CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS
GH Capital Inc. (the “Company or GHHC”),
a Florida corporation, was formed on May 5, 2014. The Company is a wellness company specializing in the development and manufacture
of health promoting products based on DNA analysis. The Company plans to sell and market nutritional and health
promoting products such as energy drinks. On August 21, 2019, the Company changed its fiscal year end from September
30 to July 31 to conform with its subsidiary which was acquired on the same day as discussed below. The Company’s former
operations were in the business of providing online payment processing services to consumers, primarily in Europe and provided
certain consulting services to assist companies in going public.
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 Secretary of State and requested an effective date of May 1, 2019 for the increase of authorized
shares of common stock (see Note 6).
On August 16, 2019, the Company filed a Certificate
of Designation of Preferences, Rights and Limitations of Series B Preferred Stock which designated 1,000,000 shares of preferred
stock as Series B Preferred Stock at par value of $0.0001 (see Note 6). The Company filed
Articles of Amendment to its Articles of Incorporation with Florida Secretary of State and requested an effective date of July
20, 2020 for the increase of authorized shares of Series B preferred stock to 1,344,756 from 1,000,000 shares.
On August 21, 2019, the Company
entered into a Share Exchange Agreement (“Exchange Agreement”) with the shareholders of Vitana Distributions, Inc. (“Vitana”)
whereby 100% of Vitana’s outstanding stock was purchased for certain shares of preferred stock of the Company (see Note 3).
Pursuant to the Exchange Agreement, holders of the common stock of Vitana received 1,000,000 shares of the Company’s newly
designated Series B Preferred Stock (the “Series B Shares”) in exchange for each share of common stock of Vitana, on
a pro rata basis. The Series B Preferred Stock shall convert into a total amount equaling 80% of the total issued and outstanding
common shares, post conversion, on a pro rata basis. The Series B Preferred Stock have no voting rights. Vitana was incorporated
on February 11, 2019 in the State of Florida as Vitana-X, Inc. The Company changed its corporate name to Vitana Distributions,
Inc. on December 4, 2019.
The closing of the Exchange Agreement
was further conditioned upon the resignation of Wolfgang Ruecker, Bane Katic and William Eilers as Directors of the Company and
appointment of Matthias Goeth as the Company’s Chief Operating Officer and Director and Dirk Richter as the Company’s
Chairman of the Board of Directors. William Bollander shall remain a Director and Chief Executive Officer of the Company.
Furthermore, simultaneously with the closing,
the two majority shareholders of Vitana purchased 1,000,000 shares of the Company’s Series A preferred stock from the Company’s
majority shareholder. The Series A preferred stock have a voting right equal to 65% of all voting rights of all the Company’s
capital stock.
Upon closing of the Exchange Agreement, Vitana
became a wholly owned subsidiary the Company and since the majority shareholders of Vitana obtained majority voting control (at
least 65%) of the Company as a result of the above transactions and its operations were spun off to the Company’s former
majority owner officer, this transaction was accounted for as a reverse recapitalization of Vitana where Vitana is considered
the historical registrant and the historical operations presented will be those of Vitana (see Note 3).
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The Company’s unaudited consolidated
financial statements include the financial statements of GH Capital, Inc. and its wholly- owned subsidiary, Vitana Distributions,
Inc. (for all periods presented) (see Note 3). All intercompany accounts and transactions have been eliminated in consolidation.
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 consolidated financial statements of the Company includes 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 consolidated financial statements should be read in conjunction with the summary of significant accounting
policies and notes to the financial statements for the year ended July 31, 2019 of the Company which were included in the Company’s
current report Form 8-K/A as filed with the Securities and Exchange Commission on June 4, 2020.
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 consolidated financial statements, for the nine months ended
April 30, 2020, the Company had a net loss of $3,651,131, net cash used in operations of $572,644, accumulated deficit of $4,768,935
and a stockholders’ deficit of $739,667. The Company had a working capital deficit of $739,667 at April 30, 2020. 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 of building its customer base and expects to
generate increased revenues. The Company is seeking to raise capital through additional debt and/or equity financings to fund its
operations in the future.
Management cannot provide assurance that the
Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital.
Although the Company has historically raised capital from sales of common stock and debt financing, there is no assurance that
it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional debt in the near
future, management expects that the Company will need to curtail its operations. These financial statements do not include any
adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
Use of Estimates
The preparation of the financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the year. Actual results could differ from those estimates. Included in these estimates are assumptions
used in determining the fair value of derivative liabilities, valuation allowance for deferred tax assets and the valuation of
stock issued for services or upon conversion of debt.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
Risks and Uncertainties for Development
Stage Company
The Company is considered to be
in an early stage since we have only recently commenced planned principal operations and has
not sold any of its products. The Company’s activities since inception include
devoting substantially all of the its efforts to business planning and development. Additionally, the Company has allocated a substantial
portion of its time and investment to the completion of its development activities to launch its marketing plan and generate revenues
and to raising capital. The Company’s activities during this early stage are subject to significant risks and uncertainties.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when acquired to be cash equivalents. The Company did not have cash equivalents as of April
30, 2020 and July 31, 2019. The Company places its cash with high credit quality financial institutions. The Company’s accounts
at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of April
30, 2020 and July 31, 2019, the Company had not reached bank balances exceeding the FDIC insurance limit on interest bearing accounts.
To reduce its risk associated with the failure of such financial institutions, the Company evaluates at least annually the rating
of the financial institutions in which it holds deposits.
Fair value of financial instruments and fair value measurements
The Company adopted Accounting Standards Codification (“ASC”)
820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair
value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted
accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands
disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial
position or operating results, but did expand certain disclosures.
ASC 820 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. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs.
These inputs are prioritized below:
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The Company analyzes all financial
instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”)
accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety
based on the lowest level of input that is significant to the fair value measurement.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
The estimated fair value of certain
financial instruments, including accounts receivable, prepaid expense and other current assets, accounts payable and accrued expenses
are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
The Company Accounts for the Following Instruments at Fair Value:
|
|
April 30, 2020
|
|
July 31, 2019
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
255,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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 April 30, 2020 and July 31, 2019. The Company uses Level 3 of the fair value
hierarchy to measure the fair value of the derivative liabilities (see Note 6) 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 April 30,
2020 was $255,398.
A Roll Forward of the Level 3 Derivative Liabilities:
Balance at July 31, 2019
|
|
$
|
—
|
|
Assumptions of derivative liabilities in connection with the reverse recapitalization (see Note 3)
|
|
|
516,636
|
|
Reduction of liability included in gain on debt extinguishment
|
|
|
(78,388
|
)
|
Gain from change in fair value of conversion option liabilities
|
|
|
(182,850
|
)
|
Balance at April 30, 2020
|
|
$
|
255,398
|
|
Concentrations
Concentrations of Revenue:
During the three and nine months ended
April 30, 2020, the Company had revenue from operations of $44,307 and $105,682, respectively, which consisted of 100% of the
total revenue from a related party 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 a related party customer that are located outside of the United States of America. The related party is an
affiliated company (“VitanaEU”) which is majority owned by two directors of the Company.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
Accounts receivable and allowance
for doubtful accounts
The Company has a policy of providing
an allowance for doubtful accounts based on its best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary
based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account
balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection
have been exhausted and the potential for recovery is considered remote. As of April 30, 2020 and July 31, 2019, allowance for
doubtful accounts amounted to $0 for both periods.
Prepaid Expenses
Prepaid expenses of $5,000 and $864,309 at
April 30, 2020 and June 30, 2019, 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.
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 on February 11, 2019, the date
of inception. For the license and royalty income, revenue is recognized when the Company satisfies the performance obligation based
on the related license agreement with VitanaEU who does business in Switzerland, Austria and Germany (see Note 7).
Payments received from customers that are related
to future periods are recorded as deferred revenue until the service is provided.
Income Taxes
The Company accounts for income taxes pursuant
to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other
things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition
of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which
management believes it is more likely than not that the net deferred asset will not be realized.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
The Company follows the provision of ASC 740-10
related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits
of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10,
the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence,
management believes it is more likely than not that the position will be sustained upon examination, including the resolution of
appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than
not recognition threshold is measured at the largest amount of tax benefit that is more than 50 percent likely of being realized
upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed
the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance
sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company
believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a
liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition
of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon
the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than
not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The
federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally
for three years after they are filed.
Stock-Based Compensation
The Company accounts for employee
stock-based compensation in accordance with ASC 718-10, "Share-Based Payment," which requires the measurement
and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock
options, restricted stock awards, and employee stock purchases based on estimated fair values.
In June 2018,
the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718). This update is intended to reduce cost and complexity
and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal
counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation-Stock Compensation, which currently only includes
share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services.
Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This standard
will be effective for financial statements issued by public companies for the annual and interim periods beginning after December
15, 2018. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period
presented. Management adopted this standard at inception on February 11, 2019.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
Determining Fair Value
Under ASC 718-10
The Company estimates volatility
based upon the historical stock price of the Company and estimates the expected term The Company estimates the fair value of stock
options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over
the requisite service periods of the awards, which is generally the vesting period. The Company's determination of fair value using
an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.
For
employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The
risk-free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.
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.
The following potentially dilutive equity securities
outstanding as of April 30, 2020 and July 31, 2019 were not included in the computation of dilutive loss per common share because
the effect would have been anti-dilutive:
|
|
April 30, 2020
|
|
July 31, 2019
|
Common shares issuable under:
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
483,579,978
|
|
|
|
—
|
|
Warrants
|
|
|
102,040,816
|
|
|
|
—
|
|
Total
|
|
|
585,620,794
|
|
|
|
—
|
|
Leases
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.
At inception, on February 11, 2019,
the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective
date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and;
(ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception
of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on:
(1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all
the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the
asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price
to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities
for short-term leases that have a term of 12 months or less.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
Operating lease ROU
assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on
the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide
an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining
the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease
term and is included in general and administrative expenses in the consolidated statements of operations.
As of April 30, 2020,
the Company and its subsidiary did not have any operating lease.
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.
Recent Accounting Pronouncements
From time to time, the FASB or other standards
setting bodies will issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of an Accounting
Standards Update (“ASU”).
In 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
does not expect ASU 2018-13 to have a material impact on its accounting and disclosures.
Management does not believe that any other
recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying
financial statements.
NOTE 3 – ACQUISITION OF VITANA AND SPIN OFF OF PRIOR BUSINESS OF GH CAPITAL, INC.
Vitana was incorporated on February
11, 2019 in the State of Florida as Vitana, Inc. The Company changed its corporate name to Vitana Distributions, Inc.
on December 4, 2019. The Company is a wellness company specializing in the development and manufacture of health promoting products
based on DNA analysis.
On August 21, 2019, GH Capital Inc.
entered into a Share Exchange Agreement with the shareholders of Vitana Distributions, Inc. whereby 100% of Vitana’s
outstanding stock was purchased for certain shares of preferred stock of GH Capital Inc. (see Note 1). Pursuant to the
Exchange Agreement, holders of the common stock of Vitana received 1,000,000 shares of the Company’s newly designated
Series B Preferred Stock in exchange for each share of common stock of Vitana, on a pro rata basis. The Series B Preferred
Stock shall convert into a total amount equaling 80% of the total issued and outstanding common shares, post conversion, on a
pro rata basis. The Series B Preferred Stock have no voting rights (see Note 6).
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
The closing of the Exchange Agreement
was further conditioned upon the resignation of Wolfgang Ruecker, Bane Katic and William Eilers as Directors of the Company and
appointment of Matthias Goeth as the Company’s Chief Operating Officer and Director and Dirk Richter as the Company’s
Chairman of the Board of Directors. William Bollander shall remain a Director and Chief Executive Officer of the Company.
Furthermore, simultaneously with the closing,
the two majority shareholders of Vitana purchased 1,000,000 shares of the Company’s Series A preferred stock from the Company’s
majority shareholder. The Series A preferred stock have a voting right equal to 65% of all voting rights of all the Company’s
capital stock (see Note 6).
Upon closing of the Exchange Agreement,
Vitana became a wholly owned subsidiary the Company and since the majority shareholders of Vitana obtained majority voting control
(at least 65%) of the Company as a result of the above transactions and its operations were spun off to the Company’s former
majority owner officer, this transaction was accounted for as a reverse recapitalization of Vitana where Vitana is considered the
historical registrant and the historical operations presented will be those of Vitana.
The following assets and liabilities were assumed
in the transaction:
Cash
|
|
$
|
47,823
|
|
Prepaid expense
|
|
|
7,000
|
|
Accounts payable and
accrued expenses
|
|
|
(47,348
|
)
|
Convertible debt
|
|
|
(76,301
|
)
|
Due to related party
|
|
|
(26,100
|
)
|
Derivative liabilities
|
|
|
(516,636
|
)
|
Net liabilities assumed
|
|
$
|
611,562
|
|
On August 30, 2019, the Company entered into
a Spin-Off Agreement (“Spin-Off”) with a former majority shareholder, pursuant which the Company sold the brand and
trademark rights of “GH Capital” and “GH Cap” (collectively, the “Brand”) and certain revenue
contracts and certain related liabilities, in exchange for the return of 7,000,000 shares of the Company’s common stock.
The Spin-Off is effective upon a successful name change of the Company to be filed with the Florida Secretary of State. The Company
canceled the 7,000,000 shares of common stock received from the sale of the Company’s Brand (see Note 6).
NOTE 4 – RELATED PARTY TRANSACTIONS
During the three months ended October 31, 2019,
the Company paid $2,400 to a consultant acting as the Chief Operating Officer (“COO”) of the Company. On August 15,
2019, the Company entered into a Management Consulting Agreement with a consultant acting as the COO of the Company to provide
corporate development services for the period from August 15, 2019 to December 15, 2019 in exchange for 29,456 shares of the Company’s
Series B preferred stock. The Company valued the shares of preferred stock at the fair value of approximately $5.43 per preferred
share or $160,000 based on the sales of preferred stock in recent private placements on the dates of grants.
At inception, the Company entered into a
consulting agreement with a director of the Company for business and strategic consulting services. The term of the agreement
commenced on the effective date of the consulting agreement and continued upon completion of the agreed upon services as
defined in the consulting agreement. The Company may terminate this agreement upon 90 days written notice to the consultant.
In connection with this consulting agreement, during the nine months ended April 30, 2020, the Company paid total consulting
fees of $73,850 to a director of the Company for consulting services rendered.
At inception, the Company entered into a
consulting agreement with an affiliated company which is owned by a director of the Company for business, management, and
strategic consulting services. The term of the agreement commenced on the effective date of the consulting agreement and
continued upon completion of the agreed upon services as defined in the consulting agreement. The Company may terminate this
agreement upon 90 days written notice to the consultant. In connection with this consulting agreement, during the nine months
ended April 30, 2020, the Company paid total consulting fees of $41,505 to the affiliated company for consulting services
rendered.
On July 1, 2019, the Company entered into
a License Agreement with an affiliated company, VitanaEU, which is majority owned by two directors of the Company (see Note 7).
During the nine months ended April 30, 2020, the Company recognize total revenues of $105,682 in connection with this license
agreement and represents 100% of the Company’s revenues. As of April 30, 2020, total accounts receivable of $7,654 from
VitanaEu represented approximately100% of total accounts receivable as compared to none as of July 31, 2019. On May 19, 2020,
the Company received a notice of cancellation of the License Agreement from the affiliated company effective July 30, 2020.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
Additionally, during the nine months ended
April 30, 2020, the Company provided advances of $316,855 to VitanaEU of which $201,767 was paid back. At April 30, 2020 and July
31, 2019, the Company had a receivable from the related party of $129,009 and $13,921, respectively, which was included in due
from related parties as reflected on the unaudited consolidated balance sheets. These advances were short-term in nature and non-interest
bearing.
Prior to the closing of the Exchange
Agreement, Vitana provided advances to the GH Capital, Inc. (see Note 3) for working capital purposes. At April 30, 2020 and
July 31, 2019, the Company had a receivable from the related party of $0 and $26,100, respectively. These advances were
short-term in nature and non-interest bearing. On August 21, 2019 this receivable was considered paid upon the consummation
of the Exchange Agreement with the Company (see Note 3).
As of April 30, 2020, accounts payable due
to a director of the Company totaled to $1,933. As of July 31, 2019, accounts payable due to the CEO, two directors of the Company
and an affiliated company totaled to $56,395 ($8,000, $18,400, $9,100 and $20,895, respectively).
NOTE 5 – CONVERTIBLE NOTES PAYABLE
On August 21, 2019 pursuant to the closing of the Share Exchange
Agreement with the shareholders of Vitana and the recapitalization, Vitana assumed certain convertible notes (see Note 3). Additional
convertible notes were also made after August 21, 2019.
At April 30, 2020 and July 31, 2019, the components
of the convertible promissory notes, net consisted of the following:
|
|
April 30, 2020
|
|
July 31, 2019
|
Principal of convertible notes
|
|
$
|
374,356
|
|
|
$
|
—
|
|
Debt premium liability
|
|
|
147,688
|
|
|
|
—
|
|
Unamortized debt discount
|
|
|
(2,250
|
)
|
|
|
—
|
|
Convertible notes payable, net – current
|
|
$
|
519,794
|
|
|
$
|
—
|
|
February 2018 Financing
On February 20, 2018, under a Securities Purchase
Agreement (the “SPA”), assumed on August 21, 2019, GH Capital Inc. 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. GH Capital,
Inc. received the; (i) first tranche on February 20, 2018 and received net proceeds of $52,000, net of $8,000 OID and legal fees;
(ii) the second tranche on June 11, 2018 and received net proceeds of $16,500, net of $3,500 OID and legal fees; and (iii) the
third tranche on March 13, 2019 and received net proceeds of $43,000, net of $7,000 OID and legal fees. GH Capital, Inc. received
an aggregate net proceeds of $111,500, 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 GH Capital’s common stock at a conversion price equal to 65% of the lowest trading price of GH Capitals’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 embedded conversion
option was bifurcated and treated as a derivative liability. The February 2018 Notes are subject to full ratchet anti-dilution
in the event that GH Capital, Inc. 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, GH Capital, Inc. had the right to prepay the principal and accrued
but unpaid interest due under this note, together with any other amounts that GH Capital, Inc. 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, GH Capital, Inc. did 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. As of August 21, 2019, the February 2018 Notes had $50,000, $2,287 and $516,636 of outstanding principal,
accrued interest and a related embedded conversion option liability, respectively, which were assumed upon closing of the Exchange
Agreement (see Note 3).
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
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)
(see Note 6). 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. As of August 21, 2019, and October 31, 2019, there were
no outstanding warrants 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 6). 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 August 21, 2019, and April 30, 2020, there were 102,040,816 warrants outstanding under February 2018
Warrant II.
During the nine months ended April 30, 2020,
the lender converted $23,465 of outstanding principal and $1,000 of conversion fee, for a total amount of $24,465 into 41,000,000
shares of the Company’s common stock (see Note 6).
As of April 30, 2020, the February 2018 Notes
had $26,535 and $21,056 of outstanding principal and accrued interest, respectively. Such convertible note is past maturity and
thus in default.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
February 2019 Financing:
On February 14, 2019, GH Capital, Inc. entered
into a securities purchase agreement (the “SPA”) for the sale of the Company’s convertible note which was assumed
on August 21, 2019 pursuant to the recapitalization. Pursuant to the SPA, GH Capital, Inc. issued an unsecured convertible Note
(“February 2019 Note”) for a principal amount of $63,000. GH Capital, Inc. 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 GH Capital’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, GH Capital Inc. has the right to prepay the principal
and accrued but unpaid interest due under the February 2019 Note, together with any other amounts that GH Capital, Inc. 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, GH Capital, Inc. does not have a right to prepay the February 2019 Note. As of August 21, 2019,
the February 2019 Note had $33,000 of outstanding principal, $3,150 of accrued interest and $21,099 of debt premium which were
assumed upon closing of the Exchange Agreement (see Note 3).
During the nine months ended April 30, 2020,
the lender converted the remaining $33,000 of outstanding principal and $3,150 of accrued interest, for a total amount of $36,150
into 30,125,000 shares of the Company’s common stock (see Note 6). In connection with the conversion, as the note considered
stock settled debt under ASC 480, the remaining put premium balance of $21,098 was reclassed to equity.
As of April 30, 2020, the February 2019 Note
had no outstanding balance.
August 2019 Financing:
On August 29, 2019, the Company closed a securities
purchase agreement (the “SPA”) for the sale of the Company’s convertible note. Pursuant to the SPA, the Company
issued an unsecured convertible Note (“August 2019 Note”) for a principal amount of $128,000. The Company received
net proceeds of $125,000, net of $3,000 OID and legal fees. The August 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 August 2019 Note)),
shall mature on August 29, 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 August 2019 Note, the Company has the right to
prepay the principal and accrued but unpaid interest due under the August 2019 Note, together with any other amounts that the
Company may owe the lender under the terms of the August 2019 Note, at a premium ranging from 115% to 140% as defined in the August
2019 Note. After this initial 180-day period, the Company does not have a right to prepay the August 2019 Note. In connection
with the issuance of the August 2019 Note, the Company recorded a premium of $81,836 as the note is considered stock settled debt
under ASC 480, which was fully accreted at the inception of the August 2019 Note. As of April 30, 2020, the August 2019 Note had
$128,000 and $47,259 of outstanding principal and accrued interest.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
October 2019 Financing:
On October 8, 2019, the Company closed a securities
purchase agreement (the “SPA”) for the sale of the Company’s convertible note. Pursuant to the SPA, the Company
issued an unsecured convertible Note (“October 2019 Note”) for a principal amount of $103,000. The Company received
net proceeds of $100,000, net of $3,000 OID and legal fees. The October 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 October 2019 Note)),
shall mature on October 8, 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 October 2019 Note, the Company has the right to
prepay the principal and accrued but unpaid interest due under the October 2019 Note, together with any other amounts that the
Company may owe the lender under the terms of the October 2019 Note, at a premium ranging from 115% to 140% as defined in the October
2019 Note. After this initial 180-day period, the Company does not have a right to prepay the October 2019 Note. In connection
with the issuance of the October 2019 Note, the Company recorded a premium of $65,852 as the note is considered stock settled debt
under ASC 480, which was fully accreted at the inception of the October 2019 Note. As of April 30, 2020, the October 2019 Note
had $103,000 and $5,841 of outstanding principal and accrued interest.
December 2019 to January 2020 Financing:
Between December 12, 2019 and March 26, 2020,
the Company closed securities purchase agreements (the “SPA”) for the sale of the Company’s convertible notes.
Pursuant to the SPA, the Company issued unsecured convertible notes for an aggregate principal amount of $116,821 to various lenders
residing outside the United States of America. The Company received gross proceeds of $116,821. The convertible notes bear no interest
and is due nine months after the date of issuance. The Company may prepay all of any portion of these convertible notes at any
time without penalty.
Upon maturity, these convertible notes shall
be automatically converted upon the date where in a reverse stock split has been initiated into shares of the Company’s common
stock at a conversion price of $0.10 per shares, subject to adjustment, upon the occurrence of certain events such as reorganization,
mergers or sale of assets. The conversion price shall remain the same in case of a reverse stock-split.
Derivative Liabilities Pursuant to Securities
Purchase Agreements
In connection with the issuance of the 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 was 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. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
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 Exchange Agreement,
the Company assumed the February 2018 Note and February 2019 Note on August 21, 2019, the fair values of the embedded conversion
option of $516,638 was recorded as derivative liabilities. During the nine months ended April 30, 2020, the embedded conversion
option was marked to fair value of $255,398 and a gain from change in fair value of conversion option liability of $182,850 was
recorded.
Upon conversions during the nine months ended
April 30, 2020, the derivative liability was marked to fair value at the conversion, and then a related fair value amount of $78,388
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 $77,935, during the nine months ended April 30, 2020, in connection with the conversions of February 2019
Note (see Note 6) resulting in a net gain on extinguishment of debt of $453 for the nine months ended April 30, 2020 as reflected
in the accompanying unaudited consolidated statements of operations.
For the nine months ended April 30, 2020, the
total amortization expense of debt discounts related to all convertible promissory notes were $31,548 which was charged to interest
expense on the unaudited consolidated statements of operations.
During the nine months ended April 30, 2020,
the fair value of the derivative liabilities was estimated using the Binomial option pricing method with the following assumptions:
Dividend rate
|
|
|
0
|
|
%
|
|
Term (in years)
|
|
|
0.01 to 0.38
|
|
years
|
|
Volatility
|
|
|
247.02 to 265.75
|
|
%
|
|
Risk-free interest rate
|
|
|
0.10 to 1.57%
|
|
%
|
|
NOTE 6 – STOCKHOLDERS’ EQUITY
(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.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
On August 21, 2019, as a result of the closing
of the Share Exchange Agreement with Vitana (see Note 3), the equity of the consolidated entity is the historical equity of Vitana
subsidiary retroactively restated to reflect the number of shares issued by the Company in the reverse recapitalization.
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.
Series A Preferred Stock
On March 8, 2019, the Company filed a Certificate
of Designation of Preferences, Rights and Limitations of Series A Preferred Stock which designated 1,000,000 shares of preferred
stock as Series A Preferred Stock at par value of $0.0001 (see Note 1).
The Series A Preferred Stock Certificate
of Designation includes:
|
·
|
a par value of $0.0001 per share and 1,000,000
designated shares of Series A preferred and is not convertible,
|
|
·
|
the Series A preferred stock shall have voting
rights equal to exactly 65% of all voting rights available at the time of any vote, including Series A preferred stock
|
|
·
|
the Series A preferred stock shall rank senior to the Company's common
stock and to all other classes and series of equity securities of the Company which by their terms do not rank senior to the Series
A preferred stock and shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding,
|
|
·
|
Series A preferred holders shall be entitled to receive out of the
assets of the Company whether such assets are capital or surplus, for each share of Series A preferred stock, an amount equal to
the holder's pro rata share of the assets and funds of the Company to be distributed, less any amount distributed to the holders
of the Series A preferred stock, assuming their conversion of Series A preferred stock to common stock and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be distributed
among the holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full,
|
|
·
|
No dividends shall be declared or paid on the Series A preferred
stock
|
Issuance of Series
A preferred stock
·
|
In connection with the Exchange Agreement (see Note 3), the Company
is deemed to have issued 1,000,000 shares of Series A preferred stock which represents the outstanding shares of Series A preferred
stock of the GH Capital, Inc. prior to the closing of the merger.
|
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
As of April 30, 2020, the Company had 1,000,000
shares of Series A preferred stock issued and outstanding.
Series B Preferred Stock
On August 16, 2019, the Company filed a Certificate
of Designation of Preferences, Rights and Limitations of Series B preferred stock which designated 1,000,000 shares of preferred
stock as Series B preferred stock at par value of $0.0001 (see Note 1). On July 20, 2020, the Company’s Board of Directors
approved the increase of the Company’s authorized shares for Series B preferred stock to 1,344,756 shares from 1,000,000
shares of authorized shares of Series B preferred stock.
Shares of Series B Preferred stock granted
during the period from February 11, 2019 and July 20, 2020 were considered issuable, and not issued until the authorized shares
were increased on July 20, 2020.
The Series B Preferred Stock Certificate
of Designation, as amended, includes:
|
·
|
a par value of $0.0001 per share and 1,000,000
designated shares of Series B with no voting rights,
|
|
·
|
the Series B preferred stock shall rank senior to the Company's common
stock and to all other classes and series of equity securities of the Company which by their terms do not rank senior to the Series
B preferred stock and shall be subordinate to and rank junior to all indebtedness of the Company now or hereafter outstanding,
|
|
·
|
Series B preferred holders shall be entitled to receive out of the
assets of the Company whether such assets are capital or surplus, for each share of Series B preferred stock, an amount equal to
the holder's pro rata share of the assets and funds of the Company to be distributed, less any amount distributed to the holders
of the Series B preferred stock, assuming their conversion of Series B preferred stock to common stock and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be distributed
among the holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full,
|
|
·
|
No dividends shall be declared or paid on the Series B preferred
stock,
|
|
·
|
The Series B preferred stock shall be automatically
converted upon the date where in a reverse stock split is deemed effective by the Financial Industry Regulatory Authority (“FINRA”).
Each shares of Series B preferred stock shall automatically convert in a number of shares of common stock equal to its pro-rata
portion of 80% of the total issued and outstanding common shares, post conversion, to be issued to each holder on a pro-rata portion
of the total issued and outstanding Series B preferred stock.
|
Issuance of Series
B preferred stock
·
|
During the three months ended October 31, 2019, the Company issued
an aggregate of 19,884 shares of the Company’s Series B preferred stock to various investors for cash, with the Company receiving
total proceeds of $108,894 or $5.48 per share.
|
·
|
During the three months ended October 31, 2019, the Company
issued an aggregate of 350,364 shares of the Company’s Series B preferred stock to various consultants for consulting,
business advisory, and corporate development services to be rendered. The Company valued the shares of preferred stock at the
fair value of approximately $5.43 per share or $1,903,100 based on the sales of preferred stock on recent private placements
on the dates of grants and such value is being recognized over the terms of the service period.
|
·
|
During the three months ended January 31, 2020, the Company issued
an aggregate of 21,029 shares of the Company’s Series B preferred stock to various investors for cash, with the Company receiving
total proceeds of $114,225 or $5.43 per share.
|
·
|
During the three months ended January 31, 2020, the Company
issued an aggregate of 23,533 shares of the Company’s Series B preferred stock to various consultants for consulting,
business advisory, and corporate development services to be rendered. The Company valued the shares of preferred stock at the
fair value of approximately $5.43 per share or $127,827 based on the sales of preferred stock on recent private placements on
the dates of grants and such value is being recognized over the terms of the service period.
|
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
As of April 30, 2020 and July 31, 2019, the
Company had 1,344,755 and 929,945 shares of Series B preferred stock issued and outstanding, respectively.
Common Stock
Common stock issued for debt conversion
·
|
During the nine months ended April 30, 2020, the lender of the February 2018 note, converted an
aggregate principal of $23,465 and conversion fee of $1,000 into 41,000,000 shares of the Company’s common stock. These shares
of common stock had an aggregate fair value of $102,400 and the Company recorded $77,935 of loss on debt extinguishment related
to these note conversions (see Note 5).
|
·
|
During the nine months ended April 30, 2020, the lender of the February 2018 note, converted
an aggregate outstanding principal of $33,000 and accrued interest of $3,150 into 30,125,000 shares of the Company’s common
stock. The converted note is considered as stock settled debt under ASC 480 and upon conversion $21,099 of the recorded put premium
was reclassified to equity (see Note 5).
|
Subscription receivable
·
|
During the nine months
ended April 30, 2020, the Company collected total subscription receivable of $8,857 which was recorded as of July 31, 2019.
|
Cancellation of common stock
·
|
On August 30, 2019, the Company canceled 7,000,000 shares of the
Company’s common stock received from the sale of the Company’s Brand pursuant to the Spin-Off Agreement (see Note 7).
|
Common stock issued pursuant to recapitalization
·
|
In connection with the Exchange Agreement (see Note 3), GH
Capital, Inc. is deemed to have issued 371,357,400 shares of common stock which represents the outstanding common shares of
the Company prior to the closing of the acquisition (see Note 3).
|
Stock Options
The Company uses the Black-Scholes pricing
model to determine the fair value of its stock options which requires the Company to make several key judgments including:
|
●
|
the value of the Company’s common stock;
|
|
●
|
the expected life of issued stock options;
|
|
●
|
the expected volatility of the Company’s stock price;
|
|
●
|
the expected dividend yields to be realized over the life of the stock option; and
|
|
●
|
the risk-free interest rate over the expected life of the stock options.
|
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
The Company’s computation of the expected
life of issued stock options was based on the simplified method as the Company does not have adequate exercise experience to determine
the expected term. The interest rate was based on the U.S. Treasury yield curve in effect at the time of grant. The computation
of volatility was based on the historical volatility of the Company’s common stock.
Series B preferred
stock option grant
·
|
On October 10, 2019, the Company granted 73,641 options to purchase
shares of the Company’s Series B preferred stock, at an exercise price of $5.43 per share, to a consultant for investor relations
services. These options have a term of 1.23 years from the date of grant, vested immediately and had a grant fair value of $358,500.
The Company recognized stock-based consulting fees of $358,500 during the nine months ended April 30, 2020.
|
As of April 30, 2020, the Company had 73,641
options issued and outstanding. There was $0 intrinsic value in connection with the exercisable stock options as of April 30, 2020.
Stock Warrants
A summary of the Company’s outstanding
stock warrants as of April 30, 2020 and changes during the period ended are presented below:
|
|
|
Number of Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
Balance at July 31, 2019
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Assumed in connection with the recapitalization on August 21,
2019
|
|
|
|
102,040,816
|
|
|
|
0.003
|
|
|
|
3.81
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled/Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Balance at April 30, 2020
|
|
|
|
102,040,816
|
|
|
$
|
0.003
|
|
|
|
3.12
|
|
Warrants exercisable at April 30, 2020
|
|
|
|
102,040,816
|
|
|
$
|
0.003
|
|
|
|
3.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted during the period
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
There was $0 intrinsic value in connection
with the exercisable stock warrants as of April 30, 2020.
GH CAPITAL INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
April 30, 2020
(Unaudited)
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On July 1, 2019, the Company entered into a
License Agreement (the “License Agreement”) with an affiliated company (“VitanaEU”) which is majority owned
by two directors of the Company (see Note 4). The term of the License Agreement is for one year unless terminated by the non-breaching
party upon submitting a written notice within 90 days of such breach. The Company grants VitanaEU an exclusive license to develop,
use, and sell the Company’s products. In consideration for the grant of license, VitanaEU agrees to pay the Company a royalty
of 5% based on VitanaEU’s net sales and a monthly fee of 3,000 Euros due on the first day of each month beginning July 1,
2019 and until such time this License Agreement is terminated. On May 19, 2020, the Company received a notice of cancellation of
the License Agreement from the affiliated company effective July 30, 2020.
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
Increase in Series B Preferred Stock
Authorized Shares
On July 20, 2020, the Company’s Board
of Directors approved the increase of the Company’s authorized shares for Series B preferred stock to 1,344,756 shares from
1,000,000 shares of authorized shares of Series B preferred stock.