CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 1 -
ORGANIZATION AND NATURE
OF OPERATIONS
GH Capital Inc. (the “Company”),
a Florida corporation, was formed on May 5, 2014 and commenced operations in October 2014. The Company provides online payment
processing services to consumers, primarily in Europe.
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
Management acknowledges its responsibility
for the preparation of the accompanying unaudited condensed financial statements which reflect all adjustments, consisting of normal
recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its
operations for the periods presented. The accompanying unaudited condensed financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim
financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily
indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included
in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such
accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial
statements These unaudited condensed financial statements should be read in conjunction with the summary of significant accounting
policies and notes to the financial statements for the years ended September 30, 2016 and 2015 of the Company which were included
in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on December 19, 2016.
Going Concern
These financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments
in the normal course of business. As reflected in the accompanying unaudited condensed financial statements, the Company had a
net loss of $3,343,224 for the six months ended March 31, 2017. The net cash used in operations was $141,775 for the six months
ended March 31, 2017. Additionally, the Company had an accumulated deficit of $3,623,281 at March 31, 2017. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. The Company is in the process in building its
customer base and expects to generate increased revenues and the Company is seeking to raise capital through additional debt and/or
equity financings to fund its operations in the future. Management cannot provide assurance that the Company will ultimately achieve
profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Although the Company has historically
raised capital from sales of common stock, there is no assurance that it will be able to continue to do so. If the Company is unable
to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail
its operations. These financial statements do not include any adjustments related to the recoverability and classification of assets
or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the year. Actual results could be affected by those estimates. Included in these estimates
are valuation of marketable securities, assumptions used in determining the useful lives and valuations of long-lived assets, valuation
allowances for deferred tax assets and the fair value of the Company’s common stock, which from time to time may be issued
in exchange for services provided in lieu of cash.
Fair Value of Financial Instruments
The Company uses the guidance of ASC
Topic 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value,
and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted
prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The carrying amounts reported in the
balance sheets for cash, prepaid expenses and other current assets, due to related parties, deferred revenue – related party
and deferred revenue approximate their fair market value based on the short-term maturity of these instruments. The Company did
not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with
the accounting guidance, except as noted below.
The Company’s financial
instruments consist primarily of marketable securities, accounts receivable, accounts payable, and certain accrued liabilities.
Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1
inputs (see note 3). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current
market exchange or from future earnings or cash flows. The fair value of marketable securities categorized as Level 1 that are
measured on a recurring basis totaled $2,273 and $12,436 as of March 31, 2017 and September 30, 2016, respectively.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
ASC Topic 825-10 “Financial Instruments”
allows entities to voluntarily choose to measure certain other 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.
Cash
and Cash Equivalents
For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase
date and money market accounts to be cash equivalents The Company had no cash equivalents during the six months ended March 31,
2017 and 2016.
Concentration of Credit Risk and
Revenues
The Company maintains its cash in financial
institutions for which balances are insured up to Federal Deposit Insurance Corporation limits of $250,000 per account. At times,
cash balances may exceed the federally insured limits. However, the Company has not experienced any losses on this balance.
During the six months ended March 31,
2017 and 2016, one customer who is a related party, accounted 86% and 21% of all of the Company’s revenues, respectively.
During the six months ended March 31, 2017 and 2016, the Company had nine and one customers which accounted for the remaining revenues
during the periods, respectively.
Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current
assets of $1,494,433 and $6,000 at March 31, 2017 and September 30, 2016, respectively, consist primarily of costs paid for future
services which will occur within a year. Prepaid expenses include prepayments in cash and equity instruments for consulting, public
relations and business advisory services, and accounting fees which are being amortized over the terms of their respective agreements.
Included in other current assets are other receivables of $36,119 and $0 at March 31, 2017 and September 30, 2016, respectively.
The Company collected the other receivables in May 2017.
Marketable Securities
Pursuant to ASC 320, Investments –
Debt and Equity Securities, marketable securities held by the Company are held for an indefinite period of time and thus are classified
as available-for-sale securities. The fair value is based on quoted market prices for the investment as of the balance sheet date.
Realized investment gains and losses are included in the statement of operations, as are provisions for other than temporary declines
in the market value of available for-sale securities. Unrealized gains and unrealized losses deemed to be temporary are excluded
from earnings (losses), net of applicable taxes, as a component of other comprehensive income (loss). Factors considered in judging
whether an impairment is other than temporary include the financial condition, business prospects and creditworthiness of the issuer,
the length of time that fair value has been less than cost, the relative amount of decline, and the Company’s ability and
intent to hold the investment until the fair value recovers. Realized gains and losses and decline in value judged to be other
than temporary on available-for-sale securities are included in the statements of operations. The cost of securities sold or disposed
is determined on first-in first-out, or FIFO method.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Capitalized Software Development
Costs
Software development
costs related to the development of the Company’s electronic payment platform software, which is developed for internal use,
falls under the accounting guidance of ASC Topic 350-40,
Intangibles Goodwill and Other–Internal Use Software
, in
which computer software costs are expensed as incurred during the preliminary project stage and capitalization begins in the application
development stage once the capitalization criteria are met. Costs associated with post implementation activities are expensed as
incurred. Costs capitalized during the application development stage include external direct costs of materials and services consumed
in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated
with, and who devote time to, the internal-use computer software. Once the project is substantially complete and ready for its
intended use these costs are amortized on a straight-line basis over the technology's estimated useful life of three years. In
May 2016, the Company began amortizing its capitalized development costs.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the
Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected
undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference
between the asset’s estimated fair value and its book value.
Revenue Recognition
The Company recognizes revenue when
persuasive evidence of a sale arrangement exists, services have been rendered, the sales price is fixed and determinable and collectability
is reasonably assured. Revenues consists of fees generated through the electronic processing of payment transactions and related
services, and is recognized as revenue during the period the transactions are processed or when the related services are performed.
Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction
and, in some instances, additional fees are charged for each transaction. Merchant customers are generally charged a flat fee per
transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums,
and other miscellaneous services. Revenues also includes any up-front fees for the work involved in implementing the basic functionality
required to provide electronic payment processing services to a customer. Revenue from such implementation fees is recognized over
the term of the related service contract. The Company’s revenue is comprised of monthly recurring services provided to customers,
for whom charges are contracted for over a specified period of time. Payments received from customers that are related to future
periods are recorded as deferred revenue until the service is provided.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Stock-Based Compensation
Stock-based compensation is accounted
for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements
of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee
or director is required to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting
Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange
for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based
payments to consultants and other third-parties, compensation expense is determined at the measurement date defined as the earlier
of a) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or b) the
date at which the counterparty's performance is complete. The expense is recognized over the vesting period of the award. Until
the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense
based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued,
or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Research and Development
Research and development costs are expensed
as incurred.
Income Taxes
The Company recognizes deferred tax
liabilities and assets based on the temporary differences between the financial statement and tax bases of assets and liabilities
that will result in future taxable or deductible amounts, based on enacted tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting
purposes and income tax purposes consist primarily of timing differences such as stock-based compensation and deferred revenue.
A valuation allowance is provided against net deferred tax assets when the Company determines it is more likely than not that it
will fail to generate sufficient taxable income to be able to realize the deferred tax assets.
The Company follows the accounting guidance
for uncertainty in income taxes using the provisions of ASC740,
Income Taxes
. Using that guidance, tax positions initially
need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination
by the tax authorities. As of March 31, 2017 and September 30, 2016, the Company had no uncertain tax positions that qualify
for either recognition or disclosure in the financial statements. The Company’s 2014 to 2016 tax returns are subject
to examination. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However,
no such interest and penalties were recorded during the six months ended March 31, 2017 and 2016.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Loss per
Common Share and Common Share Equivalent
Basic loss
per share excludes dilution and is computed by dividing net loss available to common stockholders by the weighted-average number
of common shares outstanding during the period. Diluted (loss) income per share reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the income of the Company. The Company had no dilutive securities outstanding during the six
months ended March 31, 2017 and 2016.
Foreign Currency Transactions
The reporting and functional
currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are translated into the functional currency
at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated
into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the results of operations as incurred. Transaction gains or losses have not had, and are not expected to have, a material effect
on the results of operations of the Company.
Recently Issued Accounting
Standards
From time to time, the FASB or other
standards setting bodies will issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of
an Accounting Standards Update (“ASU”).
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 outlines
a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model provides a
five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive
in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual reporting periods beginning after
December 15, 2016 and interim periods within those periods. Early adoption is not permitted. The FASB has approved a one-year deferral
of the effective date with the option to early adopt using the original effective date. Entities may use either a full retrospective
or a modified retrospective approach to adopt ASU 2014-09. The Company is currently assessing the impact that adopting this new
accounting guidance will have on its financial statements and footnote disclosures.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Recently Issued Accounting Standards (continued)
In August 2014, the FASB issued ASU
2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern that will require management
to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances.
In connection with each annual and interim period, management will assess if there is substantial doubt about an entity’s
ability to continue as a going concern within one year after the issuance date. Substantial doubt exists if it is probable that
the entity will be unable to meet its obligations within one year after the issuance date. The new standard defines substantial
doubt and provides example indicators. Disclosures will be required if conditions give rise to substantial doubt. However, management
will need to assess if its plans will alleviate substantial doubt to determine the specific disclosures. This standard is effective
for public entities for annual periods ending after December 15, 2016. Earlier application of this standard is permitted. This
standard is not expected to have a material effect on the Company’s financial position, results of operations and cash flows.
In January 2016, the FASB issued ASU
No 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, Financial Instruments – Overall (Subtopic
825-10). The new guidance is intended to improve the recognition and measurement of financial instruments. This guidance requires
that financial assets and financial liabilities must be separately presented by measurement category and form of financial
asset on the balance sheet or the accompanying notes to the financial statements. This guidance is effective for fiscal years and
interim periods beginning after December 15, 2017. The standard includes a requirement that businesses must report unrealized gains
and losses in the fair value of available for sale marketable securities in current period earnings instead of other comprehensive
income or loss. The Company expects to adopt this guidance when effective, and does not expect this guidance to have a significant
impact on its financial statements.
In March 2016, FASB issued ASU 2016-09,
Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”) as part of FASB's simplification initiative focused on
improving areas of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information
disclosed within the financial statements. ASU 2016-09 focuses on simplification specifically with regard to share-based payment
transactions, including income tax consequences, classification of awards as equity or liabilities and classification on the statement
of cash flows. The guidance in ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods
within those annual periods. Early adoption is permitted. The Company’s adoption did not have a material impact on the Company’s
consolidated results of operations, financial position and related disclosures.
Management does not believe
that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 3 –
MARKETABLE SECURITIES
The Company
classifies its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted
market prices of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive
income (loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are
included in net earnings in the period earned or incurred. For the six months ended March 31, 2017 and 2016, realized losses from
the sale of available-for-sale securities were $1,693 and $2,445, respectively.
The following
summarizes the carrying value of marketable securities as of March 31, 2017 and September 30, 2016:
|
|
March 31,
2017
|
|
September 30,
2016
|
Historical cost
|
|
$
|
1,838
|
|
|
$
|
13,551
|
|
Unrealized gain (loss) included in accumulated other comprehensive gain (loss)
|
|
|
435
|
|
|
|
(1,115
|
)
|
Balance, marketable securities, at fair value
|
|
$
|
2,273
|
|
|
$
|
12,436
|
|
NOTE 4 -
RELATED PARTY TRANSACTIONS
On March 30, 2015, the Company entered
into a services contract with Global Humax Cyprus Ltd. (“Cyprus”), a company owned by the Company’s chief executive
officer. Under the terms of the contract, the Company will provide services to Cyprus for a period of two years from the date of
the agreement. Additionally, the Company earns fees from the processing of payment transactions and related services from Cyprus.
For the six months ended March 31, 2017 and 2016, aggregate revenues – related party amount to $11,460 and $4,000.
During the year ended September 30,
2015, Cyprus paid various general and administrative expenses on behalf of the Company in the amount of $3,173. These advances
are non-interest bearing and are due on demand. At March 31, 2017 and September 30, 2016, the Company owed Cyprus $3,173 and $3,173,
respectively.
During the year ended September 30,
2015, the Company’s Chief Executive Officer advanced $10 to the Company for working capital purpose. The advance is non-interest
bearing and payable on demand. At March 31, 2017 and September 30, 2016, the Company owed its Chief Executive Officer $10 and $10,
respectively.
For the six months ended March 31, 2017
and 2016, in connection with a written agreement with the director, the Company paid cash compensation to a member of its board
of directors in the amount of $12,900 and $4,200, respectively.
NOTE 5 -
STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has 10,000,000 shares of
preferred stock authorized. Preferred stock may be issued in one or more series. The Company’s board of directors is authorized
to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the number of shares
to be included in any such series and the designation, powers, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of such series. No shares of preferred stock have been issued as of
March 31, 2017 and September 30, 2016.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
NOTE 5 -
STOCKHOLDERS’ EQUITY
(continued)
Common Stock
Between October 2016 and March 2017,
the Company issued 571,900 of shares of common stock for cash of $115,258.
Effective August 1, 2016, the Company
entered into a twelve month consulting agreement (the “Consulting Agreement”) with an investor relations firm for investor
relations services. In connection with this consulting agreement, the Company shall compensate the consultant for services rendered
1) cash of $2,000 per month for the first three months then $2,500 per month thereafter and 2) Monthly restricted stock for consulting
and services fees paid in advance of services each month to consultant will be $6,000 per month; Such fee will be calculated and
valued at the lower of the trailing 5-day volume-weighted average price or the closing price on the last day of each month. On
October 1, 2016, the Company issued 40,000 shares of restricted stock to the consultant. The shares were valued at their fair value
of $6,000 using the recent sale price of the common stock on the dates of grant of $0.15 per common share. During the six months
ended March 31, 2017, the Company recognized stock based compensation of $6,000.
In connection with a consulting agreement,
on January 23, 2017, the Company issued 160,000 shares of restricted stock to a consultant for services that covered from November
2016 through February 2017. The shares were valued at their fair value of $30,400 using the most recent sale price on October 27,
2016 of the common stock on the dates of grant of $0.19 per common share. Additionally, on March 10, 2017, the Company issued 300,001
shares of restricted stock to the same consultant for services covering from March 2017 through July 2017. The shares were valued
at their fair value of $51,000 using the most recent sale price on March 9, 2017 of the common stock on the dates of grant of $0.17
per common share. During the six months ended March 31, 2017, the Company recognized stock based compensation of $30,867, reduced
accounts payable of $12,000 and recorded prepaid expense of $38,533 to be amortized from April 2017 to July 2017.
In connection with various consulting
agreements, on March 3, 2017, the Company issued 8,545,000 shares of restricted stock to eight consultants for services covering
from March 2017 through September 2017. The shares were valued at their fair value of $1,623,550 using the most recent sale price
on October 27, 2016 of the common stock on the dates of grant of $0.19 per common share. During the six months ended March 31,
2017, the Company recognized stock based compensation of $231,936 and prepaid expense of $1,391,614 to be amortized over the term
of the consulting agreements.
On March 23, 2017, the Company issued
120,000 shares of restricted stock to another consultant for accounting services covering from January 2017 through December 2017.
The shares were valued at their fair value of $24,000 using the most recent sale price on March 21, 2017 of the common stock on
the dates of grant of $0.20 per common share. During the six months ended March 31, 2017, the Company recognized stock based compensation
of $6,000 and prepaid expense of $18,000 to be amortized from April 2017 to December 2017.
On February 27, 2017, in connection
with Director Agreements, the Company issued 15,500,000 shares of restricted stock to a director and CEO of the Company. The 15,500,000
shares of common stock are considered fully vested on the date of grant. The shares were valued at their fair value of $2,945,000
using the most recent sale price on October 27, 2016 of the common stock on the dates of grant of $0.19 per common share. During
the six months ended March 31, 2017, the Company recognized stock based compensation of $2,945,000 on these fully vested shares
as there were no forfeiture provision in accordance with ASC 718.
NOTE 7–
SUBSEQUENT EVENTS
In connection with a consulting agreement,
in April 2017, the Company has been engaged by a third party to provide services such as development of corporate, capital structures,
investor relations strategies and other services to assist on becoming a public company. In exchange for such services the Company
shall receive 18,000,000 shares of the third party’s restricted stock.
In connection with a software licensing
agreement, in May 2017, the Company issued 190,000 shares of restricted stock to a licensor. Per the agreement, the licensor grants
to the Company a non-exclusive, non-assignable right and license to operate a certain software in connection with its business
of accepting payments and providing payment solutions. The shares were valued at their fair value of $38,000 using the most recent
sale price on March 21, 2017 of the common stock on the dates of grant of $0.20 per common share.