RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

3 Months Ended

Mar. 31, 2016

Restatement Of Previously Issued Financial Statements

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

3 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Revenues, Cost of Goods Sold and Gross Profit

The Company has restated its consolidated financial statements as of March 31, 2016 and December 31, 2015 and for the quarters ended March 31, 2016 and 2015. As a part of the Company’s analysis of its books and records, the Company’s management had discovered a discrepancy in the recording of revenue in its Mexican operations that had 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 is sold to end users through kiosks that the Company owns or kiosks owned by third parties. The Company recognizes 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 value added tax and the full value of the service acquired as cost of goods sold.

An error in recording this revenue, in the Company’s 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 the balance sheet in prepayments the Company had made to its service providers. This error has been corrected by the reduction in the Company’s 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.

The Company provides a secure means for end-users to pay for certain services, such as utilities through its 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 the Company’s 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 the Company has brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting its tax returns.

• Revenue from the sale of kiosks.

The Company imports and sells kiosks. to customers and distributors, who then make use of its technology to provide services to end-users whereby prepaid services can be acquired and other transactions can be performed utilizing the convenience of its kiosks and payment gateway. The Company recognizes 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.

Organization – Reverse Merger

The reverse merger transaction and the shares retained by the existing shareholders in Asiya Pearls, Inc. (now known as QPAGOS) were originally pushed back to the earliest period presented, this has been restated to reflect the reverse merger transaction as of the date of the reverse merger, May 12, 2016, whereby the shares retained by the existing shareholders of Asiya Pearls, Inc. were recorded as a share issuance on the effective date of the reverse merger, May 12, 2016.

The balance sheet has been restated to eliminate the effects of pushing back the reverse merger transaction to the opening balance of the earliest period presented.

The restated Consolidated Balance Sheet as of March 31, 2016 and December 31, 2015 and the Consolidated Statements of Operations and Cash Flows for the three months ended March 31, 2016 and 2015, are presented below:

QPAGOS

CONDENSED CONSOLIDATED BALANCE SHEET

March 31, 2016

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
	(Unaudited)							(Unaudited)
Assets
Current Assets
Cash	$	252,361		$	(1,453	)	(D)	$	250,908
Accounts receivable		398,074							398,074
Inventory		553,259							553,259
Recoverable IVA taxes and credits		501,549			26,048		(A), (B)		527,597
Other current assets		20,830			48,592		(B)		69,422
Total Current Assets		1,726,073			73,187				1,799,260
Non-Current Assets
Plant and equipment, net		62,395							62,395
Intangibles, net		200,667							200,667
Investment		3,000							3,000
Other assets		11,780							11,780
Total Non-Current Assets		277,842			-				277,842
Total Assets	$	2,003,915		$	73,187			$	2,077,102
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	80,082		$	(3,000	)	(D)	$	77,082
Notes payable		106,312							106,312
IVA and other taxes payable		162,592			32,755		(A), (B)		195,347
Advances from customers		5,859							5,859
Total Current Liabilities		354,845			29,755				384,600
Total Liabilities		354,845			29,755				384,600
Stockholders' Equity
Common stock, $0.0001 par value; 100,000,000 shares authorized, 49,929,000 shares issued and outstanding as of March 31, 2016.		5,496			(503	)	(D)		4,993
Additional paid-in-capital		7,873,571			2,050		(D)		7,875,621
Accumulated deficit		(6,694,959	)		43,859				(6,651,100	)
Accumulated other comprehensive income		464,962			(1,974	)	(C)		462,988
Total stockholder's equity - controlling interest		1,649,070			43,432				1,692,502
Non-controlling interest		-			-				-
Total Stockholders' Equity		1,649,070			43,432				1,692,502
Total Liabilities and Stockholders' Equity	$	2,003,915		$	73,187			$	2,077,102

QPAGOS

CONSOLIDATED BALANCE SHEET

December 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Assets
Current Assets
Cash	$	833,612			(1,453	)	(D)	$	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		2,176,906			35,806				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	$	2,470,572		$	35,806			$	2,506,378
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	41,372			(3,000	)	(D)	$	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		328,624			7,098				335,722
Total Liabilities		328,624			7,098				335,722
Stockholders' Equity
Common stock, $0.001 par value; 100,000,000 shares authorized, 44,784,000 shares issued and outstanding as of December 31, 2015.		4,981			(503	)	(D)		4,478
Additional paid-in-capital		5,733,811			2,050		(D)		5,735,861
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		2,141,948			28,708				2,170,656
Non-controlling interest		-			-				-
Total Stockholders' Equity		2,141,948			28,708				2,170,656
Total Liabilities and Stockholders' Equity	$	2,470,572		$	35,806			$	2,506,378

QPAGOS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended March 31, 2016

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Revenues
Sales of services	$	755,541		$	(257,556	)	(A)	$	497,985
Kiosk sales		130,972							130,972
Payment processing fees		977							977
		887,490			(257,556	)			629,934
Cost of Goods Sold
Sales of services		755,561			(271,676	)	(A), (B)		483,885
Kiosk sales		113,357							113,357
Other		5,250			6,796		(E)		12,046
		874,168			(264,880	)			609,288
Gross Profit		13,322			7,324		(B)		20,646
General and administrative		2,693,703							2,693,703
Depreciation and amortization		19,345							19,345
Total Expense		2,713,048			-				2,713,048
Loss from Operations		(2,699,726	)		7,324				(2,692,402	)
Other (expense) income		(3,797	)		6,796		(E)		2,999
Interest expense, net		(2,992	)						(2,992	)
Foreign currency gain (loss)		30,984							30,984
Loss before Provision for Income Taxes		(2,675,531	)		14,120				(2,661,411	)
Provision for Income Taxes		-							-
Net Loss		(2,675,531	)		14,120				(2,661,411	)
Net loss attributable to non-controlling interest		-							-
Net Loss Attributable to Controlling Interest	$	(2,675,531	)	$	14,120			$	(2,661,411	)
Net Loss Per Share -  Basic and Diluted	$	(0.06	)	$	0.00			$	(0.06	)
Weighted Average Number of Shares Outstanding -  Basic and Diluted		42,895,154			42,895,154		(D)		42,895,154
Other Comprehensive Income
Foreign currency translation adjustment		42,378			604		(C)		42,982
Total Comprehensive loss		(2,633,153	)		14,724				(2,618,429	)
Comprehensive loss attributable to non-controlling interest		-							-
Comprehensive Loss Attributable to Controlling Interest	$	(2,633,153	)	$	14,724			$	(2,618,429	)

QPAGOS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended March 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
Revenues
Sales of services	$	54,528		$	(19,955	)	(A)	$	34,573
Kiosk sales		18,770							18,770
Payment processing fees		2,701							2,701
		75,999			(19,955	)			56,044
Cost of Goods Sold
Sales of services		58,130			(22,675	)	(A), (B)		35,455
Kiosk sales		13,030							13,030
Other		-			2,121		(E)		2,121
		71,160			(20,554	)			50,606
Gross Profit		4,839			599		(B)		5,438
General and administrative		429,724							429,724
Depreciation and amortization		8,441							8,441
Total Expense		438,165			-				438,165
Loss from Operations		(433,326	)		599				(432,727	)
Other (expense) income		(1,651	)		2,121		(E)		470
Interest expense, net		-							-
Foreign currency gain (loss)		(40,305	)						(40,305	)
Loss before Provision for Income Taxes		(475,282	)		2,720				(472,562	)
Provision for Income Taxes		-							-
Net Loss		(475,282	)		2,720				(472,562	)
Net loss attributable to non-controlling interest		-							-
Net Loss Attributable to Controlling Interest	$	(475,282	)	$	2,720			$	(472,562	)
Net Loss Per Share -  Basic and Diluted	$	(0.10	)	$	0.00			$	(0.10	)
Weighted Average Number of Shares Outstanding -  Basic and Diluted		4,918,628			4,918,628		(D)		4,918,628
Other Comprehensive Income
Foreign currency translation adjustment		56,380			2,636				59,016
Total Comprehensive loss		(418,902	)		5,356				(413,546	)
Comprehensive loss attributable to non-controlling interest		-							-
Comprehensive Loss Attributable to Controlling Interest	$	(418,902	)	$	5,356			$	(413,546	)

QPAGOS

CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended 31, 2016

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to the company	$	(2,675,531	)	$	14,120		(B)	$	(2,661,411	)
Less: loss attributable to non-controlling interest		-							-
Net loss		(2,675,531	)		14,120				(2,661,411	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		8,415							8,415
Amortization expense		10,930							10,930
Equity based compensation charge		108,000							108,000
Shares issued for services		2,032,275							2,032,275
Non- cash investment in affiliates		(3,000	)						(3,000	)
Changes in Assets and Liabilities
Accounts receivable		(155,999	)						(155,999	)
Inventory		115,308							115,308
Recoverable IVA taxes and credits		(89,406	)		(20,294	)	(A), (B)		(109,700	)
Other current assets		(321	)		(17,087	)	(B)		(17,408	)
Other assets		(68	)						(68	)
Accounts payable and accrued expenses		38,711							38,711
IVA and other taxes payable		(19,354	)		22,657		(A), (B)		3,303
Advances from customers		3,873							3,873
Interest accruals		2,992							2,992
CASH USED IN OPERATING ACTIVITIES		(623,174	)		(604	)			(623,779	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(454	)						(454	)
NET CASH USED IN INVESTING ACTIVITIES		(454	)		-				(454	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable		-							-
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			-				-
Effect of exchange rate changes on cash and cash equivalents		42,378			604		(C)		42,982
NET DECREASE IN CASH		(581,251	)						(581,251	)
CASH AT BEGINNING OF PERIOD		833,612			(1,453	)	(D)		832,159
CASH AT END OF PERIOD	$	252,361		$	(1,453	)		$	250,908
CASH PAID FOR INTEREST AND TAXES:
Cash paid for income taxes	$	-						$	-
Cash paid for interest	$	-						$	-

QPAGOS

CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended 31, 2015

	As
	Previously							As
	Reported			Adjustments			Notes	Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to the company	$	(475,282	)	$	2,720		(B)	$	(472,562	)
Less: loss attributable to non-controlling interest		-							-
Net loss		(475,282	)		2,720				(472,562	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation expense		8,311							8,311
Amortization expense		130							130
Equity based compensation charge		-							-
Shares issued for services		-							-
Non- cash investment in affiliates		-							-
Changes in Assets and Liabilities
Accounts receivable		(9,076	)						(9,076	)
Inventory		59,151							59,151
Recoverable IVA taxes and credits		(95,454	)		1,705		(A), (B)		(93,749	)
Other current assets		45,073			(3,129	)	(B)		41,944
Other assets		(4,913	)						(4,913	)
Accounts payable and accrued expenses		(38,888	)						(38,888	)
IVA and other taxes payable		11,924			(1,274	)	(A), (B)		10,650
Advances from customers		2,972							2,972
Interest accruals		-							-
CASH USED IN OPERATING ACTIVITIES		(496,052	)		22				(496,030	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(404	)						(404	)
NET CASH USED IN INVESTING ACTIVITIES		(404	)		-				(404	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable		289,000							289,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		289,000			-				289,000
Effect of exchange rate changes on cash and cash equivalents		59,038			(22	)	(C)		59,016
NET DECREASE IN CASH		(148,418	)						(148,418	)
CASH AT BEGINNING OF PERIOD		173,828							173,828
CASH AT END OF PERIOD	$	25,410		$	-			$	25,410
CASH PAID FOR INTEREST AND TAXES:
Cash paid for income taxes	$	-						$	-
Cash paid for interest	$	-						$	-

NOTES

A. 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.

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 on these transactions; and the cost of goods sold entries originally recorded were reversed. The value-added taxation recorded has been restated and the Company has brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting its tax returns.

B. 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 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 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 the Company has brought this restatement to the attention of the Mexican revenue authorities and are in the process of correcting its tax returns.

C. 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.

D. To reflect the adjustments necessary to record the effect of the acquisition of the net assets and liabilities and the common shares retained by the shareholders of Asiya Pearls, Inc., on the effective date of the transaction, May 12, 2016, previously this was disclosed effective the earliest date presented in our financial statements.

E. To reclass certain lease payments to retailers for the lease of floor space for the placement of kiosks on their premises from other (expense) income to cost of goods sold.