NOTES
TO FINANCIAL STATEMENTS
NOTE
1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Business
Kibush
Capital Corporation (formerly David Loren Corporation) (the “Company”) includes its 90% owned subsidiary Aqua Mining
(PNG). See Basis of Presentation below. The Company has two primary businesses: (i) mining exploration within Aqua Mining, and
(ii) timber operations in Papua New Guinea by Aqua Mining.
Basis
of Presentation
The
Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”).
The
consolidated financial statements of the Company include the accounts of the Company, and all entities in which a direct or indirect
controlling interest exists through voting rights or qualifying variable interests. All intercompany balances and transactions
have been eliminated in the consolidated financial statements.
Change
in Fiscal Year End
The
Board of Directors of the Company approved on September 14, 2014, a change in the Company’s fiscal year end from December
31 to September 30 of each year.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. As at September 30, 2018, the Company
has an accumulated deficit of $13,199,727 and $13,728,369 as of September 30, 2019, and has not earned sufficient revenues to
cover operating costs since inception and has a working capital deficit. The Company intends to fund its logging operations through
equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements
for the year.
The
ability of the Company to emerge from the development stage is dependent upon, among other things, obtaining additional financing
to continue mining exploration and execution of its business plan. In response to these problems, management intends to raise
additional funds through public or private placement offerings.
These
factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Functional
and Reporting Currency
The
consolidated financial statements are presented in U.S. Dollars. The Company’s functional currency is the U.S. Dollar. The
functional currency of Aqua Mining is the Papua New Guinean kina. Assets and liabilities are translated using the exchange rate
on the respective balance sheet dates. Items in the income statement and cash flow statement are translated into U.S. Dollars
using the average rates of exchange for the periods involved. The resulting translation adjustments are recorded as a separate
component of other comprehensive income/(loss) within stockholders’ equity.
The
functional currency of foreign entities is generally the local currency unless the primary economic environment requires the use
of another currency. Gains or losses arising from the translation or settlement of foreign-currency-denominated monetary assets
and liabilities into the functional currency are recognized in the income in the period in which they arise. However, currency
differences on intercompany loans that have the nature of a permanent investment are accounted for as translation differences
as a separate component of other comprehensive income/(loss) within stockholders’ equity.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A
summary of the principal accounting policies are set out below:
Cash
The
Company maintains its cash balances in interest and non-interest bearing accounts which do not exceed Federal Deposit Insurance
Corporation limits.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Kibush Capital and Aqua Mining. All intercompany accounts
and transactions have been eliminated.
Other
Comprehensive Income and Foreign Currency Translation
FASB
ASC 220-10-05, Comprehensive Income, establishes standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distribution to owners.
The
accompanying consolidated financial statements are presented in United States dollars.
Reclassifications
Reclassifications
have been made to prior year consolidated financial statements in order to conform the presentation to the statements as of and
for the period ended September 30, 2014.
On
June 10, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915) –
Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic
810, Consolidation, which eliminates the concept of a development stage entity (DSE) in its entirety from current accounting
guidance. The Company has elected early adoption of this new standard.
Use
of Estimates
The
preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America
(“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates made by management are, recoverability of long-lived
assets, valuation and useful lives of intangible assets, valuation of derivative liabilities, and valuation of common stock, options,
warrants and deferred tax assets. Actual results could differ from those estimates.
Non-Controlling
Interests
Investments
in associated companies over which the Company has the ability to exercise significant influence are accounted for under the consolidation
method, after appropriate adjustments for intercompany profits and dividends.
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It requires an acquirer to recognize, at
the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their
full fair values as of that date. In a business combination achieved in stages (step acquisitions), the acquirer will be required
to re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting
gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the
capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally
accepted accounting principles. U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
A
non-controlling interest in a subsidiary is an ownership interest in a consolidated entity that is reported as equity in the consolidated
financial statements and separate from the Company’s equity. In addition, net income/(loss) attributable to non-controlling
interests is reported separately from net income attributable to the Company in the consolidated financial statements. The Company’s
consolidated statements present the full amount of assets, liabilities, income and expenses of all of our consolidated subsidiaries,
with a partially offsetting amount shown in non-controlling interests for the portion of these assets and liabilities that are
not controlled by us.
For
our investments in affiliated entities that are included in the consolidation, the excess cost over underlying fair value of net
assets is referred to as goodwill and reported separately as “Goodwill” in our accompanying consolidated balance sheets.
Goodwill may only arise where consideration has been paid.
Property
and Equipment
Property
and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives as follows:
Plant
equipment
|
|
2
to 15 years
|
Motor
Vehicle
|
|
4
to 15 years
|
Maintenance
and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement
or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting
gains or losses are reflected in the consolidated statement of operations.
Impairment
of Long-Lived Assets
In
accordance with FASB ASC 360-10-5, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates
the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that such carrying
values may not be recoverable. The Company uses its best judgment based on the current facts and circumstances relating to its
business when determining whether any significant impairment factors exist. The Company considers the following factors or conditions,
among others, that could indicate the need for an impairment review:
|
●
|
Significant
under performance relative to expected historical or projected future operating results;
|
|
●
|
Significant
changes in its strategic business objectives and utilization of the assets;
|
|
●
|
Significant
negative industry or economic trends, including legal factors;
|
If
the Company determines that the carrying values of long-lived assets may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the Company’s management performs an undiscounted cash flow analysis to determine
if impairment exists. If impairment exists, the Company measures the impairment based on the difference between the asset’s
carrying amount and its fair value, and the impairment is charged to operations in the period in which the long-lived asset impairment
is determined by management.
The
carrying value of the Company’s investment in Joint Venture contract with leaseholders of certain Mining Leases in Papua
New Guinea represents its ownership, accounted for under the equity method. The ownership interest is not adjusted to fair value
on a recurring basis. Each reporting period the Company assesses the fair value of the Company’s ownership interest in Joint
Venture in accordance with FASB ASC 325-20-35. Each year the Company conducts an impairment analysis in accordance with the provisions
within FASB ASC 320-10-35 paragraphs 25 through 32.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s cash, accounts payable and accrued expenses approximate their estimated fair values due
to the short-term maturities of those financial instruments. The Company believes the carrying amount of its notes payable approximates
its fair value based on rates and other terms currently available to the Company for similar debt instruments
Beneficial
Conversion Features of Debentures
In
accordance with FASB ASC 470-20, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, we recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the
debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public
on the day the loan is made to us. The beneficial value is calculated as the intrinsic value (the market price of the stock at
the commitment date in excess of the conversion rate) of the beneficial conversion feature of debentures and related accruing
interest is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized
over the remaining outstanding period of related debt using the interest method.
Derivative
Financial Instruments
We
apply the provisions of FASB ASC 815-10, Derivatives and Hedging (“ASC 815-10”). Derivatives within the scope
of ASC 815-10 must be recorded on the balance sheet at fair value. During the year ended September 30, 2014, the Company issued
convertible debt and recorded derivative liabilities related to a reset provision associated with the embedded conversion feature
of the convertible debt. The Company computed the fair value of these derivative liabilities on the grant date and various measurement
dates using the Black-Scholes pricing model. Due to the reset provisions within the embedded conversion feature, the Company determined
that the Black-Scholes pricing model was the most appropriate for valuing these instruments.
In
applying the Black-Scholes valuation model, the Company used the following assumptions during the year ended September 30, 2019:
|
|
For the year ended
|
|
|
|
September 30, 2019
|
|
Annual dividend yield
|
|
|
-
|
|
Expected life (years)
|
|
|
0.50 – 1.00
|
|
Risk-free interest rate
|
|
|
1.7
|
%
|
Expected volatility
|
|
|
55
|
%
|
The
inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy
level is based upon the lowest level of input that is significant to the fair value measurement.
The
Company determines the fair value of its derivative instruments using a three-level hierarchy for fair value measurements which
these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs
reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
This hierarchy requires the use of observable market data when available. These two types of inputs have created the following
fair-value hierarchy:
Level
1 — Valuation based on unadjusted quoted market prices in active markets for identical securities. Currently, the Company
does not have any items as Level 1.
Level
2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the
measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.
Currently, the Company does not have any items classified as Level 2.
Level
3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve
management judgment. The Company used the Black-Scholes option pricing models to determine the fair value of the instruments.
The
following table presents the Company’s embedded conversion features of its convertible debt measured at fair value on a
recurring basis as of September 30, 2018, and as of September 30, 2019:
|
|
Carry
Value at
|
|
|
Carry
Value at
|
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
Embedded
conversion features - notes
|
|
$
|
728,080
|
|
|
$
|
726,871
|
|
|
|
|
|
|
|
|
|
|
Total
derivative liability
|
|
$
|
728,080
|
|
|
$
|
726,871
|
|
|
|
|
For
the year ended
|
|
|
|
For
the year ended
|
|
|
|
|
September
30, 2019
|
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
Change in fair value included in other income
(expense), net
|
|
|
-1,209
|
|
|
|
606,150
|
|
The
following table provides a reconciliation of the beginning and ending balances for the Company’s derivative liabilities
measured at fair value using Level 3 inputs:
|
|
For
the year ended
|
|
|
For
the year ended
|
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
Embedded
Conversion
|
|
|
|
|
|
|
|
|
Features
- Notes:
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$
|
726,871
|
|
|
$
|
1,333,021
|
|
Change in derivative
liabilities
|
|
$
|
2,418
|
|
|
$
|
(1,212,300
|
)
|
Net
change in fair value included in net loss
|
|
|
-1,209
|
|
|
|
606,150
|
|
Ending balance
|
|
$
|
728,080
|
|
|
$
|
726,871
|
|
The
Company re-measures the fair values of all its derivative liabilities as of each period end and records the net aggregate gain/loss
due to the change in the fair value of the derivative liabilities as a component of other expense, net in the accompanying consolidated
statement of operations. During the years ended September 30, 2019 and 2018, the Company recorded a net increase (decrease) to
the fair value of derivative liabilities balance of $ (1,209) and $ 606,150, respectively.
Loss
per Share
The
Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings
(loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per
share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common
shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no
common share equivalents are included because their effect would be anti-dilutive.
Income
Taxes
Income
taxes are accounted for in accordance with ASC Topic 740, “Income Taxes.” Under the asset and liability method, deferred
tax assets and liabilities are recognized for the future consequences of differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities
are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are recovered
or settled. Valuation allowances for deferred tax assets are established when it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Mineral
Property, Mineral Rights (Claims) Payments and Exploration Costs
Pursuant
to EITF 04-02, “Whether Mineral Rights are Tangible or Intangible Assets and Related Issues”, the Company has an accounting
policy to capitalize the direct costs to acquire or lease mineral properties and mineral rights as tangible assets. The direct
costs include the costs of signature (lease) bonuses, options to purchase or lease properties, and brokers’ and legal fees.
If the acquired mineral rights relate to unproven properties, the Company does not amortize the capitalized mineral costs, but
evaluates the capitalized mineral costs periodically for impairment. The Company expenses all costs related to the exploration
of mineral claims in which it had secured exploration rights prior to establishment of proven and probable reserves.
Accounting
Treatment of Mining Interests
At
this time, the Company does not directly own or directly lease mining properties. However, the Company does have contractual rights
and governmental permits which allow the Company to conduct mining exploration on the properties referenced in this report. These
contractual relationships, coupled with the government permits issued to the Company (or a subsidiary), are substantially similar
in nature to a mining lease. Therefore, we have treated these contracts as lease agreements from an accounting prospective.
Research
and Development
Research
and development costs are recognized as an expense in the period in which they are incurred. The Company incurred no research
and development costs for the years ended September 30, 2019 and 2018, respectively.
Recent
Accounting Pronouncements
In
October 2018, FASB issued Accounting Standards Update 2018-16, Derivaties and Hedging (Topic 805): Inclusion of the Secured Overnight
Financing Rate (SOFR) Overight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The ASU amends
ASC 815 to add the OIS rate based on the SOFR as a fifth US benchmark interest rate. We do not expect the adoption of this ASU
to have a material effect on our consolidated financial statements.
In
October 2018, FASB issued Accounting Standards Update 2018-17: Consolidation (Topic 810): Targeted Improvements to Related Party
Guidance for Variable Interest Entities. This standard expands the application of a specific private company accounting alternative
related to VIEs and changes the guidance for determining whether a decision-making fee is a variable interest. We do not expect
the adoption of this ASU to have a material effect on our consolidated financial statements.
In
November 2018, FASB issued Accounting Standards Update 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction
between Topic 808 and Topic 606. The ASU amends ASC 808 to clarify ASC 606 should apply in entirety to certain transactions between
collaborative arrangement participants. We do not expect the adoption of this ASU to have a material effect on our consolidated
financial statements.
In
November 2018, FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit
Losses. The ASU changes the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2021, including interim
periods within those fiscal years. Thus, the effective date for such entities’ annual financial statements is now aligned
with that for these interim financial statements. We are currently evaluating the impact that the standard will have on our consolidated
financial statements and related disclosures.
In
December 2018, FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. The
amendments are designed to make lessors adoption of the new leases standard easier such as accounting policy election on sales
tax, exclude variable payments for all lessor costs, and clarification on lessor costs. We are currently evaluating the impact
that the standard will have on our consolidated financial statements and related disclosures.
NOTE
3 – INVESTMENTS IN SUBSIDIARIES
The
Company owns interests in the following entities which was recorded at their book value since they were related party common control
acquisitions.
|
|
Investment
|
|
|
Ownership %
|
|
|
|
|
|
|
|
|
Aqua Mining (PNG)
|
|
|
34
|
|
|
|
90
|
%
|
As
Aqua Mining (PNG) Ltd was acquired from a related entity, Five Arrows Limited (see Note 10 – Business Combinations), the
shares were recorded in the accounts at their true cost value.
NOTE
4 – PROPERTY AND EQUIPMENT
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
Plant Equipment
|
|
|
89,322
|
|
|
|
65,869
|
|
Motor Vehicle
|
|
|
111,585
|
|
|
|
111,585
|
|
|
|
|
200,907
|
|
|
|
177,454
|
|
Less accumulated
depreciation
|
|
|
-74,786
|
|
|
|
-64,842
|
|
|
|
$
|
126,121
|
|
|
$
|
112,612
|
|
Depreciation
expense was approximately $13,082 for the year ended September 30, 2019 and $16,618 for the year ended September 30, 2018.
NOTE
5 – CONVERTIBLE NOTES PAYABLE
|
|
September 30, 2019
|
|
|
|
Note Face Amount
|
|
|
Debt Discount
|
|
|
Net Amount of Note
|
|
|
|
|
|
|
|
|
|
|
|
2011 Note
|
|
$
|
22,166
|
|
|
$
|
-
|
|
|
$
|
22,166
|
|
2012 Note
|
|
|
48,000
|
|
|
|
-
|
|
|
|
48,000
|
|
2013 Note
|
|
|
12,000
|
|
|
|
-
|
|
|
|
12,000
|
|
2014 Note
|
|
|
9,000
|
|
|
|
-
|
|
|
|
9,000
|
|
2016 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2016 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2017 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
91,166
|
|
|
$
|
-
|
|
|
$
|
91,166
|
|
|
|
September 30, 2018
|
|
|
|
Note Face Amount
|
|
|
Debt Discount
|
|
|
Net Amount of Note
|
|
|
|
|
|
|
|
|
|
|
|
2011 Note
|
|
$
|
22,166
|
|
|
$
|
-
|
|
|
$
|
22,166
|
|
2012 Note
|
|
|
48,000
|
|
|
|
-
|
|
|
|
48,000
|
|
2013 Note
|
|
|
12,000
|
|
|
|
-
|
|
|
|
12,000
|
|
2014 Note
|
|
|
9,000
|
|
|
|
-
|
|
|
|
9,000
|
|
2016 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2016 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2017 Note
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
91,166
|
|
|
$
|
-
|
|
|
$
|
91,166
|
|
2011
Note
On
May 1, 2011, the Company issued a 2.00% Convertible Note due April 30, 2012 with a principal amount of $32,000 (the “2011
Note”) for cash. Interest on the 2011 Note is accrued annually effective from May 1, 2011 forward. The 2011 Note is unsecured
and repayable on demand. The 2011 Note is senior in right to all existing and future indebtedness which is subordinated by its
terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common
Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $22,166. As of September
30, 2019, the note has been discounted by $0.
2012
Note
On
January 2, 2012, the Company issued a 2.00% Convertible Note due January 1, 2013 with a principal amount of $48,000 (the “2012
Note”) for cash. Interest on the 2012 Note is accrued annually effective from January 2, 2012 forward. The 2012 Note is
unsecured and repayable on demand. The 2012 Note is senior in right to all existing and future indebtedness which is subordinated
by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part
into Common Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $48,000. As of September
30, 2019, the note has been discounted by $0.
2013
Note
On
January 3, 2013, the Company issued a 2.00% Convertible Note due January 2, 2014 with a principal amount of $12,000 (the “2013
Note”) for cash. Interest on the 2013 Note is accrued annually effective from January 3, 2013 forward. The 2013 Note is
unsecured and repayable on demand. The 2013 Note is senior in right to all existing and future indebtedness which is subordinated
by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part
into Common Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $12,000. As of September
30, 2019, the note has been discounted by $0.
2014
Note
On
August 25, 2014, the Company issued two 12.00% Convertible Promissory Note due February 25, 2015 with a principal amount of $50,000
each (the “2014 Note”) for cash. Interest on the 2014 Note is accrued annually effective from August 25, 2014 forward.
The 2014 Note is unsecured.
The
notes are convertible at a conversion price the lesser of (a) $0.25 per share, or (b) the price per share as reported on the Over-the-Counter
Bulletin Board on the conversion date. The Note Holders also received Warrants to purchase an aggregate of 800,000 shares of our
common stock at an initial exercise price of $0.25 per share. Each of the Warrants has a term of five (5) years.
The
embedded conversion feature of the 2014 Notes and Warrants were recorded as derivative liabilities in accordance with relevant
accounting guidance due to the variable conversion price of the 2014 Notes. The fair value on the grant date of the embedded conversion
feature of the convertible debt was $145,362 as computed using the Black-Scholes option pricing model.
The
Company established a debt discount of $100,000, representing the value of the embedded conversion feature inherent in the convertible
debt and warrant, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using
the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September
30, 2014, the Company recorded amortization of the debt discount of $19,566. The balance of the debt discount was $80,434 at September
30, 2014. For the year ended September 30, 2019, the Company recorded amortization of the debt discount of $0. The balance of
the debt discount was $0 at September 30, 2019. The face amount of the outstanding note as of September 30, 2019, is $9,000.
2016
Notes
On
January 5, 2016, the Company issued a $47,615 Convertible Promissory Note to the McGee Law Firm for services rendered. The Note
was due on October 31, 2016 and carried interest at 12.0% per annum. On or after May 1, 2016, at the option of the holder, the
then outstanding amount of the Note was convertible into common stock of the Company at a conversion price equal to the lesser
of $0.01 per share or 50% of the three lowest closing prices average for the 10 business days prior to the conversion date.
On
August 11, 2016, the Company restructured a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction with
an assignment of that Note. The restructured Note was a 9.00% Convertible Promissory Note due August 11, 2017 with a principal
amount of $30,000. Interest on the 2016 Note is accrued annually effective from September 1, 2016 forward. This Note was unsecured
and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its
terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common
Stock at a price of $0.001. The face amount of the outstanding note as of September 30, 2019, is $0. As of September 30, 2019,
the note has been discounted by $0.
On
September 13, 2016, the Company restructured a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction
with an assignment of that Note. The restructured Note was a 9.00% Convertible Promissory Note due September 13, 2017 with a principal
amount of $15,836.32. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured
and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its
terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common
Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $0. As of September
30, 2019, the note has been discounted by $0.
On
August 23, 2016, the Company issued a 9.00% Convertible Promissory Note due August 23, 2017 with a principal amount of $25,000
for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and
repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms
and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock
at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $0. As of September
30, 2019, the note has been discounted by $0.
On
September 17, 2016, the Company issued a 9.00% Convertible Promissory Note due September 17, 2017 with a principal amount of $25,000
for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and
repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms
and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock
at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $0. As of September
30, 2019, the note has been discounted by $0.
2017
Notes
On
October 28, 2016, the Company restructured a portion a Convertible Promissory Note issued on August 25, 2014 in conjunction with
an assignment of that Note. The restructured Note was a 9.00% Convertible Promissory Note due October 28, 2017 with a principal
amount of $35,000. Interest on the 2016 Note is accrued annually effective from November 1, 2016 forward. The 2017 Note is unsecured
and repayable on demand. The 2017 Note is senior in right to all existing and future indebtedness which is subordinated by its
terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common
Stock at a price of $0.001.
As
this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between
the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which
with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2019, is $0. As of September
30, 2019, the note has been discounted by $0.
NOTE
6 – LOAN FROM RELATED PARTY
Convertible
Notes Issued to the President and Director of Kibush Capital Corporation:
|
|
September
30, 2018
|
|
|
|
Note
face amount
|
|
|
Debt
Discount
|
|
|
Net
Amount of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
$
|
1,737,566
|
|
|
$
|
0
|
|
|
$
|
1,737,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,737,566
|
|
|
$
|
0
|
|
|
$
|
1,737,566
|
|
|
|
September
30, 2019
|
|
|
|
Note
face amount
|
|
|
Debt
Discount
|
|
|
Net
Amount of note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
$
|
1,956,986
|
|
|
$
|
0
|
|
|
$
|
1,956,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,956,986
|
|
|
$
|
0
|
|
|
$
|
1,956,986
|
|
On
March 31, 2014, the Company issued a 12.50% Convertible Promissory Note due March 31, 2015 with a principal amount of $157,500
(the “March 2014 Note”) for cash. Interest on the March 2014 Note is accrued annually effective from March 31, 2014
forward. The March 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing
bid price, determined on the then current trading market for the ten business days prior to the conversion date.
The
embedded conversion feature of the March 2014 Notes was recorded as derivative liabilities in accordance with relevant accounting
guidance due to the variable conversion price of the March 2014 Notes. The fair value on the grant date of the embedded conversion
feature of the convertible debt was $305,039 as computed using the Black-Scholes option pricing model. The fair value was $165,819
for the year ended September 30, 2019.
The
Company established a debt discount of $157,500, representing the value of the embedded conversion feature inherent in the convertible
debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line
method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the
Company recorded amortization of the debt discount of $78,966. The balance of the debt discount was $78,534 at September 30, 2014.
As of September 30, 2019, the balance of the debt discount was $0.
On
June 30, 2014, the Company issued a 12.50% Convertible Promissory Note due June 30, 2015 with a principal amount of $110,741 (the
“June 2014 Note”) for cash. Interest on the June 2014 Note is accrued annually effective from June 30, 2014 forward.
The June 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing bid
price, determined on the then current trading market for the ten business days prior to the conversion date.
The
embedded conversion feature of the June 2014 Note was recorded as derivative liabilities in accordance with relevant accounting
guidance due to the variable conversion price of the June 2014 Note. The fair value on the grant date of the embedded conversion
feature of the convertible debt was $213,207 as computed using the Black-Scholes option pricing model. The fair value was $116,591
for the year ended September 30, 2019.
The
Company established a debt discount of $110,741 representing the value of the embedded conversion feature inherent in the convertible
debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line
method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the
Company recorded amortization of the debt discount of $27,913. The balance of the debt discount was $82,828 at September 30, 2014.
As of September 30, 2019, the balance of the debt discount was $0.
On
September 30, 2014, the Company issued a 12.50% Convertible Promissory Note due September 30, 2015 with a principal amount of
$98,575 (the “September 2014 Note”) for cash. Interest on the September 2014 Note is accrued annually effective from
September 30, 2014 forward. The September 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent
of the average closing bid price, determined on the then current trading market for the ten business days prior to the conversion
date.
The
embedded conversion feature of the September 2014 Notes was recorded as derivative liabilities in accordance with relevant accounting
guidance due to the variable conversion price of the September 2014 Note. The fair value on the grant date of the embedded conversion
feature of the convertible debt was $181,771 as computed using the Black-Scholes option pricing model. The fair value was $103,782
for the year ended September 30, 2019.
The
Company established a debt discount of $98,575 representing the value of the embedded conversion feature inherent in the convertible
debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line
method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the
Company recorded amortization of the debt discount of $0. The balance of the debt discount was $98,575 at September 30, 2014.
As of September 30, 2019, the balance of the debt discount was $0.
As
of September 30, 2014, and 2013, cumulative interest of $96,579 and $0 respectively, has been accrued on these notes.
The
Company established a debt discount of $61,273 representing the value of the embedded conversion feature inherent in the convertible
debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line
method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2019, the
Company recorded amortization of the debt discount of $0. The balance of the debt discount was $0 at September 30, 2019.
On
October 1, 2016, the Company issued an 8% Promissory Note due September 30, 2017 with a principal amount of $155,300 (the “October
2016 Note”) for cash received over the period between September 30, 2014 and April 28,2015. No interest was to accrue on
the first two years of the loan, interest on the October 2016 Note is to be accrued annually effective from October 1, 2016 forward.
The October 2016 Note is unsecured. Cavenagh Capital Corporation is a shareholder in Kibush Capital Corporation.
NOTE
7 – STOCKHOLDER’S DEFICIT
Common
Stock
On
August 22, 2013, the Company’s Board authorized a 225:1 reverse stock split. All share and per share data in the accompanying
financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.
On
October 12, 2013, the Company issued by director’s resolution, 10,000,000 shares of newly issued common stock for the purchase
of a Memorandum of Understanding (dated September 2, 2013) from a related company (Five Arrows Limited); which gave Kibush Capital
Corporation the right to acquire 80% ownership in Instacash Pty Ltd, an Australian Currency Services provider, and corporate trustee
of the Instacash Trust. As this transaction was with a related party, the value was recorded at the par value of the stock i.e.
$0.001 per share of common stock.
Between
October 23, 2013 and September 30, 2014, the Company issued a total of 3,274,000 shares of common stock upon the requests from
convertible note holders to convert principal totaling $3,274 into the Company’s common stock based on the terms set forth
in the loans. The conversion rate was $0.001.
On
February 28, 2014, the Company issued by director’s resolution, 40,000,000 shares of newly issued common stock to conclude
a Assignment and Bill of Sale (dated February 14, 2014) from a related company (Five Arrows Limited); which gave Kibush Capital
Corporation the right to enter into a Joint Venture contract with the leaseholders of certain Mining Leases in Papua New Guinea.
As this transaction was with a related party, the value was recorded at par value of the stock i.e. $0.001 per share of common
stock.
Between
November 1, 2014 and March 31, 2015, the Company issued a total of 4,560,000 shares of common stock upon the requests from convertible
note holders to convert principal totaling $3,274 into the Company’s common stock based on the terms set forth in the loans.
The conversion rate was $0.001.
Between
April 1, 2016 and September 30, 2016, the Company issued a total of 190,114,175 shares of common stock upon the requests from
convertible note holders to convert principal totaling $190,114 into the Company’s common stock based on the terms set forth
in the loans. The conversion rate was $0.001.
Between
October 1, 2016 and December 31, 2016, the Company issued a total of 208,879,614 shares of common stock upon the requests from
convertible note holders to convert principal totaling $208,880 into the Company’s common stock based on the terms set forth
in the loans. The conversion rate was $0.001.
Between
January 1, 2017 and March 31, 2017, the Company issued a total of 9,375,000 shares of common stock upon the requests from convertible
note holders to convert principal totaling $9,375 into the Company’s common stock based on the terms set forth in the loans.
The conversion rate was $0.001.
Between
April 1, 2017 and June 30, 2017, the Company issued a total of 405,000,000 shares of common stock upon the requests from convertible
note holders to convert principal totaling $405,000 into the Company’s common stock based on the terms set forth in the
loans. The conversion rate was $0.001.
On
August 23, 2017, the Company’s Board authorized a 1:25 reverse stock split. All share and per share data in the accompanying
financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.
Preferred
Stock
Preferred
stock includes 50,000,000 shares authorized at $0.001 par value, of which 10,000,000 have been designated Series A and 5,000,000
designated as Series B. A total of 3,000,000 shares of Series A preferred stock are issued and outstanding as of September 30,
2018, and September 30, 2019. A total of 20,000,000 shares of Series B preferred stock were outstanding as of September 30, 2019.
No shares of Series B preferred stock were outstanding as of September 30, 2019.
NOTE
8 – INCOME TAXES
The
provision/(benefit) for income taxes for the year ended September 30, 2019 and 2018 was as follows (assuming a 15% effective tax
rate)
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
Current Tax Provision
|
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
|
Taxable Income
|
|
|
-
|
|
|
|
-
|
|
Total current tax provisions
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Provision
|
|
|
|
|
|
|
|
|
Federal-
|
|
|
|
|
|
|
|
|
Loss carry forwards
|
|
$
|
-
|
|
|
$
|
6,838
|
|
Change in valuation allowance
|
|
$
|
-
|
|
|
$
|
6,838
|
|
Total deferred tax provisions
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of September 30, 2019, the Company had approximately $13,714,488 in tax loss carry forwards that can be utilized future periods
to reduce taxable income, and the carry forward incurred for the year ended September 30, 2019 will expire by the year 2035.
The
Company did not identify any material uncertain tax positions. The Company did not recognize any interest or penalties for unrecognized
tax benefits.
The
federal income tax returns of the Corporation are subject to examination by the IRS, generally for three years after they are
filed.
NOTE
9 – RELATED PARTY TRANSACTIONS
Details
of transactions between the Corporation and related parties are disclosed below.
The
following transactions were carried out with related parties:
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
Loan
from related party
|
|
$
|
1,956,986
|
|
|
$
|
1,737,566
|
|
Convertible Loans (B)
|
|
$
|
91,166
|
|
|
$
|
91,166
|
|
Total
|
|
$
|
2,048,152
|
|
|
$
|
1,828,732
|
|
(a)
From time to time, the president and stockholder of the Company provides advances to the Company for its working capital purposes.
These advances bear no interest and are due on demand.
(b)
See Note 6 for details of Convertible notes.
NOTE
10 – BUSINESS COMBINATIONS
Set
out below are the controlled and non-controlled members of the group as of September 30, 2019, which, in the opinion of the directors,
are material to the group. The subsidiaries as listed below have share capital consisting solely of ordinary shares, which are
held directly by the Company; the country of incorporation is also their principal place of business.
Name of Entity
|
|
Country of Incorporation
|
|
Acquisition Date
|
|
Voting Equity Interests
|
|
Aqua Mining (PNG) Ltd
|
|
Papua New Guinea
|
|
28-Feb-2014
|
|
|
90
|
%
|
NOTE
11 – LEGAL PROCEEDINGS
We
are not presently a party to any litigation.
NOTE
12 - CONTINGENT LIABILITIES
None.
NOTE
13 – SUBSEQUENT EVENTS
Issued
Preference Share B & C
On
December 30, 2019, the Board of Directors, with the approval of a majority vote of its shareholders approved the filing of a Certificate
of Designation establishing the designations, preferences, limitations and relative rights of the Company’s Series C Preferred
Stock (the “Designation” and the “Series C Preferred Stock”). The Board of Directors authorized the issuance
of 101 shares of Series C Preferred Stock, upon the Company filing the Certificate of Designation with the Nevada Secretary of
State. The terms of the Certificate of Designation of the Series C Preferred Stock, which was filed and approved by the State
of Nevada on December 30, 2019, include the right to vote in aggregate, on all shareholder matters as follows:
Each
one (1) share of Series C Preferred Stock shall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding
Common Stock eligible to vote at the time of the respective vote (the “Numerator”), divided by (y) 0.49, minus (z)
the Numerator. For the avoidance of doubt, if the total issued and outstanding Common Stock eligible to vote at the time of the
respective vote is 443,354,541, the voting rights of one share of the Series C Preferred Stock shall be equal to 9,047,663 (e.g.
(0.019607 x 443,354,541) / 0.49) – (0.019607 x 443,354,541) = 9,047,663).
With
respect to all matters upon which stockholders are entitled to vote or to which stockholders are entitled to give consent, the
holders of the outstanding shares of Series C Preferred Stock shall vote together with the holders of Common Stock without regard
to class, except as to those matters on which separate class voting is required by applicable law or the Corporation’s Articles
of Incorporation or by-laws.
On
January 9, 2020, the Board of Directors, with the approval of a majority vote of the shareholders approved the filing of a Certificate
of Amendment of Designation of the Company’s Series B Preferred Stock (“Series B Preferred Stock”). The Board
of Directors authorized the increase of authorized shares of the Series B Preferred Stock to 34,999,899 shares by filing the Certificate
of Amendment of Designation with the Nevada Secretary of State. The terms of the Certificate of Amendment of Designation of the
Series B Preferred Stock, which was filed and approved by the State of Nevada on January 9, 2020 have not otherwise changed as
previously filed and disclosed.
Debt
Consolidation
On
January 16, 2021, the Company entered into a Promissory Note Consolidation Agreement (the “Consolidation Agreement”)
with one of its noteholders, Warren Sheppard., as lender (“Mr. Sheppard”). Pursuant to the terms of
the Consolidation Agreement, the Company consolidated an aggregate of $1,358,692 of outstanding debt obligations (the “Outstanding
Debt”), which included principal and interest, owed to Mr. Sheppard by the Company.
As
a consequence of the debt consolidation, the derivative Liabilities associated with option component has been eliminated, therefore,
derivative liabilities amounted to 722,732 as of the debt consolidation date are subsequently reversed and charged into profit
and losses in January 2020.
Schedule
of Outstanding Notes as at January 14th 2020
Promissory
Note
|
|
Outstanding
Principal
|
|
|
Outstanding
Interest
|
|
David Loren Corporation.
2% Secured Promissory Note issued May 1, 2011 to Hoboken Street Associates, and as assigned to Warren Sheppard on July 3,
2013
|
|
|
22166
|
|
|
|
3,780
|
|
David Loren Corporation. 2% Secured
Promissory Note issued January 2, 2012 to Hoboken Street Associates, and as assigned to Warren Sheppard on July 3, 2013
|
|
|
48,000
|
|
|
|
7,438
|
|
David Loren Corporation. 2% Secured
Promissory Note issued January 3, 2013 to Hoboken Street Associates, and as assigned to Warren Sheppard on July 3, 2013
|
|
|
12,000
|
|
|
|
1,618
|
|
Kibush Capital Corp. 12.5% Secured
Promissory Note issued March 31, 2014 to Warren Sheppard.
|
|
|
157,500
|
|
|
|
104,815
|
|
Kibush Capital Corp. 12.5% Secured
Promissory Note issued June 30, 2014 to Warren Sheppard.
|
|
|
110,741
|
|
|
|
70,384
|
|
Kibush Capital Corp. 12.5% Secured
Promissory Note issued September 30, 2014 to Warren Sheppard.
|
|
|
98,575
|
|
|
|
59,670
|
|
Kibush Capital Corp. 12.5% Secured
Promissory Note issued September 30, 2015 to Warren Sheppard.
|
|
|
316,046
|
|
|
|
153,387
|
|
Kibush Capital Corp. 12.5% Secured
Promissory Note issued October 10, 2016 to Warren Sheppard.
|
|
|
155,300
|
|
|
|
37,272
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
920,328
|
|
|
|
438,364
|
|
Upon
the assumption by the Company of the Outstanding Debt, the Company and Mr. Sheppard entered into an unsecured promissory note
(the “Consolidated Note”), which such Consolidated Note restated the repayment terms and conditions
of the Outstanding Debt in full. Pursuant to the terms and conditions of the Consolidated Note, the Outstanding Debt accrues simple
interest at 12.5% per year, compounded annually, and the Consolidated Note has a maturity date of January 15, 2022. No regularly
scheduled periodic payments of principal or interest are due under the Consolidated Note, and, unless there is an earlier event
of default, all outstanding and unpaid principal and interest under the Consolidated Note is due and payable in a single lump
sum payment at maturity. The Consolidated Note also removes any common stock conversion features from previous notes. The Company
may prepay the Consolidated Note at any time prior to maturity without penalty.
Executive
Employment
On
February 10, 2020, Kibush Capital Corp., a Nevada corporation (the “Company”) entered into an Employment Agreement
(the “Agreement”) with Warren Sheppard (“Mr. Sheppard”) an individual. Pursuant to the terms and conditions
of the Agreement, Mr. Sheppard shall continue to serve as the Company’s President, Chief Executive Officer, Chief Financial
Officer, Principal Financial Officer and a member of the Board of Directors and shall assume such other positions as reasonably
requested by the Board of Directors, commencing on January 1, 2020 for a term of Four (4) years, and shall have the option to
be renewed for an additional one (1) year unless earlier terminated. In exchange for his services, Mr. Sheppard shall receive
a yearly salary of $24,000.
NOTE
14 – INVENTORY
Inventories
are valued at cost. Cost is determined using the first-in, first-out method. The cost of finished goods and work-in-progress comprises
raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes
borrowing costs. There are three types of inventory in three stages of completion. Raw materials comprise of logs that are on
the ground and at the log pond; Work-in-progress comprise of rough sawn timber at the Rigo site whilst Finished goods are planed,
straightened timber at Laloki for sale. Each would have a different wholesale value depending on the level of processing.
Management
is unable to verify the stocktake and valuation at year end. Accordingly, for the year ended September 30, 2019, we written down
the amounts to zero to accommodate that situation.
Increase
in Authorised Shares.
The
Corporation has filed with the Nevada Secretary of State a resolution that the Corporation be and hereby is authorized to increase
its authorized shares to Two Billion (2,000,000,000) shares of common stock authorized and Fifty Million (50,000,000) shares of
preferred authorized, the Board of Directors consented to this filing February 19, 2020, at the date of this Report the Corporation
has not yet received confirmation from Nevada Secretary of State.