CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 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 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”.
On March 31, 2019, the Company’s Board
of Directors approved the increase of the Company’s authorized shares for common stock to 5,000,000,000 shares from 490,000,000
shares of authorized shares of common stock.
The Company filed Articles of Amendment to its
Articles of Incorporation with Florida’s Secretary of State and requested an effective date of May 1, 2019 for the increase
of authorized shares of common stock (see Note 5).
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
Management acknowledges its responsibility
for the preparation of the accompanying unaudited 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 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 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 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 financial statements, the Company had a net loss of $1,930,335
for the nine months ended June 30, 2019. The net cash used in operations was $116,618 for the nine months ended June 30, 2019.
Additionally, the Company had an accumulated deficit of $8,321,199 and a stockholders’ deficit of $242,282, and a working
capital deficit of $242,282 at June 30, 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.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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.
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 June 30, 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 entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 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
|
|
At June 30, 2019
|
|
At September 30, 2018
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
147,373
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
589,980
|
|
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 June 30, 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 Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of June 30, 2019 measured
$147,373.
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
|
|
|
(421,646
|
)
|
Gain from change in fair value of conversion option liabilities
|
|
|
(363,329
|
)
|
Balance at June 30, 2019
|
|
$
|
147,373
|
|
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 June 30, 2019 and September 30, 2018.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Concentrations
Concentrations of Credit Risk
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 June 30, 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 June 30, 2019 and September 30, 2018.
Concentrations of Accounts Receivables
During the nine months ended June 30, 2019,
the Company had net account receivable of $25,000 of which 24%, 32% and 44% were from three of the Company’s customers. During
the year ended September 30, 2018, the Company had net account receivable of $667 of which 100% was from a Company’s customer.
Concentrations of Revenue
During the nine months ended June 30, 2019,
the Company had revenue from continuing operations of $194,000 of which 21%, 22%, 22% and 25% were from four of the Company’s
customers. During nine months ended June 30, 2018, the Company had revenue from continuing operations of $33,599 of which 100%
(related party) was from a Company’s customer. A reduction in revenue from or loss of such customers would have a material
adverse effect on the Company’s consolidated results of operations and financial condition.
All of the Company’s revenues are from
customers that are located outside of the United States.
Prepaid Expenses
Prepaid expenses of $9,715 and $7,250 at June
30, 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 asset’s estimated fair value and its book value.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 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 June 30, 2019, the Company had $3,668 of
deferred revenue recorded.
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
June 30, 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 June 30, 2019.
The following potentially dilutive equity securities
outstanding as of June 30, 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:
|
|
June 30, 2019
|
|
September 30, 2018
|
Common shares issuable under:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
213,103,108
|
|
|
|
46,672,138
|
|
Warrants
|
|
|
110,204,081
|
|
|
|
50,000
|
|
|
|
|
323,307,189
|
|
|
|
46,722,138
|
|
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”).
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 Company’s 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.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(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 nine months ended June 30, 2019 and 2018, aggregate revenues from discontinued operations – related party amount
to $0 and $11,996 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 June 30, 2019 and September 30, 2018, the Company owed Cyprus $3,173 for both periods.
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 June 30, 2019 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 June 30, 2019 and September 30, 2018, the Company owed its Attorney $1,070 and $1,070, respectively.
During the nine months ended June 30, 2019
and 2018, the Company paid cash compensation to a designated member of its board of directors in the amount of $10,000 and $10,500,
respectively, in connection with a written agreement with the director. Additionally, the Company made payments of $25,000 to this
director as his retainer fees for various consulting agreements for services he provided for the Company’s clients which
was charged to cost of revenue in the accompanying statement of operations as of June 30, 2019.
NOTE 4 –
CONVERTIBLE NOTES PAYABLE
October 2017 Financing
On October 10, 2017, the Company entered
into a securities purchase agreements (the “SPA”) for the sale of the Company’s convertible note. Pursuant
to the SPA, the Company issued an unsecured convertible Note (“October 2017 Note”) for a principal amount
of $160,000. The Company received $143,250 in aggregate net proceeds from the sale, net of $16,750 OID and legal fees. The October
2017 Note bears an interest rate of 12% per annum (which interest rate shall be increased to 24% per annum upon the occurrence
of an Event of Default (as defined in the October 2017 Note)), shall mature on July 10, 2018 and the principal and interest are
convertible at any time at a conversion price equal the lower of $0.65 per share or 55% of the lowest trading price of the Company’s
common stock during the twenty-five trading days immediately preceding the conversion date. 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. 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 three trading
days prior written notice to the lender to prepay the outstanding balance of the October 2017 Note, in full by making a cash payment
to the lender equal to 130% of the total outstanding principal, accrued and unpaid interest and default interest, if any. The October
2017 Note may be prepaid at anytime until the 180th following the original issue date at a premium of 140%. After this initial
180-day period, the Company does not have a right to prepay the note. The October 2017 Note is in default. In July 2018, the Company
failed to make the repayment of the outstanding principal and interest at the maturity date which caused the interest to increase
to the default interest of 24%.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 4 –
CONVERTIBLE NOTES PAYABLE
(continued)
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 lender converted $6,951 of accrued interest and $3,000 of conversion fee, for a total amount of $9,951 into 615,000 shares
of the Company’s common stock.
During the nine months ended June 30, 2019,
the lender fully converted the remaining outstanding principal, interest and conversion fee of $175,000, $35,187 and $10,000, respectively,
into 140,404,704 shares of the Company’s common stock.
As of June 30, 2019, the October 2017 Note
had no outstanding balance.
February 2018 Financing
On February 20, 2018, under a Securities Purchase
Agreement (the “SPA”), the Company issued a 10% Convertible Promissory Note (“February 2018 Notes”) for
principal amount of up to $180,000 to be funded in several tranches. The February 2018 Notes bears an interest rate of 10% per
annum (which interest rate shall be increased to 15% per annum upon the occurrence of an Event of Default (as defined in the February
2018 Notes)). The February 2018 Notes shall mature twelve months from the effective date of each tranche. The Company received
the; (i) first tranche on February 20, 2018 with the Company receiving net proceeds of $52,000, net of $8,000 OID and legal fees;
(ii) the second tranche on June 11, 2018 with the Company receiving net proceeds of $16,500, net of $3,500 OID and legal fees;
and (iii) the third tranche on March 13, 2019 with the Company receiving net proceeds of $43,000, net of $7,000 OID and legal fees.
The Company received an aggregate net proceeds of $130,000, net of $18,500 OID and legal fees which total to a principal amount
of $130,000. The lender 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 equal to 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 the February 2018 Notes are 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%.
The February 2018 Notes are 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 the first 90 days following the date
of the February 2018 Notes, 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 lender under the terms of the February 2018 Notes, at a premium ranging
from 135% to 145% as defined in the February 2018 Notes. After this initial 90-day period, the Company does not have a right to
prepay the February 2018 Notes. The February 2018 Notes contains representations, warranties, events of default, beneficial ownership
limitations, piggyback registration rights and other provisions that are customary of similar instruments.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 4 –
CONVERTIBLE NOTES PAYABLE
(continued)
On June 13, 2018, in connection with the funding
of the second tranche of the February 2018 Notes, the Company issued to the lender of 50,000 warrants (February 2018 Warrant I).
The warrants had a term of five years from the date of grant with an exercise price of $0.40. 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 (see Note 5). The February 2018 Warrant I had full ratchet anti-dilution provision therefore
causing the Company to adjust the outstanding warrants to 40,816,326, an increase of 40,766,326 warrants. During the three months
ended June 30, 2019, the Company issued 30,221,040 shares of its common stock in connection with the cashless exercise of 32,653,061
of these warrants. The Company recorded the common stock at par value and a corresponding offset against equity. As of June 30,
2019, there were 8,163,265 warrants outstanding under February 2018 Warrant I.
On March 13, 2019, in connection with the funding
of the third tranche of the February 2018 Notes, the Company issued to the lender of 125,000 warrants (February 2018 Warrant II),
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 (see Note 5). The February 2018 Warrant II had full
ratchet anti-dilution provision therefore causing the Company to adjust the outstanding warrants to 102,040,816, an increase of
101,915,816 warrants. As of June 30, 2019, there were 102,040,816 warrants outstanding under February 2018 Warrant II.
During the fiscal year ended September 30,
2018, the lender converted $3,023 of outstanding principal and $500 of conversion fee, for a total amount of $3,523 into 270,000
shares of the Company’s common stock.
During the nine months ended June 30, 2019,
the lender converted $76,977 of outstanding principal, $46,336 of accrued interest and $9,000 of conversion fee, for a total amount
of $92,313 into 73,420,237 shares of the Company’s common stock.
As of June 30, 2019, the February 2018 Notes
had $50,000 and $1,575 of outstanding principal and accrued interest, respectively.
June 2018 Financing:
On June 14, 2018, the Company entered into
a securities purchase agreements (the “SPA”) for the sale of the Company’s convertible note. Pursuant to the
SPA, the Company issued an unsecured convertible Note (“June 2018 Note”) for a principal amount of $58,000. The Company
received net proceeds of $55,000, net of $3,000 OID and legal fees. The June 2018 Note bears an interest rate of 10% per annum
(which interest rate shall be increased to 22% per annum upon the occurrence of an Event of Default (as defined in the June 2018
Note)), shall mature on June 14, 2019. The lender has the right to convert beginning 180
th
day 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 twenty trading days
immediately preceding the conversion date. During the first 30 to 180 days following the date of the June 2018 Note, the Company
has the right to prepay the principal and accrued but unpaid interest due under the June 2018 Note, together with any other amounts
that the Company may owe the lender under the terms of the June 2018 Note, at a premium ranging from 115% to 140% as defined in
the June 2018 Note. After this initial 180-day period, the Company does not have a right to prepay the June 2018 Note. In connection
with the issuance of the June 2018 Note, the Company recorded a premium of $37,082 as the note is considered stock settled debt
under ASC 480, which was fully accreted at the inception of the June 2018 Note.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 4 –
CONVERTIBLE NOTES PAYABLE
(continued)
During the nine months ended June 30, 2019,
the lender fully converted the remaining outstanding principal and interest of $58,000 and $2,900, respectively, into 23,480,646
shares of the Company’s common stock. In connection with these conversions, $37,082 of Put Premium was reclassified to equity.
As of June 30, 2019, the June 2018 Note
had no outstanding balance.
February 2019 Financing:
On February 14, 2019, the Company entered into
a securities purchase agreements (the “SPA”) for the sale of the Company’s convertible note. Pursuant to the
SPA, the Company issued an unsecured convertible Note (“February 2019 Note”) for a principal amount of $63,000. The
Company received net proceeds of $60,000, net of $3,000 OID and legal fees. The February 2019 Note bears an interest rate of 10%
per annum (which interest rate shall be increased to 22% per annum upon the occurrence of an Event of Default (as defined in the
February 2019 Note)), shall mature on February 14, 2020. The lender has the right to convert beginning 180th day 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 fifteen trading
days immediately preceding the conversion date. During the first 30 to 180 days following the date of the February 2019 Note, the
Company has the right to prepay the principal and accrued but unpaid interest due under the February 2019 Note, together with any
other amounts that the Company may owe the lender under the terms of the February 2019 Note, at a premium ranging from 115% to
140% as defined in the February 2019 Note. After this initial 180-day period, the Company does not have a right to prepay the February
2019 Note. In connection with the issuance of the February 2019 Note, the Company recorded a premium of $40,279 as the note is
considered stock settled debt under ASC 480, which was fully accreted at the inception of the February 2019 Note.
As of June 30, 2019, the February 2019 Note
had $63,000 of outstanding principal and $2,201 of accrued interest.
Derivative Liabilities Pursuant to Securities
Purchase Agreements
In connection with the issuance of
the October 2017 and February 2018 Notes, the Company determined that the terms of these Notes contain terms that included
a provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by
the Company or contain terms that are not fixed monetary amounts at inception and included various other terms that caused
derivative treatment. Accordingly, under the provisions of
ASC 815-40 –Derivatives and Hedging – Contracts in an
Entity’s Own Stock
, the embedded conversion option contained in the convertible instruments was accounted for as
derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date.
The fair value of the embedded conversion option derivatives were determined using the Binomial valuation model. At the end
of each period, on the date that debt was converted into common shares, the Company revalued the embedded conversion
option derivative liabilities.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 4 –
CONVERTIBLE NOTES PAYABLE
(continued)
In July 2017, FASB issued ASU No.
2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic
815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the
accounting for certain financial instruments with down-round features. The amendments require companies to disregard the
down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability
or equity classification. The guidance was early adopted as of January 1, 2019 and the Company elected to record the effect
of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a
cumulative-effect adjustment to the consolidated balance sheet, the period which the amendment is effective. There was no
cumulative effect from the adoption of ASU No. 2017-11 and did not have any impact on the Company’s consolidated
financial statements as there were other note provisions that caused derivative treatment.
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 nine months ended June 30, 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 nine months ended June 30, 2019, the respective derivative liability was marked to fair value
at the conversion, and then a related fair value amount of $421,646 relating to the portion of debt converted was reclassified
to other income or expense as part of loss on debt extinguishment. Additionally, the Company recorded loss on debt extinguishment
of $2,141,559 during the nine months ended June 30, 2019 in connection with the conversion of notes resulting in a net loss on
extinguishment of debt of $1,719,913 for the nine months ended June 30, 2019 as reflected in the accompanying unaudited statements
of operations.
For the nine months ended June 30, 2019 and
2018, the total amortization expense of debt discounts related to all convertible promissory notes were $54,491 and $183,208, charged
to interest expense on the accompanying statements of operations.
During the three months ended June 30, 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 0.2
|
|
years
|
|
Volatility
|
|
|
120.85
|
|
%
|
|
Risk-free interest rate
|
|
|
1.75 to 2.18
|
|
%
|
|
At June 30, 2019 and September 30, 2018, the
components of convertible promissory notes, net consisted of the following:
|
|
June 30,
2019
|
|
September 30,
2018
|
Principal amount of convertible notes
|
|
$
|
113,000
|
|
|
$
|
309,976
|
|
Debt premium liability
|
|
|
40,279
|
|
|
|
37,082
|
|
Unamortized debt discount
|
|
|
(37,292
|
)
|
|
|
(38,783
|
)
|
Convertible notes payable, net – current
|
|
$
|
115,987
|
|
|
$
|
308,275
|
|
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 5 –
STOCKHOLDERS’ DEFICIT
Shares Authorized
The Company had 500,000,000 shares authorized
of which 490,000,000 were common stock, par value $0.0001 and 10,000,000 were preferred stock, par value of $0.0001.
On March 31, 2019, the Company’s Board
of Directors approved the increase of the Company’s authorized shares for common stock to 5,000,000,000 shares from 490,000,000
shares of authorized shares of common stock.
The Company filed Articles of Amendment to its
Articles of Incorporation with Florida’s Secretary of State and requested an effective date of May 1, 2019 for the increase
of authorized shares of common stock (see Note 1).
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. At June 30, 2019 and September 30, 2018, there were
no shares of preferred stock issued an outstanding.
Common Stock
Common stock issued for debt conversion
During the nine months ended June 30, 2019, the Company issued an aggregate of 237,305,587 shares of its common stock upon
conversion of $309,977 of outstanding principal, $44,424 of accrued interest and $19,000 of conversion fees. These shares of common
stock had an aggregate fair value of $2,514,959 and the Company recorded $2,141,559 of loss on debt extinguishment related to the
note conversions (see Note 4).
Shares issued for cashless exercise of
warrants
During the nine months ended June 30, 2019,
the Company issued 30,221,040 shares of its common stock for cashless exercise of 32,653,061 warrants (see Note 4).
Shares issued for services
During the nine months ended June 30, 2019,
the Company issued 10,200,000 shares of its common stock to a consultant pursuant to a consulting agreement with grant date fair
value of $22,440 or $0.0022 per share.
At June 30, 2019 and September 30, 2018, the
Company had 339,573,445 and 61,846,818 shares of common stock issued and outstanding, respectively.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 5 –
STOCKHOLDERS’ DEFICIT
(continued)
Warrants
A summary of the Company’s outstanding
stock warrants as of June 30, 2019 and changes during the period ended are presented below:
|
|
Number of Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Balance at September 30, 2018
|
|
|
50,000
|
|
|
$
|
0.40
|
|
|
|
4.70
|
|
Granted
|
|
|
125,000
|
|
|
|
0.40
|
|
|
|
5.00
|
|
Additional issuances under ratchet provisions
|
|
|
142,682,142
|
|
|
|
0.00049
|
|
|
|
4.49
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
(32,653,061
|
)
|
|
|
0.00049
|
|
|
|
3.95
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at June 30, 2019
|
|
|
110,204,081
|
|
|
$
|
0.00049
|
|
|
|
4.65
|
|
Warrants exercisable at June 30, 2019
|
|
|
110,204,081
|
|
|
$
|
0.00049
|
|
|
|
4.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during the period
|
|
|
|
|
|
$
|
0.0019
|
|
|
|
|
|
Warrants issued pursuant to Securities
Purchase Agreements
The Company granted a note holder 175,000
warrants in connection with the June 2018 financing (see Note 4) which
was adjusted under
the full ratchet anti-dilution provision and therefore causing the Company to adjust it to a total of 142,857,142 warrants. In
June 2019, the Company issued 30,221,040 common stock in connection with the cashless exercise of 32,653,061 of these warrants.
The Company recorded the common stock at par value and a corresponding offset against additional paid in capital.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
June 30, 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 June 30, 2019 and September 30, 2018 are summarized as follows:
|
|
June 30,
|
|
September 30,
|
|
|
2019
|
|
2018
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
14,286
|
|
Liabilities of discontinued operations
|
|
$
|
—
|
|
|
$
|
14,286
|
|
|
|
|
|
|
|
|
|
|
For the three and nine months ended June 30,
2019 and 2018, discontinued operations of its online payment processing services consisted of the following:
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,996
|
|
Cost of revenues
|
|
|
1,419
|
|
|
|
8,962
|
|
|
|
5,862
|
|
|
|
(24,998
|
)
|
Gross income (loss)
|
|
|
(1,419
|
)
|
|
|
(8,962
|
)
|
|
|
(5,862
|
)
|
|
|
(13,002
|
)
|
Operating expenses
|
|
|
—
|
|
|
|
(32,556
|
)
|
|
|
—
|
|
|
|
(57,358
|
)
|
Loss from discontinued operations
|
|
$
|
(1,419
|
)
|
|
$
|
(41,518
|
)
|
|
$
|
(5,862
|
)
|
|
$
|
(70,360
|
)
|
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 June 30, 2019, the Company issued
6,783,955 shares of the Company’s common stock to note holders to convert $3,392 of outstanding note balance.