NOTE
1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Business
Kibush
Capital Corporation (formerly David Loren Corporation) (the “Company”) includes its 90% owned subsidiary Aqua Mining
(PNG). See Basis of Presentation below. The Company has two primary businesses: (i) mining exploration within Aqua Mining, and
(ii) timber operations in Papua New Guinea by Aqua Mining.
Basis
of Presentation
The
Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”).
The
consolidated financial statements of the Company include the accounts of the Company, and all entities in which a direct or indirect
controlling interest exists through voting rights or qualifying variable interests. All intercompany balances and transactions
have been eliminated in the consolidated financial statements.
Certain information
and disclosures normally included in the notes to financial statements have been condensed or omitted as permitted by the rules
and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the
information presented not misleading. The accompanying unaudited financial statements should be read in conjunction with the financial
statements of the Company for the year ended September 30, 2016.
Change
in Fiscal Year End
The
Board of Directors of the Company approved on September 14, 2014, a change in the Company’s fiscal year end from December
31 to September 30 of each year.
Going
Concern
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the
liquidation of liabilities in the normal course of business. As at December 31, 2016, the Company has an accumulated deficit of
$12,382,969 and $12,288,586 as of September 30, 2016, and has not earned sufficient revenues to cover operating costs since inception
and has a working capital deficit. The Company intends to fund its mining exploration through equity financing arrangements, which
may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year.
The
ability of the Company to emerge from the development stage is dependent upon, among other things, obtaining additional financing
to continue mining exploration and execution of its business plan. In response to these problems, management intends to raise
additional funds through public or private placement offerings.
These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Functional
and Reporting Currency
The
consolidated financial statements are presented in U.S. Dollars. The Company’s functional currency is the U.S. Dollar. The
functional currency of Aqua Mining is the Papua New Guinean kina. Assets and liabilities are translated using the exchange rate
on the respective balance sheet dates. Items in the income statement and cash flow statement are translated into U.S. Dollars
using the average rates of exchange for the periods involved. The resulting translation adjustments are recorded as a separate
component of other comprehensive income/(loss) within stockholders’ equity.
The
functional currency of foreign entities is generally the local currency unless the primary economic environment requires the use
of another currency. Gains or losses arising from the translation or settlement of foreign-currency-denominated monetary assets
and liabilities into the functional currency are recognized in the income in the period in which they arise. However, currency
differences on intercompany loans that have the nature of a permanent investment are accounted for as translation differences
as a separate component of other comprehensive income/(loss) within stockholders’ equity.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the principal accounting policies are set out below:
Cash
The
Company maintains its cash balances in interest and non-interest bearing accounts which do not exceed Federal Deposit Insurance
Corporation limits.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Kibush Capital and Aqua Mining. All intercompany accounts
and transactions have been eliminated.
Other
Comprehensive Income and Foreign Currency Translation
FASB
ASC 220-10-05,
Comprehensive Income
, establishes standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distribution to owners.
The
accompanying consolidated financial statements are presented in United States dollars.
Reclassifications
Reclassifications
have been made to prior year consolidated financial statements in order to conform the presentation to the statements as of and
for the period ended September 30, 2014.
On
June 10, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10,
Development Stage Entities (Topic 915) –
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic
810, Consolidation
, which eliminates the concept of a development stage entity (DSE) in its entirety from current accounting
guidance. The Company has elected early adoption of this new standard.
Use
of Estimates
The
preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America
(“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates made by management are, recoverability of long-lived
assets, valuation and useful lives of intangible assets, valuation of derivative liabilities, and valuation of common stock, options,
warrants and deferred tax assets. Actual results could differ from those estimates.
Non-Controlling
Interests
Investments
in associated companies over which the Company has the ability to exercise significant influence are accounted for under the consolidation
method, after appropriate adjustments for intercompany profits and dividends.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It requires an acquirer to recognize, at
the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their
full fair values as of that date. In a business combination achieved in stages (step acquisitions), the acquirer will be required
to re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting
gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the
capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally
accepted accounting principles. U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
A
non-controlling interest in a subsidiary is an ownership interest in a consolidated entity that is reported as equity in the consolidated
financial statements and separate from the Company’s equity. In addition, net income/(loss) attributable to non-controlling
interests is reported separately from net income attributable to the Company in the consolidated financial statements. The Company’s
consolidated statements present the full amount of assets, liabilities, income and expenses of all of our consolidated subsidiaries,
with a partially offsetting amount shown in non-controlling interests for the portion of these assets and liabilities that are
not controlled by us.
For
our investments in affiliated entities that are included in the consolidation, the excess cost over underlying fair value of net
assets is referred to as goodwill and reported separately as “Goodwill” in our accompanying consolidated balance sheets.
Goodwill may only arise where consideration has been paid.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives as follows:
Plant Equipment
|
|
2 to 15 years
|
Computer and software
|
|
1 to 2 years
|
Office equipment
|
|
3 to 10 years
|
Building improvements
|
|
20 years
|
Maintenance
and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement
or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting
gains or losses are reflected in the consolidated statement of operations.
Impairment
of Long-Lived Assets
In
accordance with FASB ASC 360-10-5,
Accounting for the Impairment or Disposal of Long-Lived Assets
, the Company evaluates
the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that such carrying
values may not be recoverable. The Company uses its best judgment based on the current facts and circumstances relating to its
business when determining whether any significant impairment factors exist. The Company considers the following factors or conditions,
among others, that could indicate the need for an impairment review:
●
|
Significant
under performance relative to expected historical or projected future operating results;
|
●
|
Significant
changes in its strategic business objectives and utilization of the assets;
|
●
|
Significant
negative industry or economic trends, including legal factors;
|
If
the Company determines that the carrying values of long-lived assets may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the Company’s management performs an undiscounted cash flow analysis to determine
if impairment exists. If impairment exists, the Company measures the impairment based on the difference between the asset’s
carrying amount and its fair value, and the impairment is charged to operations in the period in which the long-lived asset impairment
is determined by management.
The
carrying value of the Company’s investment in Joint Venture contract with leaseholders of certain Mining Leases in Papua
New Guinea represents its ownership, accounted for under the equity method. The ownership interest is not adjusted to fair value
on a recurring basis. Each reporting period the Company assesses the fair value of the Company’s ownership interest in Joint
Venture in accordance with FASB ASC 325-20-35. Each year the Company conducts an impairment analysis in accordance with the provisions
within FASB ASC 320-10-35 paragraphs 25 through 32.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s cash, accounts payable and accrued expenses approximate their estimated fair values due
to the short-term maturities of those financial instruments. The Company believes the carrying amount of its notes payable approximates
its fair value based on rates and other terms currently available to the Company for similar debt instruments
Beneficial
Conversion Features of Debentures
In
accordance with FASB ASC 470-20, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, we recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the
debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public
on the day the loan is made to us. The beneficial value is calculated as the intrinsic value (the market price of the stock at
the commitment date in excess of the conversion rate) of the beneficial conversion feature of debentures and related accruing
interest is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized
over the remaining outstanding period of related debt using the interest method.
Derivative
Financial Instruments
We
apply the provisions of FASB ASC 815-10,
Derivatives and Hedging
(“ASC 815-10”). Derivatives within the scope
of ASC 815-10 must be recorded on the balance sheet at fair value. During the year ended September 30, 2014, the Company issued
convertible debt and recorded derivative liabilities related to a reset provision associated with the embedded conversion feature
of the convertible debt. The Company computed the fair value of these derivative liabilities on the grant date and various measurement
dates using the Black-Scholes pricing model. Due to the reset provisions within the embedded conversion feature, the Company determined
that the Black-Scholes pricing model was the most appropriate for valuing these instruments.
In
applying the Black-Scholes valuation model, the Company used the following assumptions during the period ended December 31, 2016:
|
|
|
For
the year
|
|
|
|
|
ended
December 31,
2016
|
|
Annual dividend yield
|
|
|
-
|
|
Expected life (years)
|
|
|
0.50
– 1.00
|
|
Risk-free interest rate
|
|
|
0.03%
— 0.13%
|
|
Expected volatility
|
|
|
210.12.
% — 400.48%
|
|
The
inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy
level is based upon the lowest level of input that is significant to the fair value measurement.
The
Company determines the fair value of its derivative instruments using a three-level hierarchy for fair value measurements which
these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
This hierarchy requires the use of observable market data when available. These two types of inputs have created the following
fair-value hierarchy:
Level
1
— Valuation based on unadjusted quoted market prices in active markets for identical securities. Currently, the Company
does not have any items as Level 1.
Level
2
— Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the
measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.
Currently, the Company does not have any items classified as Level 2.
Level
3
— Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve
management judgment. The Company used the Black-Scholes option pricing models to determine the fair value of the instruments.
The
following table presents the Company’s embedded conversion features of its convertible debt measured at fair value on a
recurring basis as of December 31, 2016, and as of September 30, 2016:
|
|
Carry Value at
|
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Embedded conversion features - notes
|
|
$
|
954,740
|
|
|
$
|
986,700
|
|
Total derivative liability
|
|
$
|
954,740
|
|
|
$
|
986,700
|
|
|
|
|
December
31, 2016
|
|
|
|
September
30, 2016
|
|
Change in fair value included in other income (expense), net
|
|
|
-55,344
|
|
|
|
-7,525
|
|
The
following table provides a reconciliation of the beginning and ending balances for the Company’s derivative liabilities
measured at fair value using Level 3 inputs:
|
|
For the year ended
|
|
|
For the year ended
|
|
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
Embedded Conversion
|
|
|
|
|
|
|
|
|
Features - Notes:
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
986,700
|
|
|
$
|
498,417
|
|
Change in derivative liabilities
|
|
$
|
23,384
|
|
|
$
|
495,808
|
|
Net change in fair value included in net loss
|
|
|
(55,344
|
)
|
|
|
(7,525
|
)
|
Ending balance
|
|
$
|
954,740
|
|
|
$
|
986,700
|
|
The
Company re-measures the fair values of all its derivative liabilities as of each period end and records the net aggregate gain/loss
due to the change in the fair value of the derivative liabilities as a component of other expense, net in the accompanying consolidated
statement of operations. During the years ended September 30, 2016 and the 3 months ended December 31, 2016, the Company recorded
a net increase (decrease) to the fair value of derivative liabilities balance of $ (55,344) and $ (7,525), respectively.
Loss
per Share
The
Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings
(loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per
share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common
shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no
common share equivalents are included because their effect would be anti-dilutive.
Income
Taxes
Income
taxes are accounted for in accordance with ASC Topic 740, “Income Taxes.” Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future consequences of differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are recovered
or settled. Valuation allowances for deferred tax assets are established when it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Mineral
Property, Mineral Rights (Claims) Payments and Exploration Costs
Pursuant
to EITF 04-02, “Whether Mineral Rights are Tangible or Intangible Assets and Related Issues”, the Company has an accounting
policy to capitalize the direct costs to acquire or lease mineral properties and mineral rights as tangible assets. The direct
costs include the costs of signature (lease) bonuses, options to purchase or lease properties, and brokers’ and legal fees.
If the acquired mineral rights relate to unproven properties, the Company does not amortize the capitalized mineral costs, but
evaluates the capitalized mineral costs periodically for impairment. The Company expenses all costs related to the exploration
of mineral claims in which it had secured exploration rights prior to establishment of proven and probable reserves.
Accounting
Treatment of Mining Interests
At
this time, the Company does not directly own or directly lease mining properties. However, the Company does have contractual rights
and governmental permits which allow the Company to conduct mining exploration on the properties referenced in this report. These
contractual relationships, coupled with the government permits issued to the Company (or a subsidiary), are substantially similar
in nature to a mining lease. Therefore, we have treated these contracts as lease agreements from an accounting prospective.
Research
and Development
Research and development costs are recognized
as an expense in the period in which they are incurred. The Company incurred no research and development costs for the quarter
ended December 31, 2016.
Recent
Accounting Pronouncements
New
accounting standards
Development
State Entities
. In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
2014-10 – Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an
Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (“ASU 2014-10”). The amendments in this
update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification.
In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information
in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development
stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose
in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development
stage. For public business entities, those amendments are effective for annual reporting periods beginning after December 15,
2014, and interim periods therein. For other entities, the amendments are effective for annual reporting periods beginning after
December 15, 2014, and interim reporting periods beginning after December 15, 2015.
Early
application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s
financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon
adoption, entities will no longer present or disclose any information required by Topic 915.
The
Company has early adopted ASU 2014-10 commencing with its financial statements for the year ended September 30, 2014 and subsequent
periods.
Accounting
standards to be adopted in future periods
In
May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which provides guidance
for accounting for revenue from contracts with customers. The core principle of this ASU is that an entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects
to be entitled in exchange for those goods or services.
To
achieve that core principle, an entity would be required to apply the following five steps: 1) identify the contract(s) with a
customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction
price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance
obligation. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.
Early adoption is permitted, FASB has delayed the revenue recognition effective date by one year December 31, 2017.
Entities
will have the option to apply the final standard retrospectively or use a modified retrospective method, recognizing the cumulative
effect of the ASU in retained earnings at the date of initial application. An entity will not restate prior periods if it uses
the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is
affected in the current reporting period by the application of the ASU as compared to the guidance in effect prior to the change,
as well as reasons for significant changes. The Company will adopt the updated standard in the first quarter of 2017. The Company
is currently evaluating the impact that implementing this ASU will have on its financial statements and disclosures, as well as
whether it will use the retrospective or modified retrospective method of adoption.
Company
management do not believe that the adoption of recently issued accounting pronouncements will have a significant impact on the
Company’s financial position, results of operations, or cash flows.
NOTE
3 – INVESTMENTS IN SUBSIDIARIES
The
Company owns interests in the following entities which was recorded at their book value since they were related party common control
acquisitions.
|
|
Investment
|
|
|
Ownership %
|
|
Aqua Mining (PNG)
|
|
|
34
|
|
|
|
90
|
%
|
As
Aqua Mining (PNG) Ltd was acquired from a related entity, Five Arrows Limited (see Note 9 – Business Combinations), the
shares were recorded in the accounts at their true cost value.
NOTE
4 – PROPERTY AND EQUIPMENT
|
|
December
31, 2016
|
|
|
September
30, 2016
|
|
Building and Improvements
|
|
$
|
-
|
|
|
$
|
-
|
|
Plant Equipment
|
|
|
16,073
|
|
|
|
16,073
|
|
Computer Equipment
|
|
|
-
|
|
|
|
-
|
|
Office Equipment
|
|
|
-
|
|
|
|
-
|
|
Motor Vehicle
|
|
|
111,585
|
|
|
|
111,585
|
|
|
|
|
127,658
|
|
|
|
127,658
|
|
Less accumulated depreciation
|
|
|
-32,014
|
|
|
|
-27,367
|
|
|
|
$
|
95,644
|
|
|
$
|
100,291
|
|
Depreciation
expense was approximately $22,289 for the year ended September 30, 2016 and $4,647 for the 3 months ended December 31, 2016.
NOTE
5 – CONVERTIBLE NOTES PAYABLE
|
|
December 31, 2016
|
|
|
|
Note face amount
|
|
|
Debt Discount
|
|
|
Net Amount of Note
|
|
2011 Note
|
|
$
|
22,166
|
|
|
$
|
-
|
|
|
$
|
22,166
|
|
2012 Note
|
|
|
48,000
|
|
|
|
-
|
|
|
|
48,000
|
|
2013 Note
|
|
|
12,000
|
|
|
|
-
|
|
|
|
12,000
|
|
2014 Note
|
|
|
57,300
|
|
|
|
-
|
|
|
|
57,300
|
|
2016 Note
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
2016 Note
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
2017 Note
|
|
|
27,800
|
|
|
|
-
|
|
|
|
27,800
|
|
Total
|
|
$
|
217,266
|
|
|
$
|
-
|
|
|
$
|
217,266
|
|
|
|
September 30, 2016
|
|
|
|
Note face amount
|
|
|
Debt Discount
|
|
|
Net Amount of Note
|
|
2011 Note
|
|
$
|
22,166
|
|
|
$
|
-
|
|
|
$
|
22,166
|
|
2012 Note
|
|
|
48,000
|
|
|
|
-
|
|
|
|
48,000
|
|
2013 Note
|
|
|
12,000
|
|
|
|
-
|
|
|
|
12,000
|
|
2014 Note
|
|
|
92,300
|
|
|
|
-
|
|
|
|
92,300
|
|
2016 Note
|
|
|
10,125
|
|
|
|
-
|
|
|
|
10,125
|
|
2016 Note
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
2016 Note
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
Total
|
|
$
|
234,591
|
|
|
$
|
-
|
|
|
$
|
234,591
|
|
2011
Note
On
May 1, 2011, the Company issued a 2.00% Convertible Note due April 30, 2012 with a principal amount of $32,000 (the “2011
Note”) for cash. Interest on the 2011 Note is accrued annually effective from May 1, 2011 forward. The 2011 Note is unsecured
and repayable on demand. The 2011 Note is senior in right to all existing and future indebtedness which is subordinated by its
terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common
Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of December 31, 2016, is $22,166. As of December
31, 2016, the note has been discounted by $0.
2012
Note
On
January 2, 2012, the Company issued a 2.00% Convertible Note due January 1, 2013 with a principal amount of $48,000 (the “2012
Note”) for cash. Interest on the 2012 Note is accrued annually effective from January 2, 2012 forward. The 2012 Note is
unsecured and repayable on demand. The 2012 Note is senior in right to all existing and future indebtedness which is subordinated
by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part
into Common Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of December 31, 2016, is $48,000. As of December
31, 2016, the note has been discounted by $0.
2013
Note
On
January 3, 2013, the Company issued a 2.00% Convertible Note due January 2, 2014 with a principal amount of $12,000 (the “2013
Note”) for cash. Interest on the 2013 Note is accrued annually effective from January 3, 2013 forward. The 2013 Note is
unsecured and repayable on demand. The 2013 Note is senior in right to all existing and future indebtedness which is subordinated
by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part
into Common Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of December 31, 2016, is $12,000. As of December
31, 2016, the note has been discounted by $0.
2014
Note
On
August 25, 2014, the Company issued two 12.00% Convertible Promissory Note due February 25, 2015 with a principal amount of $50,000
each (the “2014 Note”) for cash. Interest on the 2014 Note is accrued annually effective from August 25, 2014 forward.
The 2014 Note is unsecured.
The
notes are convertible at a conversion price the lesser of (a) $0.25 per share, or (b) the price per share as reported on the Over-the-Counter
Bulletin Board on the conversion date. The Note Holders also received Warrants to purchase an aggregate of 800,000 shares of our
common stock at an initial exercise price of $0.25 per share. Each of the Warrants has a term of five (5) years.
The
embedded conversion feature of the 2014 Notes and Warrants were recorded as derivative liabilities in accordance with relevant
accounting guidance due to the variable conversion price of the 2014 Notes. The fair value on the grant date of the embedded conversion
feature of the convertible debt was $145,362 as computed using the Black-Scholes option pricing model.
The
Company established a debt discount of $100,000, representing the value of the embedded conversion feature inherent in the convertible
debt and warrant, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using
the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September
30, 2014, the Company recorded amortization of the debt discount of $19,566. The balance of the debt discount was $80,434 at September
30, 2014. For the quarter ended December 31, 2016, the Company recorded amortization of the debt discount of $0. The balance of
the debt discount was $0 at December 31, 2016. The face amount of the outstanding note as of December 31, 2016, is $57,300.
2016 Notes
On January 5, 2016, the Company issued a $47,615
Convertible Promissory Note to the McGee Law Firm for services rendered. The Note was due on October 31, 2016 and carried interest
at 12.0% per annum. On or after May 1, 2016, at the option of the holder, the then outstanding amount of the Note was convertible
into common stock of the Company at a conversion price equal to the lesser of $0.01 per share or 50% of the three lowest closing
prices average for the 10 business days prior to the conversion date.
On August 11, 2016, the Company restructured
a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction with an assignment of that Note. The restructured
Note was a 9.00% Convertible Promissory Note due August 11, 2017 with a principal amount of $30,000. Interest on the 2016 Note
is accrued annually effective from September 1, 2016 forward. This Note was unsecured and repayable on demand. The 2016 Note is
senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the
principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001. The face amount
of the outstanding note as of December 31, 2016, is $0. As of December 31, 2016, the note has been discounted by $0.
On September 13, 2016, the Company restructured
a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction with an assignment of that Note. The restructured
Note was a 9.00% Convertible Promissory Note due September 13, 2017 with a principal amount of $15,836.32. Interest on the 2016
Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016
Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender,
the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that
is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market
rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months.
The face amount of the outstanding note as of December 31, 2016, is $0. As of December 31, 2016, the note has been discounted
by $0.
On August 23, 2016, the Company issued a 9.00%
Convertible Promissory Note due August 23, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note is accrued
annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in
right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal
along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that
is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market
rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months.
The face amount of the outstanding note as of December 31, 2016, is $25,000. As of December 31, 2016, the note has been discounted
by $0.
On September 17, 2016, the Company issued
a 9.00% Convertible Promissory Note due September 17, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note
is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note
is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender,
the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that
is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market
rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months.
The face amount of the outstanding note as of December 31, 2016, is $25,000. As of December 31, 2016, the note has been discounted
by $0.
2017 Notes
On October 28, 2016, the Company restructured
a portion a Convertible Promissory Note issued on August 25, 2014 in conjunction with an assignment of that Note. The restructured
Note was a 9.00% Convertible Promissory Note due October 28, 2017 with a principal amount of $35,000. Interest on the 2016 Note
is accrued annually effective from November 1, 2016 forward. The 2017 Note is unsecured and repayable on demand. The 2017 Note
is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender,
the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that
is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market
rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months.
The face amount of the outstanding note as of December 31, 2016, is $27,800. As of December 31, 2016, the note has been discounted
by $0.
NOTE 6 – LOAN FROM RELATED PARTY
Convertible Notes Issued to the President
and Director of Kibush Capital Corporation:
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Note
face amount
|
|
|
|
Debt
Discount
|
|
|
|
Net
Amount of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from related party
|
|
$
|
1,170,080
|
|
|
$
|
0
|
|
|
$
|
1,170,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,170,080
|
|
|
$
|
0
|
|
|
$
|
1,170,080
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Note
face amount
|
|
|
|
Debt
Discount
|
|
|
|
Net
Amount of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan from related party
|
|
$
|
1,162,741
|
|
|
$
|
0
|
|
|
$
|
1,162,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,162,741
|
|
|
$
|
0
|
|
|
$
|
1,162,741
|
|
On March 31, 2014, the Company issued a 12.50%
Convertible Promissory Note due March 31, 2015 with a principal amount of $157,500 (the “March 2014 Note”) for cash.
Interest on the March 2014 Note is accrued annually effective from March 31, 2014 forward. The March 2014 Note is unsecured. The
note is convertible into common stock at a price of 50 percent of the average closing bid price, determined on the then current
trading market for the ten business days prior to the conversion date.
The embedded conversion feature of the March
2014 Notes was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion
price of the March 2014 Notes. The fair value on the grant date of the embedded conversion feature of the convertible debt was
$305,039 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of
$157,500, representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount
of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the
debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization
of the debt discount of $78,966. The balance of the debt discount was $78,534 at September 30, 2014. As of December 31, 2016,
the balance of the debt discount was $0.
On June 30, 2014, the Company issued a 12.50%
Convertible Promissory Note due June 30, 2015 with a principal amount of $110,741 (the “June 2014 Note”) for cash.
Interest on the June 2014 Note is accrued annually effective from June 30, 2014 forward. The June 2014 Note is unsecured. The
note is convertible into common stock at a price of 50 percent of the average closing bid price, determined on the then current
trading market for the ten business days prior to the conversion date.
The embedded conversion feature of the June
2014 Note was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion
price of the June 2014 Note. The fair value on the grant date of the embedded conversion feature of the convertible debt was $213,207
as computed using the Black-Scholes option pricing model.
The Company established a debt discount of
$110,741 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount
of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the
debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization
of the debt discount of $27,913. The balance of the debt discount was $82,828 at September 30, 2014. As of December 31, 2016,
the balance of the debt discount was $0.
On September 30, 2014, the Company issued
a 12.50% Convertible Promissory Note due September 30, 2015 with a principal amount of $98,575 (the “September 2014 Note”)
for cash. Interest on the September 2014 Note is accrued annually effective from September 30, 2014 forward. The September 2014
Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing bid price, determined
on the then current trading market for the ten business days prior to the conversion date.
The embedded conversion feature of the September
2014 Notes was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion
price of the September 2014 Note. The fair value on the grant date of the embedded conversion feature of the convertible debt
was $181,771 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of
$98,575 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount
of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the
debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization
of the debt discount of $0. The balance of the debt discount was $98,575 at September 30, 2014. As of December 31, 2016, the balance
of the debt discount was $0.
As of September 30, 2014, and 2013, cumulative
interest of $96,579 and $0 respectively, has been accrued on these notes.
The Company established a debt discount of
$61,273 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount
of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the
debt, which approximates the effective-interest method. For the quarter ended December 31, 2016, the Company recorded amortization
of the debt discount of $0. The balance of the debt discount was $0 at December 31, 2016.
On October 1, 2016, the Company issued an
8% Promissory Note due September 30, 2017 with a principal amount of $155,300 (the “October 2016 Note”) for cash received
between the period September 30, 2014 and April 28,2015. No interest was to accrue on the first two years of the loan, interest
on the October 2016 Note is to be accrued annually effective from October 1, 2016 forward. The October 2016 Note is unsecured.
Cavenagh Capital Corporation is a shareholder in Kibush Capital Corporation.
NOTE 7 – STOCKHOLDER’S DEFICIT
Common Stock
On August 22, 2013, the Company’s Board
authorized a 225:1 reverse stock split. All share and per share data in the accompanying financial statements and footnotes has
been adjusted retrospectively for the effects of the stock split.
On October 12, 2013, the Company issued by
director’s resolution, 10,000,000 shares of newly issued common stock for the purchase of a Memorandum of Understanding
(dated September 2, 2013) from a related company (Five Arrows Limited); which gave Kibush Capital Corporation the right to acquire
80% ownership in Instacash Pty Ltd, an Australian Currency Services provider, and corporate trustee of the Instacash Trust. As
this transaction was with a related party, the value was recorded at the par value of the stock i.e. $0.001 per share of common
stock.
Between October 23, 2013 and September 30,
2014, the Company issued a total of 3,274,000 shares of common stock upon the requests from convertible note holders to convert
principal totaling $3,274 into the Company’s common stock based on the terms set forth in the loans. The conversion rate
was $0.001.
On February 28, 2014, the Company issued by
director’s resolution, 40,000,000 shares of newly issued common stock to conclude a Assignment and Bill of Sale (dated February
14, 2014) from a related company (Five Arrows Limited); which gave Kibush Capital Corporation the right to enter into a Joint
Venture contract with the leaseholders of certain Mining Leases in Papua New Guinea. As this transaction was with a related party,
the value was recorded at par value of the stock i.e. $0.001 per share of common stock.
Between November 1, 2014 and March 31, 2015,
the Company issued a total of 4,560,000 shares of common stock upon the requests from convertible note holders to convert principal
totaling $3,274 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
Between April 1, 2016 and September 30, 2016,
the Company issued a total of 190,114,175 shares of common stock upon the requests from convertible note holders to convert principal
totaling $190,114 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
Between October 1, 2016 and December 31, 2016,
the Company issued a total of 208,879,614 shares of common stock upon the requests from convertible note holders to convert principal
totaling $208,880 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
Preferred Stock
Preferred stock includes 50,000,000 shares
authorized at $0.001 par value, of which 10,000,000 have been designated Series A and 5,000,000 designated as Series B.
During the quarter ended December 31, the
Board and Mr. Sheppard agreed that it was fair and in the best interest of the Company to cancel the debt owed to Mr. Sheppard
for the Paradise Gardens acquisition, in exchange for the issuance of 5,000,000 shares of Class B preferred stock, which is convertible
to common stock at 5 to 1 and votes with common stock at 100 to 1.
A total of 3,000,000 shares of Series A preferred
stock are issued and outstanding as of December 31, 2016, and September 30, 2016. A total of 5,000,000 shares of Series B preferred
stock were outstanding as of December 31, 2016.
NOTE 8 – INCOME TAXES
The provision/(benefit) for income taxes for
the year ended September 30, 2016 and 2015 was as follows (assuming a 15% effective tax rate)
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total current tax provisions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss carry forwards
|
|
$
|
195,286
|
|
|
$
|
193,592
|
|
|
$
|
263,821
|
|
Change in valuation allowance
|
|
$
|
195,286
|
|
|
$
|
193,592
|
|
|
$
|
263,821
|
|
Total deferred tax provisions
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company provided a valuation allowance
equal to the deferred income tax assets for period ended September 30, 2014 because it is not presently known whether future taxable
income will be sufficient to utilize the loss carryforwards.
As of September 30, 2016, the Company had
approximately $12,288,586 in tax loss carry forwards that can be utilized future periods to reduce taxable income, and the carry
forward incurred for the year ended September 30, 2016 will expire by the year 2035.
The Company did not identify any material
uncertain tax positions. The Company did not recognize any interest or penalties for unrecognized tax benefits.
The federal income tax returns of the Corporation
are subject to examination by the IRS, generally for three years after they are filed.
NOTE 9 – RELATED PARTY TRANSACTIONS
Details of transactions between the Corporation
and related parties are disclosed below.
The following transactions were carried out
with related parties:
|
|
December 31, 2016
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
Loan from related party
|
|
$
|
1,170,080
|
|
|
$
|
1,162,741
|
|
Convertible Loans (B)
|
|
$
|
217,266
|
|
|
$
|
234,591
|
|
Total
|
|
$
|
1,387,346
|
|
|
$
|
1,397,332
|
|
(a) From time to time, the president and stockholder
of the Company provides advances to the Company for its working capital purposes. These advances bear no interest and are due
on demand.
(b) See Note 6 for details of Convertible
notes.
(c) On April 29, 2015, the Company issued
3,001,702 shares of its common stock to Warren Sheppard (previously authorized by for issuance by the company on December 10,
2014) pursuant to his employment agreement.
(d) Between April 1, 2015 and June 24, 2015,
the Company issued a total of 4,000,000 shares of common stock upon the requests from convertible note holders to convert principal
totaling $4,000 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
(e) The Company has entered into related party
acquisitions. Details of these transactions are provided therewith Five Arrows, as described in more detail in Note 10 below.
NOTE 10 – BUSINESS COMBINATIONS
Set out below are the controlled and non-controlled
members of the group as of December 31, 2016, which, in the opinion of the directors, are material to the group. The subsidiaries
as listed below have share capital consisting solely of ordinary shares, which are held directly by the Company; the country of
incorporation is also their principal place of business.
Name of Entity
|
|
Country of Incorporation
|
|
Acquisition Date
|
|
Voting Equity Interests
|
|
|
Nature of Relationship
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aqua Mining (PNG) Ltd
|
|
Papua New Guinea
|
|
28-Feb-2014
|
|
|
90
|
%
|
|
|
Note 1
|
|
Note 1: On February 14, 2014, the Company
entered into an Assignment and Bill of Sale with Five Arrows Limited (“Five Arrows”), a related party, pursuant to
which Five Arrows agreed to assign to the Company all of its right, title and interest in two 50 ton per hour trammels, one 35
ton excavator, a warehouse/office, a concrete processing apron and four 35 ton per hour particle concentrators for use in our
mining exploration. In consideration, the Company issued 40,000,000 shares of its common stock to Five Arrows. On February 28,
2014, the Company entered into a joint venture agreement with the holders of alluvial gold mining leases (“Leaseholders”)
of Mining Leases covering approximately 26 hectares located at Koranga in Wau, Morobe Province, Papua, New Guinea for gold mining
exploration (“Joint Venture Agreement”). The Joint Venture Agreement entitles the leaseholders to 30% and the Company
to 70% of net profits from the joint venture. The Company will manage and carry out mining exploration at the site, including
entering into contracts with third parties and subcontractors (giving priority to the Leaseholders and their relatives and the
local community for employment opportunities and spin-off business) at its cost, and all assets, including equipment and structures
built on the site, will be the property of the Company. The Leaseholders and the Company will each contribute 1% from their share
of net profits to a trust account for landowner and government requirements.
On July 27, 2015, we recently received a 5-year
extension for our Mining Lease of ML 296-301 from the Mining Resource Authority in Papua New Guinea. ML 296-301 is part of the
Koranga Joint Venture and is controlled by our subsidiary Aqua Mining.
NOTE 11 – LEGAL PROCEEDINGS
As of December 31, 2016, we were in litigation
with Alexander King (“King”) and other defendants regarding the Company’s ownership of Angel Jade. The action
was commenced by the Company on September 12, 2016, in the Supreme Court of Victoria (Australia) as Case No. S ECI 2016 01205,
In the matter of Angel Jade Pty Ltd (ACN 146 720 578). The Principal parties are Kibush Capital, Angel Jade, New Century, 4K Nominees
and Alexander King.
In September 2014 Angel Jade was owned 50%
by the King and 50% by Five Arrows. Alexander King and Warren Sheppard were the sole directors. In October of 2014, Five Arrows
transferred its shares in Angel Jade to the Company. On October 8, 2014, Angel Jade issued an additional 1% of its shares to Kibush
resulting in Angel Jade being held 49% by King (90,000,000 shares) and 51% by Kibush Capital (93,673,470 shares). On November
6, 2014, King agreed to sell Kibush Capital 18,367,350 shares in Angel Jade for the sum of $100,000 of which King has been paid
$25,000, resulting in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 112,040,720. The agreement
is recorded in a document headed ‘Share Purchase Form’ dated November 6, 2014. On 6 November 2014 Angel Jade agreed
to issue 45,918,375 shares to Kibush Capital for the price of $250,000 of which Kibush Capital has paid $67,358.19, resulting
in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 157,959,195. The transaction is recorded in the
Minutes of a Meeting of Directors of Angel Jade signed by King dated November 6, 2014. On or about November 12, 2015 the shareholding
in Angel Jade was adjusted to 71,632,650 shares held by King (30%), and 157,959,195 shares held by Kibush Capital (70%), total
issued number of shares in Angel Jade 229,591,845).
On or about May 5, 2016 and without his knowledge
or consent, Warren Sheppard was removed as a director of Angel Jade. On or about May 5, 2016 and without the knowledge or consent
of Warren Sheppard or Kibush Capital, the issued and outstanding shares in Angel Jade was reduced to 200,001,000. On or about
May 5, 2016 and without the knowledge or consent of Kibush Capital or Warren Sheppard, the shareholder records of Angel Jade were
altered to show ownership of Angel Jade as follows:
|
●
|
New
Century
|
|
90,000,000
shares;
|
|
|
|
|
|
|
●
|
4K
Nominees
|
|
90,000,000
shares;
|
|
|
|
|
|
|
●
|
Five
Arrows
|
|
500
shares;
|
|
|
|
|
|
|
●
|
Fourth
Defendant
|
|
20,000,000
shares, and
|
|
|
|
|
|
|
●
|
King
holding
|
|
500
shares.
|
The Company claims that King’s alteration
of the directors and ownership of Angel Jade was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Kibush
Capital contrary to section 232 of the
Corporations Act
2010. The Company is seeking a declaration that the Kibush Capital
is entitled to 70% of the issued shares of the First Defendant; or in the alternative, a declaration that Kibush Capital is entitled
to 51% of the issued shares of Angel Jade; damages equal to the $67,358.19 paid to Angel Jade and damages of the $ paid to King.
However, there remains a possibility that the litigation may be settled prior to adjudication by the Court.
As a result of the removal of the Company
as an owner of Angel Jade, the Company has written off Angel Jade and removed it from the financial statements. The Company has
also restated its 2015 fiscal year financial data with regard to Angel Jade.
The Company settled this litigation on February
10, 2016, as disclosed in the Company’s 8-K filed on February 14, 2016.
NOTE 12 – SUBSEQUENT EVENTS
On February 10, 2016, the Company settled
its litigation with Alexander King, et al. regarding Angel Jade in exchange for a cash payment of $175,000 AUS (Appox. $134,000
US) as disclosed in the Company’s 8-K filed on February 14, 2016.
On March 15, 2017,
the Company amended its Articles of Incorporation to increase the authorized shares of its common stock from 500,000,000 shares
to 975,000,000 shares, pursuant to the vote of our board of directors and the written consent of shareholders holding a majority
of the voting power of the Company.