NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
1
|
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 was treated
as a reverse acquisition of QPAGOS, a public shell company, for financial accounting and reporting purposes. As such, Qpagos Corporation
was treated as the acquirer for accounting and financial reporting purposes while QPAGOS was 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 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.
|
b)
|
Description
of the business
|
QPAGOS Corporation, through
its subsidiaries Qpagos and Redpag, provides 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.
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES
|
The accompanying
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”).
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
All amounts referred to in the
notes to the consolidated financial statements are in United States Dollars ($) unless stated otherwise.
|
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
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.
|
f)
|
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 than 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 has
identified the short term convertible notes and certain warrants attached to certain of the notes 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. We evaluate the fair value of variably priced derivative liabilities
on a quarterly basis and report any movements thereon ibn earnings.
|
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
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 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.
In March 2017, the FASB issued
ASU 2017-07, Compensation-Retirement Benefits (Topic 715). This Update is being issued primarily to improve the presentation of
net periodic pension cost and net periodic postretirement benefit cost. This Update also includes amendments to the Overview and
Background Sections of the FASB Accounting Standards Codification. Under generally accepted accounting principles (GAAP), defined
benefit pension cost and postretirement benefit cost (net benefit cost) comprise several components that reflect different aspects
of an employer’s financial arrangements as well as the cost of benefits provided to employees. Those components are aggregated
for reporting in the financial statements. The amendments in this Update apply to all employers, including not-for-profit entities
that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted
for under Topic 715. The amendments in this Update require that an employer disaggregate the service
cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the
service cost component and the other components of net benefit cost in the income statement and allow only the service cost component
of net benefit cost to be eligible for capitalization. The amendments in this Update are effective for public business entities
for annual periods beginning after December 15, 2017, including interim periods within those 3 annual periods. For other entities,
the amendments in this Update are effective for annual periods beginning after December 15, 2018, and interim periods within annual
periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period for which financial
statements have not been issued or made available for issuance. The amendments in this Update should be applied retrospectively
for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement
benefit cost in the income statement and prospectively, on and after the effective date, for the capitalization of the service
cost component of net periodic pension cost and net periodic postretirement benefit in assets. We are currently evaluating the
effect ASU 2017-07 will have on our consolidated financial statements.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
In March 2017, the FASB issued
ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) Premium Amortization of Purchased Callable
Debt Securities. The amendments in this Update affect all entities that hold investments in callable debt securities that have
an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium).
The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically,
the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change
for securities held at a discount; the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts
on callable debt securities generally are amortized to the maturity date. The amendments in this Update more closely align the
amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. As a
result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics
of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments are effective for
fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early
adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period,
any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity should
apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained
earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures
about a change in accounting principle. We are currently evaluating the effect ASU 2017-08 will have on our consolidated financial
statements.
In May 2017, the FASB issued
Accounting Standards Update No. (“ASU’’) 2017-09, Compensation – Stock Compensation, an amendment to Topic
718. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting in Topic 718. 2. An entity should account for the effects of a modification
unless all the following are met:
|
1.
|
The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
|
|
2.
|
The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
|
|
3.
|
The classification of the modified
award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before
the original award is modified.
|
The current disclosure requirements in Topic 718
apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update. The amendments
in this Update are effective for all entities for annual periods beginning after December 15, 2017. Early adoption is permitted
and should be applied prospectively to an award modified on or after the adoption date. The amendments proposed in this ASU are
not expected to have a material impact on the Company’s consolidated financial statements.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
In May 2017, the FASB issued ASU 2017-10, service
concession Arrangements, an amendment to Topic 853. Topic 853 provides guidance for operating entities when they enter into a service
concession arrangement with a public-sector grantor who both:
|
1.
|
Controls or has the ability to modify or approve the services that the operating entity must provide with the infrastructure, to whom it must provide them, and at what price
|
|
2.
|
Controls, through ownership, beneficial entitlement, or otherwise, any residual interest in the infrastructure at the end of the term of the arrangement.
|
In a service concession arrangement within the
scope of Topic 853, the operating entity should not account for the infrastructure as a lease or as property, plant, and equipment.
An operating entity should refer to other Topics to account for various aspects of a service concession arrangement. For example,
an operating entity should account for revenue relating to construction, upgrade, or operation services in accordance with Topic
605, Revenue Recognition, or Topic 606, Revenue from Contracts with Customers.
The amendments in this Update apply to the accounting
by operating entities for service concession arrangements within the scope of Topic 853. These updates are effective when the Company
adopts the updates to Topic 606. The amendments proposed in this ASU are not expected to have an impact on the Company’s
consolidated financial statements.
In August 2017, the FASB issued
ASU 2017-12, Derivatives and Hedging, an amendment to Topic 815. The amendments in this Update better align an entity’s risk
management activities and financial reporting for hedging relationships through changes to both the designation and measurement
guidance for qualifying hedging relationships and the presentation of hedge results. To meet that objective, the amendments expand
and refine hedge accounting for both nonfinancial and financial risk components 2 and align the recognition and presentation of
the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this Update require an
entity to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect
of the hedged item is reported.
The amendments in this Update
are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application
is permitted in any interim period after issuance of the Update. All transition requirements and elections should be applied to
hedging relationships existing (that is, hedging relationships in which the hedging instrument has not expired, been sold, terminated,
or exercised or the entity has not removed the designation of the hedging relationship) on the date of adoption. The effect of
adoption should be reflected as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact
this ASU will have on its consolidated financial statements.
In September 2017, the FASB
issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and
Leases (Topic 842). The amendments in this ASU deals with the transition and effective dates of implementing to ASU 2014-09, Revenue
from contracts with customers, ASU 2016-08, Revenue from contracts with customers, principal versus agent considerations, ASU 2016-10,
revenues from contacts with customers; identifying performance obligations and licensing, ASU 2016-12, revenues from contacts with
customers, narrow scope improvements and practical expedients, 2016-20, technical corrections and improvements and ASU 2017-05,
other income, gains and losses from the derecognition of non-financial assets.
In November 2017, the FASB issued
ASU 2017-14, Income Statement – Reporting Comprehensive Income (Topic220), Revenue Recognition (Topic 605) and Revenue from
Contracts with Customers (Topic 606). The amendments in this update provide guidance about:
Certain amendments made to
SEC materials and staff guidance relating to Operating-Differential subsidiaries, and amendments to the wording and disclosure
requirements of Topic 605, Revenue Recognition.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
In January 2018, the FASB issued
ASU 2018-1, Leases (Topic 842), Land Easement practical expedient for Top 842. The amendments in this update provide guidance about:
The amendments in this Update
permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist
or expired before the entity’s adoption of Topic 842 and that were not previously accounted for as leases under Topic 840.
An entity that elects this practical expedient should apply the practical expedient consistently to all of its existing or expired
land easements that were not previously accounted for as leases under Topic 840. Once an entity adopts Topic 842, it should apply
that Topic prospectively to all new (or modified) land easements to determine whether the arrangement should be accounted for as
a lease. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection
with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The amendment
in this Update clarifies that an entity should determine whether land easements are leases in accordance with Topic 842 before
applying the guidance.
The impact this ASU will have
on the Company’s consolidated financial statements is expected to be immaterial.
In February 2018, the FASB issued
ASU 2018-2, Income Statement- Reporting Comprehensive Income (Topic 220), Reclassification of certain tax effects from accumulated
other comprehensive income.
The amendments in this Update
allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from
the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs
Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only
relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that
the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in
this Update also require certain disclosures about stranded tax effects.
The amendments in this Update
are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within that fiscal year.
Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business
entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting
periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied
either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal
corporate income tax rate in the Tax Cuts and Jobs Act is recognized.
The impact this ASU will have
on the Company’s consolidated financial statements will be a reduction in the tax effect of net operating losses carried
forward.
In February 2018, the FASB issued
ASU 2018-3 Technical Corrections and Improvements to Financial Instruments – Overall (Sub topic 825-10), Recognition and
Measurement of Financial Assets and Financial Liabilities. The amendments in this Update provide guidance about:
The amendment clarifies that
an entity measuring an equity security using the measurement alternative may change its measurement approach to a fair value method
in accordance with Topic 820, Fair Value Measurement, through an irrevocable election that would apply to that security and all
identical or similar investments of the same issuer. Once an entity makes this election, the entity should measure all future purchases
of identical or similar investments of the same issuer using a fair value method in accordance with Topic 820.
The amendment clarifies that
the adjustments made under the measurement alternative are intended to reflect the fair value of the security as of the date that
the observable transaction for a similar security took place.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
The amendment clarifies that
remeasuring the entire value of forward contracts and purchased options is required when observable transactions occur on the underlying
equity securities.
The amendment clarifies that
when the fair value option is elected for a financial liability, the guidance in paragraph 825-10-45-5 should be applied, regardless
of whether the fair value option was elected under either Subtopic 815-15, Derivatives and Hedging— Embedded Derivatives,
or 825-10, Financial Instruments— Overall.
The amendments clarify that
for financial liabilities for which the fair value option is elected, the amount of change in fair value that relates to the instrument
specific credit risk should first be measured in the currency of denomination when presented separately from the total change in
fair value of the financial liability. Then, both components of the change in the fair value of the liability should be remeasured
into the functional currency of the reporting entity using end-of-period spot rates.
The amendment clarifies that
the prospective transition approach for equity securities without a readily determinable fair value in the amendments in Update
2016-01 is meant only for instances in which the measurement alternative is applied. An insurance entity subject to the guidance
in Topic 944, Financial Services—Insurance, should apply a prospective transition method when applying the amendments related to equity securities without readily determinable fair values. An insurance
entity should apply the selected prospective transition method consistently to the entity’s entire population of equity securities
for which the measurement alternative is elected.
The amendments in this Update
are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after
June 15, 2018. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required
to adopt these amendments until the interim period beginning after June 15, 2018, and public business entities with fiscal years
beginning between June 15, 2018, and December 15, 2018, are not required to adopt these amendments before adopting the amendments
in Update 2016-01. For all other entities, the effective date is the same as the effective date in Update 2016-01. All entities
may early adopt these amendments for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years, as long as they have adopted Update 2016-01.
The amendments in this update
are not expected to have a material impact on the Company’s consolidated financial statements.
In March 2018, the FASB issued
ASU 2018-4 Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980), Amendments to SEC Paragraphs pursuant
to SEC Staff Accounting Bulletin no. 117 and SEC Release No. 33-9273. The amendments in this update provide guidance about:
Certain amendments made to SEC
materials and staff guidance relating to Investments – Debt Securities (Topic 320) and Regulated Operations (Topic 980).
The amendments in this update
are not expected to have a material impact on the Company’s consolidated financial statements.
In March 2018, the FASB issued
ASU 2018-5, Income Taxes (Topic 740) Amendments to SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 118
These amendments affect the
wording of SEC paragraphs in the accounting standard codification dealing with Income Taxes (Topic 740).
The amendments in this update
are not expected to have a material impact on the Company’s consolidated financial statements.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
2
|
ACCOUNTING
POLICIES AND ESTIMATES (continued)
|
|
h)
|
Recent Accounting Pronouncements
|
The transition provisions require
adoption of Topic 606 for annual reporting periods commencing after December 15, 2017 and the adoption of Topic 842 for annual
reporting periods beginning after December 15, 2018 for public business entities, if the requirements of a public business entity
as defined in ASU 2017-12 are not met, may adopt Topic 606 for annual reporting periods commencing after December 15, 2018 and
for Topic 842 for annual reporting periods commencing after December 15, 2019. Early adoption is permitted of both Topics. The
Company has evaluated the impact of this ASU and has initially concluded that the impact will be immaterial.
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.
|
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, 2017 and December 31, 2016, 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, 2017 and 2016, the balance did not exceed the federally
insured limit.
|
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, 2017 and 2016.
|
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, 2017.
The Company primarily values
inventories at the lower of cost or net realizable value 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
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.
License agreements acquired by
the Company are reported at acquisition value less accumulated amortization and impairments.
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
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 sells 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
OTCQB, as an indicator of the fair value of its common stock in determining share- based payment arrangements.
QPAGOS
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, 2017 and 2016, 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.
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 $13,388,191 as of December 31, 2017 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 for at least the next twelve months from the date the financial statements were issued.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Inventory consisted of the following as of December
31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Kiosks
|
|
$
|
504,794
|
|
|
$
|
350,273
|
|
|
|
$
|
504,794
|
|
|
$
|
350,273
|
|
Plant and Equipment consisted of the following as
of December 31, 2017 and December 31, 2016:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Kiosks
|
|
$
|
263,709
|
|
|
$
|
269,810
|
|
Computer equipment
|
|
|
73,448
|
|
|
|
69,577
|
|
Office equipment
|
|
|
9,911
|
|
|
|
9,430
|
|
Leasehold improvement
|
|
|
8,608
|
|
|
|
8,192
|
|
Total cost
|
|
|
355,676
|
|
|
|
357,009
|
|
Less: accumulated depreciation and amortization
|
|
|
(195,375
|
)
|
|
|
(125,681
|
)
|
Plant and equipment, net
|
|
$
|
160,301
|
|
|
$
|
231,328
|
|
Depreciation and amortization
expense totaled $65,827 and $62,319 for the years ended December 31, 2017 and 2016, respectively.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Intangibles
consisted of the following:
|
|
December
31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
Software
Localization Agreement
|
|
$
|
215,000
|
|
|
$
|
215,000
|
|
Total
cost
|
|
|
215,000
|
|
|
|
215,000
|
|
Less:
accumulated amortization
|
|
|
(89,583
|
)
|
|
|
(46,583
|
)
|
Intangibles,
net
|
|
$
|
125,417
|
|
|
$
|
168,417
|
|
Amortization
expense was $43,000 and $43,000 for the year ended December 31, 2017 and 2016, respectively.
Notes
payable consisted of the following:
Description
|
|
Interest
Rate
|
|
|
Maturity
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
YP
Holdings LLC
|
|
|
12
|
%
|
|
|
December 31, 2015
|
|
|
$
|
—
|
|
|
$
|
151,353
|
|
Strategic
IR
|
|
|
10
|
%
|
|
|
January 1, 2017
|
|
|
|
—
|
|
|
|
146,575
|
|
Joseph
W and Patricia G Abrams
|
|
|
10
|
%
|
|
|
June 13, 2017
|
|
|
|
—
|
|
|
|
25,534
|
|
Total
notes payable
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
323,462
|
|
Interest
expense totaled $0 and $3,025 for the year ended December 31, 2017 and 2016, respectively.
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%. On May 26, 2017, the Company re-negotiated the loan with YP Holdings and exchanged the note with a convertible
note in the Company, refer to note 9 below.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
8
|
NOTES PAYABLE (continued)
|
Strategic
IR
Effective
October 14, 2016 the Company executed an unsecured promissory note for $50,000, for an advance that took place on September 29, 2016,
which matured on February 13, 2017, bearing interest at 10% per annum. The maturity date of this loan was extended to
May 19, 2017 and further extended to June 29, 2017 by the execution of Extension Agreements.
On
June 29, 2017, the note, principal amount of $50,000 and accrued interest thereon of $3,740 was exchanged for a convertible
note, refer to note 9 below.
On
May 12, 2017, the Company executed an unsecured promissory note for $20,000 with an investor, bearing interest at 10%
per annum payable on June 11, 2017. Effective June 11, 2017, the note, principal amount of $20,000 and accrued
interest thereon of $164 was exchanged for a convertible note, refer note to 9 below.
On
May 19, 2017, the Company executed a Secured Grid Note for advances totaling $110,000 which took place between December 12, 2016
and March 6, 2017, bearing interest at 10% per annum maturing on May 30, 2017 or earlier upon acceleration
by Strategic IR. The Company entered into an extension agreement with Strategic IR extending the maturity date of the note to
June 29, 2017.
On
June 29, 2017, the note, principal amount of $110,000 and accrued interest thereon of $5,535 was exchanged for a convertible
note, refer to note 9 below.
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. On February 13, 2017, the Company executed an amended and restated
promissory note extending the maturity date to June 13, 2017 and increasing the interest rate to 15% per annum.
On
June 13, 2017, the note, principal amount of $25,000 and accrued interest thereon of $1,247 was exchanged for a convertible
note, refer to note 9 below.
Viktoria Akhmetova
Ms. Akhmetova is considered to be
a related party as her shareholding exceeds 5%.
On May 12, 2017, the Company executed
an unsecured promissory note for $20,000 with an investor, bearing interest at 10% per annum payable on June 11, 2017.
Effective June 11, 2017, the note,
principal amount of $20,000 and accrued interest thereon of $164 was exchanged for a convertible note, refer to Convertible Notes
Payable below.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE
|
Convertible
notes payable consists of the following:
Description
|
|
Interest
rate
|
|
Maturity
Date
|
|
Principal
|
|
|
Accrued
interest
|
|
|
Unamortized
debt discount
|
|
|
December
31,
2017
Balance,
net
|
|
|
December
31,
2016
Balance,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Up Lending Group
|
|
|
8
|
%
|
|
September
30, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,180
|
|
|
|
|
8
|
%
|
|
November 30, 2017
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
April 20, 2018
|
|
|
83,000
|
|
|
|
3,165
|
|
|
|
(32,148
|
)
|
|
|
54,017
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
June 30, 2018
|
|
|
63,000
|
|
|
|
1,491
|
|
|
|
(39,457
|
)
|
|
|
25,034
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
August 30, 2018
|
|
|
53,000
|
|
|
|
546
|
|
|
|
(44,381
|
)
|
|
|
9,165
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labrys Fund, LP
|
|
|
8
|
%
|
|
June 14, 2018
|
|
|
78,000
|
|
|
|
291
|
|
|
|
(70,714
|
)
|
|
|
7,577
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JSJ Investments, Inc.
|
|
|
8
|
%
|
|
November 29, 2018
|
|
|
75,000
|
|
|
|
526
|
|
|
|
(68,425
|
)
|
|
|
7,101
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GS Capital Partners, LLC
|
|
|
8
|
%
|
|
May 22, 2018
|
|
|
35,000
|
|
|
|
1,728
|
|
|
|
(13,616
|
)
|
|
|
23,112
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
June 16, 2018
|
|
|
112,500
|
|
|
|
4,882
|
|
|
|
(51,473
|
)
|
|
|
65,909
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic IR
|
|
|
15
|
%
|
|
December 8, 2018
|
|
|
10,000
|
|
|
|
693
|
|
|
|
—
|
|
|
|
10,693
|
|
|
|
—
|
|
|
|
|
15
|
%
|
|
December 8, 2018
|
|
|
20,164
|
|
|
|
1,384
|
|
|
|
—
|
|
|
|
21,548
|
|
|
|
—
|
|
|
|
|
15
|
%
|
|
December 26, 2018
|
|
|
53,740
|
|
|
|
3,291
|
|
|
|
—
|
|
|
|
57,031
|
|
|
|
—
|
|
|
|
|
15
|
%
|
|
December 26, 2018
|
|
|
115,535
|
|
|
|
7,075
|
|
|
|
—
|
|
|
|
122,610
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
October 3, 2018
|
|
|
14,298
|
|
|
|
6
|
|
|
|
(11,595
|
)
|
|
|
2,709
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Viktoria Akhmetova
|
|
|
15
|
%
|
|
December 8, 2018
|
|
|
20,164
|
|
|
|
1,384
|
|
|
|
—
|
|
|
|
21,548
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
October 20, 2018
|
|
|
50,000
|
|
|
|
811
|
|
|
|
(39,918
|
)
|
|
|
10,893
|
|
|
|
|
|
|
|
|
8
|
%
|
|
August 24,2018
|
|
|
113,845
|
|
|
|
1,547
|
|
|
|
(73,610
|
)
|
|
|
41,782
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
September 18, 2018
|
|
|
69,047
|
|
|
|
560
|
|
|
|
(49,373
|
)
|
|
|
20,234
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
September 26, 2018
|
|
|
20,000
|
|
|
|
127
|
|
|
|
(14,740
|
)
|
|
|
5,387
|
|
|
|
—
|
|
Joseph W and Patricia G Abrams
|
|
|
15
|
%
|
|
December 10, 2018
|
|
|
26,247
|
|
|
|
1,780
|
|
|
|
—
|
|
|
|
28,027
|
|
|
|
—
|
|
|
|
|
15
|
%
|
|
January 27, 2019
|
|
|
3,753
|
|
|
|
189
|
|
|
|
(563
|
)
|
|
|
3,379
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roman Shefer
|
|
|
15
|
%
|
|
December 24, 2018
|
|
|
10,000
|
|
|
|
621
|
|
|
|
—
|
|
|
|
10,621
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crown Bridge Partners, LLC
|
|
|
8
|
%
|
|
August 14, 2018
|
|
|
75,000
|
|
|
|
2,285
|
|
|
|
(46,439
|
)
|
|
|
30,846
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BOBA Management
|
|
|
8
|
%
|
|
August 31, 2018
|
|
|
88,847
|
|
|
|
1,071
|
|
|
|
(59,150
|
)
|
|
|
30,768
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
October 3, 2018
|
|
|
48,880
|
|
|
|
236
|
|
|
|
(36,961
|
)
|
|
|
12,155
|
|
|
|
—
|
|
|
|
|
8
|
%
|
|
December 24, 2017
|
|
|
100,000
|
|
|
|
2,360
|
|
|
|
—
|
|
|
|
102,630
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
convertible notes payable
|
|
|
|
|
|
|
|
$
|
1,339,020
|
|
|
$
|
38,319
|
|
|
$
|
(652,563
|
)
|
|
$
|
724,776
|
|
|
$
|
1,180
|
|
Interest
expense amounted to $96,434 and $68 for the years ended December 31, 2017 and 2016, respectively. Debt discount amortized
amounted to $1,171,281 and $1,112 for the years ended December 31, 2017 and 2016, respectively.
The
convertible notes disclosed above with a coupon of 15%, have a fixed conversion price of $0.20 per common share and certain investors
who met a minimum investment requirement of $30,000 were issued three-year warrants convertible into common shares at a conversion
price of; i) $0.20 per share if the convertible notes are converted prior to maturity date; and ii) $0.30 per share if the convertible
notes are not converted prior to maturity date. These convertible notes have a beneficial conversion feature. The beneficial conversion
feature was valued using a Black-Scholes valuation model, refer note 11 c) below, the value of the beneficial conversion feature
of the notes were determined based on fair market price of the common stock at the date of the issuance of the note and the conversion
price. The difference between the fair market value and the conversion price was recorded as a debt discount with a corresponding
credit to derivative financial liability.
The
remaining convertible notes have variable conversion prices based on a discount to market price of trading activity over a specified
period of time. The variable conversion features were valued using a Black Scholes valuation model. The difference between the
fair market value of the common stock and the calculated conversion price on the issuance date was recorded as a debt discount
with a corresponding credit to derivative financial liability.
The
total value of the beneficial conversion feature recorded as a debt discount during the year ended December 31, 2017
and 2016 was $2,383,113 and $77,000, respectively.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Power
Up Lending Group Ltd.
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 to Power Up Lending Group Ltd. The note had 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 note provided that its
outstanding principal amount was 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 equal to 58% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading
days prior to conversion.
On
June 27, 2017, the Company prepaid this note for a total of $107,005, including accrued interest thereon and an early
settlement penalty of 35% of the principal outstanding.
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 to Power Up Lending Group Ltd. The note has a maturity
date of November 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
equal to 60% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days
prior to conversion.
On
August 22, 2017, the Company prepaid this note for a total of $73,560, including accrued interest thereon and an early
settlement penalty of 35% of the principal outstanding.
On
April 25, 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 $33,000 to Power Up Lending Group Ltd. The note has a maturity date of February 10, 2018
and the Company has agreed to pay interest on the unpaid principal balance of the note at the rate of eight percent per annum
from the date on which the note is issued until the same becomes due and payable, whether at maturity or upon acceleration or
by prepayment or otherwise. The Company has the right to prepay the note in terms of agreement. 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 at a conversion price equal
to 60% of the average lowest three closing bid prices of the Company’s common stock for the ten trading days prior to conversion.
On
October 23, 2017, Anna Mosk, the Principal of Strategic IR, entered into an agreement whereby a convertible note was
acquired from Power Up Lending Group for the principal balance of $33,000 and accrued interest thereon of $1,309. An additional
payment of $14,298 was made by Strategic IR on behalf of the Company as compensation for the early settlement penalty and legal
fees incurred on assigning the note to Strategic IR.
On
July 10, 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 $83,000 to Power Up Lending Group Ltd. The note has a maturity date of April 20, 2018
and the Company has agreed to pay interest on the unpaid principal balance of the note at the rate of eight percent per annum
from the date on which the note is issued until the same becomes due and payable, whether at maturity or upon acceleration or
by prepayment or otherwise. The Company has the right to prepay the note in terms of agreement. 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 at a conversion price equal
to 58% of the average lowest three closing bid prices of the Company’s common stock for the ten trading days prior to conversion.
The
balance of the note plus accrued interest at December 31, 2017 was $54,017, net of unamortized discount of $32,148.
On
September 14, 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 $63,000 to Power Up Lending Group Ltd. The note has a maturity date of
June 30, 2018 and the Company has agreed to pay interest on the unpaid principal balance of the note at the rate of
eight percent per annum from the date on which the note is issued until the same becomes due and payable, whether at maturity
or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the note in terms of agreement. 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 at a conversion price equal to 58% of the average lowest three closing bid prices of the Company’s common
stock for the ten trading days prior to conversion.
The
balance of the note plus accrued interest at December 31, 2017 was $25,034, net of unamortized discount of $39,457.
On
November 14, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $53,000 to
Power Up Lending Group LTD. The note has a maturity date of August 30, 2018 and a coupon of eight percent (8%) per annum.
The Company has the right to prepay the note without penalty for the first 180 days. 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading
days, including the date the notice of conversion is received.
The
balance of the note plus accrued interest at December 31, 2017 was $9,165, net of unamortized discount of $44,381.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Labrys
Fund, LP
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 to Labrys Fund, LP. The note had a maturity date of July 27, 2017
and a coupon of eight percent per annum. In connection with the issuance of the note, the Company was required to issue 150,000
shares of common stock as a commitment fee valued at $66,000. The shares were returnable to the Company if no Event of Default
has occurred prior to the date the note is fully repaid. Management had determined that it is probable that the Company would
meet the conditions under the note and therefore it more likely than not that the Company would not be in Default as defined in
the note. As a result, management has concluded that it was probable that the shares would be returned and therefore the value
of the 150,000 shares was not recorded.
The
Company had the right to prepay the note within 180 days of its Issue Date. After the 180 days, the Company had no right
to prepayment. The outstanding principal amount of the note was 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 equal to 60% of the average of the lowest three closing bid prices of the Company’s
common stock for the ten trading days prior to conversion.
On
July 26, 2017, the Company repaid this note for a total of $109,142, including interest thereon. The 150,000 shares
of common stock issued to Labrys Fund as a commitment fee for the convertible loan advanced have been returned to the Company
and have been cancelled
On
December 14, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $78,000
to Labrys Fund, LP. The note has a maturity date of June 14, 2018 and a coupon of eight percent (8%) per annum. In
connection with the issuance of the note, the Company was required to issue 231,931 shares of common stock as a commitment
fee valued at $76,537. The shares are returnable to the Company if no Event of Default has occurred prior to the date the
note is fully repaid. Management had determined that it is probable that the Company would meet the conditions under the note
and therefore it more likely than not that the Company would not be in Default as defined in the note. As a result,
management has concluded that it was probable that the shares would be returned and therefore the value of the 231,931 shares
was not recorded.
The
Company has the right to prepay the note without penalty for the first 180 days. 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading
days, including the date the notice of conversion is received.
The
balance of the note plus accrued interest at December 31, 2017 was $7,577, net of unamortized discount of $70,714.
JSJ
Investments Inc.
On
February 6, 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 $200,000 to JSJ Investments Inc., (JSJ). The note had a maturity
date of November 6, 2017 and a coupon of eight percent per annum. The Company has the right to prepay the note within
180 days of its issue date. After the 180 days, the Company has no right to prepayment. 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
equal to 60% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days
prior to conversion.
On
August 10, 2017, JSJ converted $24,000 of the principal amount of the convertible note into equity at a conversion price
of $0.11 per share for an aggregate 224,299 shares of common stock.
On
August 31, 2017, Strategic IR entered into an agreement whereby the convertible note was acquired from JSJ for the remaining
principal balance of $176,000 and accrued interest outstanding of $8,715. An additional payment of $88,847 was made by Strategic
IR on behalf of the Company as compensation for the early settlement penalty and legal fees incurred on assigning the note to
Strategic IR.
On
November 29, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $75,000 to
JSJ Investments, Inc. The note has a maturity date of November 29, 2018 and a coupon of eight percent (8%) per annum.
The Company has the right to prepay the note without penalty for the first 180 days. 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading
days, including the date the notice of conversion is received.
The
balance of the note plus accrued interest at December 31, 2017 was $7,101, net of unamortized discount of $68,425.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Vista
Capital Investments, LLC
On
March 9, 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 $100,000 to Vista Capital Investments, LLC., (Vista). The
note has a maturity date of March 9, 2018 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 through the maturity 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 150 days following the issue date into shares of the Company’s common stock, at a conversion price
equal to 60% of the average of the last two lowest trading bid prices during the fifteen trading days prior to conversion.
On
September 18, 2017, Strategic IR entered into an agreement whereby the convertible note was acquired from Vista for
the principal balance of $100,000 and accrued interest outstanding of $4,230. An additional payment of $60,770 was made by Strategic
IR on behalf of the Company as compensation for the early settlement penalty and legal fees incurred on assigning the note to
Strategic IR.
Crossover
Capital Fund II, LLC
On
April 6, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $100,000 to Crossover
Capital Fund II, LLC. 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 at a conversion price equal to 60% of the lowest trading bid price during the previous fifteen (15)
trading days to the date of conversion.
On
October 3, 2017, Strategic IR entered into an agreement whereby the convertible note was acquired from Crossover Capital
for the principal balance of $100,000 and accrued interest thereon of $4,000. An additional payment of $48,880 was made by Strategic
IR on behalf of the Company as compensation for the early settlement penalty and legal fees incurred on assigning the note to
Strategic IR.
On October 25, 2017, in terms
of an agreement entered into between Strategic and Vladimir Skigin, this note was assigned to Vladimir Skigin, refer note 16 below.
GS
Capital Partners, LLC
On
May 22, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $75,000 to GS Capital
Partners, LLC., (GS Capital). The note has a maturity date of May 22, 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 at a conversion price equal to 62% of lowest trading bid prices during the previous
ten (10) trading days, including the date the notice of conversion is received.
On
November 11, 2017, GS Capital converted $20,000 of the principal amount of the convertible note into equity at a conversion
price of $0.1023 per share for an aggregate 203,516 shares of common stock.
On
December 13, 2017, GS Capital converted a further $20,000 of the principal amount of the convertible note into equity
at a conversion price of $0.1240 per share for an aggregate 168,466 shares of common stock.
The
balance of the note plus accrued interest at December 31, 2017 was $23,112, net of unamortized discount of $13,616.
On
June 16, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $112,500 to GS
Capital Partners, LLC. The note has a maturity date of June 16, 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 at a conversion price equal to 62% of lowest trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received. The balance of the note plus accrued interest at December 31, 2017 was
$65,909, net of unamortized discount of $51,473.
YP
Holdings, LLC
YP
Holdings forgave $19,553 of accrued interest on a note with a principal amount of $100,000 (refer note 8 above), with the remaining
accrued interest of $43,759 and was issued in lieu thereof a convertible note with a principal amount of $143,759, bearing interest
at 8% per annum, maturing on May 26, 2018. The Company has the right to prepay 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. The note is convertible into
shares of the Company’s common stock, at a conversion price equal to 70% of the average of the lowest three closing bid
prices of the Company’s common stock for the ten prior trading days.
On
June 12, 2017, YP Holdings converted a total of $11,556 of the principal and interest of the convertible note outstanding
into 57,143 common shares of the Company at a net issue price of $0.202 per share.
On
June 22, 2107 a further $20,125 of the principal and interest of the convertible note outstanding was converted into
100,000 shares of common stock at a conversion price of $0.2013 per share.
On
August 24, 2017, the Company utilized the proceeds of a further convertible note it received from Strategic IR to repay
the note for an aggregate of $113,845.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Strategic
IR
On
June 11, 2017, the Company issued a convertible promissory note in the aggregate principal amount of $10,000 to Strategic
IR (Strategic). The note bears interest at 12% per annum and matured on December 16, 2017. In terms
of an agreement entered into with the note holder , the maturity date of the note was extended to December 8, 2018 and
the interest rate was increased to 15% per annum.
The
note is convertible into common shares at a conversion price of $.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $10,693.
On
June 11, 2017, the Company exchanged a note issued to Strategic with a principal amount of $20,000, together with accrued
interest thereon of $164, totaling $20,164, for a convertible note, principal amount of $20,164, bearing interest at 12% per annum
and matured on December 8, 2017. In terms of an agreement entered into with the note holder, the maturity date was extended
to December 8, 2018 and the interest rate was increased to 15% per annum.
The
note is convertible into common shares of the Company at a conversion price of $0.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $21,548.
On
June 27, 2017, a previously unclassified amount due to Strategic was classified as a Convertible Promissory Note in
the aggregate principal amount of $100,000. The note has a maturity date of December 24, 2017 and a coupon of 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during
the previous ten (10) trading days.
On
October 25, 2017, the Company received a notice that the note had been assigned to BOBA Management and
simultaneously therewith, the Company received a notice of conversion of the outstanding principal and interest into common
shares effective October 25, 2017. The Company had to increase its number of authorized shares in order to give
effect to this conversion. The Company received a default waiver from the note holder to allow it to increase its authorized
shares. The note and outstanding interest thereon was converted into equity on March 7, 2018.
On
June 29, 2017, the Company exchanged a note issued to Strategic with a principal amount of $50,000, together with accrued
interest thereon of $3,740, totaling $53,740, for a convertible note, principal amount of $53,740, bearing interest at 12% per
annum which matured on December 26, 2017. In terms of an agreement entered into with the note holder, the maturity date
was extended to December 26, 2018 and the interest rate was increased to 15% per annum. The note is convertible into
common shares of the Company at a conversion price of $0.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $57,031.
On
June 29, 2017, the Company exchanged a note issued to Strategic with a principal amount of $110,000, together with accrued
interest thereon of $5,535, totaling $115,535, for a convertible note, principal amount of $115,535, bearing interest at 12% per
annum and matured on December 26, 2017. In terms of an agreement entered into with the note holder the maturity date
was extended to December 26, 2018 and the interest rate was increased to 15% per annum. The convertible note is convertible
into common shares of the Company at a conversion price of $0.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $122,610.
On
July 26, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $117,000 to Strategic.
The note has a maturity date of January 22, 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading
days, including the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to Vladimir Skigin and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Strategic
IR (continued)
On
September 18, 2017, Strategic IR entered into an agreement whereby the convertible note held by Vista Capital Investments
was acquired by Strategic for the aggregate principal balance of $100,000 and accrued interest thereon of $4,230. An additional
payment of $60,770 was made by Strategic IR on behalf of the Company as compensation for the early settlement penalty and legal
fees incurred on assigning the note to Strategic IR. The note has a maturity date of March 9, 2018 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 through the maturity 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 150 days following the issue date into
shares of the Company’s common stock, at a conversion price equal to 60% of the average of the last two lowest trading
bid prices during the fifteen trading days prior to conversion.
On
October 25, 2017, the Company received a notice that the note had been assigned to Beverly Pacific Holdings and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
August 24, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $113,845 to Strategic.
The note has a maturity date of August 24, 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading
days, including the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to Victoria Akhmetova and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
August 31, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $88,847 to Strategic.
The note has a maturity date of August 31, 2018 and a coupon of eight percent (8%) per annum. The Company has the right
to prepay the note without penalty for the first 180 days. 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 at a conversion
price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to BOBA Management and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
August 31, 2017, Strategic purchased a convertible note from JSJ Investments, Inc. for an aggregate principal outstanding
of $176,000 together with interest thereon of $8,715. The note has a maturity date of November 6, 2017 and a coupon
of eight percent per annum. The Company has the right to prepay the note within 180 days of its issue date. After the 180 days,
the Company has no right to prepayment. 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 equal to 60% of the average of the lowest three closing
bid prices of the Company’s common stock for the ten trading days prior to conversion.
On
October 25, 2017, the Company received a notice that the note had been assigned to Beverly Pacific Holdings and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Strategic
IR (continued)
On
September 18, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $69,047 to
Strategic. The note has a maturity date of September 18, 2018 and a coupon of eight percent (8%) per annum. The Company
has the right to prepay the note without penalty for the first 180 days. 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 at
a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days,
including the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to Victoria Akhmetova and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
September 26, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $20,000 to
Strategic. The note has a maturity date of September 26, 2018 and a coupon of eight percent (8%) per annum. The Company
has the right to prepay the note without penalty for the first 180 days. 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 at
a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days,
including the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to Victoria Akhmetova and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
September 28, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $246,000 to
Strategic. The note has a maturity date of September 28, 2018 and a coupon of eight percent (8%) per annum. The Company
has the right to prepay the note without penalty for the first 180 days. 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 at
a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days,
including the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice that the note had been assigned to Vladimir Skigin and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
October 3, 2017, Strategic IR entered into an agreement whereby a convertible note was acquired from Crossover Capital
for the principal balance of $100,000 and accrued interest thereon of $4,000. An additional payment of $48,880 was made by Strategic
IR on behalf of the Company as compensation for the early settlement penalty and legal fees incurred on assigning the note to
Strategic IR.
On
October 25, 2017, the Company received a notice that the note had been assigned to Vladimir Skigin and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
October 3, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $48,880 to Strategic.
The note has a maturity date of October 3, 2018 and a coupon of eight percent (8%) per annum. The Company has the right
to prepay the note without penalty for the first 180 days. 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 at a conversion
price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received.
On October 25, 2017,
the Company received a notice that the note had been assigned to BOBA Management and simultaneously therewith, the Company received
a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Strategic
IR (continued)
On
October 23, 2017, Anna Mosk, the Principal of Strategic IR, entered into an agreement whereby a convertible note was
acquired from Power Up Lending Group for the principal balance of $33,000 and accrued interest thereon of $1,309. An additional
payment of $14,298 was made by Strategic IR on behalf of the Company as compensation for the early settlement penalty and legal
fees incurred on assigning the note to Strategic IR.
On
October 25, 2017, the Company received a notice that the note had been assigned to Vladimir Skigin and simultaneously
therewith, the Company received a notice of conversion of the outstanding principal and interest into common shares effective
October 25, 2017. The Company had to increase its number of authorized shares in order to give effect to this conversion.
The Company received a default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding
interest thereon was converted into equity on March 7, 2018.
On
October 23, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $14,298 to Strategic.
The note has a maturity date of October 23, 2018 and a coupon of eight percent (8%) per annum. The Company has the right
to prepay the note without penalty for the first 180 days. 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 at a conversion
price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received.
The
balance of the note plus accrued interest at December 31, 2017 was $2,709, net of unamortized discount of $11,595.
In
connection with the convertible notes with a 15% coupon, above, the Company issued warrants to purchase 997,195 common shares
of the Company at a variable exercise price of $0.20 per share, if the convertible note above is converted into common shares
prior to its maturity date or $0.30 per share if the convertible note is not converted prior to its maturity date.
Viktoria Akhmetova
On June 11, 2017, the Company exchanged
a note issued to Viktoria Akhmetova, with a principal amount of $20,000, together with accrued interest thereon of $164, totaling
$20,164, for a convertible note, principal amount of $20,164, bearing interest at 12% per annum and matured on December 8, 2017.
In terms of an agreement entered into with the note holder, the maturity date was extended to December 8, 2018 and the interest
rate was increased to 15% per annum. The note is convertible into common shares of the Company at a conversion price of $0.20 per
share.
The balance of the note plus accrued
interest at December 31, 2017 was $21,548.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Viktoria Akhmetova (continued)
On October 31, 2017, the Company
issued a Convertible Promissory Note in the aggregate principal amount of $50,000 to Viktoria Akhmetova. The note has a maturity
date of October 20, 2018 and a coupon of eight percent (8%) per annum. The Company has the right to prepay the note within the
first 180 days at a premium of 110% of the sum of the accrued interest and principal. 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 at a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10)
trading days, including the date the notice of conversion is received.
The balance of the note plus accrued
interest at December 31, 2017 was $10,893, net of unamortized discount of $39,918.
On October 25, 2017, in terms of
an agreement entered into, Strategic IR assigned a note entered into on August 24, 2017 with the Company to Viktoria Akhmetova.
The note had an aggregate principal amount of $113,845 and accrued interest thereon of $1,547. The note has a maturity date of
August 24, 2018 and a coupon of 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 at a conversion price equal to 60%
of the average of the lowest three trading bid prices during the previous ten (10) trading days, including the date the notice
of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus accrued
interest at December 31, 2017 was $41,782, net of unamortized discount of $73,610.
On October 25, 2017, in terms of
an agreement entered into, Strategic IR assigned a note entered into on September 18, 2017 with the Company to Viktoria Akhmetova.
The note had an aggregate principal amount of $69,047 and accrued interest thereon of $560. The note has a maturity date of September
18, 2018 and a coupon of 8% per annum. The Company has the right to prepay the note without penalty for the first 180 days. 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 at a conversion price equal to 60% of the average of the lowest
three trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus accrued
interest at December 31, 2017 was $20,234, net of unamortized discount of $49,373.
On October 25, 2017, in terms of
an agreement entered into, Strategic IR assigned a note entered into on September 26, 2017 with the Company to Viktoria Akhmetova.
The note had an aggregate principal amount of $20,000 and accrued interest thereon of $127. The note has a maturity date of September
26, 2018 and a coupon of 8% per annum. The Company has the right to prepay the note without penalty for the first 180 days. 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 at a conversion price equal to 60% of the average of the lowest
three trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus accrued interest at December 31, 2017 was $5,387, net of unamortized discount
of $14,740.
Joseph
W and Patricia G Abrams
Effective
June 13, 2017, the Company exchanged a note issued to Joseph W and Patricia G Abrams (Abrams) with a
principal amount of $25,000, together with accrued interest thereon of $1,247, totaling $26,247, for a convertible note, principal
amount of $26,247, bearing interest at 12% per annum and matured on December 10, 2017. In terms of an agreement entered
into with the note holder, the maturity date was extended to December 10, 2018 and the interest rate was increased to
15% per annum.
The
convertible note is convertible into common shares of the Company at a conversion price of $0.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $28,027.
On
July 31, 2017, the Company issued a Convertible Promissory Note to Abrams in the aggregate principal amount of $3,753.
The note has a maturity date of January 27, 2018 and a coupon of 12% per annum. In terms of an agreement entered into
with the note holder, the maturity date was extended to January 27, 2019 and the interest rate was increased to 15%
per annum.
The
Company has the right to prepay the note without penalty. 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 at a conversion price of
$0.25 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $3,379, net of unamortized discount of $563.
In
connection with the Convertible note above, the Company issued a warrant to purchase 146,247 shares of common stock of the Company
at a variable exercise price of $0.20 per share, if the convertible note above is converted into common shares prior to its maturity
date or $0.30 per share if the convertible note is not converted prior to its maturity date.
Roman
Shefer
On
June 27, 2017, the Company entered into a convertible promissory note in the aggregate principal amount of
$10,000. The note bore interest at 12% per annum and matured on December 16, 2017. In terms of an agreement entered
into with the note holder, the maturity date was extended to December 24, 2018 and the interest rate was increased to
15% per annum.
The
note is convertible into common shares at a conversion price of $.20 per share.
The
balance of the note plus accrued interest at December 31, 2017 was $10,621.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
9
|
CONVERTIBLE NOTES PAYABLE (continued)
|
Crown
Bridge Partners
On
August 14, 2017, the Company issued a Convertible Promissory Note in the aggregate principal amount of $75,000 to Crown
Bridger Partners. The note has a maturity date of August 14, 2018 and a coupon of eight percent (8%) per annum. The
Company has the right to prepay the note for the first 180 days, subject to a penalty ranging from 10% to 35% of the prepayment,
dependent upon the timing of the prepayment. 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 at a conversion price equal to 60%
of the lowest trading price during the previous fifteen (15) trading days.
The
balance of the note plus accrued interest at December 31, 2017 was $30,846, net of unamortized discount of $46,439.
BOBA
Management
On
October 25, 2017, in terms of an agreement entered into, Strategic IR assigned a note entered into on August 31, 2017
with the Company to BOBA Management. The note had an aggregate principal amount of $88,847 and accrued interest thereon of $1,071.
The note has a maturity date of August 31, 2018 and a coupon of eight percent (8%) per annum. The Company has the right
to prepay the note without penalty for the first 180 days. 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 at a conversion
price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days, including
the date the notice of conversion is received.
On
October 25, 2017, the Company received a notice of conversion of the outstanding principal and interest into common
shares effective October 25, 2017. The Company had to increase its number of authorized shares in order to give effect
to this conversion. The Company received a default waiver from the note holder to allow it to increase its authorized shares.
The note and outstanding interest thereon was converted into equity on March 7, 2018.
The
balance of the note plus accrued interest at December 31, 2017 was $30,768, net of unamortized discount of $59,150.
On October 25, 2017,
in terms of an agreement entered into, Strategic IR assigned a note entered into on October 3, 2017 with the Company
to BOBA Management. The note had an aggregate principal amount of $48,880 and accrued interest thereon of $236. The note has a
maturity date of October 3, 2018 and a coupon of eight percent (8%) per annum. The Company has the right to prepay the
note without penalty for the first 180 days. 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 at a conversion price equal to 60% of
the average of the lowest three trading bid prices during the previous ten (10) trading days, including the date the notice of
conversion is received.
On October 25, 2017,
the Company received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017.
The Company had to increase its number of authorized shares in order to give effect to this conversion. The Company received a
default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was
converted into equity on March 7, 2018.
The balance of the note plus accrued
interest at December 31, 2017 was $12,155, net of unamortized discount of $36,961.
On October 25, 2017, in terms of an agreement entered into, Strategic IR assigned a previously unclassified
amount due to Strategic, subsequently classified as a Convertible Promissory Note on June 27, 2017 with an aggregate principal
amount of $100,000 and accrued interest thereon of $2,630, to BOBA Management. The note has a maturity date of December 24, 2017
and a coupon of 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 at a conversion price equal to 60% of the average
of the lowest three trading bid prices during the previous ten (10) trading days.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The
balance of the note plus accrued interest at December 31, 2017 was $102,630.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Certain
of the short-term convertible notes disclosed in note 9 above and note 16 below, have variable priced conversion rights with no
fixed floor price and will re-price dependent on the share price performance over varying periods of time, due to the variable
priced conversion rights, all convertible notes and any warrants attached thereto, issued subsequent to the variable priced conversion
notes are valued and give rise to a derivative financial liability, which was initially valued at inception of the convertible
notes using a Black-Scholes valuation model. The value of this derivative financial liability was re-assessed at December 31, 2017
and 2016, and $330,134 and $36,074 was credited to the statement of operations and comprehensive loss, respectively. 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,
2017
|
|
|
Year
ended
December 31,
2016
|
|
Conversion
price
|
|
$
|
0.08
to 0.40
|
|
|
$
|
0.22
to 0.23
|
|
Risk
free interest rate
|
|
|
1.05
to 1.98
|
%
|
|
|
0.85
|
%
|
Expected
life of derivative liability
|
|
|
9
to 36 months
|
|
|
|
9 months
|
|
expected
volatility of underlying stock
|
|
|
134.1
to 202.3
|
%
|
|
|
133.0
|
%
|
Expected
dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
movement in derivative liability is as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Opening
balance
|
|
$
|
113,074
|
|
|
$
|
—
|
|
Derivative
financial liability arising from convertible note
|
|
|
2,834,413
|
|
|
|
77,000
|
|
Fair
value adjustment to derivative liability
|
|
|
330,134
|
|
|
|
36,074
|
|
|
|
$
|
3,277,621
|
|
|
$
|
113,074
|
|
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The Company has authorized, issued and outstanding 56,207,424 shares
of common stock as of December 31, 2017 and 55,454,000 as of December 31, 2016.
On
March 5, 2018, in terms of an amendment to the Company’s Articles of Association, the authorized share capital was increased
to 500,000,000 common shares with a par value of $0.001 each.
The
following common shares were issued by the Company during the years ended December 31, 2016 and 2017:
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.
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.
On
June 12, 2017, a convertible note holder converted debt and accrued interest thereon, totaling $11,556 into 57,143 shares
of common stock, valued at $18,285 resulting in a loss on conversion of $6,730.
On
June 22, 2017, a convertible note holder converted debt and accrued interest thereon, totaling $20,125 into 100,000
shares of common stock valued at $37,000 resulting in a loss on conversion of $16,875.
On
August 10, 2017, a convertible note holder converted debt and accrued interest thereon, totaling $24,000 into 224,299
shares of common stock valued at $44,860 resulting in a loss on conversion of $20,860.
On
November 27, 2017 and December 13, 2017, a note holder converted $20,820 and $20,890 of convertible debt,
including accrued interest thereon into 203,516 and 168,466 shares of common stock at conversion prices of $0.1023 and $0.1240,
resulting in a loss on conversion of $40,235 and $27,965 respectively.
The
Company has recorded an expense of $0 and $144,000 for the nine months ended December 31, 2017 and 2016, respectively,
relating to restricted stock awards, which were fully vested in April 2016.
The
Company has authorized 25,000,000 shares of preferred stock with a par value of $0.0001 authorized, no preferred stock is issued
and outstanding as of December 31, 2017 and 2016.
During
the period June 8, 2017 to July 31, 2017, the Company issued warrants to the 15% (previously 12% coupon note
holders before amendment) convertible note holders, disclosed in note 9 above, to acquire an aggregate of 2,308,513 shares of common stock at
a variable exercise price of; i) $0.20 per share if the convertible notes underlying the warrant issue are converted to common
stock prior to maturity date; or ii) $0.30 per share if the convertible notes underlying the warrants are not converted to common
stock prior to the maturity date. These warrants were issued to investors who had invested a cumulative minimum of $30,000 in
convertible notes prior to August 31, 2017.
The
Warrants were valued using a Black-Scholes valuation model and the proceeds received from the convertible notes were allocated
based on the percentage of the value of the warrants to the total value of the debt securities in this offering, resulting in
a total debt discount of $267,910.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
11
|
STOCKHOLDERS’ EQUITY (continued)
|
The
following assumptions were used in the Black-Scholes valuation model:
|
|
Year
ended
December 31,
2017
|
|
|
|
|
|
|
Calculated
stock price
|
|
$
|
0.32
to 0.40
|
|
Risk-free
interest rate
|
|
|
1.50
to 1.53
|
%
|
Expected
life of warrants (in years)
|
|
|
5
|
|
Expected
volatility of the underlying stock
|
|
|
159.7
to 168.7
|
%
|
Expected
dividend rate
|
|
|
0
|
%
|
The
volatility of the common stock is estimated using historical data of 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, 2017,
the Company does not anticipate any of the warrants will be forfeited in performing the valuation of the warrants.
A
summary of warrant activity during the period January 1, 2016 to December 31, 2017 is as follows:
|
|
Shares
Underlying
Warrants
|
|
|
Exercise
price per
share
|
|
|
Weighted
average
exercise
price
|
|
Outstanding
January 1, 2016
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Granted
|
|
|
6,219,200
|
|
|
|
0.625
|
|
|
|
0.625
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2016
|
|
|
6,219,200
|
|
|
$
|
0.625
|
|
|
$
|
0.625
|
|
Granted
|
|
|
2,308,513
|
|
|
|
0.20
|
|
|
|
0.20
|
|
Forfeited/Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding
December 31, 2017
|
|
|
8,527,713
|
|
|
$
|
0.20
to 0.625
|
|
|
$
|
0.51
|
|
The
warrants outstanding and exercisable at December 31, 2017 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
|
|
|
|
3.00
|
|
|
|
|
|
|
|
6,219,200
|
|
|
|
|
|
|
|
|
|
$
|
|
|
0.20
|
|
|
|
2,308,513
|
|
|
|
2.75
|
|
|
|
|
|
|
|
2,308,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,527,713
|
|
|
|
2.94
|
|
|
$
|
0.51
|
|
|
|
8,527,713
|
|
|
$
|
0.51
|
|
|
|
2.94
|
|
The
warrants outstanding have an intrinsic value of $0 and $0 as of December 31, 2017 and 2016, respectively.
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
Revenue
is derived from the following sources:
|
|
Year
ended
December 31, 2017
|
|
|
Year
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Sales
of services
|
|
$
|
3,744,051
|
|
|
$
|
2,610,820
|
|
Payment
processing fees
|
|
|
29,712
|
|
|
|
34,916
|
|
Kiosk
sales
|
|
|
131,621
|
|
|
|
44,606
|
|
Other
|
|
|
35,889
|
|
|
|
1,554
|
|
|
|
$
|
3,941,273
|
|
|
$
|
2,691,896
|
|
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.
On December 22, 2017, the Tax Cuts
and Jobs Act (the TCJA), which significantly modified U.S. corporate income tax law, was signed into law by President Trump. The
TCJA contains significant changes to corporate income taxation, including but not limited to the reduction of the corporate income
tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of
earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable
income and generally eliminating net operating loss carrybacks, allowing net operating losses to carryforward without expiration,
one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on
foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions
for depreciation expense over time, and modifying or repealing many business deductions and credits (including changes to the orphan
drug tax credit and changes to the deductibility of research and experimental expenditures that will be effective in the future). Notwithstanding
the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, including to what extent
various states will conform to the newly enacted federal tax law.
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, 2017 and 2016, there have been no interest or penalties incurred on
income taxes.
The Company has not
recorded the necessary provisional adjustments in the financial statements in accordance with its current understanding of the
TCJA and guidance currently available as of this filing. But is reviewing the TCJA’s potential ramifications. Noting, The
Company determined that it had no liability as of December 31, 2018 for the one-time transition tax on deemed repatriated
earnings of foreign subsidiaries imposed by the Act.
The
provision for income taxes consists of the following:
|
|
Year
ended
December 31, 2017
|
|
|
Year
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
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, 2017
|
|
|
Year
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Tax
expense at the federal statutory rate
|
|
$
|
(1,611,075
|
)
|
|
$
|
(1,656,872
|
)
|
State
tax expense, net of federal tax effect
|
|
|
|
|
|
|
—
|
|
Effect
of foreign operations
|
|
|
20,860
|
|
|
|
65,642
|
|
Effect of income tax rate change
|
|
|
547,371
|
|
|
|
|
|
Permanent
timing differences
|
|
|
98,885
|
|
|
|
72,738
|
|
Deferred
income tax asset valuation allowance
|
|
|
943,959
|
|
|
|
1,518,492
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Significant
components of the Company’s deferred income tax assets are as follows:
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
Depreciation
and amortization
|
|
$
|
(46,332
|
)
|
|
$
|
(74,655
|
)
|
Other
|
|
|
53,105
|
|
|
|
88,935
|
|
Net
operating losses
|
|
|
172,940
|
|
|
|
1,504,212
|
|
Valuation
allowance
|
|
|
(179,713
|
)
|
|
|
(1,518,492
|
)
|
Net
deferred income tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
QPAGOS
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
13
|
INCOME TAXES (continued)
|
The
valuation allowance for deferred income tax assets as of December 31, 2017 and December 31, 2016 was $179,713
and $1,518,492, respectively. The net change in the deferred income tax assets valuation allowance was a decrease of $1,338,779 for
2017, after taking into account the income tax rate change from 35% to 21%, effective January 1, 2018, and a true up from the prior year net operating loss carry forward, and an increase of 589,277 for 2016, respectively.
As
of December 31, 2017, 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 $7,773,375 begin to expire in 2023 through 2027.
Net operating loss carry-forwards of the US companies of $346,106 begin to expire in 2033 through 2037. 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.
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. Management has
not determined if an ownership change has occurred under Section 382, but is evaluating, if such change has occurred.
14
|
EQUITY BASED COMPENSATION
|
Equity
based compensation is made up of the following:
|
|
Year
ended
December 31, 2017
|
|
|
Year
ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
—
|
|
|
|
144,000
|
|
Stock
issued for services rendered
|
|
|
—
|
|
|
|
2,032,275
|
|
|
|
$
|
—
|
|
|
$
|
2,176,275
|
|
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, 2017
and 2016, 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, 2017
(Shares)
|
|
|
Year
ended
December 31, 2016
(Shares)
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
|
18,884,635
|
|
|
|
—
|
|
Warrants
to purchase shares of common stock
|
|
|
8,527,713
|
|
|
|
6,219,200
|
|
|
|
|
27,412,348
|
|
|
|
6,219,200
|
|
|
|
|
|
|
|
|
|
|
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS
|
The
following transactions were entered into with related parties:
LOANS PAYABLE
|
Description
|
|
Interest Rate
|
|
Maturity Date
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gibbs International Holdings – Equipment funding
|
|
|
N/A
|
|
|
November 1, 2017
|
|
|
$
|
294,620
|
|
|
|
—
|
|
|
Vladimir Skigin – Equipment funding
|
|
|
N/A
|
|
|
November 1, 2017
|
|
|
|
55,295
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable – Related parties
|
|
|
|
|
|
|
|
|
$
|
349,915
|
|
|
$
|
—
|
|
Jimmy Gibbs
Jimmy Gibbs is the principal and
has control over Gibbs Investment Holdings and Gibbs International Holdings. Mr Gibbs is considered to be a related party due to
his shareholding and the shareholding under his control in the company exceeds 5%.
|
●
|
Gibbs International Holdings (“Gibbs”) – Inventory funding
|
The Company entered into an agreement
with Gibbs, whereby the importation of kiosks and accessories was arranged and funded by Gibbs. In terms of the agreement entered
into with Gibbs, a 5% margin has been added to the cost of the kiosks and accessories purchased and to the liability outstanding.
The amount was due on November 1, 2017. The amount has not been paid to date. The agreement does not provide for any default provisions
and management is currently negotiating the terms of repayment with Gibbs.
Vladimir Skigin
Vladimir Skigin is the principal
and has control over Cobbolo Limited and has personally advanced the Company inventory funding.
Mr.
Skigin is considered to be a related party as his shareholding and that of the Company’s under his control exceeds 5%.
|
●
|
Vladimir Skigin (“Skigin”) – Inventory funding
|
The Company entered into an agreement with Gibbs, whereby the importation of kiosks and accessories was arranged
and funded by Gibbs, Skigin funded a portion of the kiosks and accessories purchased under the same terms and conditions of the
agreement entered into with Gibbs. In terms of the agreement, a 5% margin has been added to the cost of the kiosks and accessories
purchased and to the liability outstanding. The amount was due on November 1, 2017. The amount has not been paid to date. The agreement
does not provide for any default provisions and management is currently negotiating the terms of repayment with Skigin.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS
|
NOTES
PAYABLE
|
Description
|
|
Interest Rate
|
|
Maturity Date
|
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gibbs International Holdings
|
|
|
15%
|
|
|
June 13, 2017
|
|
|
|
—
|
|
|
|
50,986
|
|
|
Cobbolo Limited
|
|
|
10%
|
|
|
May 30, 2017
|
|
|
|
—
|
|
|
|
101,466
|
|
|
Delinvest Commercial LTD
|
|
|
15%
|
|
|
June 29, 2017
|
|
|
|
—
|
|
|
|
50,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable – Related parties
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
203,288
|
|
Interest
expense totaled $0 and $3,288 for the year ended December 31, 2017 and 2016, respectively.
Jimmy Gibbs
|
●
|
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. On February 19, 2017, the Company executed an amended and restated promissory note extending the maturity date to
June 19, 2017 and increasing the interest rate to 15% per annum.
Effective June 19, 2017, the
note, principal amount of $50,000 and accrued interest thereon of $2,494 was exchanged for a convertible note, refer Convertible
Notes Payable below.
Vladimir Skigin
Vladimir Skigin is the principal
and has control over Cobbolo Limited and has personally advanced the Company inventory funding.
Mr.
Skigin is considered to be a related party as his shareholding and that of the Company’s under his control exceeds 5%.
Between October 21, 2016 and
November 25, 2016, the Company executed unsecured promissory notes totaling $100,000 with an investor, bearing interest at 10%
per annum maturing between February 17, 2017 and March 25, 2017. The maturity date of these notes has been extended to May 30,
2017 and further extended to June 29, 2017.
On June 29, 2017, the notes;
i) principal amount of $50,000 and accrued interest thereon of $3,438; and ii) principal amount of $50,000 and accrued interest
thereon of $2,959, were exchanged for two convertible notes, refer to Convertible Notes Payable below.
QPAGOS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
NOTES PAYABLE (continued)
Alex
Motorin
Alex Motorin
is the principal of Delinvest Commercial LTD. Mr. Motorin is considered to be a related party as his shareholding and that of the
Company’s under his control exceeds 5%.
|
●
|
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. On March 1, 2017, the Company executed an amended and restated promissory note extending the maturity date to June
29, 2017 and increasing the interest rate to 15% per annum.
On June 29, 2017, the note,
principal amount of $50,000 and accrued interest thereon of $4,123 was exchanged for a convertible note, refer to Convertible Notes
Payable below.
CONVERTIBLE NOTES PAYABLE
|
Description
|
|
Interest
rate
|
|
Maturity Date
|
|
Principal
|
|
|
Accrued
interest
|
|
|
Unamortized
debt discount
|
|
|
December 31,
2017
Balance,
net
|
|
|
December 31,
2016
Balance,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinvest Commercial, LTD
|
|
|
15
|
%
|
|
December 16, 2018
|
|
|
20,000
|
|
|
|
1,307
|
|
|
|
—
|
|
|
|
21,307
|
|
|
|
—
|
|
|
|
|
|
15
|
%
|
|
December 26, 2018
|
|
|
54,123
|
|
|
|
3,314
|
|
|
|
—
|
|
|
|
57,437
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gibbs International Holdings
|
|
|
15
|
%
|
|
December 16, 2018
|
|
|
52,494
|
|
|
|
3,430
|
|
|
|
—
|
|
|
|
55,924
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cobbolo Limited
|
|
|
15
|
%
|
|
December 26, 2018
|
|
|
53,438
|
|
|
|
3,272
|
|
|
|
—
|
|
|
|
56,710
|
|
|
|
—
|
|
|
|
|
|
15
|
%
|
|
December 26, 2018
|
|
|
52,959
|
|
|
|
3,243
|
|
|
|
—
|
|
|
|
56,202
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vladimir Skigin
|
|
|
8
|
%
|
|
January 22, 2018
|
|
|
117,000
|
|
|
|
2,334
|
|
|
|
(14,300
|
)
|
|
|
105,034
|
|
|
|
—
|
|
|
|
|
|
8
|
%
|
|
October 10, 2018
|
|
|
150,000
|
|
|
|
2,696
|
|
|
|
(116,301
|
)
|
|
|
36,395
|
|
|
|
|
|
|
|
|
|
8
|
%
|
|
September 28, 2018
|
|
|
246,000
|
|
|
|
1,456
|
|
|
|
(182,647
|
)
|
|
|
64,809
|
|
|
|
—
|
|
|
|
|
|
8
|
%
|
|
January 6, 2018
|
|
|
100,000
|
|
|
|
4,427
|
|
|
|
(2,182
|
)
|
|
|
102,245
|
|
|
|
—
|
|
|
|
|
|
8
|
%
|
|
February 10, 2018
|
|
|
33,000
|
|
|
|
1,324
|
|
|
|
(4,649
|
)
|
|
|
29,675
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverly Pacific Holdings
|
|
|
8
|
%
|
|
March 9, 2018
|
|
|
100,000
|
|
|
|
5,041
|
|
|
|
(18,630
|
)
|
|
|
86,411
|
|
|
|
—
|
|
|
|
|
|
8
|
%
|
|
November 6, 2017
|
|
|
176,000
|
|
|
|
11,041
|
|
|
|
—
|
|
|
|
187,041
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes payable
|
|
|
|
|
|
|
|
$
|
1,155,014
|
|
|
$
|
42,885
|
|
|
$
|
(338,709
|
)
|
|
$
|
859,190
|
|
|
$
|
—
|
|
Interest expense amounted to
$42,885 and $0 for the years ended December 31, 2017 and 2016, respectively. The amortization of debt discount amounted to $747,749
and $0 for the years ended December 31, 2017 and 2016, respectively.
QPAGOS
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
CONVERTIBLE
NOTES PAYABLE (continued)
The 15% convertible notes, above
have a fixed conversion price of $0.20 per common share and certain investors who met a minimum investment requirement of $30,000
were issued three-year warrants convertible into common shares at a conversion price of; i) $0.20 per share if the convertible
notes are converted prior to maturity date; and ii) $0.30 per share if the convertible notes are not converted prior to maturity
date. These convertible notes have a beneficial conversion feature and were valued using a Black-Scholes valuation model, the value
of the beneficial conversion feature of the notes were determined based on fair market price of the common stock at the date of
the issuance of the note, the difference between the fair market value of the common stock and the conversion price was recorded
as a debt discount with a corresponding credit to derivative financial liability.
The remaining convertible notes
have variable conversion prices based on a discount to market price of trading activity over a specified period of time. The variable
conversion features were valued using a Black Scholes valuation model. The difference between the fair market value of the common
stock and the calculated conversion price on the issuance date was recorded as a debt discount with a corresponding credit to derivative
financial liability.
The total value of the beneficial
conversion feature recorded as a debt discount during the year ended December 31, 2017 and 2016 was $1,245,469 and $0, respectively.
Alex
Motorin
Alex Motorin
is the principal of Delinvest Commercial LTD.
|
●
|
Delinvest Commercial, LTD.
|
On
June 19, 2017, the Company issued Delinvest Commercial LTD. (“Delinvest”) a convertible promissory note in the
aggregate principal amount of $20,000. The note bore interest at 12% per annum and matured on December 16, 2017. In terms of
an agreement entered into with the note holder, the maturity date was extended to December 16, 2018 and the interest rate was
increased to 15% per annum. The note is convertible into common shares of the Company at a conversion price of $0.20 per
share.
The balance of the note plus
accrued interest at December 31, 2017 was $21,307.
On June 29, 2017, the Company
exchanged a Delinvest note with a principal amount of $50,000, together with accrued interest thereon of $4,123, totaling $54,123,
for a convertible note, principal amount of $54,123, bearing interest at 12% per annum and matured on December 26, 2017. In terms
of an agreement entered into with the note holder, the maturity date was extended to December 26, 2018 and the interest rate was
increased to 15% per annum. The note is convertible into common shares of the Company at a conversion price of $0.20 per share.
The balance of the note plus
accrued interest at December 31, 2017 was $57,437.
In
connection with the convertible notes above, the Company issued warrants to purchase 370,616 common shares of the Company at a
variable exercise price of $0.20 per share, if the convertible note above is converted into common shares prior to its maturity
date or $0.30 per share if the convertible note is not converted prior to its maturity date.
QPAGOS
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
CONVERTIBLE
NOTES PAYABLE (continued)
Jimmy Gibbs
Jimmy Gibbs is the principal
and has control over Gibbs Investment Holdings and Gibbs International Holdings.
|
●
|
Gibbs International Holdings
|
Effective
June 19, 2017, the Company exchanged a note issued to Gibbs International Holdings with a principal amount of $50,000, together
with accrued interest thereon of $2,494, totaling $52,494, for a convertible note, principal amount of $52,494, bearing interest
at 12% per annum and matured on December 16, 2017. In terms of an agreement entered into with the note holder, the maturity date
was extended to December 16, 2018 and the interest rate was increased to 15% per annum. The note is convertible into common shares
of the Company at a conversion price of $0.20 per share.
The balance of the note plus
accrued interest at December 31, 2017 was $55,924.
In connection with the Convertible
note above, the Company issued a warrant to purchase 262,468 common shares of the Company at a variable exercise price of $0.20
per share, if the convertible note above is converted into common shares prior to its maturity date or $0.30 per share if the convertible
note is not converted prior to its maturity date.
Vladimir Skigin
Vladimir Skigin is the principal
and has control over Cobbolo Limited and has also personally advanced the Company funds.
On June 29, 2017, the Company
exchanged a note issued to Cobbolo Limited with a principal amount of $50,000, together with accrued interest thereon of $3,438,
totaling $53,438, for a convertible note, principal amount of $53,438, bearing interest at 12% per annum and matured on December
26, 2017. In terms of an agreement entered into with the note holder, the maturity date was extended to December 26, 2018 and the
interest rate was increased to 15% per annum. The note is convertible into common shares of the Company at a conversion price of
$0.20 per share.
The balance of the note plus
accrued interest at December 31, 2017 was $56,710.
On June 29, 2017, the Company
exchanged a note issued to Cobbolo Limited with a principal amount of $50,000, together with accrued interest thereon of $2,959,
totaling $52,959, for a convertible note, principal amount of $52,959, bearing interest at 12% per annum and matured on December
26, 2017. In terms of an agreement entered into with the note holder, the maturity date was extended to December 26, 2018 and the
interest rate was increased to 15% per annum. The note is convertible into common shares of the Company at a conversion price of
$0.20 per share.
The balance of the note plus
accrued interest at December 31, 2017 was $56,202.
In connection with the Convertible
notes above, the Company issued a warrant to purchase 531,987 common shares of the Company at a variable exercise price of $0.20
per share, if the convertible note above is converted into common shares prior to its maturity date or $0.30 per share if the convertible
note is not converted prior to its maturity date.
QPAGOS
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
CONVERTIBLE
NOTES PAYABLE (continued)
On
October 25, 2017, in terms of an agreement entered into, Strategic IR assigned a note entered into on July 26, 2017 with the Company
to Vladimir Skigin. The Note had an aggregate principal amount of $117,000 and accrued interest thereon of $2,334. The note
has a maturity date of January 22, 2018 and a coupon of 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 at
a conversion price equal to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days,
including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus
accrued interest at December 31, 2017 was $105,034, net of unamortized debt discount of $14,300.
On October 11, October 12 and
October 26, 2017, the Company received three instalments of $50,000 each from Vladimir Skigin totaling $150,000 and issued a Convertible
Promissory Note in the aggregate principal amount of $150,000 to him. The note has a maturity date of October 10, 2018 and a coupon
of 8% per annum. The Company has the right to prepay the note within the first 180 days at a premium of 110% of the sum of the
accrued interest and principal. 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 at a conversion price equal
to 60% of the average of the lowest three trading bid prices during the previous ten (10) trading days, including the date the
notice of conversion is received.
The balance of the note plus
accrued interest at December 31, 2017 was $36,395, net of unamortized discount of $116,301.
On October 25, 2017 in terms
of an agreement entered into, Strategic IR assigned a note entered into on September 28, 2017 with the Company to Vladimir Skigin.
The note had an aggregate principal amount of $246,000 and accrued interest thereon of $1,456. The note has a maturity date of
September 28, 2018 and a coupon of 8% per annum. The Company has the right to prepay the note without penalty for the first 180
days. 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 at a conversion price equal to 60% of the average of
the lowest three trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus
accrued interest at December 31, 2017 was $64,809, net of unamortized discount of $182,647.
On October 25, 2017 in terms
of an agreement entered into, Strategic IR assigned a note entered into on October 3, 2017, with the Company to Vladimir Skigin.
The note had an aggregate principal balance of $100,000 and accrued interest thereon of $4,427. The note has a maturity date of
January 6, 2018 and a coupon of 8% per annum. The Company has the right to prepay the note without penalty for the first 180 days.
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 at a conversion price equal to 60% of the average of the
lowest three trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus
accrued interest at December 31, 2017 was $102,245, net of unamortized discount of $2,182.
QPAGOS
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
16
|
RELATED PARTY TRANSACTIONS (continued)
|
CONVERTIBLE
NOTES PAYABLE (continued)
|
●
|
Vladimir Skigin (continued)
|
On October 25, 2017, in terms
of an agreement entered into, Anna Mosk, the principal of Strategic IR, assigned a note entered into on October 23, 2017 to Vladimir
Skigin. The note had an aggregate principal balance of $33,000 and accrued interest thereon of $1,324. The note has a maturity date
of January 6, 2018 and a coupon of 8% per annum. The Company has the right to prepay the note without penalty for the first 180
days. 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 at a conversion price equal to 60% of the average of
the lowest three trading bid prices during the previous ten (10) trading days, including the date the notice of conversion is received.
On October 25, 2017, the Company
received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017. The Company
had to increase its number of authorized shares in order to give effect to this conversion. The Company received a default waiver
from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was converted into
equity on March 7, 2018.
The balance of the note plus
accrued interest at December 31, 2017 was $29,675, net of unamortized discount of $4,649.
Beverly Pacific Holdings
On October 25, 2017,
in terms of an agreement entered into, Strategic IR assigned a note entered into on September 18, 2017 with the Company
to Beverly Pacific Holdings. The note has an aggregate principal balance of $100,000 and accrued interest thereon of $5,041. The
note has a maturity date of March 9, 2018 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 through the maturity 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 150 days following the issue date into shares of the Company’s common stock, at a conversion price
equal to 60% of the average of the last two lowest trading bid prices during the fifteen trading days prior to conversion.
On October 25, 2017,
the Company received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017.
The Company had to increase its number of authorized shares in order to give effect to this conversion. The Company received a
default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was
converted into equity on March 7, 2018.
The balance of the
note plus accrued interest at December 31, 2017 was $86,411, net of unamortized discount of $18,630.
On October 25, 2017,
in terms of an agreement entered into, Strategic IR assigned a note entered into on August 31, 2017 with JSJ Investments,
Inc. The note had an aggregate principal outstanding of $176,000 together with interest thereon of $11,041. The note had a maturity
date of November 6, 2017 and a coupon of eight percent per annum. The Company has the right to prepay the note within
180 days of its issue date. After the 180 days, the Company has no right to prepayment. 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
equal to 60% of the average of the lowest three closing bid prices of the Company’s common stock for the ten trading days
prior to conversion.
On October 25, 2017,
the Company received a notice of conversion of the outstanding principal and interest into common shares effective October 25, 2017.
The Company had to increase its number of authorized shares in order to give effect to this conversion. The Company received a
default waiver from the note holder to allow it to increase its authorized shares. The note and outstanding interest thereon was
converted into equity on March 7, 2018.
The balance of the
note plus accrued interest at December 31, 2017 was $187,041.
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 rental payment, including maintenance, of $3,377 per month, 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 $1,766.
In addition, Qpagos leases warehouse space on a month-to-month basis for $1,136 per month.
The future minimum lease installments
under the office facility lease agreement as of December 31, 2017 are $35,891 for each year 2018 and 2019, subject to exchange
rate changes.
QPAGOS
(FORMERLY KNOWN AS ASIYA PEARLS, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Subsequent to year end, between
January 16, 2018 and March 28, 2018, the Company raised an additional $327,500 in short term convertible securities with maturities
of one year or less. The securities bear a coupon of 8% and are convertible into common stock of the Company at a discount to market
price of between 60% and 62%. These funds were used for working capital purposes. In terms of the convertible notes, the Company issued an additional 440,000 returnable shares to an investor.
On February 14, 2018, an investor,
Strategic IR purchased a portion of a convertible note from the original note holder with a principal amount of $17,000 plus accrued
interest thereon of $984. In addition, the Company issued an additional convertible note of $7,610 to Strategic IR for the payment
of an early settlement premium and certain legal expenses. The Company issued two promissory notes of $17,984 and $7,610 respectively
to Strategic IR, respectively, the notes bears interest at 8% per annum and maturing on February 15, 2019. The note is convertible
into common stock at a conversion price of 60% of the lowest of three bid prices in the ten trading days prior to conversion.
On February 15, 2018, an
investor, Strategic IR purchased a portion of a convertible note from the original note holder with a principal amount of
$50,000 plus accrued interest thereon of $1,984 and an early settlement premium of $17,500, including certain fees and
expenses amounting to $3,486, totaling $72,969. The Company issued Strategic IR with a convertible promissory note with an
aggregate principal amount of $72,969, bearing interest at 8% per annum and maturing on February 15, 2019. The note is
convertible into common stock at a conversion price of 60% of the lowest of three bid prices in the ten trading days prior to
conversion.
During the period January 17,
2018 to April 5, 2018, convertible note holders converted an aggregate of $97,444 of principal and interest into 1,325,926 shares
of common stock.
On March 5, 2018, the Company
filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State of Nevada to effectuate
an increase in the authorized common stock from 100,000,000 to 500,000,000 shares. The authorized preferred stock remained at 25,000,000
shares.
During March 2018, the Company
converted $1,258,717 of an aggregate principal and interest amount of convertible notes into 17,092,189 shares of common stock
in terms of conversion notices received in October 2017. In addition, on January 22, 2018, the Company received a further two conversion
notices converting an aggregate principal and interest amount of $204,034 into 2,758,427 shares of common stock. The Company had
insufficient shares of common stock available and increased its authorized share capital on March 5, 2018, prior to affecting these
conversions.
On March 26, 2018, an Investor,
Boba Management purchased a convertible note from the original note holder with a principal amount of $65,000 plus accrued interest
thereon of $513 from the original note holder. In terms of the agreement entered into Boba Management paid certain early settlement
fees and expenses amounting to $31,618, for which the Company issued a convertible note to Boba Management with a maturity date
of March 26, 2019, bearing interest at 8% per annum and convertible into common stock at a conversion price of 60% of the lowest
of three bid prices in the ten trading days prior to conversion.
In addition, to this the Company
borrowed $155,500 from an investor in undesignated funds. These funds were utilized for working capital purposes.
Other than disclosed above, The
Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued and
has concluded that no such events or transactions took place that would require disclosure herein.