the Original Warrants which were exchanged for non-convertible promissory notes, (ii) the Cavalry and Mercer convertible notes which were subject to the Note Amendment and (ii) the Cavalry and Mercer Extension Warrants as well as certain other warrants due to Cavalry and Mercer and certain other warrant holders. The Note Amendment triggered a repricing of certain of these warrants.

The derivative liability on the Cavalry and Mercer convertible notes and the warrants affected by the note amendment were marked-to-market immediately prior to the Note Amendment resulting in a market to market movement on the original warrants, the convertible notes and the extension warrants and certain other warrants, which were subject to a full rachet provision, of $474,614. In addition, the Note and warrant Amendment gave rise to an additional derivative liability charge of $2,317,051 which was recorded as an expense in the loss on convertible notes charge in the statement of operations.

On May 10, 2023 and June 13, 2023, the Company entered into convertible note agreements with 1800 Diagonal which have variable priced conversion rights with no fixed floor price and will re-price dependent on the share price performance over varying periods of time, which gave rise to a derivative financial liability, which was initially valued at inception of the convertible notes at $360,491 but limited to the cash value of the convertible notes of $150,000, using a Black-Scholes valuation model. These convertible notes were subsequently settled on August 3, 2023, resulting in the elimination of the derivative liability related to these notes.

The Company has total authorized Common Stock of 750,000,000  shares with a par value of $0.0001 each. The Company had 13,030,034 and 12,563,426 shares of Common Stock issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.

On May 19, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 72,464 shares of Common Stock for the conversion of $25,000 of convertible debt, refer Note 13 above.

On August 16, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 72,464 shares of Common Stock for the conversion of $25,000 of convertible debt, refer Note 13 above.

On August 24, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 173,914 shares of Common Stock for the conversion of $60,000 of interest on convertible debt, refer Note 13 above.

On August 30, 2023, the Company effectuated a 1 for 30 reverse stock split, resulting in the issuance of an additional 2,838 shares to existing stockholders due to rounding of existing shareholdings. All share amounts disclosed in the unaudited condensed consolidated financial statements have been adjusted to reflect the Company’s 1 for 30 reverse stock split effectuated on August 30, 2023.

On August 31, 2023, in terms of a conversion notice received from a convertible note holder, the Company issued 144,928 shares of Common Stock for the conversion of $50,000 of convertible debt, refer note 13 above.