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 focused on the business market and is currently
operational. Our flagship e-wallet, IPSIPay, is focused on the consumer market
and was fully launched in July 2022 after a soft launch in December 2021.
Our platform (which can be used both business-to-business and
business-to-consumer) facilitates 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 third quarter of 2022, we completed the key integration of our
IPSIPay mobile application and back-end payment processing infrastructure
through our commercial partners. Additionally, in July 2022 we entered into an
endorsement agreement with Mexican-American actor and television personality,
Mario Lopez, which we believe will be a significant part of our commercial
launch efforts in our target markets as described below.
In October 2022, we announced that since the commencement of our new IPSIPay
marketing campaign featuring Mr. Lopez in August 2022, we achieved 10,000
downloads of IPSIPay, and of the 10,000 downloads, 1,200 have been converted to
active users with wallets, meaning the users have initiated at least one
transaction via IPSIPay.
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. .
IPSIPay is the digital payment solution provided to us by Frictionless, and
Frictionless continues to provide back-end technical services to our company. 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.
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Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our
Business
Launch and Scaling of E-Wallets
Having achieved full commercial integration and launch of the IPSIPay app during
the third quarter of 2022, the key for our business for the foreseeable future
is to scale the number of IPSIPay and, to a lesser extent, Beyond Wallet
downloads achieved and revenue generated from transactions process by customers
via IPSIPay and Beyond Wallet. Presently, our ability to generate meaningful
revenue from customer use of IPSIPay or Beyond Wallet is limited, given the
relatively recent commencement of launch activities, the relatively limited app
downloads and active users achieved to date and our launch promotional
activities. While we see great potential for our product offerings in our
initial target markets as described above, both the near- and long-term
viability of our business is dependent in large part on our ability to scale our
IPSIPay and Beyond Wallet business and add complimentary offerings (such as our
telemedicine collaboration with MeMD (also known as Walmart Health Virtual
Care), which we announced in October 2022), all with the goal of increasing app
downloads and active users who would generate transaction processing and other
fees for our company.
We expect to generate some initial IPSIPay-related revenue during the fourth
quarter of 2022, with the goal of increasing revenues during 2023. However, our
ability to scale our business and generate revenue is unproven at this time, so
we remain faced with all of the risks associated with launching and seeking to
scale a new business. If we are unable to grow our IPSIPay and Beyond Wallet
business, our business would be severely harmed.
Outstanding Indebtedness
At September 30, 2022, we had outstanding convertible notes (described in note 8
to the accompanying condensed consolidated financial statements) in the
principal amount of approximately $2.2 million. The notes mature on November 16,
2022 and are convertible into shares of our Common Stock at a conversion price
of $0.15 per share (as adjusted for stock splits, stock combinations, dilutive
issuances and similar events). We may be unable to repay these notes on
maturity, and our inability to extent, repay or refinancing this indebtedness
would have a material adverse effect on our ability to operate our company.
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.
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Russia's Invasion of UkraineIn 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.
We have commercially launched our e-wallet platforms which provide online money
transfer and payment services to our customers 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. 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;
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? 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 accompanying 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 September 30, 2022.
Results of Operations
Results of Operations for the Three Months Ended September 30, 2022 and 2021
Net revenue
We did not have revenues during the three months ended September 30, 2022 and
2021. We anticipate that we will commence generating revenue during the fourth
quarter as we have fully launched our IPSIPay e-wallet.
Cost of goods sold
As we did not have revenues during the three months ended September 30, 2022 and
2021, we anticipate that we will begin to recognize cost of goods sold during
the fourth quarter as we have launched our IPSIPay e-wallet.
General and administrative expenses
General and administrative expenses were $2,721,451 and $2,747,693 for the three
months ended September 30, 2022 and 2021, respectively, a decrease of $26,242 or
1.0%. The decrease is primarily due to the following:
(i) Consulting fees were $193,000 and $470,250 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of $277,250. In the
prior year 5,650,000 shares valued at $443,050 were issued to various
consultants for services rendered in connection with developing the
IPSIPay platform, in the current year, we issued a further 4,000,000
shares of our Common Stock to two consultants for marketing efforts
related to our platform, valued at $168,000.
(ii) Payroll expenses were $1,290,681 and $1,437,751 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of $147,070
or 10.2%. The decrease is primarily due to the reduction is stock based
compensation of $140,620 over the prior period based on the amortization
of option and restricted stock expense and shares of Common Stock issued
for salaries.
(iii) Professional fees were $454,613 and $104,756 for the three months ended
September 30, 2022 and 2021, respectively, an increase of $349,857 or
334.0%. The increase is primarily due to; (i) professional fees paid to
Frictionless in managing and providing customer support for the IPSIPay
platform, including expenses incurred on setting up Mexican operations;
and (ii) social media expenses incurred to promote the IPSIPay platform to
our target market.
(iv) Selling and marketing expenses were $412,567 and $2,333 for the three
months ended September 30, 2022 and 2021, respectively, an increase of
$410,234. The increase is primarily attributable to Mario Lopez related
endorsement expenses of $357,370 and marketing expenses of $33,553
incurred during the current period to promote the launch of the IPSIPay
wallet and platform.
(v) Legal fees were $213,760 and $39,025 for the three months ended September
30, 2022 and 2021, respectively, an increase of $174,735.The increase is
primarily due to legal expenses incurred on labor disputes filed by
several employees who were severed in the prior year.
(vi) Directors fees were $30,000 and $583,006 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of $553,006,
primarily due to the prior year issuance of 7,000,000 shares of Common
Stock to directors valued at $538,300.
(vii) The balance of the general and administrative expenses increased by
approximately $16,258, which is made up of several individually
insignificant expenses.
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Depreciation and amortization
Depreciation was $20,500 and $4,642 for the three months ended September 30,
2022 and 2021, respectively, an increase of $15,858 or 341.6%, the increase is
primarily due to the amortization of the IPSIPay intangible which was brought
into use during the current period.
Penalty on convertible notes
Penalty on convertible notes was $602,100 and $0 for the three months ended
September 30, 2022 and 2021, an increase of $602,100 or 100.0%. The increase is
due to the modification of the maturity date of two convertible notes, resulting
in the negotiation of a 20% repayment penalty on the convertible notes and the
value of the warrants to purchase 6,000,0000 shares of our Common Stock that
were issued to the note holders as additional compensation for extending the
maturity date to November 16, 2022.
Interest expense, net
Interest expense was $51,340 and $53,903 for the three months ended September
30, 2022 and 2021, respectively, a decrease of $2,563 or 4.8%. 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 $515,200 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of $515,200 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 $84,895 and $1,578,361 for the three months
ended September 30, 2022 and 2021, respectively, a decrease of $1,493,466 or
94.6%. 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 $3,310,496 and $1,743,077 for the three months ended September 30,
2022 and 2021, respectively, an increase in loss of $1,567,419 or 89.9%. The
increase is primarily due to the increase in penalty on convertible notes and
the reduction in the derivative liability movement, offset by the reduction in
amortization of debt discount, as discussed above.
Results of Operations for the Nine Months Ended September 30, 2022 and September
30, 2021
Net revenue
We did not have revenues during the nine months ended September 30, 2022 and
2021. We anticipate that we will commence generating revenue during the fourth
quarter as we have fully launched our IPSIPay e-wallet.
Cost of goods sold
As we did not have revenues during the nine months ended September 30, 2022 and
2021, we anticipate that we will begin to recognize cost of goods sold during
the fourth quarter as we have launched our IPSIPay e-wallet.
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General and administrative expenses
General and administrative expenses were $4,386,375 and $9,457,134 for the nine
months ended September 30, 2022 and 2021, respectively, a decrease of $5,070,759
or 53.6%. The decrease is primarily due to the following:
(i) Consulting fees were $247,900 and $1,313,134 for the nine months ended
September 30, 2022 and 2021, respectively, a decrease of $1,065,234. In
the prior year 10,000,000 shares valued at $938,000 were issued to 4
advisory board members and a third party as compensation for their
services and consulting fees of $60,000 were paid to our previous CTO.
(ii) Payroll expenses were $1,998,232 and $6,656,270 for the nine months ended
September 30, 2022 and 2021, respectively, a decrease of $4,658,038 or
70.0%. The decrease is primarily due to the issue of warrants exercisable
for 20,000,000 shares of Common Stock to our CEO in the prior period with
a fair value of $4,327,899 and restricted Common 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 our current CFO.
(iii) Professional fees were $734,300 and $226,866 for the nine months ended
September 30, 2022 and 2021, respectively, an increase of $507,434, or
223.7%. The increase is primarily due to; (i) professional fees paid to
Frictionless in managing and providing customer support for the IPSIPay
platform, including expenses incurred on setting up Mexican operations;
and (ii) social media expenses incurred to promote the IPSIPay platform to
our target market.
(iv) Selling and marketing expenses were $498,494 and $119,514 for the nine
months ended September 30, 2022 and 2021, respectively, an increase of
$378,980. The increase is primarily attributable to Mario Lopez related
endorsement expenses of $357,370 and an increase in marketing expenses of
$40,363 incurred during the current period to promote the launch of the
IPSIPay wallet and platform.
(v) Legal fees were $335,846 and $171,866 for the nine months ended September
30, 2022 and 2021, respectively, an increase of $163,980.The increase is
primarily due to legal expenses incurred on labor disputes filed by
several employees who were severed in the prior year.
(vi) Directors fees were $90,000 and $681,614 for the nine months ended
September 30, 2022 and 2021, respectively, a decrease of $591,614,
primarily due to the prior year issuance of 7,000,000 shares of Common
Stock to directors valued at $538,300.
(iv) The balance of the general and administrative expenses decreased by
$193,733, which is made up of several individually insignificant expenses.
Depreciation
Depreciation was $29,493 and $13,293 for the nine months ended September 30,
2022 and 2021, respectively, an increase of $16,200 or 121.9%, primarily due to
the amortization of the IPSIPay platform which commenced during the third
quarter.
Penalty on convertible notes
Penalty on convertible notes was $1,321,658 and $0 for the nine months ended
September 30, 2022 and 2021, an increase of $1,321,658, 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 during the first and the third quarters,
respectively, resulting in the triggering of the repayment penalty per the
convertible note agreements as well as additional penalties for the extension of
the maturity date.
Loss on debt conversion
Loss on debt conversion was $0 and $5,184,447 for the nine months ended
September 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 nine months
ended September 30, 2021.
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Interest expense, net
Interest expense was $142,302 and $174,587 for the nine months ended September
30, 2022 and 2021, respectively, a decrease of $32,285 or 18.5%. 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 $3,138,452 for the nine months
ended September 30, 2022 and 2021, respectively, a decrease of $2,875,252 or
91.6%. 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.
Derivative liability movements
Derivative liability movements were $(65,046) and $4,714,451 for the nine months
ended September 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 $6,208,074 and $13,253,462 for the nine months ended September 30,
2022 and 2021, respectively, a decrease in loss of $7,045,388, or 53.2%. 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 $48.3 million through September
30, 2022 and incurred negative cash flow from operations of $2.3 million for the
nine months ended September 30, 2022. Our primary focus is on 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 September 30, 2022, we had cash of approximately $1.35 million and a working
capital deficit of $2.0 million including a derivative liability of
approximately $0.7 million, after eliminating the derivative liability our
working capital is $1.3 million.
We utilized cash of approximately $2.3 million and $1.9 million in operations
for each of the nine months ended September 30, 2022 and 2021, respectively.
We invested approximately $0.6 million during the first nine months of 2022 in
our e-wallet platforms to enhance our product offering.
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 nine months ended September 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 prior period.
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At September 30, 2022, we had outstanding notes in the principal amount of
approximately $2.2 million. The notes were issued on February 16, 2021, and the
maturity date was extended from February 16, 2022 to August 16, 2022 and again
to November 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 shares of 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 $250,000 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, and 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, 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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INNOVATIVE PAYMENT SOLUTIONS, INC. 
