NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
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ORGANIZATION AND DESCRIPTION
OF BUSINESS
|
On May 12, 2016, QPAGOS (formerly
known as Asiya Pearls, Inc.), a Nevada corporation (“QPAGOS”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a
Delaware corporation and wholly owned subsidiary of QPAGOS (“Merger Sub”). Pursuant to the Merger Agreement,
on May 12, 2016, the merger was consummated and Qpagos Corporation and Merger Sub merged (the “Merger”), with Qpagos
Corporation continuing as the surviving corporation of the Merger.
Pursuant to the Merger Agreement,
upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior
to the Merger was converted into the right to receive two shares of QPAGOS common stock, par value $0.0001 per share (the “Common
Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, QPAGOS assumed all of Qpagos Corporation’s
warrants issued and outstanding immediately prior to the Merger, which are now exercisable for approximately 6,219,200 shares of
Common Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the Merger, the then-current
QPAGOS stockholder of 5,000,000 shares of Common Stock agreed to return to QPAGOS 4,975,000 shares of Common Stock held by such
holder to QPAGOS and the then-current QPAGOS stockholder retained an aggregate of 25,000 shares of Common Stock and the other stockholders
of QPAGOS retained 5,000,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos Corporation’s former
stockholders held 49,929,000 shares of QPAGOS common stock which represented approximately 91% of the outstanding Common Stock.
The Merger is being treated as a
reverse acquisition of QPAGOS, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation
is treated as the acquirer for accounting and financial reporting purposes while QPAGOS is treated as the acquired entity for accounting
and financial reporting purposes. Further, as a result, the historical financial statements that are reflected in this Annual Report
on Form 10-K and that will be reflected in the Company’s future financial statements filed with the United States Securities
and Exchange Commission (“SEC”) will be those of Qpagos Corporation, and the Company’s assets, liabilities and
results of operations will be consolidated with the assets, liabilities and results of operations of Qpagos Corporation.
QPAGOS Corporation (“the Company”)
was incorporated on May 1, 2015 under the laws of the state of Delaware to effectuate a reverse merger transaction with Qpagos,
S.A.P.I. de C.V. (Qpagos) and Redpag Electrónicos S.A.P.I. de C.V. (Redpag). Each of the entities were incorporated in November
2013 in Mexico.
QPagos, S.A.P.I. de C.V. was formed
to process payment transactions for service providers it contracts with, and Redpag Electrónicos S.A.P.I. de C.V. was formed
to deploy and operate kiosks as a distributor.
On August 31, 2015, QPAGOS Corporation
entered into various agreements with the shareholders of Qpagos and Redpag to give effect to a reverse merger transaction (the
"Reverse Merger''). Pursuant to the Reverse Merger, the majority of the shareholders of Qpagos and Redpag, effectively received
shares in QPAGOS through various consulting and management agreements entered into with QPAGOS and sold an effective 99.996% and
99.990% of the outstanding shares of Qpagos and Redpag, respectively, to QPAGOS. The series of transactions closed effective August
31, 2015. Upon the close of the Reverse Merger, QPAGOS Corporation became the parent of Qpagos and Redpag and assumed the operations
of these two companies as its sole business.
On May 27, 2016 Asiya changed its
name to QPAGOS. QPAGOS and its direct and indirect subsidiaries Qpagos Corporation, QPagos, S.A.P.I. de C.V. and Redpag Electrónicos
S.A.P.I. de C.V., will be referred to hereafter as “the Company”.
On June 1, 2016, the board of directors
changed the Company’s fiscal year end from October 31 to December 31.
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b)
|
Description of the business
|
QPAGOS Corporation, through its
subsidiaries Qpagos and Redpag, provide physical and virtual payment services to the Mexican market. The Company provides an integrated
network of kiosks, terminals and payment channels that enable consumers in Mexico to deposit cash, convert it into a digital form
and remit the funds to any merchant in our network quickly and securely. The Company helps consumers and merchants connect more
efficiently in markets and consumer segments, such as Mexico, that are largely cash-based and lack convenient alternatives for
consumers to pay for goods and services in physical, online and mobile environments. For example, our licensed technology can be
used to pay bills, add minutes to mobile phones, purchase transportation and tickets, shop online or at a retail store, buy digital
services or send money to a friend or relative.
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2
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ACCOUNTING POLICIES AND
ESTIMATES
|
The accompanying financial statements
have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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2
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ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
All amounts referred to in the notes
to the financial statements are in United States Dollars ($) unless stated otherwise.
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b)
|
Principles of Consolidation
|
The consolidated financial statements
include the financial statements of the Company and its subsidiary in which it has a majority voting interest. All significant
inter-company accounts and transactions have been eliminated in the consolidated financial statements. The entities included in
these consolidated financial statements are as follows:
QPAGOS – Parent Company
Qpagos Corporation – 100%
owned
Qpagos, S.A. P.I de C.V., a Mexican
entity (99.996% owned)
Redpag Electrónicos, S.A.
P.I. de C.V., a Mexican entity (99.990% owned)
The financial statements of the
Company’s Mexican operations are measured using local currencies as their functional currencies.
The Company translates the assets
and liabilities of its Mexican subsidiaries at the exchange rates in effect at year end and the results of operations at the average
rate throughout the year. The translation adjustments are recorded directly as a separate component of stockholders’ equity,
while transaction gains (losses) are included in net income (loss). All sales to customers are in Mexico.
The preparation of consolidated
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions, which are evaluated on
an ongoing basis, that affect the amounts reported in the consolidated financial statements and accompanying notes. Management
bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities and the amounts of
revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and judgments.
In particular, significant estimates and judgments include those related to: the estimated useful lives for plant and equipment,
the fair value of warrants and stock options granted for services or compensation, estimates of the probability and potential magnitude
of contingent liabilities, derivative liabilities, the valuation allowance for deferred tax assets due to continuing operating
losses, those related to revenue recognition and the allowance for doubtful accounts.
Making estimates requires management
to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ
significantly from our estimates.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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2
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ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
Certain conditions may exist as of the date the financial
statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events
occur or fail to occur.
The Company’s management assesses
such contingent liabilities, and such assessment inherently involves an exercise of judgment.
If the assessment of a contingency
indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that
a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then
the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would
be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees,
in which case the guarantee would be disclosed.
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f)
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Fair Value of Financial Instruments
|
The Company adopted the guidance
of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:
Level 1-Inputs are unadjusted quoted
prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable
inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The carrying amounts reported in
the balance sheets for cash, accounts receivable, other current assets, other assets, accounts payable, accrued liabilities, and
notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company did not
identify any other assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with
the accounting guidance.
ASC 825-10 “Financial
Instruments
”
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
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g)
|
Risks and Uncertainties
|
The Company's operations will be
subject to significant risk and uncertainties including financial, operational, regulatory and other risks associated, including
the potential risk of business failure. The recent global economic crisis has caused a general tightening in the credit markets,
lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed
income markets. These conditions not only limit the Company’s access to capital, but also make it difficult for its customers,
vendors and the Company to accurately forecast and plan future business activities.
The Company’s operations are
carried out in Mexico. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environment in Mexico and by the general state of that economy. The Company’s results
may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures,
and rates and methods of taxation, among other things.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
In January 2016
, the Financial
Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2016 – 01
“Recognition and Measurement
of Financial Assets and Financial Liabilities “
intended to improve the recognition and measurement of financial instruments.
The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets
or owe financial liabilities. The new guidance makes targeted improvements to existing GAAP by: Requiring equity investments (except
those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured
at fair value with changes in fair value recognized in net income; Requiring public business entities to use the exit price notion
when measuring the fair value of financial instruments for disclosure purposes; Requiring separate presentation of financial assets
and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on
the balance sheet or the accompanying notes to the financial statements; Eliminating the requirement to disclose the fair value
of financial instruments measured at amortized cost for organizations that are not public business entities; Eliminating the requirement
for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required
to be disclosed for financial instruments measured at amortized cost on the balance sheet, and; Requiring a reporting organization
to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting
from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected
to measure the liability at fair value in accordance with the fair value option for financial instruments. The ASU on recognition
and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the standard becomes
effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December
15, 2019. The ASU permits early adoption of the own credit provision (referenced above). Additionally, it permits early adoption
of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information
about financial instruments measured at amortized cost. This updated guidance is not expected to have a material impact on our
results of operations, cash flows or financial condition.
In February 2016
, the FASB
(FASB) issued an Accounting Standards Update (ASU) No. 2016 – 02,
“Leases”
intended to improve financial
reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate,
office equipment and manufacturing equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to
recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new
guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent
with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash
flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike
current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both
types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial
statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include
qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements.
The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting—will remain
largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary,
lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. The ASU on
leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and
for interim periods within fiscal years beginning after December 15, 2020. This updated guidance is not expected to have a material
impact on our results of operations, cash flows or financial condition.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
In March 2016
, the FASB issued
an Accounting Standards Update (ASU) No. 2016 – 09
“Improvements to Employee Share-Based Payment Accounting”
which is intended to improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based
payment awards to their employees. The ASU, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including; the income
tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows.
The ASU simplifies two areas specific to private companies, with regards to the expected term and intrinsic value measurements.
The ASU simplifies the following areas to private and public companies; (a) tax benefits and tax deficiencies with regards to the
differences between book and tax deductions, (b) changes in the excess tax benefits classification in the statement of cash flows,
(c) make an entity wide accounting policy election for accrual of vested awards verses individual awards, (d) changes in the amount
qualifying as an equity award classification subject to statutory tax withholdings, (e) clarification in the classification of
shares withheld for statutory tax withholdings on the statement of cash flows. For public companies, the amendments in this ASU
are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private
companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual
periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period. This
updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.
In April 2016
, the FASB issued
an Accounting Standards Update (ASU) No. 2016 – 10
“Revenue from Contract with Customers (Topic 606): identifying
Performance Obligations and Licensing “
. The amendments in this Update do not change the core principle of the guidance
in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations
and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation
guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether
an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property
(which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over
time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the
degree of judgement necessary to comply with Topic 606. The amendments in this Update affect the guidance in Accounting Standards
Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and
any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606):
Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. Management is currently evaluating the
impact this updated guidance will have on our results of operations, cash flows or financial condition.
In June 2016, the FASB issued ASU
2016-13, "Measurement of Credit Losses on Financial Instruments." ASU 2016-13 will replace the current incurred loss
approach with an expected loss model for instruments measured at amortized cost and require entities to record allowances for available-for-sale
debt securities rather than reduce the carrying amount under the current other-than-temporary impairment model. ASU 2016-13 is
effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is
permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. We are currently
evaluating the effect ASU 2016-13 will have on our consolidated financial statements.
In August 2016, the FASB issued
ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 is intended to reduce diversity
in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. We are currently
evaluating the effect ASU 2016-15 will have on our consolidated statements of cash flows.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
In October 2016, the FASB issued
Accounting Standards Update No. (“ASU”) 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory."
ASU 2016-16 requires immediate recognition of income tax consequences of intercompany asset transfers, other than inventory transfers.
Existing GAAP prohibits recognition of income tax consequences of intercompany asset transfers whereby the seller defers any net
tax effect and the buyer is prohibited from recognizing a deferred tax asset on the difference between the newly created tax basis
of the asset in its tax jurisdiction and its financial statement carrying amount as reported in the consolidated financial statements.
ASU 2016-16 specifically excludes from its scope intercompany inventory transfers whereby the recognition of tax consequences will
take place when the inventory is sold to third parties. ASU 2016-16 is effective for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual reporting
period for which financial statements have not been issued or made available for issuance. We are currently evaluating the effect
ASU 2016-16 will have on our consolidated financial statements.
In October 2016, the FASB issued
Accounting Standards Update No. (“ASU”) 2016-17, Consolidation (Topic 810): Amendments to the Consolidation Analysis.
Upon the effective date of Update 2015-02, a single decision maker of a variable interest entity (VIE) is required to consider
indirect economic interests in the entity held through related parties on a proportionate basis when determining whether it is
the primary beneficiary of that VIE unless the single decision maker and its related parties are under common control. If a single
decision maker and its related parties are under common control, the single decision maker is required to consider indirect interests
in the entity held through those related parties to be the equivalent of direct interests in their entirety. The Board is issuing
this Update to amend the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat
indirect interests in the entity held through related parties that are under common control with the reporting entity when determining
whether it is the primary beneficiary of that VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling
financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity has an indirect interest in a VIE if it has
a direct interest in a related party that, in turn, has a direct interest in the VIE. As part of a separate initiative, the Board
will consider whether other changes to the consolidation guidance for common control arrangements are necessary. The amendments
in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal
years. Early adoption is permitted. The Company does not expect this guidance to have a material impact on its financial statements.
In November 2016, the FASB issued
Accounting Standards Update No. (“ASU”) 2016-18, Topic 230, Statement of Cash Flows. Entities classify transfers between
cash and restricted cash as operating, investing, or financing activities, or as a combination of those activities, in the statement
of cash flows.] The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and
are required to present a statement of cash flows under Topic 230. The amendments in this Update require that a statement of cash
flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash
equivalents. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Early adoption is permitted. The amendments in this Update should be applied using a retrospective transition
method to each period presented. We are currently evaluating the effect ASU 2016-18 will have on our consolidated financial statements.
In December 2016, the FASB issued
Accounting Standards Update No. (“ASU”) 2016-19, Technical Corrections and Improvements. Several topics are amended:
|
1.
|
The amendment to Subtopic
350-40, Intangibles—Goodwill and Other— Internal-Use Software, adds a reference to guidance to use when accounting
for internal-use software licensed from third parties that is within the scope of Subtopic 350-40. The transition guidance for
that amendment is the same as the transition guidance in Accounting Standards Update No. 2015-05, Intangibles—Goodwill and
Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement,
to which the amendment relates. The Company does not expect this guidance to have a material impact on its financial statements.
|
|
2.
|
The amendment to Subtopic
360-20, Property, Plant, and Equipment— Real Estate Sales, corrects the guidance to include the final decision of the EITF
that loans insured under the Federal Housing Administration and the Veterans Administration do not have to be fully insured by
those government-insured programs to recognize profit using the full accrual method. The transition guidance for that amendment
must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements.
The Company does not expect this guidance to have a material impact on its financial statements.
|
|
3.
|
The amendment to Topic 820, Fair Value Measurement, clarifies the difference between a valuation approach and a valuation technique when applying the guidance in that Topic. That amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The transition guidance for the amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The Company does not expect this guidance to have a material impact on its financial statements.
|
|
4.
|
The amendment to Subtopic 405-40, Liabilities—Obligations Resulting from Joint and Several Liability Arrangements, which clarifies that for an amount of an obligation under an arrangement to be considered fixed at the reporting date, the amount that must be fixed is not the amount that is the entity’s portion of the obligation but, rather, is the obligation in its entirety. The transition guidance for that amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The Company does not expect this guidance to have a material impact on its financial statements.
|
|
5.
|
The amendment to Subtopic 860-20, Transfers and Servicing—Sales of Financial Assets, aligns implementation guidance in paragraph 860-20- 55-41 with its corresponding guidance in paragraph 860-20-25-11. That amendment clarifies the considerations that should be included in an analysis to determine whether a transferor once again has effective control over transferred financial assets. The transition guidance for that amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The Company does not expect this guidance to have a material impact on its financial statements.
|
|
6.
|
The amendment to Subtopic 860-50, Transfers and Servicing—Servicing Assets and Liabilities, adds guidance that existed in AICPA Statement of 5 Position 01-6, Accounting by Certain Entities (Including Entities with Trade Receivables) That Lend to or Finance the Activities of Others, on the accounting for the sale of servicing rights when the transferor retains loans that was omitted from the Accounting Standards Codification. The transition guidance for the amendment must be applied prospectively because it could potentially involve the use of hindsight that includes fair value measurements. The Company does not expect this guidance to have a material impact on its financial statements.
|
In November 2016, the FASB issued
Accounting Standards Update No. (“ASU”) 2016-20, an amendment to Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (Topic 606). This ASU addressed several areas related to contracts with customers. This topic is not yet
effective and will become effective with Topic 606. We are currently evaluating the effect ASU 2016-20 will have on our consolidated
financial statements.
In January 2017, the FASB issued Accounting
Standards Update No. (“ASU”) 2017-02, an amendment to Topic 805, Business Combinations. The amendments in this Update
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this Update affect all reporting
entities that must determine whether they have acquired or sold a business. The amendments in this Update provide a more robust
framework to use in determining when a set of assets and activities is a business. The amendments in this Update apply to annual
periods beginning after December 15, 2017. The amendments in this Update should be applied prospectively on or after the effective
date. No disclosures are required at transition. The Company does not expect this guidance to have a material impact on its financial
statements.
In January 2017, the FASB issued Accounting
Standards Update No. (“ASU”) 2017-04, an amendment to Topic 350, Intangibles – Goodwill and Other, an entity
no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a
reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Because
these amendments eliminate Step 3 2 from the goodwill impairment test, they should reduce the cost and complexity of evaluating
goodwill for impairment. An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update
are effective for Goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the effect
ASU 2017-04 will have on our consolidated financial statements.
In February 2017, the FASB issued
Accounting Standards Update No. (“ASU”) 2017-05, an amendment to Subtopic 610-20, Other Income—Gains and Losses
from the Derecognition of Nonfinancial Assets The amendments in this Update are required for public business entities and other
entities that have goodwill reported in their financial statements, under the amendments in this Update, an entity should perform
its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The
amendments in this Update modify the concept of impairment from the condition that exists when the carrying amount of goodwill
exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.
An entity no longer will determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair
value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination.
An entity should apply the amendments in this Update on a prospective basis. The amendments in this Update are effective for fiscal
years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates after January 1, 2017. We are currently evaluating the effect ASU 2017-05 will have on our consolidated financial
statements.
Any new accounting standards, not
disclosed above, that have been issued or proposed by FASB that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon adoption.
No segmental information is required
as the Company currently only has one segment of business, providing physical and virtual payment services in the Mexican Market.
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j)
|
Cash and Cash Equivalents
|
The Company considers all highly
liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At December
31, 2016 and December 31, 2015, respectively, the Company had no cash equivalents.
The Company minimizes credit risk
associated with cash by periodically evaluating the credit quality of its primary financial institution in the United States. The
balance at times may exceed federally insured limits. At December 31, 2016, the balance did not exceed the federally insured limit.
At December 31, 2015, the Company had cash balances in the United States, which exceeded the federally insured limits by $531,238.
|
k)
|
Accounts Receivable and Allowance for Doubtful Accounts
|
Accounts receivable are reported
at realizable value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue
is recorded. The Company has a standardized approach to estimate and review the collectability of its receivables based on a number
of factors, including the period they have been outstanding. Historical collection and payer reimbursement experience is an integral
part of the estimation process related to allowances for doubtful accounts. In addition, the Company regularly assesses the state
of its billing operations in order to identify issues, which may impact the collectability of these receivables or reserve estimates.
Revisions to the allowance for doubtful accounts estimates are recorded as an adjustment to bad debt expense. Receivables deemed
uncollectible are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries
of receivables previously written-off are recorded as credits to the allowance for doubtful accounts. There were no recoveries
during the period ended December 31, 2016 and 2015.
|
l)
|
Cost Method Investments
|
Investee companies
not accounted for under the consolidation or the equity method are accounted for under the cost method of accounting. Under
this method, the Company’s share of earnings or losses of such investee companies is not included in the
consolidated balance sheet or statement of operations and comprehensive loss. However, impairment charges are recognized in
the consolidated statement of operations and comprehensive loss. If circumstances suggest that the value of the investee
company has subsequently recovered, such recovery is not recorded. There is no impairment of investment at December 31,
2016.
The Company primarily values inventories
at the lower of cost or market applied on a first-in, first-out basis. The Company identifies and writes down its excess and obsolete
inventories to net realizable value based on usage forecasts, order volume and inventory aging. With the development of new products,
the Company also rationalizes its product offerings and will write-down discontinued product to the lower of cost or net realizable
value.
|
n)
|
Advances received from
customers
|
Other than the sale of kiosks to
customers, the provision of services through our kiosks is conducted on a cash basis. Customers are required to deposit cash with
the Company to meet anticipated demand for services provided through kiosks either owned or operated by them. The services provided
through the customer owned or operated kiosks are deducted from the deposits held on their behalf, the Company requires that these
deposits be replenished as and when the services are provided.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
Plant and equipment is stated at
cost, less accumulated depreciation. Plant and equipment with costs greater than $1,000 are capitalized and depreciated. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets
are as follows:
Description
|
|
Estimated Useful Life
|
Kiosks
|
|
7 years
|
Computer equipment
|
|
3 years
|
Leasehold improvements
|
|
Lesser of estimated useful life or life of lease
|
Office equipment
|
|
10 years
|
The cost of repairs and maintenance
is expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are included in income in the year of disposition.
All of our intangible assets are
subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances
that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to
be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its
book value.
i) License Agreements
License agreements acquired by the
Company are reported at acquisition value less accumulated amortization and impairments.
ii) Amortization
Amortization is reported in the income
statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite.
Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license
agreement is five years which is the expected period for which we expect to derive a benefit from the underlying license agreements.
Assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company’s revenue recognition
policy is consistent with the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
605, Revenue Recognition (ASC 605). In general, the Company records revenue when it is realized, or realizable and earned. The
Company considers revenue to be realized, or realizable and earned when, persuasive evidence of an arrangement exists, the products
or services have been approved by the customer after delivery and/or installation acceptance or performance of services; the sales
price is fixed or determinable within the contract; and collectability is reasonably assured.
The Company has the following sources
of revenue which is recognized on the basis described below.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
|
r)
|
Revenue Recognition
(continued)
|
|
·
|
Revenue from the sale
of services
.
|
Prepaid services are acquired from
providers and is sold to end-users through kiosks that the company owns or kiosks that are owned by third parties. We recognize
the revenue on the sale of these services when the end-user deposits funds into the terminal and the prepaid service is delivered
to the end-user. The revenue is recognized at the gross value, including margin, of the prepaid service to the Company, net of
any value-added tax which is collected on behalf of the Mexican Revenue Authorities.
|
·
|
Payment processing
provided to end-users
|
The Company provides a secure means
for end-users to pay for certain services, such as utilities through our kiosks. The Company earns either a fixed per-transaction
fee or a fixed percentage of the service sold. The Company acts as a collection agent and recognizes the payment processing fee,
net of any value-added taxes collected on behalf of the Mexican Revenue Authorities, when the funds are deposited into the kiosk
and the customer has settled his liability or has acquired a prepaid service.
|
·
|
Revenue from the sale
of kiosks.
|
The Company imports, assembles and
sell kiosks that are used to generate the revenues discussed above. Revenue is recognized on the full value of the kiosks sold,
net of any valued added taxation collected on behalf of the Mexican Revenue Authorities, when the customer takes delivery of the
kiosk and all the risks and rewards of ownership are passed to the customer.
The Company does not enter into
any leasing of kiosks arrangements with customers and we do not generate any revenues from merchants who access our terminals as
yet.
|
s)
|
Share-Based Payment Arrangements
|
Generally, all forms of share-based
payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation
awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair
value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments is recorded
in operating expenses in the consolidated statement of operations.
Prior to the Company’s reverse
merger which took place on May 12, 2016, all share-based payments were based on management’s estimate of market value of
the Company’s equity. The factors considered in determining managements estimate of market value includes, assumptions of
future revenues, expected cash flows, market acceptability of our technology and the current market conditions. These assumptions
are complex and highly subjective, compounded by the business being in its early stage of development in a new market with limited
data available.
Where equity transactions with arms-length
third parties, who had applied their own assumptions and estimates in determining the market value of our equity, had taken place
prior to and within a reasonable time frame of any share-based payments, the value of those share transactions have been used as
the fair value for any share-based equity payments.
Where equity transactions with arms-length
third parties, included both shares and warrants, the value of the warrants have been eliminated from the unit price of the securities
using a Black-Scholes valuation model to determine the value of the warrants. The assumptions used in the Black Scholes valuation
model includes market related interest rates for risk-free government issued treasury securities with similar maturities; the expected
volatility of the Company’s common stock based on companies operating in similar industries and markets; the estimated stock
price of the Company; the expected dividend yield of the Company and; the expected life of the warrants being valued.
Subsequent to the Company’s
reverse merger which took place on May 12, 2016, the Company has utilized the market value of its common stock as quoted on the
OTCBB, as an indicator of the fair value of its common stock in determining share- based payment arrangements.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING POLICIES AND
ESTIMATES (continued)
|
|
t)
|
Derivative Liabilities
|
ASC 815 generally provides three
criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free
standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of
the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not
re- measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument
is deemed to be conventional, as described.
The Company’s primary operations
are based in Mexico and currently enacted tax laws in Mexico are used in the calculation of income taxes, the holding company is
based in the US and currently enacted US tax laws are used in the calculation of income taxes.
Income taxes are computed using
the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A full valuation allowance is provided for the amount of deferred tax assets that, based on available
evidence, are not expected to be realized. It is the Company’s policy to classify interest and penalties on income taxes
as interest expense or penalties expense. As of December 31, 2016 and 2015, there have been no interest or penalties incurred on
income taxes.
Comprehensive income is defined
as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions
resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented
includes translation adjustment and net loss.
|
3
|
RESTATEMENT OF PREVIOUSLY
ISSUED FINANCIAL STATEMENTS
|
Organization – Reverse Merger
The reverse merger recapitalization
upon the acquisition of Qpagos S.A.P.I de C.V. and Redpag S.A.P.I de C.V. were originally pushed back to the earliest period presented,
this has been restated to the reflect the position at the date of the reverse merger recapitalization, August 31, 2015. The statement
of operations and comprehensive loss, the Statement of Cash Flows and the balance sheet has been restated to eliminate the effects
of pushing back the reverse merger transactions to the opening balance of the earliest period presented.
Fixed Assets
The Company reclassified certain kiosk assets used in
the production of income, previously recorded in inventory as fixed assets and applied an appropriate depreciation policy to these
kiosks.
The restated Consolidated Balance
Sheet as of December 31, 2015, the related Consolidated Statements of Operations and Comprehensive loss and the Statement of Cash
Flows for the year ended December 31, 2015, is presented below:
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
3
|
RESTATEMENT OF PREVIOUSLY
ISSUED FINANCIAL STATEMENTS (continued)
|
QPAGOS CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 2015
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Notes
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
832,159
|
|
|
|
|
|
|
|
|
$
|
832,159
|
|
Accounts receivable
|
|
|
242,075
|
|
|
|
|
|
|
|
|
|
242,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
668,567
|
|
|
|
(279,746
|
)
|
|
(A)
|
|
|
388,821
|
|
Recoverable IVA taxes and credits
|
|
|
417,897
|
|
|
|
|
|
|
|
|
|
417,897
|
|
Prepayments
|
|
|
52,014
|
|
|
|
|
|
|
|
|
|
52,014
|
|
Total Current Assets
|
|
|
2,212,712
|
|
|
|
(279,746
|
)
|
|
|
|
|
1,932,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net
|
|
|
70,537
|
|
|
|
229,851
|
|
|
(A)
|
|
|
300,388
|
|
Intangibles, net
|
|
|
211,417
|
|
|
|
|
|
|
|
|
|
211,417
|
|
Other assets
|
|
|
11,712
|
|
|
|
|
|
|
|
|
|
11,712
|
|
Total Non-Current Assets
|
|
|
293,666
|
|
|
|
229,851
|
|
|
|
|
|
523,517
|
|
Total Assets
|
|
$
|
2,506,378
|
|
|
$
|
(49,895
|
)
|
|
|
|
$
|
2,456,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
38,372
|
|
|
|
|
|
|
|
|
$
|
38,372
|
|
Notes payable
|
|
|
103,320
|
|
|
|
|
|
|
|
|
|
103,320
|
|
IVA and other taxes payable
|
|
|
192,044
|
|
|
|
|
|
|
|
|
|
192,044
|
|
Advances from customers
|
|
|
1,986
|
|
|
|
|
|
|
|
|
|
1,986
|
|
Total Current Liabilities
|
|
|
335,722
|
|
|
|
-
|
|
|
|
|
|
335,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
335,722
|
|
|
|
-
|
|
|
|
|
|
335,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 50,000,000 shares authorized, 22,392,000 and 4,619,314 shares issued and outstanding as of December 31, 2015 and 2014, respectively.
|
|
|
4,478
|
|
|
|
|
|
|
|
|
|
4,478
|
|
Additional paid-in-capital
|
|
|
5,735,861
|
|
|
|
|
|
|
|
|
|
5,735,861
|
|
Accumulated deficit
|
|
|
(3,989,689
|
)
|
|
|
(36,459
|
)
|
|
|
|
|
(4,026,148
|
)
|
Accumulated other comprehensive income
|
|
|
420,006
|
|
|
|
(13,436
|
)
|
|
|
|
|
406,570
|
|
Total stockholder's equity (deficit) - controlling interest
|
|
|
2,170,656
|
|
|
|
(49,895
|
)
|
|
|
|
|
2,120,761
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
Total Stockholders' Equity (Deficit)
|
|
|
2,170,656
|
|
|
|
(49,895
|
)
|
|
|
|
|
2,120,761
|
|
Total Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
2,506,378
|
|
|
$
|
(49,895
|
)
|
|
|
|
$
|
2,456,483
|
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
3
|
RESTATEMENT OF PREVIOUSLY
ISSUED FINANCIAL STATEMENTS (continued)
|
QPAGOS
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
Year Ended December 31, 2015
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Notes
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airtime
|
|
$
|
739,894
|
|
|
|
|
|
|
|
|
$
|
739,894
|
|
Kiosk sales
|
|
|
321,239
|
|
|
|
|
|
|
|
|
|
321,239
|
|
Commissions on services
|
|
|
66,674
|
|
|
|
|
|
|
|
|
|
66,674
|
|
Other
|
|
|
137
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
1,127,944
|
|
|
|
-
|
|
|
|
|
|
1,127,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airtime
|
|
|
710,155
|
|
|
|
|
|
|
|
|
|
710,155
|
|
Kiosk sales
|
|
|
369,909
|
|
|
|
|
|
|
|
|
|
369,909
|
|
Depreciation - kiosks
|
|
|
-
|
|
|
|
35,496
|
|
|
(A)
|
|
|
35,496
|
|
Other
|
|
|
40,172
|
|
|
|
|
|
|
|
|
|
40,172
|
|
|
|
|
1,120,236
|
|
|
|
35,496
|
|
|
|
|
|
1,155,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross (Loss) Profit
|
|
|
7,708
|
|
|
|
(35,496
|
)
|
|
|
|
|
(27,788
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,000,714
|
|
|
|
779,862
|
|
|
(B)
|
|
|
2,780,576
|
|
Depreciation and amortization
|
|
|
37,810
|
|
|
|
(5,459
|
)
|
|
(A)
|
|
|
32,351
|
|
Total Expense
|
|
|
2,038,524
|
|
|
|
774,403
|
|
|
|
|
|
2,812,927
|
|
Loss from Operations
|
|
|
(2,030,816
|
)
|
|
|
(809,899
|
)
|
|
|
|
|
(2,840,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income
|
|
|
203
|
|
|
|
|
|
|
|
|
|
203
|
|
Interest expense, net
|
|
|
(2,241
|
)
|
|
|
|
|
|
|
|
|
(2,241
|
)
|
Foreign currency loss
|
|
|
(466,920
|
)
|
|
|
-
|
|
|
|
|
|
(466,920
|
)
|
Loss before Provision for Income Taxes
|
|
|
(2,499,774
|
)
|
|
|
(809,899
|
)
|
|
|
|
|
(3,309,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(2,499,774
|
)
|
|
|
(809,899
|
)
|
|
|
|
|
(3,309,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Controlling Interest
|
|
$
|
(2,499,774
|
)
|
|
$
|
(809,899
|
)
|
|
|
|
$
|
(3,309,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share - Basic and Diluted
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding - Basic and Diluted
|
|
|
25,698,747
|
|
|
|
|
|
|
|
|
|
25,698,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
267,257
|
|
|
|
(13,436
|
)
|
|
|
|
|
253,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss
|
|
|
(2,232,517
|
)
|
|
|
(823,335
|
)
|
|
|
|
|
(3,055,852
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Loss Attributable to Controlling Interest
|
|
$
|
(2,232,517
|
)
|
|
$
|
(823,335
|
)
|
|
|
|
$
|
(3,055,852
|
)
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
3
|
RESTATEMENT OF PREVIOUSLY
ISSUED FINANCIAL STATEMENTS (continued)
|
QPAGOS
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 2015
|
|
As
|
|
|
|
|
|
|
|
|
|
|
|
Previously
|
|
|
|
|
|
|
|
As
|
|
|
|
Reported
|
|
|
Adjustments
|
|
|
Notes
|
|
Restated
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the company
|
|
$
|
(2,499,774
|
)
|
|
$
|
(809,899
|
)
|
|
|
|
$
|
(3,309,673
|
)
|
Less: loss attributable to non-controlling interest
|
|
|
-
|
|
|
|
|
|
|
|
|
|
-
|
|
Net loss
|
|
|
(2,499,774
|
)
|
|
|
(809,899
|
)
|
|
|
|
|
(3,309,673
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
34,227
|
|
|
|
30,037
|
|
|
(A)
|
|
|
64,264
|
|
Amortization expense
|
|
|
3,583
|
|
|
|
|
|
|
|
|
|
3,583
|
|
Equity based compensation charge
|
|
|
166,715
|
|
|
|
121,285
|
|
|
(B)
|
|
|
288,000
|
|
Shares issued for services
|
|
|
-
|
|
|
|
658,577
|
|
|
(B)
|
|
|
658,577
|
|
Other foreign currency movements
|
|
|
-
|
|
|
|
13,436
|
|
|
(A)
|
|
|
13,436
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(226,161
|
)
|
|
|
|
|
|
|
|
|
(226,161
|
)
|
Inventory
|
|
|
(21,581
|
)
|
|
|
|
|
|
|
|
|
(21,581
|
)
|
Recoverable IVA taxes and credits
|
|
|
(246,697
|
)
|
|
|
|
|
|
|
|
|
(246,697
|
)
|
Prepayments
|
|
|
(2,014
|
)
|
|
|
|
|
|
|
|
|
(2,014
|
)
|
Other assets
|
|
|
(5,520
|
)
|
|
|
|
|
|
|
|
|
(5,520
|
)
|
Accounts payable and accrued expenses
|
|
|
(64,129
|
)
|
|
|
|
|
|
|
|
|
(64,129
|
)
|
IVA and other taxes payable
|
|
|
183,689
|
|
|
|
|
|
|
|
|
|
183,689
|
|
Advances from customers
|
|
|
(1,106
|
)
|
|
|
|
|
|
|
|
|
(1,106
|
)
|
Interest accruals
|
|
|
3,320
|
|
|
|
|
|
|
|
|
|
3,320
|
|
CASH USED IN OPERATING ACTIVITIES
|
|
|
(2,675,448
|
)
|
|
|
13,436
|
|
|
|
|
|
(2,662,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(4,779
|
)
|
|
|
|
|
|
|
|
|
(4,779
|
)
|
Intangible assets
|
|
|
(215,000
|
)
|
|
|
|
|
|
|
|
|
(215,000
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(219,779
|
)
|
|
|
-
|
|
|
|
|
|
(219,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds on common stock issued
|
|
|
2,990,000
|
|
|
|
|
|
|
|
|
|
2,990,000
|
|
Share issue expenses
|
|
|
(388,700
|
)
|
|
|
|
|
|
|
|
|
(388,700
|
)
|
Proceeds from loans payable
|
|
|
685,001
|
|
|
|
|
|
|
|
|
|
685,001
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
3,286,301
|
|
|
|
-
|
|
|
|
|
|
3,286,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
267,257
|
|
|
|
(13,436
|
)
|
|
|
|
|
253,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
658,331
|
|
|
|
-
|
|
|
|
|
|
658,331
|
|
CASH AT BEGINNING OF PERIOD
|
|
|
173,828
|
|
|
|
|
|
|
|
|
|
173,828
|
|
CASH AT END OF PERIOD
|
|
$
|
832,159
|
|
|
$
|
-
|
|
|
|
|
$
|
832,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH PAID FOR INTEREST AND TAXES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt to equity
|
|
$
|
2,909,423
|
|
|
$
|
-
|
|
|
|
|
$
|
2,909,423
|
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTES
|
A.
|
Adjustment to reclassify
kiosk inventory utilized by the Company to generate revenue, to fixed assets and the recording of the related depreciation thereon.
|
|
B.
|
Adjustment to record equity
based compensation to officers of the Company and consultants.
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
These financial statements have been
prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in
the normal course of business for the foreseeable future. The Company has incurred a loss since inception resulting in an accumulated
deficit of $8,757,197 as of December 31, 2016 and has not generated sufficient revenue to cover its operating expenditure, raising
substantial doubt about the Company's ability to continue as a going concern. In addition to operational expenses, as the Company
executes its business plan, additional capital resources will be required. The Company will need to raise capital in the near term
in order to continue operating and executing its business plan. The ability to continue as a going concern is dependent upon the
Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay
its liabilities arising from normal business operations when they come due. The Company’s plan is to expand its market penetration
by deploying more kiosks through various channels, thereby increasing revenues, in addition, the Company intends to raise additional
equity or loan funds to meet its short term working capital needs. The accompanying financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of
liabilities that may result from the possible inability of the Company to continue as a going concern.
On August 27, 2015,
Qpagos Corporation entered into a series of agreements which completed the Reverse Merger with Qpagos and Redpag. As part of
the merger, 1,500 Series A shares and 1,548,480 Series B shares outstanding of Qpagos and 1,500 Series A Shares and 2,238,245
Series B shares of Redpag was acquired by QPAGOS. The original shareholders of Qpagos and Redpag were effectively issued
4,619,314 common shares of QPAGOS resulting in control of QPAGOS, effectuating the reverse merger transaction.
The acquisition of Qpagos and Redpag
by QPAGOS Corporation has been accounted for as a reverse acquisition for financial accounting purposes. The Reverse Merger is
deemed a capital transaction and the net assets of Qpagos and Redpag (the accounting acquirers) are carried forward to QPAGOS Corporation
(the legal acquirer) at their carrying value before the combination. The acquisition process utilizes the capital structure of
QPAGOS Corporation and the assets and liabilities of Qpagos and Redpag are recorded at historical cost. The financials statements
of Qpagos, Redpag and QPAGOS Corporation are being combined for the period from January 1, 2014 through December 31,
2015. In these financial statements, Qpagos and Redpag are the operating entities for financial reporting purposes and the financial
statements for all periods presented represent the consolidated financial position and results of operations of Qpagos and Redpag.
The equity of Qpagos and Redpag is the historical equity of QPAGOS Corporation.
On May 12, 2016, Asiya Pearls, Inc.,
a Nevada corporation (the “Asiya”), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation
and wholly owned subsidiary of the Asiya (“Merger Sub”). Pursuant to the Merger Agreement, on May 12, 2016
the merger was consummated and Qpagos Corporation and Merger Sub merged (the “Merger”), with Qpagos Corporation continuing
as the surviving corporation of the Merger.
Pursuant to the Merger Agreement,
upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior
to the Merger was converted into the right to receive two shares of Asiya’s common stock, par value $0.0001 per share (the
“Common Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, Asiya assumed all
of Qpagos Corporation’s warrants issued and outstanding immediately prior to the Merger, which are now exercisable for approximately
6,219,200 shares of Common Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the
Merger, the then-current Asiya stockholder of 5,000,000 shares of Common Stock agreed to return to Asiya 4,975,000 shares of Common
Stock held by such holder to Asiya and the then-current Asiya stockholder retained an aggregate of 25,000 shares of Common Stock
and the other stockholders of Asiya retained 5,000,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos
Corporation’s former stockholders held 49,929,000 shares of Asiya common stock which represented approximately 91% of the
Company Common Stock outstanding.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
5
|
ACQUISITION (continued)
|
The Merger is being treated as a
reverse acquisition of Asiya, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation
is treated as the acquirer for accounting and financial reporting purposes while Asiya is treated as the acquired entity for accounting
and financial reporting purposes. Further, as a result, the historical financial statements that will be reflected in the Company’s
future financial statements filed with the United States Securities and Exchange Commission (“SEC”) will be those of
Qpagos Corporation, and the Company’s assets, liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of Qpagos Corporation.
Inventory consisted of the following as of December 31,
2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Kiosks
|
|
$
|
350,273
|
|
|
$
|
388,821
|
|
|
|
$
|
350,273
|
|
|
$
|
388,821
|
|
Plant and Equipment consisted of the following as of December
31, 2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Kiosks
|
|
$
|
269,810
|
|
|
$
|
279,746
|
|
Computer equipment
|
|
|
69,577
|
|
|
|
82,284
|
|
Office equipment
|
|
|
9,430
|
|
|
|
11,217
|
|
Leasehold improvement
|
|
|
8,191
|
|
|
|
9,740
|
|
Total cost
|
|
|
357,009
|
|
|
|
382,987
|
|
Less: accumulated depreciation and amortization
|
|
|
(125,681
|
)
|
|
|
(82,599
|
)
|
Property and equipment, net
|
|
$
|
231,328
|
|
|
$
|
300,388
|
|
Depreciation and amortization
expense totaled $62,319 and $64,264 for the years ended December 31, 2016 and 2015, respectively.
License
Localization and implementation of
the different software and technology modules is supported through a Localization Agreement. Under this agreement, at a cost of
$215,000, the Licensor allocated engineering and programming resources to the Company. The cost is being amortized over 5 years.
On May 1, 2015, the Company entered
into a ten-year license with the Licensor for the non-exclusive right to license technology to provide payment services. Subsequently,
on November 1, 2015, the Company and the Licensor concluded an additional amendment to the License Agreement by which the Licensor
agreed to the exclusivity to the Mexican market subject to the payment of $20,000 per year payable in quarterly installments, the
first two such installments payable December 1, 2015. The agreement may be terminated early by the Licensor if the Company fails
to comply with its terms and conditions
The license with the Licensor is
a license for the rights to use three software programs (the “Programs”): RG Switch Payment (designed to transfer payments
to providers of services), RG Processing (designed processing and counting of payments) and RG Kiosk (designed for performance
of payments through payment collection equipment functioning in the self-service kiosks) to be used in Mexico.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
8
|
INTANGIBLES (continued)
|
License (continued)
Under this agreement the Licensor
is obligated to provide Qpagos Corporation with rights to use software updates developed by the Licensor. The ten-year term commences
on the date of full payment of the localization contract. The Licensor retains exclusive rights to any intellectual property, including
any addition, alteration, program updating, derivative or composed creation, obtained in the process of usage of the programs.
The payment for the rights granted under the license is a total of $1,000, payable in annual payments of $100 per year over ten
years and is in addition to the payments that we make under the Localization Agreement. The agreement provides, among other things,
that we will pay the fee, ensure confidentiality of commercial and technical information received when performing the agreement
and inform the Licensor of any changes in its structure. The Licensor has a right to terminate the agreement if we breach the terms
of the agreement or do not properly perform or if we do not cure any breach or nonperformance within 30 days of receipt of notice
of termination. If the Licensor suffers any damages, they are entitled to request compensation from the Company. The rights to
use the Programs terminate upon termination of the Agreement.
Intangibles consisted of the following as of December
31, 2016 and 2015, respectively:
|
|
December
31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Software license
|
|
$
|
215,000
|
|
|
$
|
215,000
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
215,000
|
|
|
|
215,000
|
|
Less: accumulated amortization
|
|
|
(46,583
|
)
|
|
|
(3,583
|
)
|
Intangibles, net
|
|
$
|
168,417
|
|
|
$
|
211,417
|
|
Amortization expense was $43,000
and $3,583 for the year ended December 31, 2016 and 2015, respectively.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes payable consisted of the following:
|
|
Interest
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Description
|
|
Rate
|
|
|
Maturity
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YP Holdings LLC
|
|
|
12
|
%
|
|
December 31, 2015
|
|
$
|
151,353
|
|
|
$
|
103,320
|
|
Strategic IR
|
|
|
10
|
%
|
|
January 1, 2017 to
March 19, 2017
|
|
|
146,575
|
|
|
|
-
|
|
Gibbs International Holdings
|
|
|
10
|
%
|
|
February 19, 2017
|
|
|
50,986
|
|
|
|
-
|
|
Cobbolo Limited
|
|
|
10
|
%
|
|
February 17, 2007
March 25, 2017
|
|
|
101,466
|
|
|
|
-
|
|
Joseph W and Patricia G Abrams
|
|
|
10
|
%
|
|
February 13, 2017
|
|
|
25,534
|
|
|
|
-
|
|
Delinvest Commercial LTD
|
|
|
10
|
%
|
|
March 1, 2017
|
|
|
50,836
|
|
|
|
|
|
Gaston Pereira
|
|
|
6
|
%
|
|
March 15, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
|
|
|
|
|
|
$
|
526,750
|
|
|
$
|
103,320
|
|
YP Holdings LLC
On September 21, 2015, Qpagos
Corporation borrowed $100,000 from YP Holdings LLC (“YP”), pursuant to an unsecured loan agreement. The unpaid balance
and any accrued interest was due on December 31, 2015. The loan bears interest at a rate of 12%. The debt remains outstanding as
of the date of this report and is expected to be settled within 12 months. We are currently negotiating with YP to extend the term
of the loan, however in terms of loan agreement we have accrued default interest at the rate of 0.1% per day as the loan and interest
payment deadlines were not met, this default interest amounted to $36,000 for the year ended December 31, 2016 and is included
in the loan balance.
Strategic
IR
Between September 29, 2016 and December
27, 2016, the Company executed a unsecured promissory notes totaling $145,000 with an investor, bearing interest at 10% per annum
maturing between January 1, 2017 and April 26, 2017.
Gibbs International
Holdings
Effective October 20, 2016, the Company executed an unsecured
promissory note for $50,000 with an investor, bearing interest at 10% per annum payable on February 19, 2017.
Cobbolo
Limited
Between October 21, 2016 and November
25, 2016, the Company executed a unsecured promissory notes totaling $100,000 with an investor, bearing interest at 10% per annum
maturing between February 17, 2017 and March 25, 2017.
Joseph W
and Patricia G Abrams
Effective October 14, 2016, the Company executed an unsecured
promissory note for $25,000 with an investor, bearing interest at 10% per annum payable on February 13, 2017.
Delinvest
Commercial LTD
Effective October 31, 2016, the Company executed an unsecured
promissory note for $50,000 with an investor, bearing interest at 10% per annum payable on March 1, 2017.
Gaston Pereira
On September 15, 2016, the Company
executed a revolving line of credit note for $100,000 with our CEO pursuant to the terms of a Revolving Line of Credit Agreement.
The note bears interest at 6% and is due and payable 6 months from the effective date. Provided the borrower is not in default,
the borrower may extend and renew the note for an additional 6 month term. As of December 12, 2016, the outstanding balance under
the revolving line of credit was $0.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
10
|
CONVERTIBLE NOTE PAYABLE
|
On December 28, 2016, the Company
entered into a Securities Purchase Agreement, pursuant to which the Company issued a Convertible Promissory Note in the aggregate
principal amount of $77,000. The Note has a maturity date of September 30, 2017 and a coupon of eight percent per annum. The Company
has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its
Issue Date. The outstanding principal amount of the Note is convertible at any time and from time to time at the election
of the Note holder during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common
stock, at a conversion price based on a pre-determined formula.
The short-term convertible note disclosed
in note 10 above, has variable priced conversion rights with no fixed floor price and will re-price dependent on the share price
performance over varying periods of time. This gives rise to a derivative financial liability, which was initially valued at $77,000
at inception of the convertible note using a Black-Scholes valuation model. The value of this derivative financial liability was
re-assessed at December 31, 2016 and an additional charge of $36,074 was charged to the statement of operations and comprehensive
loss. The value of the derivative liability will be re-assessed at each financial reporting period, with any movement thereon recorded
in the statement of operations in the period in which it is incurred.
The following assumptions were used
in the Black-Scholes valuation model:
|
|
Year ended
|
|
|
|
December 31,
|
|
|
|
2016
|
|
Conversion price
|
|
$
|
0.22 to 0.23
|
|
Risk free interest rate
|
|
|
0.85
|
%
|
Expected life of derivative liability
|
|
|
9 months
|
|
expected volatility of underlying stock
|
|
|
133.0
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
The movement in derivative liability
is as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative financial liability arising from convertible note
|
|
|
77,000
|
|
|
|
-
|
|
Fair value adjustment to derivative liability
|
|
|
36,074
|
|
|
|
-
|
|
|
|
$
|
113,074
|
|
|
$
|
-
|
|
After giving effect to the reverse
merger consummated on May 12, 2016 and the issuances set forth below, the Company has authorized 100,000,000 common shares with
a par value of $0.0001 each, and issued and has outstanding 55,454.000 shares of common stock as of December 31, 2016.
The following common shares were
issued by the Company during the years ended December 31, 2015 and 2016:
|
1.
|
In terms of the reverse merger
agreements entered into with Qpagos and Redpag on August 27, 2015, certain shareholders, members of management and consultants
who had performed services for Qpagos and Redpag since inception of these entities, in terms of agreements entered into prior
to the reverse merger, were entitled to 9,238,628 (4,619,314 pre-QPAGOS Merger) shares in Qpagos and Redpag or its successor companies.
These entitlements to shares, described below were considered in determining whether the requirements for a reverse merger had
been met.
|
|
i.
|
an aggregate of 4,918,628
(2,459,314 pre-QPAGOS Merger) Common shares were issued to three consultants and advisors, Panatrade, Delinvest Commercial and
Sergey Rumyantsev for services prior to and since inception of Qpagos and Redpag, for a total consideration of $491,862 at a at
an issue price of $0.10 ($0.20 pre-QPAGOS Merger) per share, the determined value of our common stock when the shares were issued.
|
|
ii.
|
an aggregate of 4,320,000
(2,160,000 pre-QPAGOS Merger) shares of restricted common stock were issued to our Chief Executive Officer and Chief Operating
Officer in terms of an employment agreements entered into with them for services rendered prior to and since inception of Qpagos
and Redpag. These shares are restricted and vest on April 30, 2016 These restricted shares were valued at a total of $432,000
at an issue price of $0.10 ($0.20 pre-QPAGOS Merger) per share, the determined value of our common stock when these shares were
issued.
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
12
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
a.
|
Common Stock (continued)
|
|
2.
|
The following shares were
issued by QPAGOS which were not considered as part of the reverse merger transaction.
|
|
i.
|
In terms of a private placement
agreement entered into on May 18, 2015 between the Company and a placement agent (“the Placement Agent”), the Placement
Agent agreed to assist the Company in raising financing. The financing is in the form of equity. The Placement Agent received
a fee of 10% of the gross proceeds raised together with a 3% expense recovery fee. In addition, to this the Placement Agent was
issued warrants equal to 15% of the total number of shares issued to the investors, on the same terms and conditions of those
units issued to investors.
|
During the period June 2015 to December
2015, pursuant to the private placement agreement and individual Securities Purchase Agreements entered into, new, qualified investors,
acquired 4,784,000 (2,392,000 pre-QPAGOS Merger) common units of the Company at a price of $0.625 ($1.25 pre-QPAGOS Merger) per
unit, each unit consisting of one share of Common Stock and a five year warrant exercisable for one share of common stock at an
exercise price of $0.625 ($1.25 pre-QPAGOS Merger) per share, for net proceeds of $2,601,300 after deducting placement agent fees
and other share issue expenses of $388,700. The placement agent was also issued five year warrants to purchase 717,600 (358,800
pre-QPAGOS Merger) units, each unit consisting of a warrant to purchase one share of common stock at an exercise price of $0.625
($1.25 pre-QPAGOS Merger) per share and an additional five year warrant to purchase one share of common stock at an exercise price
of $0.625 ($1.25 pre-QPAGOS Merger) per share, totaling an additional 1,435,200 (717,600 pre-QPAGOS Merger) shares of common stock
if all placement agent warrants are exercised.
|
ii.
|
an aggregate of 1,667,150
(833,575 pre-QPAGOS Merger) Common shares were issued to consultants and advisors for services at an issue price of $0.10 ($0.20
pre-QPAGOS Merger) per share, the determined value of our common stock when the shares were issued.
|
|
iii.
|
an aggregate of 29,094,222
(14,547,111 pre-QPAGOS Merger) Common shares issued to debt holders in a debt for equity swap at an issue price of $0.10 ($0.20
pre-QPAGOS Merger) per share to settle $2,909,423 in notes payable, including interest thereon. Of the notes payable converted
to equity, $2,324,422 was included in Notes Payable on the balance sheet at December 31, 2014.
|
|
iv.
|
On February 16, 2016, the
Company entered into consulting agreements with Gibbs Investment Holdings, Gibbs International, Eurosa, Inc. and Robert Skaff,
in terms of which the parties have provided consulting services to the Company and continue to provide such services and were
issued a total of 2,572,500 common shares of Qpagos Corporation, which were subsequently converted to 5,145,000 shares of the
Company at a value of $2,032,275.
|
|
v.
|
During the period, May 16,
2016 to October 17, 2016, in terms of subscription agreements entered into, the Company issued 500,000 shares to a shareholder
for gross proceeds of $375,000.
|
|
3.
|
Restricted Stock awards
|
Included in 1 above, are restricted
stock awards as follows:
|
(a)
|
An aggregate of 2,880,000
(1,440,000 pre-QPAGOS Merger)) shares of restricted common stock were issued to our Chief Executive Officer in terms of an employment
agreement entered into with him. These shares are restricted and were fully vested on April 30, 2016 These restricted shares
were valued at $288,000 or $0.10 per share, the value per share determined by the board of directors based on value of shares
issued to other investors, prior to this issue.
|
|
(b)
|
An aggregate of 1,440,000
(720,000 pre-QPAGOS Merger) shares of restricted common stock were issued to our Chief Operating Officer in terms of an employment
agreement entered into with him. These shares are restricted and were fully vested on April 30, 2016 These restricted shares were
valued at $144,000 or $0.10 per share, the value per share determined by the board of directors based on value of shares issued
to other investors, prior to this issue.
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
12
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
a.
|
Common Stock (continued)
|
The restricted stock granted and
exercisable at December 31, 2016 is as follows:
|
|
|
Restricted Stock Granted
|
|
|
Restricted Stock Vested
|
|
Grant date Price
|
|
|
Number
Granted
|
|
|
Weighted
Average
Fair Value per
Share
|
|
|
Number
Vested
|
|
|
Weighted
Average
Fair Value per Share
|
|
$
|
0.10
|
|
|
|
2,880,000
|
|
|
$
|
0.10
|
|
|
|
2,880,000
|
|
|
$
|
0.10
|
|
$
|
0.10
|
|
|
|
1,440,000
|
|
|
$
|
0.10
|
|
|
|
1,440,000
|
|
|
$
|
0.10
|
|
|
|
|
|
|
4,320,000
|
|
|
$
|
0.10
|
|
|
|
4,320,000
|
|
|
$
|
0.10
|
|
The Company has recorded an expense
of $144,000 and $288,000 for the year ended December 31, 2016 and 2015, relating to the restricted stock awards.
After giving effect to the reverse
merger consummated on May 12, 2016, the Company has authorized 25,000,000 preferred shares with a par value of $0.0001 each, no
preferred stock is issued and outstanding as of December 31, 2016.
During the period June 2015 to December
2015, pursuant to the private placement agreement and individual Securities Purchase Agreements entered into, new, qualified investors,
acquired 4,784,000 (2,392,000 pre-QPAGOS Merger) common units of the Company at a price of $0.625 ($1.25 pre-QPAGOS Merger) per
unit, each unit consisting of one share of Common Stock and a five year warrant exercisable for one share of common stock at an
exercise price of $0.625 ($1.25 pre-QPAGOS Merger) per share.
The placement agent was also issued,
in terms of a placement agent agreement, five year warrants to purchase 717,600 (358,800 pre-QPAGOS Merger) units at $0.625 ($1.25
pre-QPAGOS Merger)) per unit, each consisting of one share of Common stock and an additional five year warrant exercisable for
one shares of Common Stock at an exercise price of $0.625 ($1.25 pre-QPAGOS Merger)) per share, giving a total of 1,435,200 (717,600
pre-QPAGOS Merger) warrants to purchase common shares at an exercise price of $0.625 ($1.25 pre-QPAGOS Merger)) per share if all
placement agent warrants are exercised.
The fair value of Warrants issued
were valued at $0.464 per share using the Black-Scholes pricing model and the following weighted average assumptions were used:
|
|
Year ended
December 31,
2015
|
|
|
|
|
|
Calculated stock price
|
|
$
|
0.875
|
|
Risk-free interest rate
|
|
|
1.38% to 1.74
|
%
|
Expected life of warrants (in years)
|
|
|
5
|
|
Expected volatility of the underlying stock
|
|
|
159.5
|
%
|
Expected dividend rate
|
|
|
0
|
%
|
The volatility of the common stock
is estimated using historical data of companies in the same industry as the Company. The risk-free interest rate used in the Black-Scholes
pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the
life of the warrants granted. An expected dividend yield of zero is used in the valuation model, because the Company does not expect
to pay any cash dividends in the foreseeable future. As of December 31, 2015, the Company does not anticipate any of the warrants
will be forfeited in performing the valuation of the warrants.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
12
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
(c).
|
Warrants (continued)
|
A summary of warrant activity during the period January
1, 2015 to December 31, 2016 is as follows:
|
|
Shares
Underlying
Warrants
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding January 1, 2015
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
6,219,200
|
|
|
|
0.625
|
|
|
|
0.625
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
6,219,200
|
|
|
$
|
0.625
|
|
|
$
|
0.625
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
6,219,200
|
|
|
$
|
0.625
|
|
|
$
|
0.625
|
|
The warrants outstanding and exercisable at December
31, 2016 are as follows:
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Exercise
Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
life in years
|
|
$
|
0.625
|
|
|
|
6,219,200
|
|
|
|
3.75
|
|
|
$
|
0.625
|
|
|
|
6,219,200
|
|
|
$
|
0.625
|
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,219,200
|
|
|
|
|
|
|
$
|
|
|
|
|
6,219,200
|
|
|
$
|
|
|
|
|
|
|
The warrants outstanding have an
intrinsic value of $0 and $0 as of December 31, 2016 and 2015, respectively.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
12
|
STOCKHOLDERS’ EQUITY
(continued)
|
|
(d)
|
Reverse merger transactions
(continued)
|
Reverse Merger with QPAGOS
On May 12, 2016, Asiya Pearls, Inc.,
a Nevada corporation (the “Asiya”), entered into an Agreement and Plan of Merger (the “Merger Agreement”)
with Qpagos Corporation, a Delaware corporation (“Qpagos Corporation”), and Qpagos Merge, Inc., a Delaware corporation
and wholly owned subsidiary of the Asiya (“Merger Sub”). Pursuant to the Merger Agreement, on May 12, 2016
the merger was consummated and Qpagos Corporation and Merger Sub merged (the “Merger”), with Qpagos Corporation continuing
as the surviving corporation of the Merger.
Pursuant to the Merger Agreement,
upon consummation of the Merger, each share of Qpagos Corporation’s capital stock issued and outstanding immediately prior
to the Merger was converted into the right to receive two shares of Asiya’s common stock, par value $0.0001 per share (the
“Common Stock”). Additionally, pursuant to the Merger Agreement, upon consummation of the Merger, Asiya assumed all
of Qpagos Corporation’s warrants issued and outstanding immediately prior to the Merger, which are now exercisable for approximately
6,219,200 shares of Common Stock, respectively, as of the date of the Merger. Prior to and as a condition to the closing of the
Merger, the then-current Asiya stockholder of 5,000,000 shares of Common Stock agreed to return to Asiya 4,975,000 shares of Common
Stock held by such holder to Asiya and the then-current Asiya stockholder retained an aggregate of 25,000 shares of Common Stock
and the other stockholders of Asiya retained 5,000,000 shares of Common Stock. Therefore, immediately following the Merger, Qpagos
Corporation’s former stockholders held 49,929,000 shares of Asiya common stock which represented approximately 91% of the
Company Common Stock outstanding.
The Merger is being treated as a
reverse acquisition of Asiya, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation
is treated as the acquirer for accounting and financial reporting purposes while Asiya is treated as the acquired entity for accounting
and financial reporting purposes. Further, as a result, the historical financial statements that will be reflected in the Company’s
future financial statements filed with the United States Securities and Exchange Commission (“SEC”) will be those of
Qpagos Corporation, and the Company’s assets, liabilities and results of operations will be consolidated with the assets,
liabilities and results of operations of Qpagos Corporation.
Revenue is derived from the following sources:
|
|
Year ended
December 31, 2016
|
|
|
Year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
Sales of services
|
|
$
|
2,610,820
|
|
|
$
|
739,894
|
|
Payment processing fees
|
|
|
34,916
|
|
|
|
66,674
|
|
Kiosk sales
|
|
|
44,606
|
|
|
|
321,239
|
|
Other
|
|
|
1,554
|
|
|
|
137
|
|
|
|
$
|
2,691,896
|
|
|
$
|
1,127,944
|
|
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes consists
of the following:
|
|
Year ended
December 31, 2016
|
|
|
Year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of the U.S. Federal statutory income
tax to the effective income tax is as follows:
|
|
Year ended
December 31, 2016
|
|
|
Year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
Tax expense at the federal statutory rate
|
|
$
|
(1,656,874
|
)
|
|
$
|
(1,079,097
|
)
|
State tax expense, net of federal tax effect
|
|
|
-
|
|
|
|
-
|
|
Effect of foreign operations
|
|
|
65,642
|
|
|
|
87,799
|
|
Permanent timing differences
|
|
|
72,738
|
|
|
|
62,082
|
|
Deferred income tax asset valuation allowance
|
|
|
1,518,492
|
|
|
|
929,215
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Significant components of the Company’s deferred
income tax assets are as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Depreciation and amortization
|
|
$
|
(74,655
|
)
|
|
$
|
(67,777
|
)
|
Other
|
|
|
88,936
|
|
|
|
(25,916
|
)
|
Net operating losses
|
|
|
1,504,212
|
|
|
|
1,022,907
|
|
Valuation allowance
|
|
|
(1,518,492
|
)
|
|
|
(929,215
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The valuation allowance for deferred
income tax assets as of December 31, 2016 and December 31, 2015 was $1,518,492 and $929,215, respectively. The net change in the
deferred income tax assets valuation allowance was an increase of $589,277 for 2016 and a decrease of 512,130 for 2015, respectively.
As of December 31, 2016, the prior
three years remain open for examination by the federal or state regulatory agencies for purposes of an audit for tax purposes.
The Company’s net operating
loss carry-forwards of its foreign subsidiaries of $7,356,183 begin to expire in 2023 through 2026. Net operating loss
carry-forwards of the US companies of $4,589,894 begin to expire in 2043 through 2046. In assessing the realizability of deferred
income tax assets, management considers whether or not it is more likely than not that some portion or all deferred income tax
assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the projected future taxable
income and tax planning strategies in making this assessment.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
14
|
INCOME TAXES (continued)
|
The Company’s ability to utilize
the operating loss carry-forwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal
Revenue Code of 1986, as amended, if future changes in ownership occur.
|
15
|
EQUITY BASED COMPENSATION
|
Equity based compensation is made
up of the following:
|
|
Year ended
December 31, 2016
|
|
|
Year ended
December 31, 2015
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
144,000
|
|
|
|
288,000
|
|
Stock issued for services rendered
|
|
|
2,032,275
|
|
|
|
658,577
|
|
|
|
$
|
2,176,275
|
|
|
$
|
946,577
|
|
Basic loss per share is based on
the weighted-average number of common shares outstanding during each period. Diluted loss per share is based on basic shares as
determined above plus common stock equivalents. The computation of diluted net loss per share does not assume the issuance of common
shares that have an anti-dilutive effect on net loss per share. For the year ended December 31, 2016 and 2015, all unvested restricted
stock awards and warrants, were excluded from the computation of diluted net loss per share. Dilutive shares which could exist
pursuant to the exercise of outstanding stock instruments and which were not included in the calculation because their affect would
have been anti-dilutive are as follows:
|
|
Year ended
December 31, 2016
(Shares)
|
|
|
Year ended
December 31, 2015
(Shares)
|
|
|
|
|
|
|
|
|
Restricted stock awards – unvested
|
|
|
-
|
|
|
|
4,320,000
|
|
Warrants to purchase shares of common stock
|
|
|
6,219,200
|
|
|
|
6,219,200
|
|
|
|
|
6,219,200
|
|
|
|
10,539,200
|
|
|
17
|
COMMITMENTS AND CONTINGENCIES
|
The Company operates from an office
facility in Mexico. The office is leased under a three (3) year non-cancellable operating lease, which ends on December 16, 2019.
The lease calls for monthly rental payment, including maintenance, of $2,846, as adjusted for exchange rate changes. The Company
also leases space on a month-to-month basis for its data servers at a monthly rate of $1,680. In addition, Qpagos leases warehouse
space on a month-to-month basis for $1,081 per month.
The future minimum lease installments
under the office facility lease agreement as of December 31, 2016 are $34,152 for each year 2017, 2018 and 2019, subject to exchange
rate changes.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On January 27, 2017, the Company,
entered into a Securities Purchase Agreement, pursuant to which the Company issued a Convertible Promissory Note in the aggregate
principal amount of $105,000. The Note has a maturity date of July 27, 2017 and a coupon of eight percent (8%) per annum. The Company
has the right to prepay the Note, provided it makes a payment to the Purchaser as set forth in the Note within 180 days of its
Issue Date. In connection with the issuance of the Note, the Company issued, as a commitment fee, 150,000 shares of its common
stock (the “Returnable Shares”). The Returnable Shares will be returned to the Company’s treasury if no Event
of Defaults (as defined in the Note) has occurred on or prior to the date that the Note is fully repaid and satisfied. The
outstanding principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser
during the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a conversion price based on a pre-determined formula.
On February 6, 2017, the Company
entered into a Convertible Promissory Note in the aggregate principal amount of $200,000. The Note has a maturity date of November
6, 2017 and a coupon of eight percent (8%) per annum. The Company has the right to prepay the Note, provided it makes a pre-payment
penalty as specified in the Note. The outstanding principal amount of the Note is convertible at any time and from time
to time at the election of the Purchaser during the period beginning on the date that is 180 days following the Issue Date into
shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion
price equal to a 40% discount to the average of the three (3) lowest trading bid prices during the previous ten (10) trading days
to the date of conversion.
On February 21, 2017, the Company,
entered into a Securities Purchase Agreement, pursuant to which the Company issued a Convertible Promissory Note in the aggregate
principal amount of $53,000. The Note has a maturity date of November 21, 2017 and a coupon of eight percent (8%) per annum. The
Company has the right to prepay the Note, provided it makes a payment to the Purchaser at a pre-determined formula. The outstanding
principal amount of the Note is convertible at any time and from time to time at the election of the Purchaser during
the period beginning on the date that is 180 days following the Issue Date into shares of the Company’s common
stock, par value $0.0001 per share (the “Common Stock”) at a pre-determined formula set forth in the Note.
On March 6, 2017, the Company approved
the renewal of three notes with an aggregate principal of $125,000 for up to an additional 120 days at a 15% interest rate.
On March 7, 2017, The Company
issued an aggregate of 500,000 shares of our common stock in exchange for two outstanding notes in the aggregate principal amount
of $150,000.
On March 7, 2017, the Company
issued an aggregate of 366,667 shares of our common stock as repayment of advances made by an investor in the amount of $110,000.
On March 9, 2017, the Company entered
into a Convertible Promissory Note in the aggregate principal amount of $100,000. The Note has a maturity date of March 8, 2018
and a coupon of eight percent (8%) per annum. The Company has the right to prepay the Note, provided it makes a pre-payment penalty
as specified in the Note. The outstanding principal amount of the Note is convertible at any time and from time to time
at the election of the Purchaser during the period beginning on the date that is 150 days following the Issue Date into shares
of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) at a conversion
price equal to a 40% discount to the average of the two (2) lowest trading bid prices during the previous fifteen (15) trading
days to the date of conversion.
On April 6, 2017, the Company entered
into a Convertible Promissory Note in the aggregate principal amount of $100,000. The Note has a maturity date of January 6, 2018
and a coupon of eight percent (8%) per annum. The Company has the right to prepay the Note, provided it makes a pre-payment penalty
as specified in the Note. The outstanding principal amount of the Note is convertible at any time and from time to time
at the election of the Holder into shares of the Company’s common stock, par value $0.0001 per share (the “Common
Stock”) at a conversion price equal to a 40% discount to the average of the two (2) lowest trading bid prices during
the previous fifteen (15) trading days to the date of conversion.
In accordance with ASC 855-10, the
Company has analyzed its operations subsequent to December 31, 2016 to the date these financial statements were issued, and has
determined that, except as disclosed, it does not have any material subsequent events to disclose in these financial statements.