Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our audited annual financial statements and the related notes thereto, each of which appear elsewhere in this Annual Report. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading "About Forward-Looking Statements" in this Annual Report. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties. The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Innovate Payment Solutions.

Overview

We are a fintech provider of digital payment solutions presently focused on, through our participation in IPSIPay Express, developing a new account-to-account payment application called Instant Settlement in RealTime as well as traditional credit card processing services. We have 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.

Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business

Development of IPSIPay Express

Our principal business as of the date of this Report consists of our participation in the IPSIPay Express joint venture. Since May 2023, we have been working with our joint venture partners OpenPath and EfinityPay to establish the necessary elements to commercially launch IPEX. This remains our top business priority. As described in Item 1. Business, we have been responsible for certain key aspects of establishing and launching IPEX. We will continue these efforts during 2025, and our results of operations for 2024 should be viewed in light of our work on IPEX. No assurances can be given that we will be able to launch IPEX with our joint venture partners or that IPSIPay Express will generate revenues for us.

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. Changes and fluctuations in the foreign exchange rate between the US Dollar and other foreign currencies may in future have an effect our results of operations.

Results of Operations for the years Ended December 31, 2024 and December 31, 2023

Net revenue

We had revenue of $0 and $410 for the years ended December 31, 2024 and 2023, respectively. We pivoted to focus our attention on the IPSIPay Express joint venture, where we expect to generate initial revenues during the 2025 fiscal year, dependent on product testing, which is currently underway, and market acceptance. We are focusing all of our efforts on developing and launching IPSIPay Express, which we believe has a higher possibility for revenue generation in the near and longer term.

Cost of goods sold

We had cost of goods sold of $0 and $3,547 for the years ended December 31, 2024 and 2023, respectively. In the prior year cost of goods sold of bank and merchant related fees and chargebacks.

General and administrative expenses

General and administrative expenses were $1,883,257 and $3,576,352 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,693,095 or 47.3%. The decrease is primarily due to the following;

(i)

Salaries and wages were $979,514 and $1,114,424 for the years ended December 31, 2024 and 2023, respectively, a decrease of $134,910 or 12.1%. The decrease is primarily due to the following; (i) the decrease in compensation of $223,882, primarily due to the voluntary reduction of salary by our CEO and a reduction in health care benefits no longer offered to executives, (ii) a reduction in stock based compensation of $157,440 due to the full vesting of all options during the current year; (iii) a reduction in employer taxation of $30,781 due to the reduction in salaries discussed above; and offset by (iv) an increase in severance accrual of $278,000 due to the settlement of the Voloshin matter in March 2025.

(ii)

Professional fees were $43,726 and $620,381 for the years ended December 31, 2024 and 2023, respectively, a decrease of $576,655 or 93.0%. The decrease is primarily due to a decrease in fees paid to Frictionless of $490,293 due to the disposal and novation of all of the IPSIPAY operations in the prior year and a reduction in solicitation agent fees of $71,180, the solicitation agent was used during our 2023 annual general meeting.

(iii)

Legal fees were $414,801 and $965,989 for the years ended December 31, 2024 and 2023, respectively, a decrease of $551,188 or 57.1%, primarily related to a reduction in legal activity and therefore expenses on the two ongoing legal matters. Management is mobbing towards settling the one matter with the other matter still ongoing.

(iv)

Selling and marketing costs were $154,864 and $428,909 for the years ended December 31, 2024 and 2023, respectively, a decrease of $274,045 or 64.0%. The decrease is due to a decrease in endorsement fees of $141,423 related to the conclusion of the three year marketing deal with Mario Lopez in July 2024 and a reduction in direct marketing and social marketing spend of $132,622 due to the strategic shift away from the e-wallet business as we focus our attention ion the IPSIPay Express joint venture.

(v)

Insurance expense was $793 and $105,380 for the years ended December 31, 2024 and 2023, respectively, a decrease of $104,587 or 99.2%, primarily due to the cancellation of certain policies during the prior year.

(vi)

Consulting fees were $83,913 and $108,000 for the years ended December 31, 2024 and 2023, respectively, a decrease of $24,087 or 22.3%. The decrease is primarily due to the decrease in technical consulting expenses of $24,087 as we focus our attention on the IPSIPay Express joint venture.

(vii)

Directors' fees were $36,000 and $52,500 for the years ended December 31, 2024 and 2023, respectively, a decrease of $16,500 or 31.4%, due to the resignation of a director, who was not replaced during the prior year.

(viii)

Other general and administrative expenses were $169,646and $180,769 for the years ended December 31, 2024 and 2023, respectively, a decrease of $11,173 or 6.2%. The decrease is made up of several individually insignificant balances, in line with management's overall objective of decreasing operational expenditure during the 2024 fiscal year.

Depreciation

Depreciation was $2,169 and $380,634 for the years ended December 31, 2024 and 2023, respectively, a decrease of $378,465 or 99.4%. The decrease is primarily due to the depreciation of the software platform and purchased software of $374,298, prior to the novation of the platform to a third party during the prior year.

Loss on convertible notes

Loss on convertible notes was $4,764,680 and $164,323 for the years ended December 31, 2024 and 2023, respectively, an increase of $4,600,357. The loss on convertible notes during the current year related to; (i) a loss of $4,318,669 realized on an anti-dilution adjustment to the conversion feature of certain convertible notes; (ii) a loss of $56,329 realized on the conversion feature of a convertible note which through a no notice default clause, triggered a variable priced conversion liability; (iii) a loss of $170,246 realized on conversion of certain convertible notes at prices lower than the current market price during the current year; (iv) a loss on debt extinguishment of $102,353 and (v) a penalty incurred on default of convertible notes and penalties on conversion amounting to $117,083. In the prior year, the loss on debt conversion was $90,761 and penalty on default was $9,306. In addition, an expense was incurred on debt extinguishment of $64,256 by extending the maturity date of certain convertible notes.

Fair value on price protected warrants

Fair value on price protected warrants was $2,051,405 and $0 for the years ended December 31, 2024 and 2023, respectively. During the current year the exercise price of certain warrants were reset due to the anti-dilution price protection and in the case of certain warrants, full ratchet price protection, from an exercise price of $0.345 to $0.084. This resulted in a Black -Scholes derived valuation difference related to those certain warrants of $2,051,405.

Loss on novation

Loss on novation was $0 and $1,066,165 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,066,165 or 100%. In the prior year, the loss on novation arose due the novation of the IPSIPay platform and all rights and obligations associated with the service agreement with Frictionless to a third party.

Fair value of warrants issued

Fair value of warrants issued was $0 and $14,176 for the years ended December 31, 2024 and 2023, respectively, a decrease of $14,176 or 100.0%. In the prior year, we issued a replacement warrant exercisable for 33,334 shares to an investor.

Interest expense

Interest expense was $603,588 and $424,117 for the years ended December 31, 2024 and 2023, respectively, an increase of $179,471 or 42.3%. The increase is related to new convertible note funding of $885,502, less repayments of $381,832 and $577,778 of promissory note funding during the current year for working capital purposes.

Interest income

Interest income was $32,838 and $0 for the years ended December 31, 2024 and 2023, respectively, an increase of $32,838 or 100.0%. The interest income relates to funds advanced to Business Warrior prior to the cessation of our merger plans with them.

Amortization of debt discount

Amortization of debt discount was $1,037,914 and $770,372 for the years ended December 31, 2024 and 2023, respectively, an increase of $267,542 or 34.7%. The increase is primarily due to the amortization of debt discount on convertible notes carried over from the prior year and additional debt discount on new convertible notes issued during the current year to fund working capital.

Derivative liability movements

Derivative liability movements were $6,892,395 and $1,501,446 for the years ended December 31, 2024 and 2023, respectively, an increase of $5,390,949 or 359.1%. The derivative liability arose primarily due to the revaluation of certain repriced conversion features on convertible notes and the reset of the exercise price and full ratchet reset of certain warrants during the current year, and the subsequent mark-to-market of these derivatives due to a declining stock price on the exercise of certain convertible notes during the current year.

Operating loss from equity method investment

Net loss from equity method investment was $819 and $403,282 for the years ended December 31, 2024 and 2023, respectively, a decrease of $402,463 or 99.8%. The loss in the prior year related is due to the dilutive effect of withdrawals of cash out of the joint venture by the other joint venture parties, impacting on the overall value of the. IPSIPay Express Joint venture attributes to the Company.

Impairment of equity method investments

Impairment of equity method investments was $705,142 and $0 for the years ended December 31, 2024 and 2023, respectively, an increase of $705,142 or 100.0%. The equity method investment was impaired due to uncertainty as to when, the joint venture will begin generating revenues and the certainty of future business prospects at this time.

Net loss from continuing operations

Net loss from continuing operations was $4,126,341 and $5,301,112 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,174,771 or 22.2%. The decrease is primarily due to the decrease in general and administrative expenses, a decrease in depreciation and amortization, a decrease in loss on novation and the movement in derivative liability, offset by an increase in loss on convertible notes and fair value of price protected warrants, as discussed in detail above.

Operating loss from discontinued operations

Operating loss from discontinued operations was $0 and $40,821 for the years ended December 31, 2024 and 2023, respectively, a decrease of $40,821 or 100.0%. On May 12, 2023, we entered into an agreement with Frictionless to unwind the equity ownership stakes that we and Frictionless have in each other and in Beyond Fintech. We assigned to Frictionless all common stock of Frictionless owned by us and all shares of common stock of Beyond Fintech owned by us.

Loss on disposal of subsidiary

Loss on disposal of subsidiary was $0 and $495,424 for the years ended December 31, 2024 and 2023, respectively, a decrease of $495,424 or 100.0%. This relates to the unwinding of our relationship with Frictionless as described above. The consideration received by us for the assignment of our equity in Beyond Fintech to Frictionless was $250,000, resulting in a net loss on disposal of $495,424.

Net loss

Net loss was $4,126,341 and $5,837,357 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,711,016 or 29.3%. the decrease is primarily attributable to the decrease in net loss from continuing operations and the decrease in loss on disposal of subsidiary and investment, as described above.

Net loss attributable to non-controlling interest

Net loss attributable to non-controlling interest was $0 and $1,597 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,597 or 100.0%. We disposed of our Beyond Fintech subsidiary in the prior year, thereby eliminating minority shareholders' interests.

Deemed dividend

Deemed dividend was $426,807 and $0 for the years ended December 31, 2024 and 2023, respectively, an increase of $426,807 or 110.0%. the deemed dividend in the current period related to a full rachet anti-dilution adjustment to certain fixed exercise price warrants issued to a convertible note holder during the current year. The deemed dividend was recorded as a component of additional paid in capital.

Net loss attributable to Innovative Payment Solutions Inc., stockholders

Net loss was $4,553,148 and $5,835,760 for the years ended December 31, 2024 and 2023, respectively, a decrease of $1,282,612 or 22.0%. the decrease is primarily attributable to the decrease in net loss and the deemed dividend discussed 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 $62.8 million through December 31, 2024 and incurred negative cash flow from operations of $0.65 million for the year ended December 31, 2024. Our primary focus is on our IPSIPay Express LLC three-way joint venture to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors. To date, this joint venture has not generated revenue, but we believe much of the background work necessary for IPSIPay Express to commence revenue generating operations from payment processing has been completed. No assurances can be given, however, that such revenue generation will commence or be meaningful to us as an approximately 22% joint venture partner in IPSIPay Express.

At December 31, 2024, we had cash of $526 and working capital deficit of $10.4 million, including a derivative liability of $1.1 million. After eliminating the derivative liability our working capital deficit is $9.3 million.

We used cash of $0.65 million and $1.45 million in operations for the years ended December 31, 2024 and 2023, respectively. Overall cash used in operations decreased by $0.8 million due to cost containment to preserve cash balances.

We invested $0.3 million in Business Warrior in the form of notes receivable for strategic purposes during the year ended December 31, 2024. In the prior year we had invested $0.1million in our payment platforms which we subsequently disposed of or novated to other parties and we invested $1.0 million in our equity method investment.

We generated cash of $1.3 million from promissory notes and convertible notes and repaid $0.4 million of convertible notes. In the prior year we generated $2.4 million from convertible notes and repaid $0.3 million.

At December 31, 2024, we had outstanding convertible notes, including interest thereon of $5.0 million, net of unamortized debt discount of $0.1 million and outstanding promissory notes, including interest thereon of $1.7 million, net of unamortized debt discount of $0.1 million. 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 rates ranging from 8% to 24.98% per annum. and are convertible into our common stock at conversion prices ranging from fixed conversion prices of $0.084 per share (as adjusted for stock splits, stock combinations, dilutive issuances and similar events), to variable conversion prices of 60% to 70% of lowest trading prices over a 10 to 20-trading day period. 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.

Given our losses and negative cash flows, we will be required to raise significant additional funds by issuing equity or equity-linked securities to progress our existing business model with IPSIPay Express. 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 or discontinued 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, accordingly, there is substantial doubt relating to our ability to continue as a going concern.

We do not have any off balance sheet financing arrangements as of the date of this Report.

Capital Expenditures

Our capital expenditure is dependent on our cash resources, currently we are not forecasting any additional capital expenditure for the 2025 fiscal year.

Critical Accounting Policies

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 Consolidated Financial Statements included in Part II, Item 8 of this Form 10- K for further information.

Recently Issued Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for information regarding recently issued accounting standards.

Contractual Obligations

We have contractual obligations in the form of notes and convertible notes which are described in the financial statements included as part of this Report.

Inflation

The effect of inflation on the Company's operating results was not significant.

Interest rate sensitivity

We are not subject to interest rate sensitivity; our debt consists primarily of fixed rate convertible debt.