All references to "we," "us," "our" and the "Company" refer to Innovative
Payment Solutions, Inc., a Delaware corporation and its consolidated
subsidiaries unless the context requires otherwise.
Overview
We are a provider of digital payment solutions and services to businesses and
consumers. We are focused on operating and developing "e-wallets" that enable
consumers to deposit cash, convert it into a digital form, and remit the funds
to Mexico and other countries quickly and securely. Our first e-wallet,
the Beyond Wallet, is currently operational. Our flagship e-wallet, IPSIPay, was
soft launched in December 2021. Our platform (which can be used both
business-to-business and business-to-consumer) will facilitate the transfer of
funds in digital form to other countries, initially Mexico but also, India and
the Philippines, primarily from hand-held devices as well as on desktop or
laptop computers. During the second quarter of 2022, and subsequently, we began
publicly testing the capabilities of IPSIPay and have achieved the first
commercial downloads of the app. Additionally, we continued our initial launch
efforts during the second quarter, and subsequently, we entered into an
endorsement agreement with Mario Lopez, which we believe will be a significant
part of our commercial launch efforts. We will continue our IPSIPay launch
efforts through the remainder of 2022.
Our launch plan for IPSIPay and Beyond Wallet is to target lower income, migrant
communities in California (notably in the agriculture industry), and expanding
to other states with large migrant populations such as Texas and Florida. We not
only believe the addressable market for our products and services is large and
growing, but that servicing this market is socially responsible. We believe our
digital payment facilitation platform and related apps will empower and enable
the unbanked and under-served and payment providers who service these users,
acting as a bridge to provide access to comprehensive and easy to use payment
solutions. Given the large size of our addressable market, our ability to
capture even a very small share of the market represents a significant revenue
opportunity for our company.
Previously, we intended to invest in physical kiosks which required the user
presence at digital payment kiosk locations, and we still intend to use our
existing kiosks in certain target markets within Southern California.
We acquired a 10% strategic interest in Frictionless Financial Technologies,
Inc. ("Frictionless"), on June 22, 2021. Frictionless agreed to deliver to us, a
live fully compliant financial payment Software as a Service solution for use by
us as a digital payment platform that enables payments within the United States
and abroad, including Mexico, together with a service agreement providing a full
suite of product services to facilitate our anticipated product offerings. We
have an irrevocable right to acquire up to an additional 41% of the outstanding
common stock of Frictionless at a purchase price of $300,000 for each 1%
acquired.
On August 26, 2021, we formed a new majority owned subsidiary, Beyond Fintech
Inc. ("Beyond Fintech"), in which we own a 51% stake, with Frictionless owning
the remaining 49%. Beyond Fintech acquired an exclusive license to our Beyond
Wallet offering to further its objective of providing virtual payment
services allowing U.S. persons to transfer funds to Mexico and other countries.
Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our
Business
COVID-19
The novel coronavirus ("COVID-19") pandemic has resulted in government
authorities and businesses throughout the world implementing numerous measures
intended to contain and limit the spread of COVID-19, including travel
restrictions, border closures, quarantines, shelter-in-place and lock-down
orders, mask and social distancing requirements, and business limitations and
shutdowns. The spread of COVID-19 and increased variants has caused, and may
continue to cause us to make significant modifications to our business
practices, including enabling most of our workforce to work from home,
establishing strict health and safety protocols for our offices, restricting
physical participation in meetings, events, and conferences, and imposing
restrictions on employee travel. We will continue to actively monitor the
situation and may take further actions that alter our business practices as may
be required by federal, state, or local authorities or that we determine are in
the best interests of our employees, customers, or business partners.
The rapidly changing global market and economic conditions as a result of the
COVID-19 pandemic have impacted, and are expected to continue to impact, our
operations and business. For example, COVID-19 related issues has caused a delay
in our ability to launch our products and services. The broader implications of
the COVID-19 pandemic and related global economic unpredictability on our
business, financial condition, and results of operations remain uncertain.
Russia's Invasion of Ukraine
In February 2022, Russia invaded Ukraine, with Belarus complicit in the
invasion. As of the date of this report, the conflict between these two
countries is ongoing. We do not have any direct or indirect exposure to Ukraine,
Belarus or Russia, through our operations, employee base or any investments in
any of these countries. In addition, our securities are not traded on any stock
exchanges in these three countries. We do not believe that the sanction levied
against Russia or Belarus or individuals and entities associated with these two
countries will have a material impact on our operations or business, if any.
Further, we do not believe that we have any direct or indirect reliance on goods
sourced from Russia, Ukraine or Belarus or countries that are supportive of
Russia.
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We have not fully commercially launched or e-wallet platforms to date, however
we will be providing online money transfer and payment services to our customers
in the future which may expose us to cybersecurity risks. We employ the latest
encryption techniques and firewall practices and constantly monitor the usage of
our software, however, this may not be sufficient to prevent the heightened risk
of cybersecurity attacks emanating from Russia, Ukraine, Belarus, or any other
country.
The impact of the invasion by Russia of Ukraine has increased volatility in
stock trading prices and commodities throughout the world. To date, we have not
seen a material impact on our operations; however, a prolonged conflict may
impact on consumer spending, in general, which could have an adverse impact on
the payment services industry as a whole and our business.
Inflation
Macro-economic conditions could affect consumer spending adversely and
consequently our future operations when we fully launch our e-wallet products
commercially. We believe the U.S. has entered a period of significant inflation,
and this may impact consumer's desire to adopt our products and services and may
increase our costs overall. However, as of the date of this report, we do not
expect there to be any material impact on our liquidity as forecast in our
business plan due to recent inflationary concerns in the U.S.
Foreign Exchange Risks
We intend to operate in several foreign countries, including Mexico. Changes and
fluctuations in the foreign exchange rate between the US Dollar and other
foreign currencies, including the Mexican Peso, may in future have an effect our
results of operations.
Critical Accounting Estimates
Preparation of our consolidated financial statements in accordance with U.S.
generally accepted accounting principles ("GAAP") requires us to make estimates
and assumptions that affect the reported amounts of certain assets, liabilities,
revenues and expenses, as well as related disclosure of contingent assets and
liabilities. Significant accounting policies are fundamental to understanding
our financial condition and results as they require the use of estimates and
assumptions which affect the financial statements and accompanying notes. See
Note 2 - Summary of Significant Accounting Policies of the Notes to the
condensed Consolidated Financial Statements included in Part I, Item I of this
Form 10-Q for further information.
The critical accounting policies that involved significant estimation included
the following:
Derivative liabilities
We have certain short-term convertible notes and certain warrants which have
fundamental transaction clauses which might result in cash settlement. The
conversion feature of these convertible notes and warrants are recorded as
derivative liabilities which are valued at each reporting date.
The derivative liability is valued using the following inputs:
? Conversion prices;
? Current market prices of our equity
? Risk free interest rates;
? Expected remaining life of the derivative liability;
? Expected volatility of the underlying stock; and expected dividend rates
Any change in the above factors such as a change in risk free interest rates, a
significant increase or decrease in our current stock prices and a change in the
volatility of our common stock may result in a significant increase or decrease
in the derivative liability.
Impairment of Investments and Intangible assets
We carried investments of $500,001 and Intangible assets of $964,310 as more
fully described in Notes 4 and 5 to the condensed consolidated financial
statements. The Company tests its Investments and intangible assets with an
indefinite useful life annually for impairment or more frequently if indicators
for impairment exist. The value of our Investments and intangibles is based upon
our mutual goal of providing payment services to an underserved market.
Currently our investments or our intangible assets have not produced any
revenues on which to assess whether the income generated from these assets can
support the carrying value of these assets. For impairment testing of
investments and intangibles we determine the fair value of the underlying assets
using an income-based approach which estimates the fair value using a discounted
cash flow model. Key assumptions in estimating fair values include projected
revenue growth and the weighted average cost of capital. In addition, management
recently reviewed the future revenue and profit projections of our e-wallet
services based on management forecasts of the size of the market and expected
customer growth and retention, we determined that no impairment charges were
necessary, however if we are unable to achieve our forecasts once operations
begin, we may need to re-evaluate our forecasts which could result in an
impairment charge. Since performing this analysis we have no reason to believe
that further impairment is necessary as of June 30, 2022.
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Results of Operations
Results of Operations for the Three Months Ended June 30, 2022 and 2021
Net revenue
We did not have revenues during the three months ended June 30, 2022 and 2021.
We anticipate that we will recommence generating meaningful revenue when we
fully launch our e-wallets, the timing for which is uncertain and subject to
certain risks and uncertainties. We currently anticipate continuing the
commercial launch our e-wallets during the remainder of 2022.
Cost of goods sold
As we did not have revenues during the three months ended June 30, 2022 and
2021, we anticipate that we will begin to recognize cost of goods sold when we
launch our e-wallets once we have determined our deployment strategy.
General and administrative expenses
General and administrative expenses were $795,537 and $1,719,770 for the three
months ended June 30, 2022 and 2021, respectively, a decrease of $924,233 or
53.7%. The decrease is primarily due to the following:
(i) Consulting fees was $27,900 and $846,100 for the three months ended June
30, 2022 and 2021, respectively, a decrease of $818,200. In the prior year
8,000,000 shares valued at $776,000 were issued to 4 advisory board members
as compensation for their services and consulting fees of $45,000 were paid
to our previous CTO.
(i) Payroll expenses were $329,954 and $657,332 for the three months ended June
30, 2022 and 2021, respectively, a decrease of $327,378 or 49.8%. The
decrease is primarily due to the creation of a severance provision of
$294,000 representing six months of pay for five former employees in the
prior year. In addition, gross pay decreased by $110,317 due to the
termination of the employment of these employees offset by the employment
of a CFO during July 2021, offset by option expense of $94,464 for options
granted to our CFO and CEO in August 2021.
(iv) The balance of the general and administrative expenses increased by
approximately $221,345, which is made up of several individually
insignificant expenses.
Depreciation
Depreciation was $4,497 and $4,484 for the three months ended June 30, 2022 and
2021, respectively, an increase of $13 or 0.3%, which amount is immaterial.
Interest expense, net
Interest expense was $45,196 and $53,371 for the three months ended June 30,
2022 and 2021, respectively, a decrease of $8,175 or 15.3%. The decrease is due
to the repayment of our convertible note with Bellridge, offset by an increase
in the principal due on the two remaining convertible notes.
Amortization of debt discount
Amortization of debt discount was $0 and $509,600 for the three months ended
June 30, 2022 and 2021, respectively, a decrease of $509,600 or 100.0%. The
decrease is due to the full amortization of the debt discount on convertible
notes in the first quarter of the current year, in the prior year, debt discount
was amortized on the three remaining convertible notes.
Derivative liability movements
Derivative liability movements were $(242,102) and $2,170,946 for the three
months ended June 30, 2022 and 2021, respectively, an increase of $2,413,048 or
111.2%. The derivative liability arose due to the issuance of convertible
securities and warrants with a fundamental transaction clause allowing for a
cash settlement of the convertible note at the option of the holder. The charge
during the current period represents the increase in the mark-to-market value of
the derivative liability due to an increase in the share price over the prior
quarter.
Net loss
Net loss was $1,087,332 and $116,279 for the three months ended June 30, 2022
and 2021, respectively, an increase in loss of $971,053 or 835.1%. The decrease
in general and administrative expenses and amortization of debt discount was
offset by the increase in the derivative liability movement, as discussed above.
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Results of Operations for the Six Months Ended June 30, 2022 and June 30, 2021
Net revenue
We did not have revenues during the six months ended June 30, 2022 and 2021. We
anticipate that we will recommence generating meaningful revenue when we fully
launch our e-wallets, the timing for which is uncertain and subject to certain
risks and uncertainties. We currently anticipate continuing the commercial
launch our e-wallets during the remainder of 2022.
Cost of goods sold
As we did not have revenues during the six months ended June 30, 2022 and 2021,
we anticipate that we will begin to recognize cost of goods sold when we launch
our e-wallets once we have determined our deployment strategy.
General and administrative expenses
General and administrative expenses were $1,664,924 and $6,709,441 for the six
months ended June 30, 2022 and 2021, respectively, a decrease of $5,044,517 or
75.2%. The decrease is primarily due to the following:
(i) Consulting fees was $54,900 and $842,884 for the six months ended June 30,
2022 and 2021, respectively, a decrease of $787,984. In the prior year
8,000,000 shares valued at $776,000 were issued to 4 advisory board members
as compensation for their services and consulting fees of $45,000 were paid
to our previous CTO.
(ii) Payroll expenses were $707,551 and $5,217,085 for the six months ended June
30, 2022 and 2021, respectively, a decrease of $4,509,534 or 86.4%. The
decrease is primarily due to the issue of warrants exercisable for
20,000,000 shares to our CEO in the prior period with a fair value of
$4,327,899 and restricted stock of 1,000,000 shares with a fair value of
$50,000 issued to one of our previous employees and the creation of a
severance provision of $294,000 representing six months of pay for five
former employees in the prior year, offset by an increase in base salaries
over the prior period due to an improvement in the caliber of employees,
including the hiring of a CFO.
(iv) The balance of the general and administrative expenses decreased by
$253,001, which is made up of several individually insignificant expenses.
Depreciation
Depreciation was $8,993 and $8,651 for the six months ended June 30, 2022 and
2021, respectively, an increase of $342 or 4.0%, which amount is immaterial.
Penalty on convertible notes
Penalty on convertible notes was $719,558 and $0 for the six months ended June
30, 2022 and 2021, an increase of $719,558 or 100.0%. The increase is due to the
repayment of one convertible note and the modification of the maturity date of
two convertible notes, resulting in the triggering of the repayment penalty per
the convertible note agreements as well as an additional 10% penalty for the
extension of the maturity date.
Loss on debt conversion
Loss on debt conversion was $0 and $5,184,447 for the six months ended June 30,
2022 and 2021, respectively, a decrease of $5,184,447. The loss on debt
conversion during the prior year represented a loss realized on the conversion
of convertible notes, into equity at fixed conversion prices which ranged from
$0.035 to $0.05 per share, when the stock price ranged from $0.05 per share to
$0.22 per share, resulting in a significant loss. A total of $2,259,221 was
converted from convertible debt to equity during the six months ended June 30,
2021.
Interest expense, net
Interest expense was $90,962 and $120,684 for the six months ended June 30, 2022
and 2021, respectively, a decrease of $29,722 or 24.6%. The decrease is due to
the repayment of our convertible note with Bellridge, offset by an increase in
the principal due on the two remaining convertible notes.
Amortization of debt discount
Amortization of debt discount was $263,200 and $2,623,252 for the six months
ended June 30, 2022 and 2021, respectively, a decrease of $2,360,052 or 90.0%.
The decrease is primarily due to the accelerated amortization of debt discount
related to notes converted to equity during the first quarter of the prior year.
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Derivative liability movements
Derivative liability movements were $(149,941) and $3,136,090 for the six months
ended June 30, 2022 and 2021, respectively. The derivative liability arose due
to the issuance of convertible securities and warrants with a fundamental
transaction clause allowing for a cash settlement of the convertible note at the
option of the holder. The charge during the current period represents the
increase in the mark-to-market value of the derivative liability due to an
increase in the share price over the prior period.
Net loss
Net loss was $2,897,578 and $11,510,385 for the six months ended June 30, 2022
and 2021, respectively, a decrease in loss of $8,612,807 or 74.8%. The decrease
is due to the decrease in general and administrative expenses, the loss realized
on the conversion of convertible debt in the prior year and the decrease in
amortization of debt discount, offset by the movement in derivative liabilities,
discussed in detail above.
Liquidity and Capital Resources
To date, our primary sources of cash have been funds raised primarily from the
sale of our debt and equity securities.
We have an accumulated deficit of approximately $45.0 million through June 30,
2022 and incurred negative cash flow from operations of $1. 4 million for the
six months ended June 30, 2022. Our primary focus is on launching and operating
e-wallets that enable consumers to deposit cash, convert it into a digital form
and remit the funds to Mexico and other countries quickly and securely, which
will require us to spend, substantial amounts in connection with implementing
our business strategy.
At June 30, 2022, we had cash of approximately $2.5 million and a working
capital deficit of $0.2 million including a derivative liability of
approximately $0.6 million, after eliminating the derivative liability our
working capital is $0.4 million.
We utilized cash of approximately $1.4 million in operations for each of the six
months ended June 30, 2022 and 2021.
We invested approximately $0.3 million in our e-wallet platforms to enhance our
product offering. We currently anticipate continuing the commercial launch our
e-wallets during the remainder of 2022.
We utilized cash of $1.1 million during the current period to repay a
convertible note together with a prepayment penalty. Cash provided by financing
activities for the six months ended June 30, 2021 was primarily comprised of
gross proceeds of approximately $4.6 million from the private placement on March
17, 2021, approximately $3.0 million from warrants exercised and approximately
$2.6 million from convertible debt issued, we utilized $0.5 million for share
issue expenses and repaid convertible debt of approximately $0.5million during
the period.
At June 30, 2022, we had outstanding notes in the principal amount of
approximately $1.7 million. The notes were issued on February 16, 2021, and the
maturity date was extended from February 16, 2022 to August 16, 2022. The notes
contain certain covenants, such as restrictions on: (i) distributions on capital
stock, (ii) stock repurchases, and (iii) sales and the transfer of assets. The
notes bear interest at a rate of 10% per annum. and are convertible into our
common stock at a conversion price of $0.15 per share (as adjusted for stock
splits, stock combinations, dilutive issuances and similar events). Upon the
occurrence of an event of default under the notes, the respective holder has the
right to be prepaid at 140% of the outstanding principal balance and accrued
interest, and interest accrues at 18% per annum (or the maximum amount permitted
by law). In addition, if an event of default under a note has occurred,
regardless of whether it has been cured or remains ongoing, such Note will
thereafter be convertible at 65% of the lowest closing price of our common stock
for the last 10 consecutive trading days. Should the investors choose not to
convert these convertible notes, we may need to repay these notes together with
interest thereon which will impact on our liquidity.
We expect to invest an additional $150,000 to enhance our e-wallet products,
other capital expenditure is expected to be less than $100,000 during the next
twelve month period. Accordingly, we expect to meet our cash requirements for
the next twelve months, beyond twelve months, we expect to raise either debt or
equity funding and generate revenue from operations to meet cash requirements.
We will also incur costs and expenses on sales and marketing initiatives and for
our general working capital.
However, given our losses and negative cash flows, it is likely that we will be
required to raise significant additional funds to progress our business as
planned by issuing equity or equity-linked securities. Should this occur, our
stockholders would experience dilution, perhaps significantly. Additional debt
financing, if available, may involve covenants restricting our operations or our
ability to incur additional debt. Any additional debt financing or additional
equity that we raise may contain terms that are not favorable to us or our
stockholders and require significant debt service payments, which diverts
resources from other activities. Moreover, there is a risk that financing may be
unavailable to support our operations on favorable terms, or at all.
There is also a significant risk that none of our plans to raise financing will
be implemented in a manner necessary to sustain us for an extended period of
time. If adequate funds are not available to us when needed, we may be required
to continue with reduced operations or to obtain funds through arrangements that
may require us to relinquish rights to technologies or potential markets, any of
which could have a material adverse effect on our company. In addition, our
inability to secure additional funding when needed could cause our business to
fail or become bankrupt or force us to wind down or discontinue operations.
We do not have any off-balance sheet financing arrangements as of the date of
this report.
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