CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(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 provided online payment
processing services to consumers, primarily in Europe and provides certain consulting services to assist companies in going public.
On September 18, 2018, the Company’s
management terminated the Company’s online payment processing services. As a result, the Company will shift its focus to
its consulting services business. As such, the online payment processing services business activities were reclassified and reported
as part of “discontinued operations”.
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, 2018 and 2017 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 28, 2018.
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 $166,387 for the three months ended December 31, 2018. The net cash used in operations was $43,786 for the three months
ended December 31, 2018. Additionally, the Company had an accumulated deficit of $6,557,251 and a stockholders’ deficit of
$840,193 at December 31 2018 and has no revenues for the three months ended December 31, 2018. It is management’s opinion
that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of
twelve months from the issue date of this report. 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 and debt financing, 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 debt 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
December 31, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Use of Estimates
The preparation of the 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 financial statements and
the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Included in these
estimates are assumptions used in determining the allowance for doubtful accounts receivable, the fair value of derivative liabilities,
valuation allowance for deferred tax assets and the valuation of stock issued for services or upon conversion of debt.
Fair value of financial instruments and fair value measurements
FASB ASC 820 —
Fair Value Measurements
and Disclosures,
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 820 requires disclosures about the fair value of all financial instruments,
whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based
on pertinent information available to the Company on December 31, 2018. Accordingly, the estimates presented in these financial
statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of
valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are 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 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 that 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 and cash equivalents, accounts receivable, loans, accounts payable, accrued expenses, and other payables
approximate their fair market value based on the short-term maturity of these instruments.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The Company analyzes all financial and
non-financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments.
Under this standard, financial and non-financial assets and liabilities are classified in their entirety based on the lowest level
of input that is significant to the fair value measurement.
The Company accounts for the following
instruments at fair value.
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At December 31, 2018
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At September 30, 2018
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Description
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Level 1
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Level 2
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Level 3
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Level 1
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Level 2
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Level 3
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Derivative liabilities
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|
—
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—
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$
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537,794
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|
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|
—
|
|
|
|
—
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$
|
|
589,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Fair Value of Financial Assets and
Liabilities Measured on a Recurring Basis
The Company’s convertible notes
payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would
be available to the Company for similar financial arrangements at December 31, 2018. The Company uses Level 3 of the fair value
hierarchy to measure the fair value of the derivative liabilities (see note 4) and revalues its derivative liability on the conversion
feature at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the change
in the fair value of the derivative liabilities. The fair value of derivative financial instruments, measured and recorded at fair
value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of December
31, 2018 measured $537,794.
A roll forward of the level 3 derivative
liabilities is as follows:
Balance at September 30, 2018
|
|
$
|
589,980
|
|
Initial fair value of conversion option liabilities
|
|
|
-
|
|
Reduction of liability included in loss on debt extinguishment
|
|
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(55,188)
|
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Loss from change in fair value of conversion option liabilities
|
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3,002
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Balance at December 31, 2018
|
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$
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537,794
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Cash and Cash Equivalents
For purposes of the 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 at December 31, 2018 and September 30, 2018.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Concentration of Credit Risk, Accounts
Receivable and Revenues
The Company maintains its cash in financial
institutions in the United States for which balances are insured up to Federal Deposit Insurance Corporation limits of $250,000
per account. The Company also maintains cash in financial institutions based in the country of Cyprus. At December 31, 2018, bank
accounts in Cyprus are insured for up to $119,000 per Bank under the regulations of the European Union. At times, cash balances
may exceed the federally insured limits. The Company had no amounts that exceeded insured limits at December 31, 2018 and September
30, 2018.
There is one customer that accounted
for 100 % of the Company’s Accounts Receivable balance at September 30, 2018. There was no comparable transaction at December
31, 2018. For the three months ended December 31, 2017, three customers accounted for approximately 96.6% of the total revenues
from discontinued operations (39.9%, 8.2% and 48.5% from a related party). There was no comparable transaction during the three
months ended December 31, 2018.
Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets
of $3,000 and $7,250 at December 31, 2018 and September 31, 2018, respectively, consist primarily of costs paid for future services
which will occur within a year. Prepaid expenses may 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.
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.
Derivative Liabilities
The Company evaluates all its financial
instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be
separately accounted for in accordance with FASB ASC 815-10-05-4 and 815-40. This accounting treatment requires that
the carrying amount of any embedded conversion options be recorded at fair value at issuance and marked-to-market at each balance
sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change
in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise and repayment, the
respective derivative liability is marked to fair value at the conversion, repayment or exercise date, and then the related fair
value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Revenue Recognition
The Company recognizes revenue in accordance
with ASC Topic 606 Revenue from Contracts with Customers (“ASC 606”), which requires revenue to be recognized in a
manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity
expects to be entitled in exchange for those goods or services. The Company adopted ASC 606 beginning October 1, 2018. There are
two sources of recognized revenue. These comprise (1) payment processing services related to online money transfer transactions
for diversified online merchants with a target market in Europe and (2) consulting for business development. For the consulting
services, included in continuing operations, revenue is recognized when the Company satisfies the performance obligation based
on the consulting agreement. In the payment processing segment, which is included in loss from discontinued operations, revenues
consisted of fees generated through the electronic processing of payment transactions and related services, and was recognized
as revenue during the period the transactions were processed or when the related services were 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 were generally charged a flat fee plus percentage per transaction,
while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous
services.
Revenues also included 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 was recognized over the term of the related service contract. The Company’s
revenue was 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.
Cost of Revenues
Cost of revenues if any relates to the
Company’s consulting service business.
Stock-Based Compensation
Stock-based compensation is accounted
for based on the requirements of ASC 718, Share-Based Payment, 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 non-employees, 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.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Research and Development
Research and development costs are expensed
as incurred.
Loss per
Common Share and Common Share Equivalent
Basic net loss per share is computed
by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive securities outstanding during the period. At December
31, 2018, the Company has 42,936,507 and 50,000 potentially dilutive securities outstanding, related to the convertible promissory
notes and outstanding stock warrants, respectively, At December 31, 2017, the Company has 548,885 potentially dilutive securities
outstanding related to the convertible promissory notes. Those potentially dilutive common stock equivalents were excluded from
the dilutive loss per share calculation as they would be antidilutive due to the net loss during the three months ended December
31, 2018 and 2017. In addition, there were 39,960,798 shares reserved for issuance related to convertible note agreements.
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
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” whereby lessees will need to recognize almost all
leases on their balance sheet as a right of use of asset and a lease liability. This guidance is effective for interim and annual
reporting beginning after December 15, 2018. The Company does not anticipate this ASU to have a material impact on its financial
statements on January 1, 2019.
In June 2018, the FASB issued ASU No.
2018-07, Improvements to Nonemployee Share-Based Payment Accounting
,
which simplifies several aspects of the accounting
for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to
include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for
annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted,
but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company has assessed the impact
that adopting this new accounting guidance will have on its financial statements and footnote disclosures and believes such impact
will not be material.
In
August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value
Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair
value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluating the
impact this standard will have on the Company’s financial statements.
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
December 31, 2018
(Unaudited)
NOTE 3 –
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 three months ended December 31, 2018 and 2017, aggregate revenues from discontinued operations – related party amount
to $0 and $3,411 respectively.
During fiscal year 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 December 31, 2018 and September 30, 2018, the Company owed Cyprus $3,173 and $3,173, respectively.
During fiscal year 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 December 31, 2018 and September 30, 2018, the Company owed its Chief Executive Officer $10 and $10, respectively.
During fiscal year 2018, the Company’s
Attorney who is a director of the Company advanced $1,070 to the Company for working capital purpose. The advance is non-interest
bearing and payable on demand. At December 31, 2018 and September 30, 2018, the Company owed its Attorney $1,070 and $0, respectively.
During the three months ended December
31, 2018 and 2017, the Company paid cash compensation to a designated member of its board of directors in the amount of $3,000
and $3,500, respectively, in connection with a written agreement with the director.
NOTE 4–
CONVERTIBLE NOTES
PAYABLE
On October 10, 2017, the Company issued
a 12% Convertible Promissory Note for principal borrowings of $160,000 to a non-related party. The 12% convertible promissory note
and all accrued interest are due on July 10, 2018. The Company received proceeds of $143,250 in cash which is net of offering costs
of $16,750, recorded as a discount. The note is unsecured and bears interest at the rate of 12% per annum from the issuance date
thereof until the note is paid. The note holder shall have the right to convert beginning on the date which is following the issuance
date the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a conversion price
equal to a price which is the lower of $0.65 per share or 55% of the lowest trading price of the Company’s common stock during
the 25 trading days immediately preceding the conversion date. At any time during the period beginning on the issue date and ending
on the date which is 90 days following the issue date, the Borrower shall have the right, exercisable on not less than 3 trading
days prior written notice to the holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by
making a payment to the Holder of an amount in cash equal to 130%, multiplied by the sum of then outstanding principal amount of
the Note plus accrued and unpaid interest on the unpaid principal amount of the Note plus default interest, if any. During the
first 180 days following the date of the note, the Company has the right to prepay the principal and accrued but unpaid interest
due under the note, together with any other amounts that the Company may owe the holder under the terms of the note, at a premium
of 140%. After this initial 180-day period, the Company does not have a right to prepay the note. Any amount of principal or interest
on this note which is not paid when due shall bear interest at the rate of 24% per annum from the due date thereof until the same
is paid.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 4–
CONVERTIBLE NOTES
PAYABLE (continued)
The conversion price, however, is subject
to full ratchet anti-dilution in the event that the Company issues any securities at a per share price lower than the conversion
price then in effect. The Note contains representations, warranties, and events of default, beneficial ownership limitations, and
other provisions that are customary of similar instruments.
On April 26, 2018 the Company issued
25,000 shares of common stock to the noteholder with a contractual conversion price of $0.04 to convert $0 principal amount with
$501 of accrued and unpaid interest and $500 conversion fee, totaling $1,001.
On May 25, 2018 the Company issued 50,000
shares of common stock to the noteholder with a contractual conversion price of $0.03 to convert $0 principal amount with $902
of accrued and unpaid interest and $500 conversion fee, totaling $1,402.
On June 12, 2018 the Company issued
110,000 shares of common stock to the noteholder with a contractual conversion price of $0.03 to convert $0 principal amount with
$2,585 of accrued and unpaid interest and $500 conversion fee, totaling $3,085.
On July 10, 2018, the Company failed
to make the repayment of the outstanding principal and interest at the maturity date which causes the default interest rate of
24% to become effective.
On August 21, 2018 the Company issued
150,000 shares of common stock to the noteholder with a contractual conversion price of $0.02 to convert $0 principal amount with
$2,056 of accrued and unpaid interest and $500 conversion fee, totaling $2,556.
On September 7, 2018 the Company issued
100,000 shares of common stock to the noteholder with a contractual conversion price of $0.01 to convert $0 principal amount with
$544 of accrued and unpaid interest and $500 conversion fee, totaling $1,044.
On September 28, 2018 the Company issued
180,000 shares of common stock to the noteholder with a contractual conversion price of $0.0048 to convert $0 principal amount
with $364 of accrued and unpaid interest and $500 conversion fee, totaling $864. The conversion price falling below $0.01 triggered
clause 1.4(g) of the promissory note which allows for the principal amount of the note to increase by $15,000. Per the noteholder,
this $15,000 will be added to the principal at the end of the note, allowing the Company to convert out of the original principal
and interest first, however, for accounting purposes the $15,000 was added to the principal on September 25, 2018. In addition,
the variable conversion price shall be redefined to mean 40% multiplied by the market price (or a 60% discount).
Between October 10, 2018 and December
27, 2018, the Company issued an aggregate of 5,600,000 shares of common stock to the noteholder with a contractual conversion price
of $0.002 to convert $0 principal amount with $12,848 of accrued and unpaid interest, totaling $12,848.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 4–
CONVERTIBLE NOTES
PAYABLE (continued)
As of December 31, 2018, the principal
balance of this note is $175,000 and accrued interest of $16,176.
In February 2018, under a Securities
Purchase Agreement, the Company issued a 10% Convertible Promissory Note for principal borrowings of up to $180,000 and received
initial proceeds of $60,000. In June 2018, the Company received additional proceeds of $20,000 which resulted to a total of $80,000
proceeds. The 10% convertible promissory notes and all accrued interest are due in twelve months from the effective date of each
tranche. The notes are unsecured and bears interest at the rate of 10% per annum from the issuance date thereof until the notes
are paid. The note holder shall have the right to convert beginning on the issuance date, the outstanding principal amount and
accrued but unpaid interest into the Company’s common stock at a conversion price to a price which is 65% of the lowest trading
price of the Company’s common stock during the 25 prior trading days to the conversion date subject to increases in the discount
rate based on certain future events. If at any time while this note is outstanding, the conversion price is equal to or lower than
$0.15, then an additional 15% discount shall be added into the conversion price resulting in a discount rate of 50%.
During the first 90 days following
the date of this note, the Company has the right to prepay the principal and accrued but unpaid interest due under this note, together
with any other amounts that the Company may owe the holder under the terms of this note, at a premium ranging from 135% to 145%
as defined in the note agreement. After this initial 90-day period, the Company does not have a right to prepay the note. Any amount
of principal or interest on this note which is not paid when due shall bear interest at the rate of 15% per annum from the due
date thereof until the same is paid. The conversion price, however, is subject to full ratchet anti-dilution in the event that
the Company issues any securities at a per share price lower than the conversion price then in effect.
The Company paid an original issuance
discount of $8,000 and related loan fees of $3,500 in connection with this note payable which is being amortized over the term
of the note. The Note contains representations, warranties, events of default, beneficial ownership limitations, piggyback registration
rights and other provisions that are customary of similar instruments.
On September 5, 2018 the Company issued
270,000 shares of common stock to the noteholder with a contractual conversion price of $0.01 to convert $3,023 principal amount
with $0 of accrued and unpaid interest and $500 conversion fee, totaling $3,523.
Between October 4, 2018 and December
21, 2018, the Company issued an aggregate of 9,124,000 shares of common stock to the noteholder with a contractual conversion price
of $0.002 to convert $18,836 principal amount with $0 of accrued and unpaid interest and $1,500 conversion fee, totaling $20,336.
As of December 31, 2018, the principal
balance of this note is $58,140 and accrued interest of $5,926.
The Company evaluated whether or not
the above two convertible promissory notes contains embedded conversion features, which meet the definition of derivatives under
ASC 815 and related interpretations. The Company determined that the terms of the notes discussed above contains conversion terms,
primarily those resulting in an indeterminable number of shares being issued upon conversion which causes the embedded conversion
option to be bifurcated and accounted for as derivative liability at fair value.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 4–
CONVERTIBLE NOTES
PAYABLE (continued)
In connection with the issuance of these
notes during fiscal year 2018, on the initial measurement date of the notes, the fair values of the embedded conversion option
of $423,778 was recorded as derivative liabilities of which $218,234 was charged to current period operations as initial derivative
expense, and $205,544 was recorded as a debt discount which will be amortized into interest expense over the term of the note.
Upon conversions during the three months ended December 31, 2018, the respective derivative liability was marked to fair value
at the conversion, and then a related fair value amount of $55,188 relating to the portion of debt converted was reclassified to
other income or expense as part of gain or loss on debt extinguishment. Additionally, the Company recorded loss on debt extinguishment
of $131,826 during the three months ended December 31, 2018 in connection with the conversion of notes.
At the end of each reporting period,
the Company revalues the embedded conversion option derivative liabilities. In connection with the revaluation, the Company recorded
a loss from change in fair value of conversion option liability of $3,002 and $202,094 for the three months ended December 31,
2018 and 2017, respectively (see Note 2).
In June 2018, under a Securities Purchase
Agreement, the Company issued a 10% Convertible Promissory Note for principal borrowings of up to $58,000. The 10% convertible
promissory note and all accrued interest are due in June 2019. The note is unsecured and bears interest at the rate of 10% per
annum from the issuance date thereof until the notes are paid. The note holder has the right to convert beginning 180 days following
the issuance date, the outstanding principal amount and accrued but unpaid interest into the Company’s common stock at a
conversion price equal to 61% of the average of the lowest two trading prices of the Company’s common stock during the 20
trading days immediately preceding the conversion date. During the first 30 to 180 days following the date of the note, the Company
has the right to prepay the principal and accrued but unpaid interest due under these notes, together with any other amounts that
the Company may owe the holder under the terms of these notes, at a premium ranging from 115% to 140% as defined in the note agreements.
After this initial 180-day period, the Company does not have a right to prepay the note. The Company paid original issuance cost
and related loan fees of $3,000 in connection with this note payable which is being amortized over the term of the note. The Company
granted the note holder 50,000 warrants in connection with the issuance of this note. The warrants had a term of 5 years from the
date of grant and was exercisable at an exercise price of $0.40.
Between December 26, 2018 and December
31, 2018, the Company issued an aggregate of 9,980,676 shares of common stock to the noteholder with a contractual conversion price
of $0.003 to convert $30,425 principal amount with $0 of accrued and unpaid interest, totaling $30,425.
During fiscal 2018, the Company accounted
for the warrants by using the relative fair value method and recorded debt discount from the relative fair value of the warrants
of $6,206 using a simple binomial lattice model. The Company has accounted for this convertible promissory note as stock settled
debt under ASC 480 and in June 2018, the Company recorded an original debt premium liability of $37,082 and a charge to interest
expense of $37,082. Upon conversions during the three months ended December 31, 2018, Put Premium of $19,452 was reclassified to
additional paid-in capital. As of December 31, 2018, the principal balance of this note was $27,575 and accrued interest of $3,160.
For the three months ended December
31, 2018 and 2017, amortization of debt discounts related to all convertible promissory notes amounted to $23,901 and $53,333 which
has been amortized to interest expense on the accompanying statements of operations.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 4–
CONVERTIBLE NOTES
PAYABLE (continued)
During the three months ended December
31, 2018 the fair value of the derivative liabilities were estimated using the Binomial option pricing method with the following
assumptions:
Dividend rate
|
|
|
0
|
%
|
Term (in years)
|
|
|
0.01 to 0.44 years
|
|
Volatility
|
|
|
426.08
|
%
|
Risk-free interest rate
|
|
|
2.44 to 2.56
|
%
|
At December 31, 2018 and September 30,
2018, the components of convertible promissory notes, net consisted of the following:
|
|
December 31,
2018
|
|
September 30,
2018
|
Principal amount of convertible notes
|
|
$
|
260,715
|
|
|
$
|
309,976
|
|
Debt premium liability
|
|
|
17,630
|
|
|
|
37,082
|
|
Unamortized debt discount
|
|
|
(14,882
|
)
|
|
|
(38,783
|
|
Convertible notes payable, net – current
|
|
$
|
263,463
|
|
|
$
|
308,275
|
|
NOTE 5 –
STOCKHOLDERS’
DEFICIT
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
December 31, 2018 and September 30, 2018.
Common Stock
Between October 4, 2018 and December
31, 2018, the Company issued an aggregate of 24,704,676 shares of the Company’s common stock to note holders with contractual
conversion prices ranging from $0.002 to $0.003 to convert $49,261 in principal amount with $12,848 of accrued and unpaid interest
and $1,500 of conversion fees, totaling $63,609. The shares were valued at their fair value of $195,435 using the closing quoted
trading price of the Company’s common stock on the date of grants ranging from $0.01 to $0.03 per common share.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 6 –
DISCONTINUED
OPERATIONS
The remaining assets and liabilities
of discontinued operations are presented in the balance sheets under the caption “Assets of discontinued operations”
and “Liabilities of discontinued operations” which relates to the operations of the online payment processing
services. The carrying amounts of the major classes of these assets and liabilities as of December 31, 2018 and September 30, 2018
are summarized as follows:
|
|
December 31
|
|
September 30,
|
|
|
2018
|
|
2018
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
742
|
|
|
$
|
14,286
|
|
Liabilities of discontinued operations
|
|
$
|
742
|
|
|
$
|
14,286
|
|
The following table sets forth for three
months ended December 31, 2018 and 2017, indicated selected financial data of the Company’s discontinued operations of its
online payment processing services.
|
|
For the three months ended
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
7,029
|
|
Cost of sales
|
|
|
(2,353
|
)
|
|
|
(7,421
|
)
|
Gross income (loss)
|
|
|
(2,353
|
)
|
|
|
(392
|
)
|
Operating expenses
|
|
|
—
|
|
|
|
(14,625
|
)
|
Loss from discontinued operations
|
|
$
|
(2,353
|
)
|
|
$
|
(15,017
|
)
|
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
December 31, 2018
(Unaudited)
NOTE 7 –
COMMITMENTS AND
CONTINGENCIES
From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial
condition or operating results.
NOTE 8 –
SUBSEQUENT EVENTS
Between January
3, 2019 and February 7, 2019, the Company issued an aggregate of 72,830,070 shares of the Company’s common stock to note
holders with contractual conversion prices ranging from $0.001 to $0.005 to convert $73,244 in principal amount with $20,571 of
accrued and unpaid interest and $5,000 of conversion fees, totaling $98,815. The shares were valued at their fair value of $568,331
using the closing quoted trading price of the Company’s common stock on the date of grants ranging from $0.01 to $0.02 per
common share.