Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold,
or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter. $4,652,187.
As of December 12, 2017, the Company has 60,661,818
shares of common stock issued and outstanding.
This Annual Report on Form
10-K (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act of 1934, as amended (the “Exchange
Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions,
forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,”
“could,” “should,” “would,” “may,” “seek,” “plan,” “might,”
“will,” “expect,” “predict,” “project,” “forecast,” “potential,”
“continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout
this Report and include information concerning possible or assumed future results of our operations; business strategies; future
cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash
needs, business plans and future financial results, and any other statements that are not historical facts.
From time to time, forward-looking
statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations,
on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report
and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and
are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual
results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks,
uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different
extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters
addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this Report.
Except to the extent required
by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information,
future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
For discussion of factors
that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A —
Risk Factors” below.
In this report, unless
otherwise indicated or the context otherwise requires, “GH Capital”, “the Company”, “we”, “us”
or “our” refer to GH Capital Inc., a Florida corporation.
PART I
ITEM 1. BUSINESS
Overview
GH Capital Inc. (the
“Company”), a Florida corporation, has developed an online payment gateway called “ClickDirectPay” to
process online money transfer transactions for diversified online merchants with a target market in Europe. We were
incorporated on May 5, 2014 in the State of Florida. On November 12, 2015, we filed a certificate of amendment with the State
of Florida to change our name from Global Humax Capital Management, Inc. to GH Capital Inc.
Our service enables web-based merchants to
accept ClickDirectPay online, which is available at
https://www.clickdirectpay.com
. More specifically, we will focus on
establishing ClickDirectPay as a cost-effective alternative to current payment gateway systems used throughout Europe. Our service
will assist online merchants to increase profits by reducing existing processing costs. Currently, customers and users throughout
Europe (including Germany, Austria, Spain, Italy, Greece, and the Netherlands) prefer to pay bills with an online wire transfer
instead of paying with credit cards or Paypal. We believe our ClickDirectPay payment gateway will meet the needs of the European
online marketplace.
We were formed to discover and promote new
technologies in the financial industry, but our only product or service is currently ClickDirectPay. We will offer our service
to potentially high-risk, niche markets. These markets include e-commerce, gaming, adult entertainment, and digital goods. Furthermore,
we will market our service to large acquiring and issuing banks, as well as financial institutions in Europe, to provide our service
to their clients.
ClickDirectPay is a real-time, online payment
method that offers customers a convenient way to make a payment through their bank's online banking system through online ordering
processes. The online merchant receives real-time confirmation of payment through ClickDirectPay, facilitating the direct delivery
of the service, good or digital content.
ClickDirectPay is a merchant payment portal
that allows customers to make payments directly into the merchant (retailer) bank account. ClickDirectPay allows the merchant to
make and track payments in real time. ClickDirectPay is based in, and developed for, the security standards of German online banking.
ClickDirectPay meets the most current security protocols for online transactions. Customer details are encrypted and transactions
data is “tokenized,” meaning that the customer’s sensitive data is substituted with a non-sensitive equivalent.
ClickDirectPay is cloud-based and is fully hosted on Amazon Cloud, which is Payment Card Industry Security Standard (PCI compliant).
We hope that our unique ClickDirectpay software
in combination with a discounted processing fee structure will attract more merchants. ClickDirectPay intends on marketing its
platform to editors and freelance writers associated with large financial European newspapers and online press, however there is
no guarantee that traction will occur.
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 our financial statements, we had net losses of $5,051,835 and $142,463 for the years
ended September 30, 2017 and 2016, respectively. The net cash used in operations were $147,156 and $69,559 for the years ended
September 30, 2017 and 2016, respectively. Additionally, we had an accumulated deficit of $5,331,892 at September 30, 2017. These
conditions raise substantial doubt about our ability to continue as a going concern for a period of twelve months from the issuance
date of this report. We are in the process of building our customer base and expect to generate increased revenues and we are seeking
to raise capital through additional debt and/or equity financings to fund its operations in the future. Management cannot provide
assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity
capital. Although we have historically raised capital from sales of common stock, there is no assurance that we will be able to
continue to do so. If we are unable to raise additional capital or secure additional lending in the near future, management expects
that we will need to curtail our operations. Our 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 we be unable to continue
as a going concern.
Software Development Costs
We entered a relationship with a third-party
development company to develop a web-based application in Java/J2EE to develop the application. We committed to pay cash of $67,000
in development fees for the completion of the product of which approximately $39,500 was paid as of September 30, 2016. In July
2015, we issued 70,000 shares of common stock valued at $.16 per common share or $11,200 to this third-party development company
as part of a product development agreement. The shares were valued at the most recent cash price paid per share. In connection
with these shares, we recorded capitalized development costs of $11,200. Additionally, on January 7, 2016, we issued an additional
70,000 shares of common stock valued at $.18 per common share or $12,600 to this third-party development company as part of a product
development agreement. The shares were valued at the most recent cash price paid per share. In connection with the issuance of
these shares, we recorded capitalized development costs of $12,600. The Company reviews intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying value of assets may not be recoverable, as a result during the year
ended September 30, 2017, we recorded a non-cash impairment charge of $55,489 associated with our software development costs. These
charges are included in the Statements of Operations.
Licensed Technology
In May 2017 the Company
licensed certain software technology in exchange for 190,000 common shares valued at $38,000. There was an asset impairment charge
recorded in the amount of $30,083 for the period ended September 30, 2017. These charges are included in the Statements of Operations.
Customers
ClickDirectPay began Beta testing
of the system on May 6, 2016. ClickDirectPay is no longer in the Beta stage and was made available to the public in May 2016.
Marketing
We market our ClickDirectPay online payment
gateway service through a large network of existing resellers and free-lancers from the payment industry in Germany, Austria and
Spain. We are not actively marketing our services using any direct marketing campaigns. We have marketed our services primarily
through word-of-mouth.
We are focusing on expanding our offering within
Europe by seeking out banks and financial institutions in other European countries in need of our service offering.
Competition
Our competitors in the online payment industry
are numerous in Europe. Our competitors include financial institutions and well-established payment processing companies. In Europe,
specifically in Germany, we face competition from both SOFORT GmbH and GIROPAY SOLUTIONS GmbH. We also face competition from PayPal.
Our primary competitor is SOFORT and they offer a nearly identical service to what we offer. However, we provide
the service at reduced costs in the hopes that merchants will prefer our service.
We also face competition from Giropay Solutions
which has a minimal market share of online payment transactions compared to SOFORT GmbH and is only able to process transactions
through a smaller percentage of banks in Germany. We also face competition from PayPal in Europe.
In Europe, financial institutions
remain the primary providers of merchant acquiring payment services to merchants, although the outsourcing of these services to
third-party service providers is becoming more prevalent. Merchant acquiring payment services have become increasingly complex,
requiring significant capital commitments to develop, maintain and update the systems necessary to provide these advanced services
at competitive prices.
Government Regulation
We are not aware of any existing governmental
regulations that would have a material effect on our business at this time. However, on August 10, 2015, the European Parliament
issued a revised directive (the “Directive”) on Payment Services, which will not become effective until 1) it is adopted
by the EU Council of Ministers, 2) it is published in the Official Journal of the EU, and 3) the EU Member States will have two
years to introduce the necessary changes in their national laws to comply with the new rules. Under the Directive, the Company
is deemed to be a “payment initiation service” and may become subject to rules regarding confidentiality, liability
and security on consumer transactions. However, none of these has taken place yet.
Employees
We currently have no employees, aside from
the Company’s CEO and Director, Wolfgang Ruecker and our COO, Secretary and Director Carl Podeyn (On October 24, 2017, pursuant
to the majority consent of the Board of Directors pursuant to Section 2.12 of the Bylaws of the Company, Carl Podeyn was removed
as a member of the Board of Directors) and Director William Eilers.
ITEM 1A. RISK FACTORS
RISKS RELATED TO OUR BUSINESS
Limited Operating History; Accumulated
Deficit
The Company was formed and began operations
on May 5, 2014. Prior to that time, the Company had no operations upon which an evaluation of the Company and its prospects could
be based. There can be no assurance that management of the Company will be successful in selling its services to web-based merchants
or that the Company will generate sufficient revenues to meet its expenses or to achieve or maintain profitability.
Our Independent Registered Public Accounting
Firm Has Expressed Substantial Doubt as To Our Ability To Continue As A Going Concern.
Based on our financial history since inception,
our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.
We have generated very little revenue. If we are unable to successfully implement our business, then we may be unable
to continue to operate.
We Need Additional Capital to Develop
Our Business.
The development of our services will require
the commitment of substantial resources to implement our business plan. Currently, we have no established bank-financing arrangements.
We believe that our currently available capital resources may only enable the Company to continue with our planned operations for
a twelve to fifteen-month period. Aside from legal and accounting expenses, we do not currently incur many recurring operational
costs. Therefore, it is likely we would need to seek additional financing through subsequent future private offering of our equity
securities, or through strategic partnerships and other arrangements with corporate partners.
We cannot give you any assurance that any additional
financing will be available to us, or if available, will be on terms favorable to us. The sale of additional equity securities
will result in dilution to our stockholders. The occurrence of indebtedness would result in increased debt service obligations
and could require us to agree to operating and financing covenants that would restrict our operations. If adequate additional financing
is not available on acceptable terms, we may not be able to implement our business development plan or continue our business operations.
Requirements associated with being a
reporting public company will require significant company resources and management attention.
Commencing on the effective date of the registration
statement, which became effective in September 2016, we have been required to file certain reports with the SEC pursuant to Section
15(d) of the Exchange Act. We have been filing periodic reports to maintain current information with the SEC on Forms 10-Q, 10-K
and 8-K as prescribed by the rules and regulations of the Exchange Act. We work with independent legal, accounting, and financial
advisors to ensure adequate disclosure and control systems to manage our growth and our obligations as a company that files reports
with the SEC. These areas include corporate governance, internal controls, disclosure controls and procedures and financial reporting
and accounting systems. However, we cannot assure you that these and other measures we may take will be sufficient to allow us
to satisfy our obligations as an SEC reporting company on a timely basis.
In addition, compliance with reporting and
other requirements applicable to SEC reporting companies will create additional costs for us. It will require the time and attention
of management and will require the hiring of additional personnel and legal and other professionals. We cannot predict or estimate
the amount of the additional costs we may incur, the timing of such costs or the impact that our management’s attention
to these matters will have on our business.
Our inability to effectively manage our
growth could harm our business and materially and adversely affect our operating results and financial condition
.
Our strategy envisions growing our business.
Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources,
infrastructure, and systems. As with other growing businesses, we expect that we will need to further refine and expand our business
development capabilities, our systems and processes and our access to financing sources. We also will need to hire, train, supervise
and manage new employees. These processes are time consuming and expensive, will increase management responsibilities and will
divert management attention. We cannot assure you that we will be able to:
-
expand our business effectively or efficiently or in a timely manner;
-
allocate our human resources optimally;
-
meet our capital needs;
-
identify and hire qualified employees or retain valued employees;
or
-
effectively incorporate the components of any business or product
line that we may acquire in our effort to achieve growth.
Our inability or failure to manage our growth
and expansion effectively could harm our business and materially and adversely affect our operating results and financial condition.
We will be required to attract and retain
top quality talent to compete in the marketplace.
We believe our future growth and success will
depend in part on our ability to attract and retain highly skilled managerial, sales and marketing, and finance personnel. There
can be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability
to compete in the marketplace.
Our officers may not provide their entire
business efforts to the Company, which may cause the Company to fail.
Our future ability to execute our business
plan depends upon the continued service of our executive officer, Wolfgang Ruecker. Mr. Ruecker is also an officer and director
of Global Humax Cyprus Ltd. a business that previously focused on payment systems, but has since refocused its efforts on white
label branding of credit cards. As such, Mr. Ruecker may be limited in the amount of time he can devote to the Company.
RISK FACTORS RELATING TO OUR TECHNOLOGY:
Our systems and our third-party providers’
systems may fail due to factors beyond our control, which could interrupt our service, cause us to lose business and increase our
costs.
We depend on the efficient
and uninterrupted operation of numerous systems, including systems of third parties, in order to provide services to our
clients. The systems and operations of our third-party providers could be exposed to damage or interruption from, among other
things, fire, natural disaster, power loss, telecommunications failure, unauthorized entry, security breach, computer
viruses, defects, and development delays. Defects in the systems of third parties, errors, or delays in the processing of
payment transactions, telecommunications failures or other difficulties could result in loss of revenues and clients,
reputational harm, and additional operating expenses in order to remediate the failures, fines imposed by payment networks
and exposure to other losses or other liabilities.
The payment processing industry is highly
competitive, and we compete with certain firms that are larger and that have greater financial resources. Such competition could
adversely affect the transaction and other fees we receive from merchants and financial institutions, and as a result, our margins,
business, financial condition, and results of operations.
The market for payment processing services
is highly competitive. We compete with certain other providers of payment processing services that have significant resources and
a sizable market share in the markets in which we operate. We also face competitive pressure from non-traditional payment processors
and other market participants that have significant financial resources.
Our competitors include financial institutions
and well-established payment processing companies.
Competition could result in a great difficulty
attracting new clients. Furthermore, if competition causes us to reduce the fees we charge in order to attract clients, there is
no assurance we can successfully control our costs. One or more of these factors could have a material adverse effect on our business,
financial condition and results of operations.
Furthermore, we are facing competitive pressure
from non-traditional payments processors and other parties entering the payments industry, such as PayPal, Google, Apple, Alibaba,
and Amazon, who compete in processing merchant transactions. These companies have significant financial resources and robust networks
and are highly regarded by consumers.
Our inability to protect our systems
and data from continually evolving cybersecurity risks or other technological risks could affect our reputation among our merchant
clients and cardholders and may expose us to penalties, fines, liabilities, and legal claims.
In order to provide our services, we process
and store sensitive business information and personal information about our merchants, merchants’ customers, vendors, partners,
and other parties. This information may include credit and debit card numbers, bank account numbers, names and addresses, and other
types of personal information or sensitive business information. Some of this information is also processed and stored by our merchants,
third-party service providers to whom we outsource certain functions, and other agents (which we refer to collectively as our "associated
third parties"). We have responsibility to the card networks and their member financial institutions for our failure or the
failure of our associated third parties to protect this information. While plans and procedures are in place to protect this
sensitive data, we cannot be certain that these measures will be successful and will be sufficient to counter all current and emerging
technology threats that are designed to breach our systems in order to gain access to confidential information.
Our computer systems are subject to penetration
and our data protection measures may not prevent unauthorized access. The techniques used to obtain unauthorized access, disable,
or degrade service or sabotage systems change frequently and are often difficult to detect. Threats to our systems and our associated
third parties’ systems can derive from human error, fraud, or malice on the part of employees or third parties, or may result
from accidental technological failure. Computer viruses can be distributed and could infiltrate our systems or those of our associated
third parties. In addition, denial of service or other attacks could be launched against us for a variety of purposes, including
to interfere with our services or create a diversion for other malicious activities. Our defensive measures may not prevent unauthorized
access or use of sensitive data. We currently do not maintain insurance coverage that may cover certain aspects of cyber risks
and we may incur losses.
We could also be subject to liability for claims
relating to misuse of personal information, such as unauthorized marketing purposes and violation of data privacy laws. We cannot
provide assurance that the contractual requirements related to security and privacy that we impose on our service providers who
have access to merchant and customer data will be followed or will be adequate to prevent the unauthorized use or disclosure of
data. In addition, we have agreed in certain agreements to take certain protective measures to ensure the confidentiality of merchant
and consumer data. The costs of systems and procedures associated with such protective measures may increase and could adversely
affect our ability to compete effectively. Any failure to adequately enforce or provide these protective measures could result
in liability, protracted and costly litigation and, with respect to misuse of personal information of our merchants and consumers,
lost revenue and reputational harm.
Any type of security breach, attack or misuse
of data described above or otherwise, could harm our reputation and deter existing and prospective customers from using our services
or from making electronic payments generally, increase our operating expenses in order to contain and remediate the incident, expose
us to unbudgeted or uninsured liability, disrupt our operations (including potential service interruptions), distract our management,
increase our risk of regulatory scrutiny, result in the imposition of penalties and fines under state, federal and foreign laws
or by the card networks, and adversely affect our continued card network registration and financial institution sponsorship.
In order to remain competitive, we must
continually and quickly update our services, a process that could result in higher costs.
The electronic payments markets in which we
compete are characterized by rapid technological change, new product introductions, evolving industry standards and changing customer
needs. In order to remain competitive, we may need to update ClickDirectPay or even consider creating additional mobile payment
applications or services in the electronic payments industry. These projects carry the risks associated with any development effort,
including cost overruns, delays in delivery and performance problems. Any delay in the delivery of new services or the failure
to differentiate our services could render them less desirable to our customers, or possibly even obsolete. Furthermore, as the
market for alternative payment processing services evolves, it may develop too rapidly or not rapidly enough for us to recover
the costs we have incurred in developing new services targeted at this market.
Any failure to deliver an effective and secure
product or any performance issue that arises with a new product or service could result in significant processing or reporting
errors or other losses. As a result of these factors, our development efforts could result in higher costs that could reduce our
earnings in addition to a loss of revenue and earnings if promised new services are not delivered timely to our customers or do
not perform as anticipated.
We rely on various financial institutions
to provide clearing services in connection with our settlement activities. If we are unable to maintain clearing services with
these financial institutions and are unable to find a replacement, our business may be adversely affected.
We rely on various financial institutions to
provide clearing services in connection with our settlement activities. If such financial institutions should stop providing clearing
services, we must find other financial institutions to provide those services. If we are unable to find a replacement financial
institution we may no longer be able to provide processing services to certain customers, which could negatively affect our revenue
and earnings.
RISKS RELATED TO OUR COMMON STOCK
There is no assurance of a public market
or that our common stock will ever trade on a recognized exchange. therefore, you may be unable to liquidate your investment in
our stock.
There is no established public trading marketing
for our Common Stock and there can be no assurance that one will ever develop. Market liquidity will depend on the perception of
our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no
assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment
or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers
for our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors
having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
We have never paid dividends on our common
stock, and cannot guarantee that we will pay dividends to our stockholders in the future.
We have never paid dividends on our common
stock. For the foreseeable future, we intend to retain our future earnings, if any, in order to reinvest in the development and
growth of our business and, therefore, do not intend to pay dividends on our common stock. However, in the future, our board of
directors may declare dividends on our common stock. Any future determination to pay dividends will be at the discretion of our
board of directors and will depend on our financial condition, results of operations, capital requirements, and such other factors
as our board of directors deems relevant. Accordingly, investors may need to sell their shares of our common stock to realize a
return on their investment, and they may not be able to sell such shares at or above the price paid for them. We cannot guarantee
that we will pay dividends to our stockholders in the future.
Our common stock is considered a penny
stock, which may be subject to restrictions on marketability, so you may not be able to sell your shares.
We may be subject now and in the future to
the SEC’s “penny stock” rules if our shares of Common Stock sell below $5.00 per share. Penny stocks generally
are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk
disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing
before or with the customer’s confirmation.
In addition, the penny stock rules require
that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome
and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock. As long as our shares
of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more difficult to
sell their securities.
Because we are subject to additional
regulatory compliance matters as a result of being a public company, which compliance includes Section 404 of the Sarbanes-Oxley
Act, and our management has little experience managing a public company, the failure to comply with these regulatory matters could
harm our business.
Our management and outside professionals will
need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with
being a public company. Wolfgang Ruecker, our President, has very little experience running a public company. For now, he will
rely heavily on legal counsel and accounting professionals to help with our future SEC reporting requirements. This will likely
divert needed capital resources away from the objectives of implementing our business plan. These expenses could be costlier
than we are able to bear and could result in us not being able to successfully implement our business plan.
We expect rules and regulations such as the
Sarbanes-Oxley Act will increase our legal and finance compliance costs and make some activities more time-consuming than in the
past. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our
ongoing obligations as a public company.
As a smaller reporting company, our management
will be required to provide a report on the effectiveness of our internal controls over financial reporting, but will not be required
to provide an auditor’s attestation regarding such report and management’s report need not be provided until our second
annual report. Section 404 compliance efforts may divert internal resources and will take a significant amount of time and effort
to complete. We may not be able to successfully complete the procedures and certification of Section 404 by the time we will be
required to do so. If we fail to do so, or if in the future our management determines that our internal controls over financial
reporting are not effective, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore,
investor perceptions of our company may suffer, and this could cause a decline in the market price of our stock. Furthermore, whether
or not we comply with Section 404, any failure of our internal controls could have a material adverse effect on our stated financial
position and results of operations and harm our reputation. If we are unable to implement necessary procedures or changes effectively
or efficiently, it could harm our operations, financial reporting or financial results.
ADDITIONAL RISK FACTORS:
Dependence on Key Personnel
The Company will be dependent on its Chief
Executive Officer, Wolfgang Ruecker, for the foreseeable future. The loss of the services of Mr. Ruecker could have a material
adverse effect on the operations and prospects of the Company.
Apart from its officers, Mr. Ruecker and
Mr. Eilers, as of the date hereof, the Company does not have any employees and does not have an employment agreement with
Messrs. Ruecker or Eilers. It is contemplated that the Company may enter into employment agreements usual and
customary for its industry in the future. The Company does not currently have any "key man" life insurance on
Messrs. Ruecker, or Podeyn or Eilers.
Certain of our officers and directors
reside outside the United States. Therefore, certain judgments obtained against our Company by our shareholders may not be enforceable.
The Company is a Florida Corporation. Wolfgang
Ruecker is an officer and director and resides outside of the United States. Mr. Ruecker’s assets are located outside of
the United States. As a result, it may not be possible for investors to effect service of process within the United States upon
such persons or to enforce against these persons the United States federal securities laws, or to enforce judgments obtained in
United States courts predicated upon the civil liability provisions of the federal securities laws of the United States, including
the Securities Act and the Exchange Act.
We Are An “Emerging Growth Company,”
And Any Decision on Our Part To Comply Only With Certain Reduced Disclosure Requirements Applicable To “Emerging Growth Companies”
Could Make Our Common Stock Less Attractive To Investors.
We are an “emerging growth company,”
as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we expect and fully
intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging
growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company”
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues
exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million
as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued
more than $1 billion in non-convertible debt during the preceding three year period.
In addition, Section 107 of the JOBS Act also
provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We
have elected to opt in to the extended transition period for complying with the revised accounting standards. We have elected to
rely on these exemptions and reduced disclosure requirements applicable to “emerging growth companies” and expect to
continue to do so.
The Jobs Act Allows Us to Delay The Adoption
Of New Or Revised Accounting Standards That Have Different Effective Dates For Public And Private Companies.
Since we have elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election allows us
to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies
until those standards apply to private companies. As a result of this election, our financial statements may not be
comparable to companies that comply with public company effective dates.
Our Shares of Common Stock Will Not Be
Registered Under The Exchange Act And As A Result We Will Have Limited Reporting Duties Which Could Make Our Common Stock Less
Attractive To Investors.
Our shares of Common Stock are not registered
under the Exchange Act. As a result, we will not be subject to the federal proxy rules and our directors, executive officers and
10% beneficial holders will not be subject to Section 16 of the Exchange Act. In additional our reporting obligations under Section
15(d) of the Exchange Act may be suspended automatically if we have fewer than 300 shareholders of record on the first day of our
fiscal year. Our common shares are not registered under the Securities Exchange Act of 1934, as amended, and we do not intend to
register our shares of Common Stock under the Exchange Act for the foreseeable future, provided that, we will register our shares
of Common Stock under the Exchange Act if we have, after the last day of our fiscal year, more than either (i) 2000 persons; or
(ii) 500 shareholders of record who are not accredited investors, in accordance with Section 12(g) of the Exchange Act. As a result,
although, upon the effectiveness of the Registration Statement of which this prospectus forms a part, we will be required to file
annual, quarterly, and current reports pursuant to Section 15(d) of the Exchange Act, as long as our shares of Common Stock are
not registered under the Exchange Act, we will not be subject to Section 14 of the Exchange Act, which, among other things, prohibits
companies that have securities registered under the Exchange Act from soliciting proxies or consents from shareholders without
furnishing to shareholders and filing with the Securities and Exchange Commission a proxy statement and form of proxy complying
with the proxy rules. In addition, so long as our shares of Common Stock are not registered under the Exchange Act, our directors
and executive officers and beneficial holders of 10% or more of our outstanding shares of Common Stock will not be subject to Section
16 of the Exchange Act. Section 16(a) of the Exchange Act requires executive officers and directors, and persons who beneficially
own more than 10% of a registered class of equity securities to file with the SEC initial statements of beneficial ownership, reports
of changes in ownership and annual reports concerning their ownership of shares of Common Stock and other equity securities, on
Forms 3, 4 and 5, respectively. Such information about our directors, executive officers, and beneficial holders will only be available
through this (and any subsequent) Registration Statement, and periodic reports we file thereunder. Furthermore, so long as our
shares of Common Stock are not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange
Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement
under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension is automatic and does
not require any filing with the SEC. In such an event, we may cease providing periodic reports and current or periodic information,
including operational and financial information, may not be available with respect to our results of operations.
Because Our Common Stock Is Not Registered
Under the Securities Exchange Act Of 1934, As Amended, Our Reporting Obligations Under Section 15(D) Of The Securities Exchange
Act Of 1934, As Amended, May Be Suspended Automatically If We Have Fewer Than 300 Shareholders Of Record On The First Day Of Our
Fiscal Year.
Our Common Stock is not registered under the
Exchange Act, and we do not intend to register our Common Stock under the Exchange Act for the foreseeable future (provided that,
we will register our Common Stock under the Exchange Act if we have, after the last day of our fiscal year, $10,000,000 in total
assets and either more than 2,000 shareholders of record or 500 shareholders of record who are not accredited investors (as such
term is defined by the Securities and Exchange Commission), in accordance with Section 12(g) of the Exchange Act).
As long as our Common Stock is not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the
Exchange Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration
statement under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension
is automatic and does not require any filing with the SEC. In such an event, we may cease providing periodic reports
and current or periodic information, including operational and financial information, may not be available with respect to our
results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our principal executive office is located at
200 South Biscayne Boulevard Suite 2790
, Miami, FL 33131, and our telephone number
is (305) 714-9397. We lease our office space through a virtual office provider.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our Company.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is presently no public market for our
shares of common stock. We have engaged a market maker to begin the process of obtaining a quotation of our common stock on the
OTC Markets. However, we can provide no assurance that our shares of common stock will be quoted on the OTC Markets or, if quoted,
that a public market will materialize.
Holders of Capital Stock
December 14, 2017, we had 40 holders of our common stock.
Rule 144 Shares
In general, under Rule 144 as currently in
effect, an affiliate who has beneficially owned shares of a company’s common stock for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed 1% of the number of shares of the Company’s common
stock then outstanding which, in our case, would equal approximately 606,618 shares of our common stock as of December 14, 2017.
In accordance with the volume and trading limitations
of Rule 144 of the Act, in general, under Rule 144 as currently in effect, a person who has beneficially owned shares of a company's
common stock for at least twelve month if the Company is not subject to the reporting requirements of the Securities Act of 1934
or six months provided that the company has been subject to the reporting requirements of the Securities Act of 1934 for a minimum
of 90 days, is entitled to sell within any three month period a number of shares that does not exceed the greater of 1% of the
number of shares of the company's common stock then outstanding, since we are seeking to list our common stock on the OTC.
Sales under Rule 144 are also subject to manner
of sale provisions and notice requirements and to the availability of current public information about the company. Under Rule
144, a person who is not one of the Company’s affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least one year if the Company has been subject to the reporting
requirements
of the Securities Act of 1934 and two years if not subject to the reporting requirements of the Securities Act of 1934, is entitled
to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Stock Option Grants
We currently have not issued any stock options.
Recent Sales of Unregistered Securities
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, between October 2016 and March 2017, the Company issued 571,900 of shares
of common stock for cash proceeds of $115,258.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, Effective August 1, 2016, the Company entered into a twelve-month consulting
agreement (the “Consulting Agreement”) with an investor relations firm for investor relations services. In connection
with this consulting agreement, the Company shall compensate the consultant for services rendered 1) cash of $2,000 per month for
the first three months then $2,500 per month thereafter and 2) Monthly restricted stock for consulting and services fees paid in
advance of services each month to consultant will be $6,000 per month; Such fee will be calculated and valued at the lower of the
trailing 5-day volume-weighted average price or the closing price on the last day of each month. On October 1, 2016, the Company
issued 40,000 shares of restricted stock to the consultant. The shares were valued at their fair value of $6,000 using the recent
sale price of the common stock on the dates of grant of $0.15 per common share. On January 23, 2017, the Company issued 160,000
shares of restricted stock to this consultant for services that covered from November 2016 through February 2017. The shares were
valued at their fair value of $30,400 using the most recent sale price on October 27, 2016 of the common stock on the dates of
grant of $0.19 per common share. Additionally, on March 10, 2017, the Company issued 300,001 shares of restricted stock to this
consultant for services covering from March 2017 through July 2017. The shares were valued at their fair value of $51,000 using
the most recent sale price on March 9, 2017 of the common stock on the dates of grant of $0.17 per common share. In connection
with issuance of these common shares, we recorded stock-based professional fees of $87,400 over the service period.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, In connection with various consulting agreements, on March 3, 2017, the Company
issued 8,545,000 shares of restricted stock to eight consultants for business development services covering from March 2017 through
September 2017. The shares were valued at their fair value of $1,623,550 using the most recent sale price on October 27, 2016 of
the common stock on the dates of grant of $0.19 per common share. During the year ended September 30, 2017, the Company recognized
stock based compensation of $1,623,550 related to these consulting agreements.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, On March 23, 2017, the Company issued 120,000 shares of restricted stock to
a consultant for accounting services covering from January 2017 through December 2017. The shares were valued at their fair value
of $24,000 using the most recent sale price on March 21, 2017 of the common stock on the dates of grant of $0.20 per common share.
During the year ended September 30, 2017, the Company recognized stock based compensation of $18,000 and prepaid expense of $6,000
to be amortized over the remaining service period.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, On February 27, 2017, in connection with Director Agreements, the Company
issued 15,000,000 shares of restricted stock to the Company’s CEO /Director and issued 500,000 shares of restricted common
stock to a director. The 15,500,000 shares of common stock are considered fully vested on the date of grant. The shares were valued
at their fair value of $2,945,000 using the most recent sale price on October 27, 2016 of the common stock on the dates of grant
of $0.19 per common share. During the year ended September 30, 2017, the Company recognized stock based compensation of $2,945,000
on these fully vested shares as there was no forfeiture provision in accordance with ASC 718.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, On May 2, 2017, the Company issued 190,000 shares of restricted stock to a
consultant in connection with a two-year software licensing agreement. The shares were valued at their fair value of $38,000 using
the most recent sale price of the Company’s common stock on the date of grant of $0.20 per common share. In connection with
the issuance of these shares, the Company recorded an intangible asset of $38,000 which will be amortized over the license term.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, On May 23, 2017, in connection with Director Agreements, the Company issued
500,000 shares of restricted stock to a director of the Company. The shares were valued at their fair value of $100,000 using the
most recent sale price of the common stock on the dates of grant of $0.20 per common share. During the year ended September 30,
2017, the Company recognized stock based compensation of $100,000 on these fully vested shares as there was no forfeiture provision
in accordance with ASC 718.
Pursuant to an exemption from registration
under Section 4(a)(2) of the Securities Act of 1933, On June 21, 2017, the Company issued 117,500 shares of restricted stock to
a consultant in connection with system development services. The shares were valued at their fair value of $23,500 using the most
recent sale price of the Company’s common stock on the date of grant of $0.20 per common share. In connection with the issuance
of these shares, during the year ended September 30, 2017, the Company reduced accrued expenses by $23,500.
Purchases of Equity Securities by the Issuer
and Affiliated Purchasers
In July of 2016, Tuxedo Capital Ltd., an entity controlled by Wolfgang
Ruecker who is an officer and director of the Company, entered into an agreement to purchase 50,000 shares of the Company from
Cornelus Verstalen at a price of 19 cents per share for an aggregate purchase price of $9,900. The transfer of shares did
not occur until December 12, 2016.
ITEM 6. SELECTED FINANCIAL DATA
We are not required to provide the information
required by this item because we are a smaller reporting company.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
See Forward Statements – Cautionary Factors
in Item 1 herein
Business Overview
We were incorporated on May 5, 2014 in the
State of Florida. We intend to generate revenue through licensing our technology to third parties in Europe. More specifically,
we will focus our sales efforts in Germany, Austria, and Spain. At this time, we have no significant assets.
For the years ended September 30, 2017 and
2016, we generated revenues of $28,039 and $27,585, including revenues from a related party of $17,279 and $12,585, respectively.
All of the related party revenues were a result of a related party service contract entered into with Global Humax Cyprus Ltd.
(“Cyprus”).
Additionally, for the year ended September
30, 2017 and 2016, net loss amounted to $5,051,835 and $142,463, respectively. Since inception, our business activity has focused
on the development of our corporate entity, business plan, marketing strategy, contact development, website design and product
design, and development of our payment gateway called “ClickDirectPay”.
Plan of Operations
The Company’s strategy is to engage as
many third-party merchants to rely on its payment system. The Company charges each merchant a percentage of revenues, in addition
to transaction fees. The Company’s President will personally attempt to acquire as many merchants to use the Company’s
ClickDirectPay application to drive revenues.
Critical Accounting Policies and Estimates
While our significant accounting policies are
more fully described in Note 2 to our financial statements, we believe that the following accounting policies are the most critical
to aid you in fully understanding and evaluating this management’s discussion and analysis.
Use of Estimates
The preparation of 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 be affected by those estimates. Included in these estimates are
valuation of marketable securities, assumptions used in determining the lives and valuations of long-lived assets, valuation allowances
for deferred tax assets and the valuation of stock issued for services.
Marketable Securities
Pursuant to ASC 320, Investments – Debt
and Equity Securities, marketable securities held by us are held for an indefinite period of time and thus are classified as available-for-sale
securities. The fair value is based on quoted market prices for the investment as of the balance sheet date. Realized investment
gains and losses are included in the statement of operations, as are provisions for other than temporary declines in the market
value of available for-sale securities. Unrealized gains and unrealized losses deemed to be temporary are excluded from earnings
(losses), net of applicable taxes, as a component of other comprehensive income (loss). Factors considered in judging whether an
impairment is other than temporary include the financial condition, business prospects and creditworthiness of the issuer, the
length of time that fair value has been less than cost, the relative amount of decline, and our ability and intent to hold the
investment until the fair value recovers.
Capitalized Software Development Costs
Software development costs related to the development
of our electronic payment platform software, which is developed for internal use, falls under the accounting guidance of ASC Topic
350-40,
Intangibles Goodwill and Other–Internal Use Software
, in which computer software costs are expensed as incurred
during the preliminary project stage and capitalization begins in the application development stage once the capitalization criteria
are met. Costs associated with post implementation activities are expensed as incurred. Costs capitalized during the application
development stage include external direct costs of materials and services consumed in developing or obtaining internal-use software
and payroll and payroll-related costs for employees who are directly associated with, and who devote time to, the internal-use
computer software. Once the project is substantially complete and ready for its intended use these costs are amortized on a straight-line
basis over the technology's estimated useful life of three years. We have begun to amortize capitalized development costs in May
2016. For the year ended September 30, 2017 and September 30, 2016 amortization expense related to capitalized software development
costs were $22,700 and $12,611 respectively and the accumulated amortization was $35,311 and $12,611 respectively.
Intangible Assets
Intangible assets with finite lives primarily
consist of licensed technology and are amortized on a straight-line basis over the expected period to be benefited by future cash
flows of two years and reviewed for impairment. For the year ended September 30, 2017 and September 30, 2016 amortization expense
related to licensed technology were $7,917 and $0 respectively and the accumulated amortization was $7,917 and $0 respectively.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between
the asset’s estimated fair value and its book value.
The Company reviews intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying value of assets may not be recoverable, as a result during
the year ended September 30, 2017, we recorded a non-cash impairment charge of $85,572 (which consisted of a $128,800 cost less
accumulated amortization of $43,228), associated with our software development costs. These charges are included in the Statements
of Operations.
Revenue Recognition
We recognize revenue when persuasive evidence
of a sale arrangement exists, services have been rendered, the sales price is fixed and determinable and collectability is reasonably
assured. Revenues consists of fees generated through the electronic processing of payment transactions and related services, and
is recognized as revenue during the period the transactions are processed or when the related services are performed. Merchants
may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction and,
in some instances, additional fees are charged for each transaction. Merchant customers are generally charged a flat fee per transaction,
while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly minimums, and other miscellaneous
services. Revenues also includes any up-front fees for the work involved in implementing the basic functionality required to provide
electronic payment processing services to a customer. Revenue from such implementation fees is recognized over the term of the
related service contract. Our revenue is comprised of monthly recurring services provided to customers, for whom charges are contracted
for over a specified period of time. Payments received from customers that are related to future periods are recorded as deferred
revenue until the service is provided.
Stock-Based Compensation
Stock-based compensation is accounted for based
on the requirements of the ASC 718, Share-Based Payment, which requires recognition in the financial statements of the cost of
employee and director services received in exchange for an award of equity instruments over the period the employee or director
is required to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting Standards
Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an
award based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based
payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The
expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation
expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09, “
Revenue from Contracts with Customers (Topic 606),
” (“ASU
2014-09”). ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.
This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new
model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration a company expects to receive in exchange for those goods or services. ASU 2014-09 is effective for
public entities for annual reporting periods beginning after December 15, 2016 and interim periods within those periods.
Early adoption is not permitted. The FASB has approved a one-year deferral of the effective date with the option to early
adopt using the original effective date. Entities may use either a full retrospective or a modified retrospective approach to
adopt ASU 2014-09. In December 2016, the FASB issued Accounting Standards Update No. 2016-20, Technical Corrections and
Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20. In May 2016, the FASB issued Accounting
Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients, or ASU 2016-12. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March 2016, the FASB issued
Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross), or ASU 2016-08. These updates provide additional clarification and
implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with
Customers (Topic 606), or ASU 2014-09. The amendments in ASU 2016-20 provide technical corrections to various implementation
examples and clarifying guidance on the treatment of capitalized advertising costs, impairment testing of capitalized
contract costs, performance obligation disclosures and scope exceptions. The amendments in ASU 2016-12 provide clarifying
guidance on assessing collectability; noncash consideration; presentation of sales taxes; and transition. The amendments in
ASU 2016-10 provide clarifying guidance on the materiality and evaluation of performance obligations; treatment of shipping
and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to
use or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should
identify the specified good or service for the principal versus agent evaluation and how it should apply the control
principle to certain types of arrangements. Collectively, these updates will require a company to recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. The adoption of ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU
2016-08 is to coincide with an entity's adoption of ASU 2014-09. The new guidance permits adoption through either a full
retrospective approach or a modified retrospective approach with a cumulative effect adjustment to retained earnings. The
Company has assessed the impact that adopting this new accounting guidance will have on its financial statements and footnote
disclosures and believes such impact will not be material.
In January 2016, the FASB issued ASU 2016-01,
"Financial Instruments—Overall (Topic 825-10): "Recognition and Measurement of Financial Assets and Financial Liabilities."
ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Some of the amendments in ASU 2016-01
include the following: 1) requires equity investments (except those accounted for under the equity method of accounting or those
that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative
assessment to identify impairment; 3) requires public business entities to use the exit price notion when measuring the fair value
of financial instruments for disclosure purposes; and 4) requires an entity to present separately in other comprehensive income
the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk
when the entity has elected to measure the liability at fair value; among others. For public business entities, the amendments
of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years. Early adoption is not permitted. The Company is currently evaluating the effects of ASU 2016-01 on its consolidated financial
statements and disclosures.
In August 2016, the FASB issued ASU 2016-15 which addresses eight
cash flow classification issues, eliminating the diversity in practice. This ASU is effective for annual and interim reporting
periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition method, requiring adjustment
to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments
would be prospectively applied as of the earliest date practicable. The Company is evaluating the impact this ASU will have on
its financial statements and whether to early adopt.
In January 2017, the FASB issued the Accounting Standards Update
No. 2017-01 (“ASU 2017-01”), Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business
and establishes a screening process to determine whether an integrated set of assets and activities acquired is deemed the acquisition
of a business or the acquisition of assets. ASU 2017-01 is effective for annual and interim periods beginning after December 15,
2017 and should be applied prospectively, with early adoption permitted. The Company does not expect that adoption of ASU 2017-01
will have a material impact on its financial statements and related 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.
Results of Operations
Revenues
For the years ended September 30, 2017 and
2016, we had $28,039 and $27,585 in revenues, including revenues from a related party of $17,279 and $12,585, respectively. Revenues
increased due to an increase in related party revenue of $4,694. All of the related party revenues were from Global Humax Cyprus
Ltd. (“Cyprus”).
Cost of Revenues
For the year ended September 30, 2017, we had $29,527 in cost of
revenues as compared to $21,813 for the year ended September 30, 2016, an increase of $7,714. Cost of revenues increased primarily
due to an increase in hosting and software maintenance fees,
Operating Expenses
For the year ended September 30, 2017, we incurred
$5,049,196 in operating expenses as compared to $144,701 for the year ended September 30, 2016, an increase of $4,904,495. Operating
expenses consisted of the following:
|
|
Year Ended
|
|
|
September 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Compensation
|
|
$
|
3,061,900
|
|
|
$
|
18,550
|
|
Amortization of software development costs and intangible asset
|
|
|
30,617
|
|
|
|
12,611
|
|
Professional fees
|
|
|
1,852,913
|
|
|
|
98,415
|
|
Asset impairment
|
|
|
85,572
|
|
|
|
—
|
|
Other selling, general and administrative expenses
|
|
|
18,194
|
|
|
|
15,125
|
|
Total
|
|
$
|
5,049,196
|
|
|
$
|
144,701
|
|
Operating expenses increased primarily due
to
|
·
|
For the year ended September
30, 2017, we had an increase in compensation of $3,043,350, primarily due to stock based compensation to our directors and CEO
for $3,045,000.
|
|
·
|
We had an increase in
professional fees of $1,754,498, primarily due to an increase in consulting fees of $1,622,700 from stock based compensation, increase
in investor relations fees of $99,100, primarily due to stock based consulting fees of $51,000, an increase in accounting and audit
fees of $14,635, due to the hiring of an accounting consultant, an increase in fees incurred to become a trading company of $12,000,
offset by a decrease in legal fees of $6,948.
|
|
·
|
We had an increase in
amortization of development costs of $10,089.
|
|
·
|
We had an increase in
amortization of intangible assets of $7,917, which we started to amortize in May, 2017.
|
|
·
|
We recorded of an impairment
charge of $85,572 related to software development cost and intangible assets.
|
Loss from Operations
For the year ended September 30, 2017, we incurred
a loss from operations of $5,050,684 as compared to $138,929 for the year ended September 30, 2016, an increase of $4,911,755.
The increase of $4,911,755, was resulting from the discussion above. Since inception, our business activity has focused on the
development of our corporate entity, business plan, marketing strategy, contact development, website design and product design,
and development of our payment gateway called “ClickDirectPay”.
Other Expenses
For the year September 30, 2017, we incurred
total other expense of $1,151 as compared to other expense of $3,534, a decrease of $2,383 for the year ended September 30, 2017.
The decrease in other expenses was related to the recording of a loss on sale of marketable securities of $1,693 during the year
ended September 30, 2017 as compared to a loss of $2,445 for year ended September 30, 2016.
Net Loss
For the year ended September 30, 2017, we incurred
a net loss of $5,051,835 or $(0.10) per common share as compared to $142,463 or $(0.00) per common share for the year ended September
30, 2016, an increase of $4,909,372, resulting from the discussion above.
Unrealized Loss on Available-for-sale
Marketable Securities
For the year September 30, 2017, we incurred
an unrealized gain on available-for-sale marketable securities of $2,011 as compared to an unrealized (loss) of ($1,115) for the
year ended September 30, 2016, an increase of $3,126 related to our marketable securities that we invested during fiscal 2017.
Comprehensive Loss
For the year ended September 30, 2017, we incurred
a comprehensive loss of $5,049,824 as compared to $143,578 for the year ended September 30, 2016, an increase of $4,906,246 resulting
from the discussion above.
Liquidity, Capital Resources, and Off-Balance Sheet Arrangements
Liquidity is the ability of an enterprise to generate adequate amounts
of cash to meet its needs for cash requirements. We had working capital of $262 and $12,694 of cash at September 30, 2017 and working
capital of $15,189 and $34,572 of cash at September 30, 2016.
Cash flows for the year ended September
30, 2017 compared to the year ended September 30, 2016
Net cash flow used in operating activities
was $147,156 for the year ended September 30, 2017 as compared to $69,559 for the year ended September 30, 2016, an increase of
$77,597.
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Net cash flow used in operating activities for the year ended September 30, 2017 primarily reflected a net loss of $5,051,835 and the add-back of non-cash items consisting of stock-based compensation of $4,779,950, amortization of software development costs and intangible asset of $30,617, a non-cash asset impairment charge of $85,572 and a loss on sale of marketable securities of $1,693, offset by changes in operating assets and liabilities of $6,847 primarily related to an increase in prepaid expenses of $4,167 offset by an increase in accounts payable of $18,532. During the year ended September 30, 2017, cash used in operating activities primarily consisted of payments of professional fees.
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Net cash flow used in operating activities for the year ended September 30, 2016 primarily reflected a net loss of $142,463 and the addback of noncash items consisting of stock-based compensation of $45,150, amortization of development costs of $12,611, and a loss on sale of marketable securities of $2,445, and changes in operating assets and liabilities of $12.698. During the year ended September 30, 2016, cash used in operating activities primarily consisted of payments of professional fees.
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Net cash flow provided by investing activities
was $10,020 for the year ended September 30, 2017 as compared to net cash used in investing activities of $73,496 for the year
ended September 30, 2016. During the year ended September 30, 2017, we purchased marketable securities of $659 offset by the receipt
of proceeds from the sale of marketable securities of $10,679. During the year ended September 30, 2016, we purchased marketable
securities of $19,162 and incurred capitalized development costs of $57,500 offset by the receipt of proceeds from the sale of
marketable securities of $3,166.
Net cash provided by financing activities was
$115,258 for the year ended September 30, 2017 as compared to $49,000 for the year ended September 30, 2016, consisting of proceeds
from the sale of common stock of $115,258 and $49,000 for the year ended September 30, 2017 and 2016 respectively.
Cash Requirements
Our management does not believe that our current
capital resources will be adequate to continue operating our company and maintaining our business strategy for much more than 12
months. At the date hereof, we have minimal cash at hand. We require additional capital to implement our business and fund our
operations.
Between October 2016 and March 2017, we issued
571,900 of shares of common stock for cash of $115,258.
On October 10, 2017, the Company issued a 12%
Convertible Promissory Note for principal borrowings of $160,000 to a non-related party. The 12% convertible promissory note and
all accrued interest are due on July 10, 2018. The Company received proceeds of $143,250 in cash which is net of offering costs
of $16,750. The note is unsecured and bears interest at the rate of 12% per annum from the issuance date thereof until the note
is paid. The Company paid original issuance cost of $16,750 in connection with this note payable which will be recorded at a discount
and amortized over the term of the note.
Since inception we have funded our operations
primarily through equity financings and we expect that we will continue to fund our operations through the equity and debt financing,
either alone or through strategic alliances. Additional funding may not be available on favorable terms, if at all. We intend to
continue to fund our business by way of equity or debt financing until natural revenues can support the Company. If we raise additional
capital through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing
shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain
certain rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able
to raise the working capital as needed in the future on terms acceptable to us, if at all.
If we are unable to raise capital as needed,
we are required to reduce the scope of our business development activities, which could harm our business plans, financial condition,
and operating results, or cease our operations entirely, in which case, you will lose all of your investment.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are not required to provide the information required by this Item because we are a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements required by this Item 8 are included in this Annual Report following Item 15 hereof. As a smaller
reporting company, we are not required to provide supplementary financial information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
As disclosed in our Current Report on
Form 8-K, filed on October 30, 2017, we dismissed our independent registered public accounting firm Assurance Dimensions,
LLC who had purchased our previous, D’Arelli Pruzansky, P.A., and we appointed Salberg & Company, P.A. as our independent
registered public accounting firm. There are no disagreements between the Company and current or former independent registered
public accounting firms.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures
that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of
1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance,
management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with
policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
As required by the SEC Rules 13a-15(b) and
15d-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal
executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls
and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance
level due to the material weaknesses described below.
To address these material weaknesses, management
engaged financial consultants, performed additional analyses and other procedures to ensure that the financial statements included
herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Management’s Annual Report on Internal
Control Over Financial Reporting.
The management of the Company
is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) for the
Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management
and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed
the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017. The framework used
by management in making that assessment was the criteria set forth in the document entitled “2013 Internal Control –
Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment,
management concluded that, during the period covered by this report, such internal controls and procedures were not effective as
of September 30, 2017 and that material weaknesses in ICFR existed as more fully described below.
A material weakness is
a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”)
Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has identified the following material weaknesses which have caused management to conclude that as of September 30, 2017
our internal controls over financial reporting were not effective at the reasonable assurance level:
1. We
do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls
over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the year ended
September 30, 2017. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures
on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented
a material weakness.
2. We
do not have sufficient resources in our accounting function, which restricts the Company’s ability to gather, analyze and
properly review information related to financial reporting in a timely manner. In addition, due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the
initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.
Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures
and has concluded that the control deficiency that resulted represented a material weakness.
3. We have determined that oversight over our external financial reporting and internal control over our financial
reporting is ineffective, as we do not currently have an audit committee or a financial expert on staff. We do, however, engage
third party accountants to assist in oversight over our external financial reporting and oversight over the independent
registered accounting firm’s audits and reviews of the Company’s financials statements.
We have taken steps to
remediate some of the weaknesses described above, including by engaging a financial reporting advisor with expertise in accounting
for complex transactions. We intend to continue to address these weaknesses as resources permit.
Notwithstanding the
assessment that our ICFR was not effective and that there are material weaknesses as identified herein, we believe that our financial
statements contained in this Annual Report fairly present our financial position, results of operations and cash flows for the
years covered thereby in all material respects.
This annual report does
not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm as
we are a smaller reporting company and are not required to provide the report.
Changes in Internal Control over Financial
Reporting
Our internal control over
financial reporting has not changed during the fourth quarter covered by this Annual Report on Form 10-K.
ITEM 9B. OTHER INFORMATION
None.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 1 -
ORGANIZATION AND NATURE OF OPERATIONS
GH Capital Inc. (the “Company”),
a Florida corporation, was formed on May 5, 2014 and commenced operations in October 2014. The Company provides online payment
processing services to consumers, primarily in Europe.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance
with Regulation S-X of the Securities and Exchange Commission (the “SEC”). The Company’s fiscal year ends on
September 30, of each year.
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 financial statements, the Company had net losses
of $5,051,835 and $142,463 for the years ended September 30, 2017 and 2016, respectively. The net cash used in operations were
$147,156 and $69,559 for the years ended September 30, 2017 and 2016, respectively. Additionally, the Company had an accumulated
deficit of $5,331,892 at September 30, 2017. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern for a period of twelve months from the issuance date of this report. The Company is in the process of building
its customer base and expects to generate increased revenues and the Company is seeking to raise capital through additional debt
and/or equity financings to fund its operations in the future. Management cannot provide assurance that the Company will ultimately
achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Although the Company
has historically raised capital from sales of common stock, 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 lending 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 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 be affected by those estimates. Included in these estimates are
valuation of marketable securities, assumptions used in determining the useful lives and valuations of long-lived assets, valuation
allowances for deferred tax assets and the valuation of stock issued for services.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Fair Value of Financial Instruments
The Company uses the guidance of ASC Topic
820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and
establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs which
reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset
or liability based on the best available information.
The carrying amounts
reported in the balance sheets for cash, prepaid expenses and other current assets, accounts payable, accrued expenses, due to
related parties, deferred revenue – related party and deferred revenue approximate their fair market value based on the short-term
maturity of these instruments. The Company did not identify any assets or liabilities that are required to be presented on the
balance sheets at fair value in accordance with the accounting guidance.
The Company’s financial
instruments consist primarily of marketable securities, accounts receivable, accounts payable, and certain accrued liabilities.
Marketable securities are adjusted to fair value each balance sheet date, based on quoted prices; which are considered level 1
inputs (see note 3). The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current
market exchange or from future earnings or cash flows. The fair value of marketable securities categorized as Level 1 that are
measured on a recurring basis totaled $2,734 and $12,436 as of September 30, 2017 and 2016, respectively.
ASC Topic 825-10 “Financial
Instruments” allows entities to voluntarily choose to measure certain other financial assets and liabilities at fair value
(fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new
election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should
be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding
instruments.
Cash
and Cash Equivalents
For purposes of the statements of cash
flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money
market accounts to be cash equivalents The Company had no cash equivalents during the years ended September 30, 2017 and 2016.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Concentration of Credit Risk, Accounts
Receivable and Revenues
The Company maintains its cash in financial
institutions in the United States for which balances are insured up to Federal Deposit Insurance Corporation limits of $250,000
per account. The Company also maintains cash in financial institutions based in the country of Cyprus. At September 30, 2017, bank
accounts in Cyprus are insured for up to $119,000 per Bank under the regulations of the European Union. At September 30, 2017,
$2,682, was maintained in the Cyprus accounts. At times, cash balances may exceed the federally insured limits. The Company had
no amounts that exceeded insured limits at September 30, 2017 and 2016.
All of the Company’s revenues
are from customers that are located outside of the United States. There are two customers that account for 96.5 % of the Company’s
Accounts Receivable balance at September 30, 2017 (60.7% and 35.8% from a related party). For the year ended September 30, 2017,
two customers accounted for approximately 97.2% of total consolidated revenues (35.6% and 61.6% from a related party). For the
year ended September 30, 2016, two customers accounted for 100% of the Company’s revenues 46% from the related party customer
and 54% from the non-related party customer.
Prepaid Expenses and Other Current Assets
Prepaid expenses
and other current assets of $10,167 and $6,000 at September 30, 2017 and 2016, respectively, consist primarily of costs paid for
future services which will occur within a year. Prepaid expenses 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.
Marketable Securities
Pursuant to ASC 320, Investments
– Debt and Equity Securities, marketable securities held by the Company are held for an indefinite period of time and
thus are classified as available-for-sale securities. The fair value is based on quoted market prices for the investment as
of the balance sheet date. Realized investment gains and losses are included in the statement of operations, as are
provisions for other than temporary declines in the market value of available for-sale securities. Unrealized gains and
unrealized losses deemed to be temporary are excluded from earnings (losses), net of applicable taxes, as a component of
other comprehensive income (loss). Factors considered in judging whether an impairment is other than temporary include the
financial condition, business prospects and creditworthiness of the issuer, the length of time that fair value has been less
than cost, the relative amount of decline, and the Company’s ability and intent to hold the investment until the fair
value recovers. Realized gains and losses and decline in value judged to be other than temporary on available-for-sale
securities are included in the statements of operations. The cost of securities sold or disposed is determined on first-in
first-out, or FIFO method.
Capitalized Software Development Costs
Software development costs related to the development of the
Company’s electronic payment platform software, which is developed for internal use, falls under the accounting guidance
of ASC Topic 350-40, Intangibles Goodwill and Other–Internal Use Software, in which computer software costs are expensed
as incurred during the preliminary project stage and capitalization begins in the application development stage once the capitalization
criteria are met. Costs associated with post implementation activities are expensed as incurred. Costs capitalized during the application
development stage include external direct costs of materials and services consumed in developing or obtaining internal-use software
and payroll and payroll-related costs for employees who are directly associated with, and who devote time to, the internal-use
computer software. Once the project is substantially complete and ready for its intended use these costs are amortized on a straight-line
basis over the technology's estimated useful life of three years.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Intangible Assets
Intangible assets with
finite lives primarily consist of licensed technology and are amortized on a straight-line basis over the expected period to be
benefited by future cash flows of two years and reviewed for impairment.
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 derivatives 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 income or expense. Upon conversion or exercise, the derivative liability is marked to fair value
at the conversion date and then the related fair value is reclassified to equity.
Impairment of Long-lived Assets
In accordance with ASC
Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum
of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured
as the difference between the asset’s estimated fair value and its book value.
Revenue Recognition
The Company recognizes revenue when persuasive
evidence of a sale arrangement exists, services have been rendered, the sales price is fixed and determinable and collectability
is reasonably assured. Revenues consists of fees generated through the electronic processing of payment transactions and related
services, and is recognized as revenue during the period the transactions are processed or when the related services are performed.
Merchants may be charged for these processing services at a bundled rate based on a percentage of the dollar amount of each transaction
and, in some instances, additional fees are charged for each transaction. Merchant customers are generally charged a flat fee plus
percentage per transaction, while others may also be charged miscellaneous fees, including fees for chargebacks or returns, monthly
minimums, and other miscellaneous services. Revenues also includes any up-front fees for the work involved in implementing the
basic functionality required to provide electronic payment processing services to a customer. Revenue from such implementation
fees is recognized over the term of the related service contract. The Company’s revenue is comprised of monthly recurring
services provided to customers, for whom charges are contracted for over a specified period of time. Payments received from customers
that are related to future periods are recorded as deferred revenue until the service is provided.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Stock-Based Compensation
Stock-based compensation is accounted for based
on the requirements of ASC 718, Share-Based Payment, which requires recognition in the financial statements of the cost of employee
and director services received in exchange for an award of equity instruments over the period the employee or director is required
to perform the services in exchange for the award (presumptively, the vesting period). The Financial Accounting Standards Board
(“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award
based on the grant-date fair value of the award.
Pursuant to ASC Topic 505-50, for share-based
payments to consultants and other third-parties, compensation expense is determined at the measurement date defined as the earlier
of a) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or b) the
date at which the counterparty's performance is complete. The expense is recognized over the vesting period of the award. Until
the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense
based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued,
or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Research and Development
Research and development costs are expensed
as incurred.
Income Taxes
The Company recognizes deferred tax liabilities
and assets based on the temporary differences between the financial statement and tax bases of assets and liabilities that will
result in future taxable or deductible amounts, based on enacted tax laws and rates in effect for the year in which the differences
are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting purposes and
income tax purposes consist primarily of timing differences such as stock-based compensation and deferred revenue. A valuation
allowance is provided against net deferred tax assets when the Company determines it is more likely than not that it will fail
to generate sufficient taxable income to be able to realize the deferred tax assets.
The Company follows the accounting guidance
for uncertainty in income taxes using the provisions of ASC 740,
Income Taxes
. Using that guidance, tax positions initially
need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination
by the tax authorities. As of September 30, 2017 and 2016, the Company had no uncertain tax positions that qualify for either
recognition or disclosure in the financial statements. The Company’s 2015 to 2017 tax returns are subject to examination.
The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest
and penalties were recorded during the years ended September 30, 2017 and 2016.
Loss per
Common Share and Common Share Equivalent
Basic loss per share
excludes dilution and is computed by dividing net loss available to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted (loss) income per share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock
that then shared in the income of the Company. The Company had no dilutive securities outstanding during the years ended September
30, 2017 and 2016.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Foreign Currency Transactions
The reporting and functional
currency of the Company is the U.S. dollar. Transactions denominated in foreign currencies are translated into the functional
currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the
functional currency are included in the results of operations as incurred. Transaction gains or losses have not had, and are
not expected to have, a material effect on the results of operations of the Company.
Recently Issued Accounting Standards
From time to time, the FASB or other standards
setting bodies will issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of an Accounting
Standards Update (“ASU”).
In May 2014, the FASB issued Accounting Standards
Update No. 2014-09, “
Revenue from Contracts with Customers (Topic 606),
” (“ASU 2014-09”). ASU 2014-09
outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue recognition model
provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects
to receive in exchange for those goods or services. ASU 2014-09 is effective for public entities for annual reporting periods beginning
after December 15, 2016 and interim periods within those periods. Early adoption is not permitted. The FASB has approved a one-year
deferral of the effective date with the option to early adopt using the original effective date. Entities may use either a full
retrospective or a modified retrospective approach to adopt ASU 2014-09. In December 2016, the FASB issued Accounting Standards
Update No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20.
In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients, or ASU 2016-12. In April 2016, the FASB issued Accounting Standards Update No. 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March
2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross), or ASU 2016-08. These updates provide additional clarification and implementation
guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), or
ASU 2014-09. The amendments in ASU 2016-20 provide technical corrections to various implementation examples and clarifying guidance
on the treatment of capitalized advertising costs, impairment testing of capitalized contract costs, performance obligation disclosures
and scope exceptions. The amendments in ASU 2016-12 provide clarifying guidance on assessing collectability; noncash consideration;
presentation of sales taxes; and transition. The amendments in ASU 2016-10 provide clarifying guidance on the materiality and evaluation
of performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license
provides a customer with either a right to use or a right to access an entity's intellectual property. The amendments in ASU 2016-08
clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should
apply the control principle to certain types of arrangements. Collectively, these updates will require a company to recognize revenue
when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. The adoption of ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU 2016-08 is
to coincide with an entity's adoption of ASU 2014-09. The new guidance permits adoption through either a full retrospective approach
or a modified retrospective approach with a cumulative effect adjustment to retained earnings. The Company has assessed the impact
that adopting this new accounting guidance will have on its financial statements and footnote disclosures and believes such impact
will not be material.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
In January 2016, the
FASB issued ASU 2016-01, "Financial Instruments—Overall (Topic 825-10): "Recognition and Measurement of Financial
Assets and Financial Liabilities." ASU 2016-01 amends the guidance on the classification and measurement of financial instruments.
Some of the amendments in ASU 2016-01 include the following: 1) requires equity investments (except those accounted for under the
equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in
fair value recognized in net income; 2) simplifies the impairment assessment of equity investments without readily determinable
fair values by requiring a qualitative assessment to identify impairment; 3) requires public business entities to use the exit
price notion when measuring the fair value of financial instruments for disclosure purposes; and 4) requires an entity to present
separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change
in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. For public
business entities, the amendments of ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years. Early adoption is not permitted. The Company is currently evaluating the effects of ASU 2016-01
on its consolidated financial statements and disclosures.
In August 2016, the FASB
issued ASU 2016-15 which addresses eight cash flow classification issues, eliminating the diversity in practice. This ASU is effective
for annual and interim reporting periods beginning after December 15, 2017, with early adoption permitted. The retrospective transition
method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments,
in which case those amendments would be prospectively applied as of the earliest date practicable. The Company is evaluating the
impact this ASU will have on its financial statements and whether to early adopt.
In January 2017, the
FASB issued the Accounting Standards Update No. 2017-01 (“ASU 2017-01”),
Clarifying the Definition of a Business
.
ASU 2017-01 clarifies the definition of a business and establishes a screening process to determine whether an integrated set of
assets and activities acquired is deemed the acquisition of a business or the acquisition of assets. ASU 2017-01 is effective for
annual and interim periods beginning after December 15, 2017 and should be applied prospectively, with early adoption permitted.
The Company does not expect that adoption of ASU 2017-01 will have a material impact on its financial statements and related 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 –
MARKETABLE SECURITIES
The Company classifies
its marketable securities as available-for-sale securities, which are carried at their fair value based on the quoted market prices
of the securities with unrealized gains and losses, net of deferred income taxes, reported as accumulated other comprehensive income
(loss), a separate component of stockholders’ equity. Realized gains and losses on available-for-sale securities are included
in net earnings in the period earned or incurred. For the years ended September 30, 2017 and 2016, realized losses from the sale
of available-for-sale securities were $1,693 and $2,445, respectively.
The following summarizes
the carrying value of marketable securities as of September 30, 2017 and 2016:
|
|
September 30,
2017
|
|
September 30,
2016
|
Historical cost
|
|
$
|
1,838
|
|
|
$
|
13,551
|
|
Unrealized gain (loss) included in accumulated other comprehensive loss
|
|
|
896
|
|
|
|
(1,115
|
)
|
Balance, marketable securities, at fair value
|
|
$
|
2,734
|
|
|
$
|
12,436
|
|
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 4 –
CAPITALIZED SOFTWARE DEVELOPMENT
COSTS
At September 30, 2017
and 2016, capitalized software development costs, net consisted of the following:
|
|
For the Year Ended September 30,
|
|
|
2017
|
|
2016
|
Capitalized software development costs
|
|
$
|
90,800
|
|
|
$
|
90,800
|
|
Less: accumulated amortization
|
|
|
(35,311
|
)
|
|
|
(12,611
|
)
|
Less: non-cash asset impairment charge
|
|
|
(55,489
|
)
|
|
|
—
|
|
Capitalized software development costs, net
|
|
$
|
—
|
|
|
$
|
78,189
|
|
For the years ended
September 30, 2017 and 2016, the Company recorded amortization expense of $22,700 and $12,611, respectively. The Company reviews
intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of assets may not
be recoverable. As a result during the year ended September 30, 2017, we recorded a non-cash impairment charge of $55,489 (which
consisted of a $90,800 cost less accumulated amortization of $35,311), associated with our software development costs. These charges
are included in the Statements of Operations.
NOTE 5 –
INTANGIBLE ASSETS
At September 30, 2017
and 2016, intangible assets consisted of the following:
|
|
Useful Life
|
|
2017
|
|
2016
|
Licensed technology
|
|
2.0 Years
|
|
$
|
38,000
|
|
|
$
|
—
|
|
Less: accumulated amortization
|
|
|
|
|
(7,917
|
)
|
|
|
|
|
Less: non-cash asset impairment charge
|
|
|
|
|
(30,083
|
)
|
|
|
—
|
|
Intangible assets, net
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
In May, 2017 the Company
licensed certain software technology in exchange for 190,000 common shares valued at $38,000.
Intangible assets
are amortized on a straight-line method of amortization over their estimated useful lives. Intangible assets are reviewed for impairment
annually or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.
For the years ended September
30, 2017 and 2016 amortization expense amounted to $7,917 and $0, respectively. There was an asset impairment charge recorded in
the amount of $30,083 for the period ended September 30, 2017.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 6 -
RELATED PARTY TRANSACTIONS
On March 30, 2015, the
Company entered into a services contract with Global Humax Cyprus Ltd. (“Cyprus”), a company owned by the Company’s
chief executive officer. Under the terms of the contract, the Company will provide services to Cyprus for a period of two years
from the date of the agreement. Additionally, the Company earns fees from the processing of payment transactions and related services
from Cyprus. For the year ended September 30, 2017 and 2016, aggregate revenues – related party amount to $17,279 and $12,585
respectively.
During the year ended September 30, 2015, Cyprus
paid various general and administrative expenses on behalf of the Company in the amount of $3,173. These advances are non-interest
bearing and are due on demand. At September 30, 2017 and September 30, 2016, the Company owed Cyprus $3,173 and $3,173, respectively.
During the year ended September 30, 2015, the
Company’s Chief Executive Officer advanced $10 to the Company for working capital purpose. The advance is non-interest bearing
and payable on demand. At September 30, 2017 and September 30, 2016, the Company owed its Chief Executive Officer $10 and $10,
respectively.
In addition to stock-based compensation (see
Note 7), for the years ended September 30, 2017 and 2016, the Company paid cash compensation to designated members of its board
of directors in the amount of $16,900 and $12,200 in connection with a written agreement with the director, respectively.
NOTE 7 -
STOCKHOLDERS’ EQUITY
Preferred Stock
The Company has 10,000,000 shares of
preferred stock authorized. Preferred stock may be issued in one or more series. The Company’s board of directors is
authorized to issue the shares of preferred stock in such series and to fix from time to time before issuance thereof the
number of shares to be included in any such series and the designation, powers, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions thereof, of such series. No shares of preferred
stock have been issued as of September 30, 2017 and 2016.
Common Stock
On November 22, 2015, the Company issued 35,000
shares of common stock to an attorney for legal services rendered. The fair value of the shares was determined by using the most
recent sale price of the common stock of $0.18 per common share. In connection with issuance of these common shares, for the nine
months ended June 30, 2016, the Company recorded stock-based professional fees of $6,300.
On January 7, 2016, the Company issued 70,000
shares of common stock valued at $.18 per common share or $12,600 to a third party vendor as part of a product development agreement.
The shares were valued at the most recent cash price paid per share. In connection with these shares, the Company recorded capitalized
development costs of $12,600.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 7 -
STOCKHOLDERS’ EQUITY (continued)
On May 19, 2016, the Company issued 146,667
shares of common stock for accounting services rendered. The fair value of the 146,667 shares was determined by using the most
recent sale price of the common stock of $0.15 per common share for a fair value of $22,000. In connection with issuance of these
common shares, for the year ended September 30, 2016, the Company recorded stock-based professional fees of $16,000 and a prepaid
expense of $6,000 which will be recorded as stock-based professional fees over the remaining service period.
On June 16, 2016, the Company issued 45,000
shares of common stock for consulting services rendered. The fair value of the 45,000 shares was determined by using the most recent
sale price of the common stock of $0.10 per common share for a fair value of $4,500. In connection with issuance of these common
shares, for the nine months ended June 30, 2016, the Company recorded stock-based professional fees of $4,500.
On June 16, 2016, the Company issued 445,000
of shares of common stocks for cash of $49,000.
Between October 2016
and March 2017, the Company issued 571,900 of shares of common stock for cash of $115,258.
Effective August 1, 2016, the Company entered
into a twelve month consulting agreement (the “Consulting Agreement”) with an investor relations firm for investor
relations services. In connection with this consulting agreement, the Company shall compensate the consultant for services rendered
1) cash of $2,000 per month for the first three months then $2,500 per month thereafter and 2) Monthly restricted stock for consulting
and services fees paid in advance of services each month to consultant will be $6,000 per month; Such fee will be calculated and
valued at the lower of the trailing 5-day volume-weighted average price or the closing price on the last day of each month. On
August 1, 2016 and September 30, 2016, in connection with this agreement, the Company issued 40,000 and 40,000 shares of restricted
stock to the consultant, respectively. The shares were valued at their fair value of $12,000 using the recent sale price of the
common stock on the dates of grant of $0.15 per common. On October 1, 2016, the Company issued 40,000 shares of restricted stock
to the consultant. The shares were valued at their fair value of $6,000 using the recent sale price of the common stock on the
dates of grant of $0.15 per common share. On January 23, 2017, the Company issued 160,000 shares of restricted stock to this consultant
for services that covered from November 2016 through February 2017. The shares were valued at their fair value of $30,400 using
the most recent sale price on October 27, 2016 of the common stock on the dates of grant of $0.19 per common share. Additionally,
on March 10, 2017, the Company issued 300,001 shares of restricted stock to this consultant for services covering from March 2017
through July 2017. The shares were valued at their fair value of $51,000 using the most recent sale price on March 9, 2017 of the
common stock on the dates of grant of $0.17 per common share.
In aggregate, in connection
with the issuance of common shares to this consultant, during the year ended September 30, 2017, the Company recognized consulting
fees of $87,400.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 7 -
STOCKHOLDERS’ EQUITY (continued)
In connection with various
consulting agreements, on March 3, 2017 and March 6, 2017, the Company issued 8,545,000 vested shares of restricted stock to eight
consultants for business development services covering from March 2017 through September 2017. The shares were valued on the grant
dates at their fair value of $1,623,550 using the most recent sale price on October 27, 2016 of the common stock of $0.19 per common
share. During the year ended September 30, 2017, the Company recognized stock based compensation of $1,623,550 related to these
consulting agreements.
On March 23, 2017, the
Company issued 120,000 shares of restricted stock to a consultant for accounting services covering from January 2017 through December
2017. The shares were valued at their fair value of $24,000 using the most recent sale price on March 21, 2017 of the common stock
on the dates of grant of $0.20 per common share. During the year ended September 30, 2017, the Company recognized stock based compensation
of $18,000 and prepaid expense of $6,000 to be amortized over the remaining service period.
On February 27, 2017,
in connection with Director Agreements, the Company issued 15,000,000 shares of restricted stock to the Company’s CEO /Director
and issued 500,000 shares of restricted common stock to a director. The 15,500,000 shares of common stock are considered fully
vested on the date of grant. The shares were valued at their fair value of $2,945,000 using the most recent sale price on October
27, 2016 of the common stock on the dates of grant of $0.19 per common share. During the year ended September 30, 2017, the Company
recognized stock based compensation of $2,945,000 on these fully vested shares as there were no forfeiture provision in accordance
with ASC 718.
On May 2, 2017, the Company
issued 190,000 shares of restricted stock in connection with a two-year software licensing agreement. The shares were valued at
their fair value of $38,000 using the most recent sale price of the Company’s common stock on the date of grant of $0.20
per common share. In connection with the issuance of these shares, the Company recorded an intangible asset of $38,000 which was
being amortized over the license term until it was deemed fully impaired on September 30, 2017.
On May 23, 2017, in connection
with Director Agreements, the Company issued 500,000 shares of restricted stock to a director of the Company. The shares were valued
at their fair value of $100,000 using the most recent sale price of the common stock on the dates of grant of $0.20 per common
share. During the year ended September 30, 2017, the Company recognized stock based compensation of $100,000 on these fully vested
shares as there were no forfeiture provision in accordance with ASC 718.
On June 21, 2017, the
Company issued 117,500 shares of restricted stock in connection with system development services. The shares were valued at their
fair value of $23,500 using the most recent sale price of the Company’s common stock on the date of grant of $0.20 per common
share. In connection with the issuance of these shares, during the year ended September 30, 2017, the Company reduced accrued expenses
by $23,500.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 8 -
INCOME TAXES
The Company maintains deferred tax assets and
liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset has been fully offset by
a valuation allowance because of the uncertainty of the attainment of future taxable income. The Company did not have an income
tax provision or benefit for the year ended September 30, 2017 or 2016. The Company has incurred losses and therefore has provided
a full valuation allowance against net deferred tax assets as of September 30, 2017 and 2016.
The items accounting for the difference between
income taxes at the effective statutory rate and the provision for income taxes for the year ended September 30, 2017 and 2016
were as follows:
|
|
September 30, 2017
|
|
September 30, 2016
|
Income tax benefit at U.S. statutory rate of 35%
|
|
$
|
(1,768,142
|
)
|
|
$
|
(49,862
|
)
|
State income tax, net of federal benefit
|
|
|
(176,814
|
)
|
|
|
(4,986
|
)
|
Non-deductible expenses
|
|
|
1,840,280
|
|
|
|
—
|
|
Change in valuation allowance
|
|
|
104,676
|
|
|
|
54,848
|
|
Total provision for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company’s approximate net deferred
tax assets as of September 30, 2017 and 2016 were as follows:
|
|
September 30, 2017
|
|
September 30, 2016
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
182,466
|
|
|
$
|
107,822
|
|
Intangibles
|
|
|
30,032
|
|
|
|
—
|
|
Total deferred tax assets
|
|
|
212,498
|
|
|
|
107,822
|
|
Valuation allowance
|
|
|
(212,498
|
)
|
|
|
(107,822
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At September 30, 2017, the Company had U.S.
net operating loss carryforwards of $473,937 for income tax purposes, which expire in varying amounts through 2037. The amount
of any benefit from the Company’s U.S. tax net operating losses is dependent on: (1) its ability to generate future
taxable income, and (2) the unexpired amount of net operating loss carryforwards available to offset amounts payable on such
taxable income. Any change in ownership greater than fifty percent under IRC section 382 places significant annual limitations
on the use of the Company’s U.S. net operating losses to offset any future taxable U.S. income that may be generated.
The valuation allowance increased by $104,676
and $54,848 for the periods ended September 30, 2017 and 2016, respectively.
GH CAPITAL INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2017
NOTE 9 –
COMMITMENTS AND CONTINGENCIES
From time to time, we
may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm
our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect
on our business, financial condition or operating results.
NOTE 10 –
SUBSEQUENT EVENTS
On October 10, 2017, the Company
issued a 12% Convertible Promissory Note for principal borrowings of $160,000 to a non-related party. The 12% convertible
promissory note and all accrued interest are due on July 10, 2018. The Company received proceeds of $143,250 in cash which is
net of offering costs of $16,750, recorded as a discount. The note is unsecured and bears interest at the rate of 12% per
annum from the issuance date thereof until the note is paid. The note holder shall have the right to convert beginning on the
date which is following the issuance date the outstanding principal amount and accrued but unpaid interest into the
Company’s common stock at a conversion price equal to a price which is the lower of $0.65 per share or 55% of the
volume weighted average price of the Company’s common stock during the 25 trading days immediately preceding the
conversion date. At any time during the period beginning on the issue date and ending on the date which is 90 days following
the issue date, the Borrower shall have the right, exercisable on not less than 3 trading days prior written notice to the
holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder
of an amount in cash equal to 130%, multiplied by the sum of the note then outstanding principal amount of the Note plus
accrued and unpaid interest on the unpaid principal amount of the Note plus default interest, if any. During the first 180
days following the date of the note, the Company has the right to prepay the principal and accrued but unpaid interest due
under the note, together with any other amounts that the Company may owe the holder under the terms of the note, at a premium
of 140%. After this initial 180-day period, the Company does not have a right to prepay the note. Any amount of principal or
interest on this note which is not paid when due shall bear interest at the rate of 24% per annum from the due date thereof
until the same is paid. The conversion price, however, is subject to full ratchet anti-dilution in the event that the Company
issues any securities at a per share price lower than the conversion price then in effect.
The Company evaluated whether or not
the convertible promissory note contains embedded conversion features, which meet the definition of derivatives under ASC 815 and
related interpretations. The Company determined that the terms of the note discussed above contains conversion terms, primarily
those resulting in an indeterminable number of shares being issued upon conversion which causes the embedded conversion option to
be bifurcated and accounted for as derivative liability at fair value.
The Note contains representations, warranties,
and events of default, beneficial ownership limitations, and other provisions that are customary of similar instruments.