Innovative Payment Solutions, Inc. - FORM 8-K/A - EX-99.1 - EXHIBIT 99.1

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EX-99.2 - EXHIBIT 99.2 - Innovative Payment Solutions, Inc.	s104878_ex99-2.htm
8-K/A - 8-K/A - Innovative Payment Solutions, Inc.	s104878_8ka.htm

Exhibit 99.1

QPAGOS CORPORATION

TABLE OF CONTENTS

Report of the Independent, Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of December 31, 2015, (as restated) and December 31, 2014		F-2

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2015 (as restated) and December 31, 2014 (as restated)		F-3

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2015 (as restated) and December 31, 2014		F-4

Consolidated Statements of Cash Flows for the years ended December 31, 2015 (as restated) and December 31, 2014		F-5

Notes to the Consolidated Financial Statements		F-6 to F-31

805 Third Avenue

New York, NY 10022

212.838.5100

212.838.2676/ Fax

www.rbsmllp.com

Report of the Independent Registered Public Accounting Firm

To the Board of Directors and shareholders

Qpagos Corporation

We have audited the accompanying consolidated balance sheets of Qpagos Corporation (the “Company”) as of December 31, 2015 (as restated), and 2014, and the related consolidated statements of comprehensive loss, stockholders’ equity and cash flows for the years ended December 31, 2015 and 2014 (as restated). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, an audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 (as restated) and 2014, and the results of its operations and its cash flows for the years ended December 31, 2015 and 2014 (as restated), in conformity with generally accepted accounting principles in the United States.

The accompanying consolidated financial statements have been prepared assuming that Qpagos Corporation will continue as a going concern. As more fully described in Note 3 to the consolidated financial statements, the Company has incurred recurring operating losses and may have to obtain additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/RBSM LLP

New York, NY

May 13, 2016, except Note 3 and 16

as to which the date is December 12, 2016

F-1

QPAGOS CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
	2015			2014
	(As Restated)
Assets

Current Assets
Cash	$	832,159		$	173,828
Accounts receivable		242,075			15,914
Inventory		668,567			646,986
Recoverable IVA taxes and credits		417,897			171,200
Other current assets		52,014			50,000
Total Current Assets		2,212,712			1,057,928

Non-Current Assets
Plant and equipment, net		70,537			99,985
Intangibles, net		211,417			-
Other assets		11,712			6,192
Total Non-Current Assets		293,666			106,177
Total Assets	$	2,506,378		$	1,164,105

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities
Accounts payable	$	38,372		$	102,501
Notes payable		103,320			2,324,422
IVA and other taxes payable		192,044			8,625
Advances from customers		1,986			3,092
Total Current Liabilities		335,722			2,438,640

Total Liabilities		335,722			2,438,640

Stockholders' Equity (Deficit)
Common stock, $0.0001 par value; 50,000,000 shares authorized, 22,392,000 and 4,619,314 shares issued and outstanding as of December 31, 2015 and 2014, respectively.		22,392			4,619
Additional paid-in-capital		5,717,947			58,282
Accumulated deficit		(3,989,689	)		(1,490,185	)
Accumulated other comprehensive income		420,006			152,749
Total stockholder's equity (deficit) - controlling interest		2,170,656			(1,274,535	)
Non-controlling interest		-			-
Total Stockholders' Equity (Deficit)		2,170,656			(,274,5351	)
Total Liabilities and Stockholders' Equity (Deficit)	$	2,506,378		$	1,164,105

See notes to consolidated financial statements

F-2

QPAGOS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Year Ended			Year Ended
	December 31,			December 31,
	2015			2014
	(As Restated)			(As Restated)

Net Revenue	$	1,127,944		$	137,250

Cost of Goods Sold		1,120,236			135,602

Gross Profit		7,708			1,648

General and administrative		2,000,714			1,264,535
Depreciation and amortization		37,810			30,600
Total Expense		2,038,524			1,295,135

Loss from Operations		(2,030,816	)		(1,293,487	)

Other income		203			5,033
Interest expense, net		(2,241	)		11
Foreign currency loss		(466,920	)		(200,875	)

Loss before Provision for Income Taxes		(2,499,774	)		(1,489,318	)
Provision for Income Taxes		-			-

Net Loss		(2,499,774	)		(1,489,318	)
Net loss attributable to non-controlling interest		-			-

Net Loss Attributable to Controlling Interest	$	(2,499,774	)	$	(1,489,318	)

Net Loss Per Share - Basic and Diluted	$	(0.19	)	$	(0.61	)

Weighted Average Number of Shares Outstanding - Basic and Diluted		12,849,373			2,459,314

Other Comprehensive Income
Foreign currency translation adjustment		267,257			147,167

Total Comprehensive loss		(2,232,517	)		(1,342,151	)
Comprehensive loss attributable to non-controlling interest		-			-

Comprehensive Loss Attributable to Controlling Interest	$	(2,232,517	)	$	(1,342,151	)

See notes to consolidated financial statements

F-3

QPAGOS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD JANUARY 1, 2014 TO DECEMBER 31, 2015 (AS RESTATED)

													Total
													Stockholders'
											Accumulated		Equity					Total
					Additional						Other		(Deficit)			Non-		Stockholders'
	Common Stock				Paid-in			Accumulated			Comprehensive		Controlling			Controlling		Equity
	Shares		Amount		Capital			Deficit			Income		Interest			Interest		(Deficit)
Balance as of January 1, 2014		4,619,314	$	4,619	$	58,282		$	(867	)	$	5,582	$	67,616		$	-	$	67,616

Translation adjustment		-		-		-			-			147,167		147,167			-		147,167

Net loss		-		-		-			(1,489,318	)		-		(1,489,318	)		-		(1,489,318	)
Balance as of December 31, 2014		4,619,314		4,619		58,282			(1,490,185	)		152,749		(1,274,535	)		-		(1,274,535	)

Withholding tax adjustment at foreign subsidiary		-		-		-			270					270			-		270

Shares issued for services		833,575		834		165,881			-					166,715			-		166,715

Issuance of shares of common stock		2,392,000		2,392		2,987,608			-					2,990,000			-		2,990,000

Share issuance expense		-		-		(388,700	)							(388,700	)		-		(388,700	)

Conversion of debt to equity		14,547,111		14,547		2,894,876			-					2,909,423			-		2,909,423

Translation adjustment (As Restated)		-		-		-			-			267,257		267,257			-		267,257

Net loss (As Restated)		-		-		-			(2,499,774	)				(2,499,774	)		-		(2,499,774	)

Balance as of December 31, 2015		22,392,000	$	22,392	$	5,717,947		$	(3,989,689	)	$	420,006	$	2,170,656		$	-	$	2,170,656

See notes to consolidated financial statements

F-4

QPAGOS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended			Year Ended
	December 31,			December 31,
	2015			2014
	(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to the company	$	(2,499,774	)	$	(1,489,318	)
Less: loss attributable to non-controlling interest		-			-
Net loss		(2,499,774	)		(1,489,318	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		34,227			31,668
Amortization expense		3,583			518
Equity based compensation charge		166,715			-
Changes in Assets and Liabilities
Accounts receivable		(226,161	)		(13,301	)
Inventory		(21,581	)		(646,986	)
Recoverable IVA taxes and credits		(246,697	)		(161,984	)
Other current assets		(2,014	)		(50,000	)
Other assets		(5,520	)		762
Accounts payable and accrued expenses		(64,129	)		50,082
IVA and other taxes payable		183,689			4,609
Advances from customers		(1,106	)		3,092
Interest accruals		3,320			-
CASH USED IN OPERATING ACTIVITIES		(2,675,448	)		(2,270,858	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(4,779	)		(132,171	)
Intangible assets		(215,000	)		-
NET CASH USED IN INVESTING ACTIVITIES		(219,779	)		(132,171	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on common stock issued		2,990,000			53,203
Share issue expenses		(388,700	)		-
Proceeds from loans payable		685,001			2,324,422
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,286,301			2,377,625

Effect of exchange rate changes on cash and cash equivalents		267,257			147,167

NET INCREASE IN CASH		658,331			121,763
CASH AT BEGINNING OF YEAR		173,828			52,065
CASH AT END OF YEAR	$	832,159		$	173,828

CASH PAID FOR INTEREST AND TAXES:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	-		$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of debt to equity	$	2,909,423		$	-

See notes to consolidated financial statements

F-5

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND DESCRIPTION OF BUSINESS

Organization

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 was formed to process payment transactions for service providers it contracts with, and Redpag was formed to deploy and operate kiosks as an agent of Qpagos.

On August 31, 2015, QPAGOS Corporation entered into various agreements with the shareholders of Qpagos and Redpag to give effect to a reverse merger transaction (the "Reverse Merger''). Pursuant to the Reverse Merger, the majority of the shareholders of Qpagos and Redpag effectively received shares in QPAGOS, through various consulting and management agreements entered into with QPAGOS and sold an effective 99.996% and 99.990% of the outstanding shares on Qpagos and Redpag, respectively to QPAGOS The series of transactions closed effective August 31, 2015. Upon the close of the Reverse Merger, QPAGOS Corporation became the parent of Qpagos and Redpag and assumed the operations of these two companies as its sole business. The transactions contemplated by the Reverse Merger were intended to be a "tax-free" transaction pursuant to the Internal Revenue Code.

For financial accounting purposes, the Reverse Merger was treated as a reverse acquisition by Qpagos and Redpag, and resulted in a recapitalization with Qpagos and Redpag being the accounting acquirer. Accordingly, the Company's historical financial statements have been prepared to give retroactive effect to the reverse acquisition completed on August 31, 2015, and represent the operations of Qpagos and Redpag from January 1, 2014 and for QPAGOS Corporation, from the period September 1, 2015 to December 31, 2015.

QPAGOS Corporation and its subsidiaries Qpagos and Redpag will be referred to hereafter as “the Company”.

Description of the business

QPAGOS Corporation, through its subsidiaries Qpagos and Redpag, provide physical and virtual payment services to the Mexican market. The Company provides an integrated network of kiosks, terminals and payment channels that enable consumers in Mexico to deposit cash, convert it into a digital form and remit the funds to any merchant in our network quickly and securely. The Company helps consumers and merchants connect more efficiently in markets and consumer segments, such as Mexico, that are largely cash-based and lack convenient alternatives for consumers to pay for goods and services in physical, online and mobile environments. For example, our licensed technology can be used to pay bills, add minutes to mobile phones, purchase transportation and tickets, shop online or at a retail store, buy digital services or send money to a friend or relative.

ACCOUNTING POLICIES AND ESTIMATES

Basis of Presentation

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

On August 31, 2015, the QPAGOS Corporation completed the Reverse Merger with Qpagos and Redpag. The results of operations for Qpagos and Redpag have been combined from January 1, 2014 to December 31, 2014 in these consolidated financial statements.

All amounts referred to in the notes to the financial statements are in United States Dollars ($) unless stated otherwise.

F-6

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

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 Corporation – Parent Company

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)

Mexican Operations

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.

Use of Estimates

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.

Contingencies

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 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-7

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

Fair Value of Financial Instruments

The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts reported in the balance sheets for cash, accounts receivable, other current assets, other assets, accounts payable, accrued liabilities, and notes payable, approximate fair value due to the relatively short period to maturity for these instruments. The Company did not identify any other assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with the accounting guidance.

ASC 825-10 “Financial Instruments” allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.

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 those 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.

Recent Accounting Pronouncements

In April 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, to simplify presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU does not affect the recognition and measurement guidance for debt issuance costs. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

F-8

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent Accounting Pronouncements (continued)

In August 2015, FASB issued Accounting Standards Update (“ASU”) No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. Management is currently evaluating the impact this updated guidance will have on our results of operations, cash flows or financial condition.

In January 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2016 – 01 “Recognition and Measurement of Financial Assets and Financial Liabilities “intended to improve the recognition and measurement of financial instruments. The ASU affects public and private companies, not-for-profit organizations, and employee benefit plans that hold financial assets or owe financial liabilities. The new guidance makes targeted improvements to existing GAAP by: Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; Requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, and; Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The ASU on recognition and measurement will take effect for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For private companies, not-for-profit organizations, and employee benefit plans, the standard becomes effective for fiscal years beginning after December 15, 2018, and for interim periods within fiscal years beginning after December 15, 2019. The ASU permits early adoption of the own credit provision (referenced above). Additionally, it permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

F-9

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent Accounting Pronouncements (continued)

In February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2016 – 02, “Leases” intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, office equipment and manufacturing equipment. The ASU will require organizations that lease assets—referred to as “lessees”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current Generally Accepted Accounting Principles (GAAP), the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new ASU will require both types of leases to be recognized on the balance sheet. The ASU also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The accounting by organizations that own the assets leased by the lessee—also known as lessor accounting—will remain largely unchanged from current GAAP. However, the ASU contains some targeted improvements that are intended to align, where necessary, lessor accounting with the lessee accounting model and with the updated revenue recognition guidance issued in 2014. The ASU on leases will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the ASU on leases will take effect for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

In March 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2016 – 09 “Improvements to Employee Share-Based Payment Accounting” which is intended to improve the accounting for employee share-based payments. The ASU affects all organizations that issue share-based payment awards to their employees. The ASU, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including; the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The ASU simplifies two areas specific to private companies, with regards to the expected term and intrinsic value measurements. The ASU simplifies the following areas to private and public companies; (a) tax benefits and tax deficiencies with regards to the differences between book and tax deductions, (b) changes in the excess tax benefits classification in the statement of cash flows, (c) make an entity wide accounting policy election for accrual of vested awards verses individual awards, (d) changes in the amount qualifying as an equity award classification subject to statutory tax withholdings, (e) clarification in the classification of shares withheld for statutory tax withholdings on the statement of cash flows. For public companies, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period. This updated guidance is not expected to have a material impact on our results of operations, cash flows or financial condition.

In April 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) No. 2016 – 10 “Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing “. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. Management is currently evaluating the impact this updated guidance will have on our results of operations, cash flows or financial condition.

F-10

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

Recent Accounting Pronouncements (continued)

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 financial statements upon adoption.

Reporting by Segment

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.

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, 2015 and December 31, 2014, 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, 2015, the Company had cash balances in the United States, which exceeded the federally insured limits by $531,238. At December 31, 2014, the balance did not exceed the federally insured limit.

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, 2015 and 2014.

Inventory

The Company primarily values inventories at the lower of cost or market applied on a first-in, first-out basis. The Company identifies and writes down its excess and obsolete inventories to net realizable value based on usage forecasts, order volume and inventory aging. With the development of new products, the Company also rationalizes its product offerings and will write-down discontinued product to the lower of cost or net realizable value.

Plant and Equipment

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
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.

F-11

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

Intangibles

All of our intangible assets are subject to amortization. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired. Where intangibles are deemed to be impaired we recognize an impairment loss measured as the difference between the estimated fair value of the intangible and its book value.

i) License Agreements

License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.

ii) Amortization

Amortization is reported in the income statement on a straight-line basis over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license agreement is five years which is the expected period for which we expect to derive a benefit from the underlying license agreements.

Long-Term Assets

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.

Revenue Recognition

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.

Revenue from the sale of services.

Prepaid services are acquired from providers and is sold to end-users through kiosks that the company owns or kiosks that are owned by third parties. We recognize the revenue on the sale of these services when the end-user deposits funds into the terminal and the prepaid service is delivered to the end-user. The revenue is recognized at the gross value, including margin, of the prepaid service to the Company, net of any value added tax which is collected on behalf of the Mexican Revenue Authorities.

Payment processing provided to end-users

The Company provides a secure means for end-users to pay for certain services, such as utilities through our kiosks. The Company earns either a fixed per-transaction fee or a fixed percentage of the service sold. The Company acts as a collection agent and recognizes the payment processing fee, net of any value added taxes collected on behalf of the Mexican Revenue Authorities, when the funds are deposited into the kiosk and the customer has settled his liability or has acquired a prepaid service.

Revenue from the sale of kiosks.

The Company imports, assembles and sell kiosks that are used to generate the revenues discussed above. Revenue is recognized on the full value of the kiosks sold, net of any valued added taxation collected on behalf of the Mexican Revenue Authorities, when the customer takes delivery of the kiosk and all the risks and rewards of ownership are passed to the customer.

The Company does not enter into any leasing of kiosks arrangements with customers and we do not generate any revenues from merchants who access our terminals as yet.

F-12

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING POLICIES AND ESTIMATES (continued)

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.

Income Taxes

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, 2015 and 2014, there have been no interest or penalties incurred on income taxes.

Net Loss per Share

Basic net loss per share is computed on the basis of the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed on the basis of the weighted average number of common shares and common share equivalents outstanding. Dilutive securities having an anti-dilutive effect on diluted net loss per share are excluded from the calculation (See Note 14, below).

Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common shares at the average market price during the period.

Dilution is computed by applying the if-converted method for convertible preferred shares. Under this method, convertible preferred stock is assumed to be converted at the beginning of the period (or at the time of issuance, if later), and preferred dividends (if any) will be added back to determine income applicable to common stock. The shares issuable upon conversion will be added to weighted average number of common shares outstanding. Conversion will be assumed only if it reduces earnings per share (or increases loss per share).

Any common shares issued as a result of the issue of stock options and warrants would come from newly issued common shares from our remaining authorized shares.

Comprehensive income

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.

F-13

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Revenues, Cost of Goods Sold and Gross Profit

The Company has restated its consolidated financial statements as of and for the year ended December 31, 2015. As a part of the Company’s analysis of its books and records, the Company management had discovered a discrepancy in the recording of its revenue in its Mexican operations that has resulted in an overstatement of revenue, a corresponding overstatement of cost of goods sold and a net understatement of the gross profit in the Company’s financial statements.

The Company has the following sources of revenue:

Revenue from the sale of services.

Prepaid services are acquired from providers and on-sold to end users through our own terminals and terminals belonging to our distributors. We recognize the full value of the services sold as revenue and the full value of the services acquired as cost of goods sold.

An error in recording this revenue, in our Mexican operations, resulted in the cost of goods sold recorded as equal to revenues recorded. The gross profit on these revenue transactions whereby the risks and rewards of ownership had passed to end-users remained on our balance sheet in prepayments we had made to our service providers. This error has been corrected by the reduction in our cost of goods sold expenditure, with a corresponding increase in the gross profit earned and the restatement of Mexican Value Added Taxation related to these entries.

Certain expenses directly related to cost of goods sold were previously reflected as Other Expense have been correctly reclassified as cost of goods sold in the restated financial statements.

Revenue in the form of payment processing fees

We provide a secure means for end-users to pay for certain services, such as utilities through our kiosks.

This revenue was previously recorded at gross value, the full value of the transaction was recorded as revenue and the full value of the service provided to our end users was recognized as cost of goods sold. The value-added taxation on both the revenue and cost of goods sold was recorded as due to and due from, the Mexican revenue authorities, respectively. The restated financial statements reversed the difference between the gross revenue recorded and the payment processing fee actually earned and the cost of goods sold entries recorded were reversed. The value-added taxation recorded has been restated and we have brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting our tax returns.

Revenue from the sale of kiosks.

We import and sell kiosk. to customers and distributors, who then make use of our technology to provide services to end-users whereby services can be acquired and other transactions can be performed utilizing the convenience of our kiosks and payment gateway. We recognize the full value of the revenue on the sale of these kiosks and the full value of the cost of the kiosks sold. These transactions were correctly recorded and no restatement was necessary.

The restated Consolidated Balance Sheet as of December 31, 2015 and the related Consolidated Statements of Operations for the years ended December 31, 2015 and 2014 and Cash Flows for the year ended December 31, 2015 are presented below:

F-14

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

QPAGOS CORPORATION
CONSOLIDATED BALANCE SHEET
December 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Assets

Current Assets
Cash	$	832,159						$	832,159
Accounts receivable		242,075							242,075
Inventory		668,567							668,567
Recoverable IVA taxes and credits		412,143			5,754		(A), (B)		417,897
Other current assets		20,509			31,505		(B)		52,014
Total Current Assets		2,175,453			37,259				2,212,712

Non-Current Assets
Plant and equipment, net		70,537							70,537
Intangibles, net		211,417							211,417
Other assets		11,712							11,712
Total Non-Current Assets		293,666			-				293,666
Total Assets	$	2,469,119		$	37,259			$	2,506,378

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable	$	38,372						$	38,372
Notes payable		103,320							103,320
IVA and other taxes payable		181,946			10,098		(A), (B)		192,044
Advances from customers		1,986							1,986
Total Current Liabilities		325,624			10,098				335,722

Total Liabilities		325,624			10,098				335,722

Stockholders' Equity
Common stock, $0.001 par value; 50,000,000 shares authorized, 22,392,000 shares issued and outstanding as of December 31, 2015.		22,392							22,392
Additional paid-in-capital		5,717,947							5,717,947
Accumulated deficit		(4,019,428	)		29,739				(3,989,689	)
Accumulated other comprehensive income		422,584			(2,578	)	(C)		420,006
Total stockholder's equity - controlling interest		2,143,495			27,161				2,170,656
Non-controlling interest		-			-				-
Total Stockholders' Equity		2,143,495			27,161				2,170,656
Total Liabilities and Stockholders' Equity	$	2,469,119		$	37,259			$	2,506,378

F-15

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

QPAGOS CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
Year Ended December 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Revenues
Sales of services		1,122,319		$	(382,425	)	(A)	$	739,894
Kiosk sales		321,239							321,239
Payment processing fees		66,674							66,674
Other		137							137
		1,510,369			(382,425	)			1,127,944
Cost of Goods Sold
Sales of services		1,122,319			(412,164	)	(A), (B)		710,155
Kiosk sales		369,909							369,909
Other		28,900			11,272		(D)		40,172
		1,521,128			(400,892	)			1,120,236

Gross (Loss) Profit		(10,759	)		18,467		(B)		7,708

General and administrative		2,000,714							2,000,714
Depreciation and amortization		37,810							37,810
Total Expense		2,038,524			-				2,038,524

Loss from Operations		(2,049,283	)		18,467				(2,030,816	)

Other (expense) income		(9,991	)		10,194		(D)		203
Interest expense, net		(3,319	)		1,078		(D)		(2,241	)
Foreign currency loss		(466,920	)						(466,920	)

Loss before Provision for Income Taxes		(2,529,513	)		29,739				(2,499,774	)
Provision for Income Taxes		-							-

Net Loss		(2,529,513	)		29,739				(2,499,774	)
Net loss attributable to non-controlling interest		-			-				-

Net Loss Attributable to Controlling Interest	$	(2,529,513	)	$	29,739			$	(2,499,774	)

Net Loss Per Share - Basic and Diluted	$	(0.20	)	$	0.00			$	(0.19	)

Weighted Average Number of Shares Outstanding - Basic and Diluted		12,849,373			12,849,373				12,849,373

Other Comprehensive Income
Foreign currency translation adjustment		269,835			(2,578	)	(C)		267,257

Total Comprehensive loss		(2,259,678	)		27,161				(2,232,517	)
Comprehensive loss attributable to non-controlling interest		-			-				-

Comprehensive Loss Attributable to Controlling Interest	$	(2,259,678	)	$	27,161			$	(2,232,517	)

F-16

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

QPAGOS CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
Year Ended December 31, 2014

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Revenues
Sales of services	$	27,081						$	27,081
Kiosk sales		109,981							109,981
Payment processing fees		-							-
Other		188							188
		137,250			-				137,250
Cost of Goods Sold
Sales of services		29,060							29,060
Kiosk sales		102,252							102,252
Other		1,676			2,614		(D)		4,290
		132,988			2,614				135,602

Gross Profit		4,262			(2,614	)			1,648

General and administrative		1,264,535							1,264,535
Depreciation and amortization		30,600							30,600
Total Expense		1,295,135			-				1,295,135

Loss from Operations		(1,290,873	)		(2,614	)			(1,293,487	)

Other (expense) income		2,419			2,614		(D)		5,033
Interest expense, net		11							11
Foreign currency loss		(200,875	)						(200,875	)

Loss before Provision for Income Taxes		(1,489,318	)		-				(1,489,318	)
Provision for Income Taxes		-							-

Net Loss		(1,489,318	)		-				(1,489,318	)
Net loss attributable to non-controlling interest		-			-				-

Net Loss Attributable to Controlling Interest	$	(1,489,318	)	$	-			$	(1,489,318	)

Net Loss Per Share - Basic and Diluted	$	(0.61	)					$	(0.61	)

Weighted Average Number of Shares Outstanding - Basic and Diluted		2,459,314			2,459,314				2,459,314

Other Comprehensive Income
Foreign currency translation adjustment		147,167			-				147,167

Total Comprehensive loss		(1,342,151	)		-				(1,342,151	)
Comprehensive loss attributable to non-controlling interest		-			-				-

Comprehensive Loss Attributable to Controlling Interest	$	(1,342,151	)	$	-			$	(1,342,151	)

F-17

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

QPAGOS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to the company	$	(2,529,513	)	$	29,739		(B)	$	(2,499,774	)
Less: loss attributable to non-controlling interest		-							-
Net loss		(2,529,513	)		29,739				(2,499,774	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		34,227							34,227
Amortization expense		3,583							3,583
Equity based compensation charge		166,715							166,715
Changes in Assets and Liabilities
Accounts receivable		(226,161	)						(226,161	)
Inventory		(21,581	)						(21,581	)
Recoverable IVA taxes and credits		(240,943	)		(5,754	)	(A), (B)		(246,697	)
Other current assets		29,491			(31,505	)	(B)		(2,014	)
Other assets		(5,520	)						(5,520	)
Accounts payable and accrued expenses		(64,129	)						(64,129	)
IVA and other taxes payable		173,591			10,098		(A), (B)		183,689
Advances from customers		(1,106	)						(1,106	)
Interest accruals		3,320							3,320
CASH USED IN OPERATING ACTIVITIES		(2,678,026	)		2,578				(2,675,448	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(4,779	)						(4,779	)
Intangible assets		(215,000	)						(215,000	)
NET CASH USED IN INVESTING ACTIVITIES		(219,779	)		-				(219,779	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on common stock issued		2,990,000							2,990,000
Share issue expenses		(388,700	)						(388,700	)
Proceeds from loans payable		685,001							685,001
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,286,301			-				3,286,301

Effect of exchange rate changes on cash and cash equivalents		269,835			(2,578	)	(C)		267,257

NET INCREASE IN CASH		658,331							658,331
CASH AT BEGINNING OF PERIOD		173,828							173,828
CASH AT END OF PERIOD	$	832,159		$	-			$	832,159

CASH PAID FOR INTEREST AND TAXES:
Cash paid for income taxes	$	-						$	-
Cash paid for interest	$	-						$	-

NON-CASH INVESTING AND FINANCING ACTIVITIES
Conversion of debt to equity	$	2,909,423						$	2,909,423

F-18

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (continued)

NOTES

Management noted an error in the recording of transactions related to a consumer’s use of kiosks to pay for certain services such as utilities through our kiosks.

In these transactions, the Company earns a payment processing fee as an agent, on either a percentage of transaction value or a fixed fee per transaction basis.

The Restated financial statements reversed the difference between the gross revenue recorded and the payment processing fee actually earned on these transactions; and the cost of goods sold entries originally recorded were reversed. The value-added taxation recorded has been restated and we have brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting our tax returns.

Management noted an error in recording of cost of goods sold of prepaid services sold to end users.

Purchases of prepaid services from providers are recorded as a prepaid asset, which is subsequently expensed to cost of goods sold when the prepaid service is sold and the risks and rewards of ownership passed to end users.

The cost of goods sold was incorrectly recorded as equal to revenue on all prepaid service sales. The gross profit on these revenue transactions was earned but remained on our balance sheet in prepaid expenditure.

The restated financial statements reduced the costs of goods sold recorded by the gross profit earned on these transactions with a corresponding reduction in prepaid expenditure. The net value added tax effect on these transactions was restated and we have brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting our tax returns.

Represents the restatement of the foreign currency translation adjustment directly related to the restatement of revenues and cost of goods sold discussed in A and B above.

To reclass lease payments to store owners for the placement of kiosks on their premises from other (expense) income to cost of goods sold

GOING CONCERN

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 $3,989,689 (as restated) as of December 31, 2015 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.

F-19

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ACQUISITION

On August 27, 2015, the Company entered into a series of agreements which completed the Reverse Merger with Qpagos and Redpag. As part of the merger, 1,500 Series A shares and 1,548,480 Series B shares outstanding of Qpagos and 1,500 Series A Shares and 2,238,245 Series B shares of Redpag was acquired by QPAGOS. The original shareholders of Qpagos and Redpag were effectively issued 4,619,314 common shares of QPAGOS resulting in control of QPAGOS, effectuating the reverse merger transaction.

The acquisition of Qpagos and Redpag by QPAGOS Corporation has been accounted for as a reverse acquisition for financial accounting purposes. The Reverse Merger is deemed a capital transaction and the net assets of Qpagos and Redpag (the accounting acquirers) are carried forward to QPAGOS Corporation (the legal acquirer) at their carrying value before the combination. The acquisition process utilizes the capital structure of QPAGOS Corporation and the assets and liabilities of Qpagos and Redpag are recorded at historical cost. The financials statements of Qpagos, Redpag and QPAGOS Corporation are being combined for the period from January 1, 2014 through December 31, 2015. In these financial statements, Qpagos and Redpag are the operating entities for financial reporting purposes and the financial statements for all periods presented represent the combined financial position and results of operations of Qpagos and Redpag. The equity of Qpagos and Redpag is the historical equity of QPAGOS Corporation, presented retroactively to reflect the number of shares issued in the transaction.

INVENTORY

Inventory consisted of the following as of December 31, 2015 and December 31, 2014:

	December 31, 2015		December 31, 2014

Kiosks and spare parts in transit	$	-	$	405,568
Kiosks		668,567		106,047
Spare parts		-		135,371
	$	668,567	$	646,985

PLANT AND EQUIPMENT

Plant and Equipment consisted of the following as of December 31, 2015 and December 31, 2014:

	December 31, 2015			December 31, 2014

Computer equipment	$	107,929		$	105,509
Office equipment		14,712			14,712
Leasehold improvement		12,375			10,364
Total cost		135,017			130,585
Less: accumulated depreciation and amortization		(64,479	)		(30,600	)
Property and equipment, net	$	70,537		$	99,985

Depreciation and amortization expense totaled $37,810 and $30,600 for the years ended December 31, 2015 and 2014, respectively.

F-20

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INTANGIBLES

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 a period of 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

Our license with the Licensor is a license for the rights to use three software programs (the “Programs”): RG Switch Payment (designed to transfer payments to providers of services), RG Processing (designed processing and counting of payments) and RG Kiosk (designed for performance of payments through payment collection equipment functioning in the self-service kiosks) to be used in Mexico.

Under this agreement the Licensor is obligated to provide the Company with rights to use software updates developed by the Licensor. The ten-year term commences on the date of full payment of the localization contract. The Licensor retains exclusive rights to any intellectual property, including any addition, alteration, program updating, derivative or composed creation, obtained in the process of usage of the programs. The payment for the rights granted under the license is a total of $1,000, payable in annual payments of $100 per year over ten years and is in addition to the payments that we make under the Localization Agreement. The agreement provides, among other things, that we will pay the fee, ensure confidentiality of commercial and technical information received when performing the agreement and inform the Licensor of any changes in its structure. The Licensor has a right to terminate the agreement if we breach the terms of the agreement or do not properly perform or if we do not cure any breach or nonperformance within 30 days of receipt of notice of termination. If the Licensor suffers any damages, they are entitled to request compensation from the Company. The rights to use the Programs terminate upon termination of the Agreement.

Intangibles consisted of the following as of December 31, 2015 and 2014, respectively:

	December 31, 2015			December 31, 2014

Software license	$	215,000		$	-

Total cost		215,000			-
Less: accumulated amortization		(3,583	)		-
Intangibles, net	$	211,417		$

Amortization expense was $3,583 and $0 for the year ended December 31, 2015 and 2014, respectively.

F-21

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE

Notes payable consisted of the following as of December 31, 2015 and 2014, respectively:

Description	Interest Rate			Maturity	December 31, 2015		December 31, 2014

Panatrade Business Ltd		5	%	February 3, 2019	$	-	$	916,500

Huppay Global Corp		5	%	12 June 2019		-		596,543

Newvello Limited		5	%	July 18, 2019		-		400,000

Satellite Development		11	%	March 31, 2015		-		211,379

Clive Kabatznik		12	%	December 31, 2014, extended by lender		-		25,000

Strategic IR, Inc.		12	%	December 31, 2014, Extended by lender		-		75,000

Joseph W & Patricia G Family Trust		12	%	December 31, 2014, extended by lender		-		100,000

Alberto Pereira Bunster		12	%	June 30, 2015, extended by lender		-		-

Dimitri Kurganov		5	%	April 1, 2016		-		-

Alex Pereira		12	%	June 30, 2015		-		-

Delinvest Commercial Limited		5	%	May 11, 2015		-		-

Evgeny Simonov		12	%	February 3, 2019		-		-

Igor Moiseev		5	%	July 18, 2019		-		-

Irina Galikhanova		5	%	February 3, 2019		-		-

Olga Akhmetova		5	%	February 3, 2019		-		-

YP Holdings LLC		12	%	December 31, 2015		103,320		-

Total notes payable					$	103,320	$	2,324,422

No interest was accrued on any of the notes, which were all converted into equity at the principal amount of the note outstanding, except the note payable to YP Holdings LLC, which note accrued interest at 12% per annum and is included in the note payable balance.

F-22

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE (continued)

Panatrade Business Ltd

On February 3, 2014, Qpagos entered into a $500,000 unsecured loan agreement, bearing interest at 5% per annum with Panatrade Business Limited (“Panatrade”), the agreement provided for the loan to be granted in several tranches. The loans advanced and any unpaid accrued interest thereon is due sixty (60) months after the first disbursement made by the lender. Interest is payable yearly starting from February 2015. $154,500 was advanced to Qpagos during the year ended December 31, 2014 and a further $35,021 was advanced during the year ended December 31, 2015.

On February 3, 2014, Redpag entered into a $1,500,000 unsecured loan agreement, bearing interest at 5% per annum with Panatrade Business Limited, the agreement provided for the loan to be granted in several tranches. The loans advanced and any accrued interest thereon is due sixty (60) months after the first disbursement made by the lender. Interest is to be paid yearly starting from February 2015. $762,000 was advanced to Redpag during the year ended December 31, 2014.

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $116,258 was assigned from Satellite Development to Panatrade and Panatrade assigned a total of $876,945 to various other parties. The balance of $190,834 remaining after these assignments was converted, in terms of an exchange agreement entered into with the Company, into 954,168 common shares at an issue price of $0.20 per share.

Huppay Global Corp.

On June 12, 2014, Qpagos borrowed $199,130, $203,320 and $194,093 under three separate unsecured loan agreements, bearing interest at 5% per annum with Huppay Global Corp. Each loan agreement has the same terms and conditions. The loans advanced and any unpaid accrued interest thereon is due sixty (60) months after the first disbursement made by the lender. Interest is payable yearly starting from February 2015.

On August 31, 2015, the total balance outstanding of $596,543 was converted, in terms of an exchange agreement entered into with the Company, into 2,982,715 common shares at an issue price of $0.20 per share.

Newvello Limited

On July 18, 2014, Qpagos entered into a $400,000 unsecured loan agreement, bearing interest at 5% per annum with Newvello Limited. The loan advanced and any unpaid accrued interest is due sixty (60) months after the first disbursement made by the lender. Interest is payable yearly starting from February 2015.

On August 31, 2015, in terms of an assignment agreement entered into, $80,000 of the loan was assigned to an individual. The balance of $320,000 was converted in terms of an exchange agreement entered into with the Company, into 1,600,000 common shares at an issue price of $0.20 per share.

Satellite Development

On December 10, 2014, Qpagos entered into a $211,379 unsecured loan agreement, bearing interest at 5% per annum with Satellite development. The loan advanced and any unpaid accrued interest is due sixty (60) months after the first disbursement made by the lender. Interest is payable yearly starting from February 2015.

On August 31, 2015, in terms of various assignment agreements entered into, the total loan balance of $211,379 was assigned as follows to Panatrade in the amount of $116,258 and to Delinvest Commercial Limited, in the amount of $95,121.

Clive Kabatznik

On November 26, 2014, Qpagos entered into a $25,000 unsecured loan agreement, bearing interest at 12% per annum with Clive Kabatznik. The loan advanced and any unpaid accrued interest was due on December 31, 2014, subject to the lender having the right to extend the maturity date of the loan until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

On August 31, 2015, the total balance outstanding of $25,000 was converted, in terms of an exchange agreement entered into with the Company, into 125,000 common shares at an issue price of $0.20 per share.

F-23

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE (continued)

Strategic IR, Inc.

On November 26, 2014, Qpagos entered into a $75,000 unsecured loan agreement, bearing interest at 12% per annum with Strategic IR, Inc. The loan advanced and any unpaid accrued interest was due on December 31, 2014, subject to the lender having the right to extend the maturity date of the loan until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

On August 31, 2015, in terms of an assignment agreement entered into, $50,000 of the Panatrade loan was assigned to Strategic IR. The total balance of the loan outstanding of $125,000 was converted in terms of an exchange agreement entered into with the Company, into 625,000 common shares at an issue price of $0.20 per share.

Joseph W & Patricia G Family Trust

On August 6, 2014 and November 26, 2014, Qpagos entered into two equal $50,000 unsecured loan agreements, bearing interest at 12% per annum with Joseph W & Patricia G Family trust. The loans advanced and any unpaid accrued interest was due on December 31, 2014, subject to the lender having the right to extend the maturity date of the loans until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

On August 31, 2015, the total balance outstanding of $100,000 was converted, in terms of an exchange agreement entered into with the Company, into 500,000 common shares at an issue price of $0.20 per share.

Alberto Pereira Bunster

On April 10, 2015, Qpagos entered into a $75,000 unsecured loan agreement, bearing interest at 12% per annum with Alberto Pereira Bunster. The loan advanced and any unpaid accrued interest was due on June 30, 2015, subject to the lender having the right to extend the maturity date of the loan until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

On August 31, 2015, the total balance outstanding of $75,000 was converted, in terms of an exchange agreement entered into with the Company, into 375,000 common shares at an issue price of $0.20 per share.

Dimitri Kurganov

On March 31, 2015, Qpagos entered into a $75,000 unsecured loan agreement, bearing interest at 5% per annum with Dimitri Kurganov. The loan advanced and any unpaid accrued interest was due on April 1, 2016, subject to the lender having the right to extend the maturity date of the loan until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

Alex Pereira

On April 10, 2015, Qpagos entered into a $75,000 unsecured loan agreement, bearing interest at 12% per annum with Alex Pereira. The loan advanced and any unpaid accrued interest was due on June 30, 2015, subject to the lender having the right to extend the maturity date of the loan until payment is demanded or until such date as a private placement raising $1,000,000 in gross proceeds is consummated, in addition, the loan, or any portion thereof, may be converted into common stock of the Company at the lowest per share price at which the founders’ of the Company shall have converted any of their debt into common stock of the Company.

F-24

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES PAYABLE (continued)

Delinvest Commercial Limited

On February 11, 2015, Qpagos entered into a $300,000 unsecured loan agreement, bearing interest at 5% per annum with Delinvest Commercial limited (“Delinvest”). The loan advanced and any unpaid accrued interest was due three months after the funds were advanced. Interest is payable yearly starting from February 2015. A further $24,980 was advanced to the Company under this loan agreement subsequent to February 11, 2015.

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $95,121 was assigned from Satellite Development to Delinvest and Delinvest assigned a total of $162,000 to various other parties. The balance of $258,101 remaining after these assignments was converted, in terms of an exchange agreement entered into with the Company, into 1,290,504 common shares at an issue price of $0.20 per share.

Evgeny Simonov

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $220,000 was assigned from Panatrade to Evgeny Simonov. The balance of $220,000 was converted, in terms of an exchange agreement entered into with the Company, into 1,100,000 common shares at an issue price of $0.20 per share.

Igor Moiseev

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $80,000 was assigned from Newvello Limited to Igor Moiseev. The balance of $80,000 was converted, in terms of an exchange agreement entered into with the Company, into 400,000 common shares at an issue price of $0.20 per share.

Irina Galikhanova

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $380,000 was assigned from Panatrade to Irina Galikhanova. The balance of $380,000 was converted, in terms of an exchange agreement entered into with the Company, into 1,900,000 common shares at an issue price of $0.20 per share.

Olga Akhmetova

On August 31, 2015, in terms of various assignment agreements entered into, a loan of $388,945 was assigned from Panatrade to Olga Akhmetova. The balance of $388,945 was converted, in terms of an exchange agreement entered into with the Company, into 1,944,724 common shares at an issue price of $0.20 per share.

YP Holdings LLC

On September 21, 2015, Qpagos borrowed $100,000 from YP Holdings LLC, pursuant to an unsecured loan agreement. The unpaid balance and any accrued interest is due on December 31, 2015 bears interest at a rate of 12%. The debt remains outstanding as of the date of this report. The Company is expected to settle this debt in 2016.

F-25

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS’ EQUITY

Common Stock

The Company has authorized 50,000,000 common shares with a par value of $0.001 each, and issued and has outstanding 22,392,000 shares of common stock as of December 31, 2015.

The following common shares were issued by the Company during the year ended December 31, 2015:

In terms of the reverse merger agreements entered into with Qpagos and Redpag on August 27, 2015, certain shareholders, members of management and consultants who had performed services for Qpagos and Redpag since inception of these entities, in terms of agreements entered into prior to the reverse merger, were entitled to 4,619,314 shares in Qpagos and Redpag or its successor companies. These entitlements to shares, described below were considered in determining whether the requirements for a reverse merger had been met. These common shares were retroactively reflected as the stockholder’s equity of the combined operations of the merged operations.

an aggregate of 2,459,314 Common shares were issued to three consultants and advisors, Panatrade, Delinvest Commercial and Sergey Rumyantsev for services prior to and since inception of Qpagos and Redpag, at an issue price of $0.20 per share, the determined value of our common stock when the shares were issued.

ii.

an aggregate of 2,160,000 shares of restricted common stock were issued to our Chief Executive Officer and Chief Operating Officer in terms of an employment agreements entered into with them for services rendered prior to and since inception of Qpagos and Redpag. These shares are restricted and vest on April 30, 2016 These restricted shares were valued at an issue price of $0.20 per share, the determined value of our common stock when these shares were issued.

The following shares were issued by Qpagos Corporation which were not considered as part of the reverse merger transaction.

In terms of a private placement agreement entered into on May 18, 2015 between the Company and a placement agent (“the Placement Agent”), the Placement Agent agreed to assist the Company in raising financing. The financing is in the form of equity. The Placement Agent received a fee of 10% of the gross proceeds raised together with a 3% expense recovery fee. In addition, to this the Placement Agent was issued warrants equal to 15% of the total number of shares issued to the investors, on the same terms and conditions of those units issued to investors.

During the period June 2015 to December 2015, pursuant to the private placement agreement and individual Securities Purchase Agreements entered into, new, qualified investors, acquired 2,392,000 common units of the Company at a price of $1.25 per unit, each unit consisting of one share of Common Stock and a five year warrant exercisable for one share of common stock at an exercise price of $1.25 per share, for net proceeds of $2,601,300 after deducting placement agent fees and other share issue expenses of $388,700. The placement agent was also issued five year warrants to purchase 358,800 units, each unit consisting of a warrant to purchase one share of common stock at an exercise price of $1.25 per share and an additional five year warrant to purchase one share of common stock at an exercise price of $1.25 per share, totaling an additional 717,600 shares of common stock if all placement agent warrants are exercised.

ii.

an aggregate of 833,575 Common shares were issued to consultants and advisors for services at an issue price of $0.20 per share, the determined value of our common stock when the shares were issued.

iii.

an aggregate of 14,547,111 Common shares issued to debt holders in a debt for equity swap at an issue price of $0.20 per share to settle $2,909,423 in notes payable, including interest thereon. Of the notes payable converted to equity, $2,324,422 was included in Notes Payable on the balance sheet at December 31, 2014.

F-26

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS’ EQUITY (continued)

Common Stock (continued)

Restricted Stock awards

Included in 1 above, are restricted stock awards as follows:

(a)

An aggregate of 1,440,000 shares of restricted common stock were issued to our Chief Executive Officer in terms of an employment agreement entered into with him. These shares are restricted and vest April 30, 2016 These restricted shares were valued at the value per share determined by the board of directors based on value of shares issued to other investors, prior to this issue.

(b)

An aggregate of 720,000 shares of restricted common stock were issued to our Chief Operating Officer in terms of an employment agreement entered into with him. These shares are restricted and vest on April 30, 2016 These restricted shares were valued at the value per share determined by the board of directors based on value of shares issued to other investors, prior to this issue.

The restricted stock granted and exercisable at December 31, 2015 is as follows:

		Restricted Stock Granted				Restricted Stock Vested
Grant date Price		Number Granted		Weighted Average Fair Value per Share		Number Vested		Weighted Average Fair Value per Share
$	0.20		1,440,000	$	0.20		-	$	-
$	0.20		720,000	$	0.20		-	$	-
			2,160,000	$	0.20		-	$	-

The Company has recorded an expense of $288,000 and $0 for the year ended December 31, 2015 and 2014, relating to the restricted stock awards.

Preferred Stock

The Company has authorized 10,000,000 common shares with a par value of $0.001 each, no preferred stock is issued and outstanding as of December 31, 2015.

(c)

Warrants

The placement agent was also issued, in terms of a placement agent agreement, five year warrants to purchase 358,800 units at $1.25 per unit, each consisting of one share of Common stock and an additional five year warrant exercisable for one shares of Common Stock at an exercise price of $1.25 per share, giving a total of 717,600 warrants to purchase common shares at an exercise price of $1.25 per share if all placement agent warrants are exercised.

F-27

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

STOCKHOLDERS’ EQUITY (continued)

(c)

Warrants (continued)

The fair value of Warrants issued were valued using the Black-Scholes pricing model and the following weighted average assumptions were used:

	Year ended December 31, 2015

Calculated stock price	$	0.875
Risk-free interest rate		1.38% to 1.74	%
Expected life of warrants (in years)		5
Expected volatility of the underlying stock		159.5	%
Expected dividend rate		0	%

The volatility of the common stock is estimated using historical data of companies in the same industry as the Company. The risk-free interest rate used in the Black-Scholes pricing model is determined by reference to historical U.S. Treasury constant maturity rates with maturities approximate to the life of the warrants granted. An expected dividend yield of zero is used in the valuation model, because the Company does not expect to pay any cash dividends in the foreseeable future. As of December 31, 2016, the Company does not anticipate any of the warrants will be forfeited in performing the valuation of the warrants.

A summary of all of our warrant activity during the period January 1, 2014 to December 31, 2015 is as follows:

	Shares Underlying Warrants		Exercise price per share		Weighted average exercise price
Outstanding January 1, 2014		-	$	-	$	-
Granted		-		-		-
Forfeited/Cancelled		-		-		-
Exercised		-		-		-
Outstanding December 31, 2014		-	$	-	$	-
Granted		3,109,600		1.25		1.25
Forfeited/Cancelled		-		-		-
Exercised		-		-		-
Outstanding December 31, 2015		3,109,600	$	1.25	$	1.25

The warrants outstanding and exercisable at December 31, 2015 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
$	1.25		3,109,600		4.76	$	1.25		3,109,600	$	1.25		4.76

			3,109,600			$			3,109,600	$

The warrants outstanding have an intrinsic value of $0 and $0 as of December 31, 2015 and 2014, respectively.

F-28

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NET REVENUE

Revenue is derived from the following sources:

	Year ended December 31, 2015		Year ended December 31, 2014

Sales of services	$	739,894	$	27,081
Payment processing fees		66,674		-
Kiosk sales		321,239		109,981
Other		137		188
	$	1,127,944	$	137,250

INCOME TAXES

The provision for income taxes consists of the following:

		Year ended December 31, 2015		Year ended December 31, 2014

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, 2015			Year ended December 31, 2014

Tax expense at the federal statutory rate	$	(1,070,844	)	$	(522,457	)
State tax expense, net of federal tax effect		-			-
Effect of foreign operations		87,694			69,514
Permanent timing differences		62,082			35,858
Deferred income tax asset valuation allowance		921,068			417,085
	$	-		$	-

F-29

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES (continued)

As of December 31, 2015, 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 $7,488,342 begin to expire in 2023 through 2035. 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.

EQUITY BASED COMPENSATION

Equity based compensation is made up of the following:

	Year ended December 31, 2015		Year ended December 31, 2014

Stock issued for services rendered		166,715		-
	$	166,715	$	-

NET LOSS PER SHARE

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, 2015 and 2014, 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, 2015 (Shares)		Year ended December 31, 2014 (Shares)

Restricted stock awards – unvested		2,160,000		2,160,000
Warrants to purchase shares of common stock		3,109,600		-
		5,269,600		2,160,000

F-30

QPAGOS CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 15, 2016. The lease calls for monthly rental payment, including maintenance, of $3,425 in 2014 and $2,929 in 2015, as adjusted for exchange rate changes.

The future minimum lease installments under this agreement as of December 31, 2015 to December 16, 2016 is approximately $32,748.

SUBSEQUENT EVENTS

Subsequent to year end, on February 1, 2016, the Company entered into a consulting agreement with a newly formed Delaware corporation, Yogipay Corporation (“Yogipay”), in terms of the consulting agreement the Company will provide access to its considerable expertise in the payments services business to Yogipay in exchange for 3,000,000 shares of the newly formed entity which represents a 15% ownership interest in Yogipay at the date of entering into the agreement.

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 the Company at an issue price of $1.25 per share

On May 12, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Qpagos Merge, Inc., a Delaware corporation and wholly owned subsidiary of a listed shell company, Asiya Pearls, Inc. (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub merged with and into the Company with the Company surviving the Merger as Asiya Pearls, Inc. (“Asiya”) wholly owned subsidiary (the “Merger”). Each shareholder of the Company received two shares of the common stock of Asiya for each share of common stock owned by such shareholder. Asiya also assumed all of the warrants issued and outstanding immediately prior to the Merger, which are now exercisable for approximately 6,219,200 shares of Common Stock. Immediately after the merger, the shareholders of the Company own approximately 91% of the merged entity,

The acquisition of the Company by Asiya has been accounted for as a reverse acquisition for financial accounting purposes. The Reverse Merger is deemed a capital transaction and the net assets of Asiya (the accounting acquirer) is carried forward to the Company (the legal acquirer) at their carrying value before the merger. The acquisition process utilizes the capital structure of Asiya and the assets and liabilities of the Company are recorded at historical cost. The financials statements of Asiya and the Company are being combined and the Company is the operating entity for financial reporting purposes and the financial statements for all periods presented represent the combined financial position and results of operations of the Company. The equity of the Company is the historical equity of Asiya, presented retroactively to reflect the number of shares issued in the transaction.

On June 1, 2016, the Board of directors approved changing the Company’s year end from October 31 to December 31.

On June 7, 2016, 4,975,000 shares were returned to the Company and recorded as treasury shares, in terms of the Merger Agreement.

During the period, May 16, 2016 to October 17, 2016, the Company issued an additional 500,000 shares of common stock for gross proceeds of $375,000 to an investor in terms of executed Securities Purchase Agreements.

On September 15, 2016, the Company executed a revolving line of credit note for $100,000 with our Chief Executive Officer pursuant to the terms of a Revolving Line of Credit Agreement. The note bears interest at 6% and is due and payable 6 months from the effective date. Provided the borrower is not in default, the borrower may extend and renew the note for an additional 6 month term. As of December 12, 2016, the outstanding balance under the revolving line of credit was $20,000.

Between September 29, 2016 and November 23,2016, the Company executed six unsecured promissory notes totaling $275,000, with investors, each promissory note bearing interest at 10% per annum and maturing between February 13,2017 and November 23, 2017.

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2015 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

F-31

Innovative Payment Solutions, Inc. - FORM 8-K/A - EX-99.1 - EXHIBIT 99.1 - December 12, 2016

Attached files

Innovative Payment Solutions, Inc. Reports