IPSI Innovative Payment Solutions Inc (QB)

On May 12, 2023, the Company entered into an Agreement with Frictionless (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; (ii) the warrant to purchase 1,000,000 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 (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 was a credit against potential future services to be provided by Frictionless to the Company in an amount up to $250,000. As a result of the novation agreement with Frictionless discussed below, the Company no longer utilizes, and does not expect to utilize, the services of Frictionless for the foreseeable future. The collectability of the remaining credit receivable of $231,431 was impaired.

On August 30, 2023, the Company implemented a 1 for 30 reverse stock split of its Common Stock. Unless the context expressly requires otherwise, as used in this Report, all share and per share numbers reflect such reverse stock split.

On September 5, 2023, the Company’s entered into a novation agreement whereby it assigned all its rights and interest in its e-wallet product, IPSIPay, and its receivables and payables due from and to Frictionless, related to IPSIPay, to a third party in order to concentrate all of its efforts on the IPSIPay Express LLC (“IPSIPay Express”) joint venture. See note 1(b) for further information.

The Company is currently a fintech provider of digital payment solutions presently focused on, through its participation in IPSIPay Express, developing a new account-to-account payment application called Instant Direct Payments 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.

IPSIPay Express

On April 28, 2023, the Company formed a new company called IPSIPay Express. This entity was formed as a Delaware limited liability company joint venture with OpenPath, Inc. (“OpenPath”) and EfinityPay, LLC (“EfinityPay”, and the Company, collectively with OpenPath and EfinityPay, the “Members”) to develop and market a proprietary consumer to merchant real-time payment platform initially focused on the fast-growing online gaming and entertainment sectors.

On June 19, 2023, the Company entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”) with OpenPath and EfinityPay to jointly provide for the governance of and rights of the Members with respect to IPSIPay Express. The effective date of the Operating Agreement is April 28, 2023.

IPSIPay Express was formed by the Members with the initial business purposes of providing credit card processing solutions and also a proprietary solution for real time bank-to-bank payment transactions in a manner that provides seamless and frictionless consumer and merchant experiences, with an initial focus on merchants operating in gaming and entertainment sectors. Such solutions are collectively referred to herein as “IPEX.”

Pursuant to the Operating Agreement, the Company agreed to contribute cash to or on behalf IPSIPay Express to be used for the IPEX business in the aggregate amount of up to $1,500,000 (the “IPSI Capital Contribution”). The Company was required to make the IPSIPay Capital Contribution in three tranches of $500,000 (each, a “Tranche”), or such lesser amounts as may be unanimously approved by the Board of Managers of IPSIPay Express. With the full funding of each Tranche, the Company will automatically receive an 11.11% membership interest in IPSIPay Express (or a pro rata portion thereof if less than a full Tranche is funded), and OpenPath and EfinityPay’s percentage interest in IPSIPay Express will be reduced pro rata accordingly. Should the Company contribute the full IPSI Capital Contribution, the Members will each own one-third (1/3) of the membership interests in IPSIPay Express. The IPSI Capital Contribution has been or will be made by the following dates and in the following amounts: (i) $200,000 of the initial Tranche was paid by the Company on June 21, 2023; (ii) the $300,000 balance of the initial Tranche was paid on August 4, 2023; (iii) the second $500,000 Tranche was paid in September 2023 and (iv) the third $500,000 Tranche was expected to be paid on or before November 30, 2023. In late 2023, the Company agreed with its joint venture partners that such investment was not required as IPEX is not operational. The need for any additional advances will be addressed with the joint venture partners once IPEX becomes operational and begins generating revenue, the Company’s current equity holding in IPSIPay Express remains at 22%.

Simultaneously with the funding of the initial Tranche, the Company issued to each of OpenPath and EfinityPay a five-year Common Stock purchase warrant (the “IPEX Warrant”) to purchase 133,334 shares of Common Stock with an exercise price of $0.45 per share. We are still obligated to issue to each of OpenPath and EfinityPay an additional IPEX Warrant to purchase 199,999 shares of Common Stock with an exercise price equal to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the initial Tranche. Simultaneously with the funding of the second Tranche, we are obligated to issue to each of OpenPath and EfinityPay an additional IPEX Warrant to purchase 166,667 shares of Common Stock with an exercise price equal to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the second Tranche. Should we decide to fund a third Tranche, we will be obligated to issue to each of OpenPath and EfinityPay an additional IPEX Warrant to purchase 166,667 shares of Common Stock with an exercise price equal to the average public closing price of the Common Stock for the three trading days immediately prior to the funding of the third Tranche. If the full IPSI Capital Contribution is funded, OpenPath and EfinityPay will receive IPEX Warrants to purchase an aggregate of 1,333,334 shares of Common Stock.

On July 28, 2024, the Company entered into an Agreement and Plan of Merger (the “BW Merger Agreement”), by and among the Company, IPSI Merger Sub, Inc., a Delaware corporation and a newly formed, wholly owned subsidiary of the Company (“Merger Sub”) and Business Warrior.

Pursuant to the BW Merger Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the BW Merger Agreement (the “Closing”), Merger Sub will merge with and into Business Warrior (the “BW Merger” and, together with the other transactions contemplated by the BW Merger Agreement, the “BW Transactions”), with Business Warrior continuing as the surviving Wyoming corporation in the BW Merger and a wholly owned subsidiary of the Company.

Subject to the terms and conditions set forth in the BW Merger Agreement, at the effective time of the BW Merger (the “Effective Time”): (i) each outstanding share of common stock, par value $0.0001 per share, of Business Warrior (“Business Warrior Common Stock”), other than treasury shares and shares as to which appraisal rights have been exercised, will be automatically converted into the right to receive a number of shares of Common Stock equal to the Applicable Per Share Portion (as defined in the BW Merger Agreement) of the BW Merger Consideration (as defined below), (ii) each outstanding share of preferred stock of Business Warrior (“Business Warrior Preferred Stock”), other than treasury shares and shares as to which appraisal rights have been exercised, will be automatically converted into the right to receive a number of shares of Common Stock equal to the Applicable Per Share Portion (as defined in the BW Merger Agreement) of the BW Merger Consideration (as defined below) had such share of Business Warrior Preferred Stock been converted into shares of Business Warrior Common Stock immediately prior to the Effective Time and (iii) any other options, warrants or rights to subscribe for or purchase any capital stock of Business Warrior or securities convertible into or exchangeable for, or that otherwise confer on the holder any right to acquire any capital stock of Business Warrior, if not exercised or converted prior to the Effective Time, shall be cancelled, retired and terminated.

Merger Consideration 

Pursuant to the terms of the BW Merger Agreement, the consideration to be delivered to the holders of Business Warrior Common Stock and Business Warrior Preferred Stock in connection with the BW Merger Consideration (the “BW Merger Consideration”) will be a number of newly issued shares of Common Stock representing forty-five percent (45%) of the Common Stock outstanding immediately following the Closing, and after giving effect to the conversion, exercise or cancellation of the Business Warrior Preferred Stock and other Business Warrior securities referred to above.

Representations and Warranties

The BW Merger Agreement contains representations and warranties of each of the Company, Merger Sub and Business Warrior that are customary for similar transactions and that include certain qualifications and customary exceptions, as applicable.

Covenants of the Parties

The BW Merger Agreement includes customary covenants of the parties with respect to, among others things, (i) operation of their respective businesses prior to consummation of the BW Merger and efforts to satisfy conditions to consummation of the BW Merger, (ii) access to information, (iii) cooperation in the preparation of the registration statement on Form S-4 (as may be amended or supplemented from time to time, the “Registration Statement”) which the Company is expected to file with the U.S. Securities and Exchange Commission (“SEC”) in connection with the BW Merger and the Transactions, (iv) use of reasonable best efforts to obtain regulatory approvals, (v) notification of the other party of certain breaches, (vi) Section 16 matters, (vii)  indemnification of directors and officers and tail insurance and (viii) obtaining all requisite approvals of each party’s respective stockholders. Additionally, Business Warrior has agreed not to solicit or enter into a competing alternative transaction (an “Alternative Transactions”), subject to the fiduciary duties of the board of directors Business Warrior, in accordance with customary terms and provisions set forth in the BW Merger Agreement.

The parties agreed to take all necessary actions to cause the Company’s board of directors immediately after Closing to consist of five directors, including: (i) two persons who are designated by the Company prior to Closing, (ii) two persons who are designated by Business Warrior prior to Closing and (iii) one person mutually agreed upon by the Company and Business Warrior.

Conditions to Consummation of the Merger; Convertible Note Exchange

Each party’s obligation to consummate the BW Merger is conditioned upon, among other things: (i) approval by the Company stockholders of the amendment to its certificate of incorporation (“the Company Stockholder Approval”), (ii) approval by Business Warrior stockholders of the BW Merger and related transactions and matters (“Business Warrior Stockholder Approval”), (iii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and all other requisite regulatory approval, (iv) the absence of any applicable law or order that makes illegal, or prohibits or prevents, the Transactions and (v) the Registration Statement having become effective in accordance with the provisions of the Securities Act of 1933, as amended (“Securities Act”).

In addition, each party’s obligation to consummate the BW Merger is conditioned upon the following agreements being in full force and effect: (i) exchange agreements, to be entered into by and among the Company, Business Warrior and each holder of the outstanding convertible notes of the Company (the “Company Exchange Agreements”), pursuant to which each outstanding convertible note of the Company will be exchanged for shares of newly-issued shares of a newly designated Series A Convertible Preferred Stock of the Company (the “Company Series A Preferred”) and (ii) exchange agreements, to be entered into by and among the Company, Business Warrior and each holder of the outstanding convertible notes of Business Warrior (the “Business Warrior Exchange Agreements”), pursuant to which each outstanding convertible note of Business Warrior will be exchanged for shares of newly-issued shares of Company Series A Preferred. The designation of the Company Series A Preferred is subject to the Company Stockholder Approval. Further, as of the date of this Report, the terms of the Company Series A Preferred remain subject to negotiation between the Company, Business Warrior and the holders of such convertible notes. The Company and Business Warrior have certain convertible note holders in common.

In addition, the Company’s obligation to consummate the BW Merger is conditioned upon, among other things: (i) the representations and warranties of Business Warrior being true and correct on and as of the Closing Date (as defined in the Merger Agreement) as if made on the Closing Date (subject to certain exceptions and an overall “Material Adverse Effect” standard), (ii) Business Warrior having performed in all material respects all of its obligations and complied in all material respects with all of its agreements and covenants under the BW Merger Agreement to be performed or complied with by it on or prior to the Closing Date and (iii) receipt by the Company of each Lock-Up Agreement (as defined below) and Employment Agreement (as defined in the BW Merger Agreement).

Business Warrior’s obligation to consummate the BW Merger is further conditioned upon, among other things: (i) the representations and warranties of the Company being true and correct on and as of the Closing Date as if made on the Closing Date (subject to certain exceptions and an overall “Material Adverse Effect” standard) and (ii) the Company and Merger Sub having performed in all material respects all of its obligations and complied in all material respects with all of its agreements and covenants under the BW Merger Agreement to be performed or complied with by it on or prior to the Closing Date.

Termination

The BW Merger Agreement may be terminated at any time prior to the Effective Time by either the Company or Business Warrior if the BW Merger and related transactions are not consummated on or before the seven-month anniversary of the date of the Merger Agreement (the “Termination Date”), provided that the Termination Date shall be automatically extended to the nine-month anniversary of the BW Merger Agreement if the conditions to closing, other than receipt of the Company Stockholder Approval and Business Warrior Stockholder Approval, effectiveness of the Registration Statement and that the Company Exchange Agreements and Business Warrior Exchange Agreements are in full force and effect, have been satisfied.

The BW Merger Agreement may also be terminated under certain other customary and limited circumstances at any time prior the Closing, including, among other reasons (i) by mutual written consent of the Company and Business Warrior, (ii) by written notice by either the Company or Business Warrior if a governmental authority of competent jurisdiction shall have issued an order or taken any other action permanently restraining, enjoining or otherwise prohibiting the BW Merger, and such order or other action has become final and non-appealable, (iii) by written notice by Business Warrior of the Company’s or Merger Sub’s uncured breach of a representation, warranty, or covenant contained in the BW Merger Agreement that would cause the related condition to closing to not be satisfied, (iv) by written notice by the Company of Business Warrior’s uncured breach of a representation, warranty, or covenant contained in the BW Merger Agreement that would cause the related Closing condition to not be satisfied or a material breach of a Business Warrior Voting and Support Agreement (as defined below), (v) by either the Company or Business Warrior if Business Warrior holds its stockholder meeting to approve the BW Merger Agreement and the BW Merger, and Business Warrior Stockholder Approval is not obtained, (vi) by the Company if Business Warrior’s board of directors has failed to recommend or shall have withdrawn, amended or modified in any respect materially adverse to the Company its recommendation of the BW Merger Agreement or shall have recommended another proposal for an Alternative Transaction or accepted a Superior Proposal (as defined in the BW Merger Agreement) and (vii) by Business Warrior if, prior to receipt of Business Warrior Stockholder Approval, Business Warrior accepts a Superior Proposal, subject to the terms and conditions of the BW Merger Agreement.

Governing Law

The Merger Agreement is governed by the laws of the State of New York and the parties are subject to the jurisdiction of any New York state court or any federal court sitting in the State of New York in any action arising out of or relating to the Merger Agreement.

Certain Agreements Related to the Merger Agreement

Business Warrior Voting and Support Agreements

In connection with the execution of the Merger Agreement, on July 29, 2024, certain stockholders of Business Warrior, including Rhett Doolittle and Jonathan Brooks, the Chief Executive Officer and President, respectively, of Business Warrior (the “Business Warrior Holders”) entered into support agreements with the Company (the “Business Warrior Voting and Support Agreements”), pursuant to which such Business Warrior Holders agreed, among other things, to vote all shares of capital stock of Business Warrior beneficially owned by the Business Warrior Holders (the “Business Warrior Shares”) in favor of the BW Merger and related transactions. Such Business Warrior Holders also agreed to take certain other actions in support of the BW Merger Agreement and related transactions (and any actions required in furtherance thereof) and refrain from taking actions that would adversely affect such Business Warrior Holders’ ability to perform their obligations under the Business Warrior Voting and Support Agreement. Pursuant to the Business Warrior Voting and Support Agreements, the Business Warrior Holders also agreed not to transfer the Business Warrior Shares during the period from and including the date of the Business Warrior Voting and Support Agreement and the first to occur of the Effective Time or the date on which the Business Warrior Support Agreement is terminated, except for certain permitted transfers where the recipient also agrees to comply with the Business Warrior Voting and Support Agreement.

Lock-Up Agreements

Concurrently with and effective upon the Closing, officers, directors and certain stockholders of Business Warrior (each, a “Significant Stockholder”) shall each enter into a Lock-Up Agreement with the Company (each, a “Lock-Up Agreement”). Pursuant to the Lock-Up Agreements, with respect to the shares received as BW Merger Consideration, each Significant Stockholder may not, with limited exceptions, transfer shares, or publicly disclose the intention to transfer shares until the twelve-month anniversary of the Closing.

The assets and liabilities disposed of were as follows:

2024 Notes

Between May 29, 2024 and September 9, 2024, the Company entered into five Securities Purchase Agreements with three accredited investors, pursuant to which the Company issued five non-convertible promissory notes (the “2024 Notes”) with an aggregate principal amount of $311,111 for gross proceeds of $233,333, after taking into account an aggregate original issuance discount of $77,778.

The 2024 Notes mature between February 28, 2025 and June 6, 2025 and bear interest at 8.5% per annum.

The 2024 Notes have restrictions relating to fundamental transactions which require the approval of the note holder, in addition the note holder has an optional redemption right on subsequent transactions that may require the Company to redeem all or part of the Note, at a premium of 120% of the cash amount of the Note, at the note holder’s discretion.

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 $0.345 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 $4.50 to $0.345 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 ratchet provisions of certain of the warrants issued to the Cavalry and Mercer amounting to $841,003, the amendment of the Cavalry/Mercer Notes was determined to be a debt extinguishment.

Effective December 30, 2023, on February 27, 2024, the Company again extended the maturity dates of each of the Cavalry/Mercer Notes to April 30, 2024, with an automatic one-month extension each month until such time as the note is declared to be in default, other than the maturity date all other terms remained the same. The Company performed an analysis in terms of ASC 470 and it was determined that the extension was a debt modification, in addition, no additional consideration was paid for the maturity date extension.

Convertible notes payable consists of the following: