CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
1 -
ORGANIZATION AND NATURE OF OPERATIONS
GH
Capital Inc. (the Company), a Florida corporation, was formed on May 5, 2014, commenced operations in October 2014
and has a fiscal year end of September 30. 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 Companys management terminated the Companys 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 year ended September 30, 2018
of the Company which were included in the Companys 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 $1,914,021 for the six months ended March 31, 2019. The net cash used in operations was $63,630 for the six months
ended March 31, 2019. Additionally, the Company had an accumulated deficit of $8,304,885 and a stockholders’ deficit of $557,244,
and a working capital deficit of $557,244 at March 31, 2019. 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.
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, valuation of ROU
assets and operating lease liabilities, fair value of derivative liabilities, valuation allowance for deferred tax assets and
the valuation of stock issued for services or upon conversion of debt.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 March 31, 2019. 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 entitys 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.
The
Company analyzes all financial and non-financial instruments with features of both liabilities and equity under the FASBs
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.
|
|
At March 31, 2019
|
|
|
At September 30, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
425,323
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
589,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Financial Assets and Liabilities Measured on a Recurring Basis
The
Companys convertible notes payable approximate the fair value of such instruments based upon managements best estimate
of interest rates that would be available to the Company for similar financial arrangements at March 31, 2019. 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 Companys balance sheets on a recurring basis, and their level within the fair
value hierarchy as of March 31, 2019 measured $425,323.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 – derivative expense
|
|
|
301,633
|
|
Initial fair value of conversion option liabilities – debt discount
|
|
|
40,735
|
|
Reduction of liability included in loss on debt extinguishment
|
|
|
(209,379
|
)
|
Gain from change in fair value
of conversion option liabilities
|
|
|
(297,646
|
)
|
Balance at March 31, 2019
|
|
$
|
425,323
|
|
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 March 31,
2019 and September 30, 2018.
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 March 31, 2019, 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 March 31, 2019 and September 30, 2018.
All
of the Companys revenues are from customers that are located outside of the United States.
The
Company did not have any Accounts Receivable balance at March 31, 2019. There is one customer that accounted for 100 % of the
Companys Accounts Receivable balance at September 30, 2018. For the six months ended March 31, 2019, four customers accounted
for approximately 100% of the total revenues (24.7%, 27.6%, 23.0% and 24.7%).
For
the six months ended March 31, 2018, three payment processing customers accounted for approximately 96.9% of the total revenues
from discontinued operations (31.7%, 12.2% and 53.0% from a related party) and one related party customer accounted for 100% of
the consulting revenue.
Prepaid
Expenses and Other Current Assets
Prepaid
expenses and other current assets of $20,000 and $7,250 at March 31, 2019 and September 30, 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 assets estimated fair value and its book value.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. For the consulting services, revenue is recognized when the Company satisfies the performance obligation
based on the consulting agreement.
Payments
received from customers that are related to future periods are recorded as deferred revenue until the service is provided. As
of March 31, 2019, the Company had $33,601 of deferred revenue recorded.
Cost
of Revenues
Cost
of revenues, if any, relates to the Companys 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 counterpartys
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
March
31, 2019
(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. There were 198,612,705 shares reserved for issuance related to convertible note agreements as of March 31,
2019.
The
following potentially dilutive equity securities outstanding as of March 31, 2019 and as of September 30, 2018 were not included
in the computation of dilutive loss per common share because the effect would have been anti-dilutive:
|
|
March 31, 2019
|
|
|
September 30, 2018
|
|
Common shares issuable under:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
68,984,063
|
|
|
|
46,672,138
|
|
Warrants
|
|
|
175,000
|
|
|
|
50,000
|
|
|
|
|
69,159,063
|
|
|
|
46,722,138
|
|
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 July 2017, the FASB issued ASU
No. 2017-11
Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic
815) (“ASU 2017-11”)
, which changes the classification analysis of certain equity-linked financial instruments
(or embedded features) with down round features. When determining whether certain financial instruments should be classified as
liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, ASU 2017-11 requires entities that present earnings per share (EPS) in accordance with ASC Topic 260 to
recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of
income available to common shareholders in basic EPS. For the Company, ASU 2017-11 is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. The Company will adopt this ASU for their
next fiscal year beginning October 1, 2019 and will be evaluating the impact in the financial statements.
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 Companys
financial statements.
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU 2016-02,
Leases
(Topic 842). The updated guidance requires lessees to recognize
lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate
lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective
for interim and annual periods beginning after December 15, 2018. The Company is evaluating the impact of this standard upon its
adoption on October 1, 2019.
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.
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 Companys 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, 2019 and 2018, aggregate revenues from discontinued operations
– related party amount to $0 and $6,364 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 March 31, 2019 and September 30, 2018, the Company owed Cyprus $3,173
for both periods.
During
fiscal year 2015, the Companys 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, 2019 and September 30, 2018, the Company owed its Chief Executive
Officer $10 and $10, respectively.
During
fiscal year 2018, the Companys 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 March 31, 2019 and September 30, 2018, the Company owed
its Attorney $1,070 and $1,070, respectively.
During the six months ended March 31,
2019 and 2018, the Company paid cash compensation to a designated member of its board of directors in the amount of $7,000 and
$7,500, respectively, in connection with a written agreement with the director. Additionally, the Company made prepayments of
$20,000 to this director as his retainer fees for various consulting agreements for services he will provide for the Company’s
clients which was included in prepaid expense and other current assets in the accompanying balance sheet at March 31, 2019.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
4 –
CONVERTIBLE NOTES PAYABLE
Convertible note payable dated
October 10, 2017
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 Companys
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 Companys 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. 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
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.
In
September 2018, the conversion price was below $0.01 which 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).
During the fiscal year ended September
30, 2018, the Company issued 615,000 shares of common stock to the noteholder with a contractual conversion price ranging from
$0.01 to $0.04 to convert $0 principal amount with $6,951 of accrued and unpaid interest and $3,000 conversion fee, totaling $9,951.
During the six months ended March 31,
2019, the Company issued an aggregate of 78,564,200 shares of common stock to the noteholder with a contractual conversion price
ranging from $0.002 to $0.003 to convert $100,109 principal amount with $33,896 of accrued and unpaid interest and $7,000, totaling
$141,005.
As of March 31, 2019, the note had outstanding
principal and accrued interest of $74,891 and $433, respectively, and accrued conversion fee of $0.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
4 –
CONVERTIBLE NOTES PAYABLE (CONTINUED)
Convertible note payable dated
February 20, 2018
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. The Company received additional proceeds of $20,000 in June 2018 and $50,000 in March 2019 (“Third
tranche”) which resulted to a total of $130,000 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.
During fiscal 2018, the Company paid
an original issuance discount of $8,000 and related loan fees of $3,500 in connection with this note payable and during the six
months ended March 31, 2019, the Company paid additional original issuance discount of $5,000 and related loan fees of $2,000 for
the Third tranche which are 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.
During fiscal 2018, the Company
granted the note holder of 50,000 warrants and during the six months ended March 31, 2019, the Company granted an additional
125,000 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. During fiscal 2018, the Company accounted for the 50,000 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. During six months ended March 31, 2019, the Company accounted for the 125,000 warrants by using the
relative fair value method and recorded debt discount from the relative fair value of the warrants of $2,265 using a simple
binomial lattice model.
During the fiscal year ended September
30, 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.
During the six months ended March 31,
2019, the Company the Company issued 68,398,371 shares of common stock to the noteholder with a contractual conversion price ranging
from $0.001 and $0.002 to convert $73,314 principal amount with $4,874 of accrued and unpaid interest and $8,500 conversion fee,
totaling $86,688.
As of March 31, 2019, the note had $53,662
and $1,786 of outstanding principal and accrued interest, respectively.
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.
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.
In connection with the issuance of these notes during the six months ended March 31, 2019, on the initial measurement date of the
notes, the fair values of the embedded conversion option of $342,368 was recorded as derivative liabilities of which $301,633 was
charged to current period operations as initial derivative expense, and $40,735 was recorded as a debt discount which will be amortized
into interest expense over the term of the note. Upon conversions during the six months ended March 31, 2019, the respective derivative
liability was marked to fair value at the conversion, and then a related fair value amount of $209,379 relating to the portion
of debt converted was reclassified to other income or expense as part of gain on debt extinguishment. Additionally, the Company
recorded loss on debt extinguishment of $1,917,530 during the six months ended March 31, 2019 in connection with the conversion
of notes resulting in a net loss on extinguishment of debt of $1,708,151 for the six months ended March 31, 2019 as reflected in
the accompanying unaudited statements of operations.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
4 –
CONVERTIBLE NOTES PAYABLE (CONTINUED)
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 gain from change in fair value of conversion option liability of $297,646 for the six
months ended March 31, 2019 and loss from change in fair value of conversion option liability of $689,364 for the six months ended
March 31, 2018, respectively (see Note 2).
Convertible note payable dated
June 14, 2018
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 Companys common stock at a conversion price equal to 61% of the average of the lowest two trading prices of the Companys
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.
During
the six months ended March 31, 2019, the Company fully converted the remaining outstanding principal and interest of $58,000 and
$2,900, respectively, into 23,480,646 shares of common stock. As of March 31, 2019, the note had no outstanding principal and
accrued interest.
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 in fiscal year ended
September 30, 2018, Put Premium of $19,452 was reclassified to additional paid-in capital. Upon conversions during the six months
ended March 31, 2019, Put Premium of $17,630 was reclassified to additional paid-in capital.
Convertible note payable dated
February 14, 2019
In
February 2019, under a Securities Purchase Agreement, the Company issued a 10% Convertible Promissory Note for principal borrowings
of up to $63,000. The 10% convertible promissory note and all accrued interest are due in February 2020. 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 Companys common stock at a conversion price equal to 61% of the average of the lowest two trading prices of the
Companys common stock during the 15 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. As of March 31, 2019, the note had $63,000 and $630 outstanding principal
and accrued interest.
The
Company has accounted for this convertible promissory note as stock settled debt under ASC 480 and in February 2019, the Company
recorded an original debt premium liability of $40,279 and a charge to interest expense of $40,279.
For
the six months ended March 31, 2019 and 2018, the total amortization expense of debt discounts related to all convertible promissory
notes were $38,577 and $113,916, charged to interest expense on the accompanying statements of operations.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(Unaudited)
NOTE
4 –
CONVERTIBLE NOTES PAYABLE (CONTINUED)
During
the three months ended March 31, 2019 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
|
|
|
212.74
|
%
|
Risk-free interest rate
|
|
|
2.40 to 2.53
|
%
|
At
March 31, 2019 and September 30, 2018, the components of convertible promissory notes, net consisted of the following:
|
|
March 31,
2019
|
|
|
September 30,
2018
|
|
Principal amount of convertible notes
|
|
$
|
191,553
|
|
|
$
|
309,976
|
|
Debt premium liability
|
|
|
40,279
|
|
|
|
37,082
|
|
Unamortized debt discount
|
|
|
(53,206
|
)
|
|
|
(38,783
|
)
|
Convertible notes payable, net – current
|
|
$
|
178,626
|
|
|
$
|
308,275
|
|
NOTE
5 –
STOCKHOLDERS DEFICIT
Shares
Authorized
The
Company has 500,000,000 shares authorized of which 490,000,000 are common stock, par value $0.0001 and 10,000,000 are preferred
stock, par value of $0.0001.
Preferred
Stock
The
Company has 10,000,000 shares of preferred stock authorized. Preferred stock may be issued in one or more series. The Companys
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. At March 31, 2019 and September
30, 2018, there were no shares of preferred stock issued an outstanding.
Common
Stock
During the six months ended March 31,
2019, the Company issued an aggregate of 170,443,217 shares of the Company’s common stock to note holders with contractual
conversion prices ranging from $0.002 to $0.003 to convert $231,423 in principal amount with $41,670 of accrued and unpaid interest
and $15,500 of conversion fees, totaling $288,593. The shares were valued at their fair value for notes with bifurcated embedded
derivatives and at recorded debt value for notes treated as stock settled debt of $2,206,123 using, as applicable, the closing
quoted trading price of the Company’s common stock on the conversion dates ranging from $0.01 to $0.03 per common share which
resulted in a loss on debt extinguishment of $1,917,530. Related embedded conversion option derivative liabilities of $209,379
from these note conversions were recorded as a gain on debt extinguishment resulting in a net loss on extinguishment of debt of
$1,708,151 for the six months ended March 31, 2019.
At
March 31, 2019 and September 30, 2018, the Company had 232,290,035 and 61,846,818 shares of common stock issued and outstanding,
respectively.
Warrants
The
Company granted a note holder 175,000 warrants in connection with the June 2018 SPA (see Note 4). The warrants had a term of 5
years from the date of grant and was exercisable at an exercise price of $0.40. At March 31, 2019 and September 30, 2018, the
Company had 175,000 warrants issued and outstanding.
GH
CAPITAL, INC.
CONDENSED
NOTES TO FINANCIAL STATEMENTS
March
31, 2019
(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 March
31, 2019 and September 30, 2018 are summarized as follows:
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
737
|
|
|
$
|
14,286
|
|
Liabilities of discontinued operations
|
|
$
|
737
|
|
|
$
|
14,286
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth for three and six months ended March 31, 2019 and 2018, indicated selected financial data of the Companys
discontinued operations of its online payment processing services.
|
|
For the six months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
11,996
|
|
Cost of sales
|
|
|
(4,443
|
)
|
|
|
(16,037
|
)
|
Gross income (loss)
|
|
|
(4,443
|
)
|
|
|
(4,041
|
)
|
Operating expenses
|
|
|
—
|
|
|
|
(24,801
|
)
|
Loss from discontinued operations
|
|
$
|
(4,443
|
)
|
|
$
|
(28,842
|
)
|
|
|
For the three months ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
4,967
|
|
Cost of sales
|
|
|
(2,090
|
)
|
|
|
(8,616
|
)
|
Gross income (loss)
|
|
|
(2,090
|
)
|
|
|
(3,649
|
)
|
Operating expenses
|
|
|
—
|
|
|
|
(10,176
|
)
|
Loss from discontinued operations
|
|
$
|
(2,090
|
)
|
|
$
|
(13,825
|
)
|
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
Subsequent
to March 31, 2019, the Company issued an aggregate of 19,591,200 shares of the Companys common stock to note holders with
contractual conversion prices ranging from $0.001 to $0.002 to convert $39,650 in principal amount with $1,072 of accrued and
unpaid interest and $1,000 of conversion fees, totaling $41,722. The shares were valued at their fair value of $155,521 using
the closing quoted trading price of the Companys common stock on the date of grants at $0.01 per common share resulting
in a loss on debt extinguishment of $113,798.