CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
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 and provides certain consulting services to assist companies in going public.
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
Management acknowledges its responsibility
for the preparation of the accompanying unaudited condensed financial statements which reflect all adjustments, consisting of normal
recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its
operations for the periods presented. The accompanying unaudited condensed financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim
financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily
indicative of results that may be expected for the fiscal year as a whole. Certain information and note disclosure normally included
in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such
accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial
statements. These unaudited condensed financial statements should be read in conjunction with the summary of significant accounting
policies and notes to the financial statements for the years ended September 30, 2017 and 2016 of the Company which were included
in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on December 15, 2017.
Going Concern
These financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments
in the normal course of business. As reflected in the accompanying unaudited condensed financial statements, the Company had a
net loss of $614,919 for the nine months ended June 30, 2018. The net cash used in operations was $183,773 for the nine months
ended June 30, 2018. Additionally, the Company had a working capital deficit of $498,860 and an accumulated deficit of $5,946,811
and a stockholders’ deficit of $498,860 at June 30, 2018. It is management’s opinion that these conditions raise substantial
doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issue date of this
report. The Company is in the process of building its customer base and expects to generate increased revenues and the Company
is seeking to raise capital through additional debt and/or equity financings to fund its operations in the future. Management cannot
provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Although the Company has historically raised capital from sales of common stock and debt financing,
there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure
additional debt in the near future, management expects that the Company will need to curtail its operations. These financial statements
do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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 differ from those estimates. Included in these estimates
are valuation of marketable securities, assumptions used in determining the useful lives and valuations of long-lived assets, the
fair value of derivative liabilities, valuation allowances for deferred tax assets and the valuation of stock issued for services.
Fair value of financial
instruments and fair value measurements
FASB ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) 820 requires disclosures about the fair value
of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of
financial instruments are based on pertinent information available to the Company on June 30, 2018. Accordingly, the estimates
presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of
the financial instruments.
FASB ASC 820 specifies
a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1- Inputs are unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2- Inputs are quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3- Inputs are unobservable
inputs that reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
The carrying amounts reported
in the balance sheets for cash and cash equivalents, accounts receivable, loans, accounts payable, accrued expenses, and other
payables approximate their fair market value based on the short-term maturity of these instruments.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
The Company analyzes all financial
and non-financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such
instruments. Under this standard, financial and non-financial assets and liabilities are classified in their entirety based on
the lowest level of input that is significant to the fair value measurement.
The Company accounts for the
following instruments at fair value.
|
|
June 30, 2018
|
|
At September 30, 2017
|
Description
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,734
|
|
|
|
—
|
|
|
|
—
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
313,124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Fair
Value of Financial Assets and Liabilities Measured on a Recurring Basis
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 $0 and $2,734 as of June 30, 2018 and September 30, 2017, respectively.
The Company’s
convertible notes payable approximate the fair value of such instruments based upon management’s best estimate of interest
rates that would be available to the Company for similar financial arrangements as of June 30, 2018. The Company uses Level 3 of
the fair value hierarchy to measure the fair value of the derivative liabilities (see note 5) and revalues its derivative liability
on the conversion feature at every reporting period and recognizes gains or losses in the statements of operations that are attributable
to the change in the fair value of the derivative liabilities. The fair value of derivative financial instruments, measured and
recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy
as of June 30, 2018 measured $313,124.
A rollforward
of the level 3 derivative liabilities is as follows:
Balance at September 30, 2017
|
|
$
|
—
|
|
Initial derivative expense
|
|
|
218,234
|
|
Initial derivative recorded as debt discount
|
|
|
205,544
|
|
(Gain) loss on derivatives
|
|
|
(110,654
|
)
|
Balance at June 30, 2018
|
|
$
|
313,124
|
|
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
Cash
and Cash Equivalents
For purposes of the
statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase
date and money market accounts to be cash equivalents. The Company had no cash equivalents at June 30, 2018 and September 30, 2017.
Investments, Carried
at Cost
The Company accounts
for equity investments that do not have a readily determinable fair value as cost method investments under the measurement alternative
prescribed within Accounting Standards Update (“ASU”) 2016-01, Financial Instruments – Recognition and Measurement
of Financial Assets and Financial Liabilities , to the extent such investments are not subject to consolidation or the equity method.
Under the measurement alternative, these financial instruments are carried at cost, less any impairment (assessed quarterly), plus
or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the
same issuer. In addition, income is recognized when dividends are received only to the extent they are distributed from net accumulated
earnings of the investee. Otherwise, such distributions are considered returns of investment and are recorded as a reduction of
the cost of the investment. In March 2017, the Company received 18,000,000 common shares, 19.6%, of Vmoney Holdings, Inc. (“Vmoney”)
a startup company as a consulting fee and management determined that such securities were non-marketable and had a zero value at
the receipt date and as of June 30, 2018.
Concentration of Credit Risk,
Accounts Receivable and Revenues
The Company maintains its cash
in financial institutions in the United States for which balances are insured up to Federal Deposit Insurance Corporation limits
of $250,000 per account. The Company also maintains cash in financial institutions based in the country of Cyprus. Bank accounts
in Cyprus are insured for up to $119,000 per Bank under the regulations of the European Union. At times, cash balances may exceed
the federally insured limits. The Company had no amounts that exceeded insured limits at June 30, 2018 and September 30, 2017.
All of the Company’s revenues
are from customers that are located outside of the United States. One payment processing customer accounts for 94% of the Company’s
Accounts Receivable balance at June 30, 2018. For the nine months ended June 30, 2018, three payment processing customers accounted
for approximately 97% of the total payment processing revenues (32%, 12% and 53% from a related party) and one related party customer
accounted for 100% of the consulting revenue.
Prepaid Expenses and Other
Current Assets
Prepaid expenses and other current
assets of $53,750 and $10,167 at June 30, 2018 and September 31, 2017, 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.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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 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 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.
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, we fully impaired all capitalized software costs as of September 30, 2017.
Intangible Assets
Intangible assets with finite
lives primarily consist of licensed technology and were being amortized on a straight-line basis over the expected period to be
benefited by future cash flows of two years and reviewed for impairment. As a result, we fully impaired all intangible assets as
of September 30, 2017.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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.
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 other income or expense. Upon conversion, exercise or repayment, the
respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair
value amount is reclassified to other income or expense as part of gain or loss on extinguishment.
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. There are two sources of recognized revenue. These comprise (1) payment processing services
related to online money transfer transactions for diversified online merchants with a target market in Europe and (2) consulting
for business development. For the consulting services, revenue is recognized when the Company satisfies the performance obligation
based on the consulting agreement. In the payment processing segment, revenues consist 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 include 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.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
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.
Loss
per Common Share and Common Share Equivalent
Basic net loss per
share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss
per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during
the period. At June 30, 2018 and September 30, 2017, the Company has 5,009,832 and 0 potentially dilutive securities outstanding,
respectively, related to the convertible promissory notes. Those potentially dilutive common stock equivalents were excluded from
the dilutive loss per share calculation as they would be antidilutive due to the net loss.
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.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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 will adopt this standard
as required on October 1, 2018. 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.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
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 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.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) (“ASU No. 2016-02”). The amendments in ASU No. 2016-02 change the existing accounting
standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
changes to lessor accounting. The standard requires lessors to identify lease and non-lease components under their leasing arrangements
and allocate the total consideration in the lease agreement to these lease and non-lease components based on their relative standalone
selling prices. Non-lease components will be subject to the new revenue recognition standard upon the Company’s adoption
of the new leasing standard on January 1, 2019. ASU No. 2016-02 is effective for annual periods beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption of ASU No. 2016-02 as of its issuance is permitted. The new
leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date
of initial application, with an option to use certain transition relief. In March 2018, the FASB affirmed a proposed amendment
to the leases ASU, which would add a transition option to the new leases standard that would allow entities to apply the transition
provisions of the new standard at its adoption date instead of the earliest comparative periods presented in its financial statements.
The FASB also tentatively approved a practical expedient that would permit lessors to not separate lease and non-lease components
if certain conditions are met. The Company is currently evaluating the impact of adopting the new leases standard on its consolidated
financial statements and if adopted by the FASB, applying the transition option and electing the practical expedient of the proposed
amendment.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 2 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
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.
In June 2018, the FASB
issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting
,
which simplifies several aspects of
the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance
in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is
effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption
is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company is evaluating
the impact this ASU will have on its financial statements.
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 nine months ended June 30, 2018 and 2017, realized
gain/(loss) from the sale of available-for-sale securities were $838 and ($1,693), respectively.
The
following summarizes the carrying value of marketable securities as of June 30, 2018 and September 30, 2017:
|
|
June 30,
2018
|
|
September 30,
2017
|
Historical cost
|
|
$
|
1,838
|
|
|
$
|
1,838
|
|
Less: sale during the period
|
|
|
(1,838
|
)
|
|
|
—
|
|
Unrealized gain (loss) included in accumulated other comprehensive gain (loss)
|
|
|
—
|
|
|
|
896
|
|
Balance, marketable securities, at fair value
|
|
$
|
—
|
|
|
$
|
2,734
|
|
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE
4 -
RELATED PARTY TRANSACTIONS
On March 30, 2015, the Company
entered into a services contract with Global Humax Cyprus Ltd. (“Cyprus”), a company owned by the Company’s chief
executive officer. Under the terms of the contract, the Company will provide services to Cyprus for a period of two years from
the date of the agreement. Additionally, the Company earns fees from the processing of payment transactions and related services
from Cyprus. For the nine months ended June 30, 2018 and 2017, aggregate revenues – related party amount to $6,364 and $14,129
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 June 30, 2018 and September 30, 2017, 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 June 30, 2018 and September 30, 2017, the Company owed its Chief Executive Officer $10 and $10,
respectively.
During the three and nine
months ended June 30, 2018, the Company’s Attorney advanced $1,070 to the Company for working capital purpose. The
advance is non-interest bearing and payable on demand. At June 30, 2018 and September 30, 2017, the Company owed its Attorney
$1,070 and zero, respectively.
For the nine months ended June
30, 2018 and 2017, in connection with a written agreement with the director, the Company paid cash compensation to designated members
of its board of directors in the amount of $10,500 and $16,900, respectively.
On April 24, 2017, the Company
entered into a Consulting Agreement with an unrelated start-up company whereby the Company agreed to provide certain services related
to business development for the entity in exchange for 18,000,000 founder shares of common stock of the company which represented
approximately 19% of that entity. The shares received were valued at estimated fair value of zero and the receipt of shares resulted
in the entity becoming a related party to the Company. After 10 months of providing services, the parties believed it best to extend
the term of the agreement through September 30, 2018 in exchange for $56,000 to the Company as the entity has chosen to “go
public” through an S-1 filing with the Securities and Exchange Commission which will require additional resources on behalf
of the Company. During the nine months ended June 30, 2018, the Company recognized revenue - related party of $33,599 in connection
with this agreement and recorded deferred revenue of $22,401 at June 30, 2018 to be recognized as revenue over the remaining term
of the agreement.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 5–
CONVERTIBLE
NOTES PAYABLE
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 lowest trading 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 then outstanding principal
amount of the Note plus accrued and unpaid interest on the unpaid principal amount of the Note plus default interest, if any. During
the first 180 days following the date of the note, the Company has the right to prepay the principal and accrued but unpaid interest
due under the note, together with any other amounts that the Company may owe the holder under the terms of the note, at a premium
of 140%. After this initial 180-day period, the Company does not have a right to prepay the note. Any amount of principal or interest
on this note which is not paid when due shall bear interest at the rate of 24% per annum from the due date thereof until the same
is paid. The conversion price, however, is subject to full ratchet anti-dilution in the event that the Company issues any securities
at a per share price lower than the conversion price then in effect. The Note contains representations, warranties, and events
of default, beneficial ownership limitations, and other provisions that are customary of similar instruments.
On April 26, 2018 the Company
issued 25,000 shares of common stock to the noteholder with a contractual conversion price of $0.04 to convert $0 principal amount
with $501 of accrued and unpaid interest and $500 conversion fee, totaling $1,001.
On May 25, 2018 the Company issued
50,000 shares of common stock to the noteholder with a contractual conversion price of $0.03 to convert $0 principal amount with
$902 of accrued and unpaid interest and $500 conversion fee, totaling $1,402.
On June 12, 2018 the Company
issued 110,000 shares of common stock to the noteholder with a contractual conversion price of $0.03 to convert $0 principal amount
with $2,584 of accrued and unpaid interest and $500 conversion fee, totaling $3,084.
As of June 30, 2018, the principal balance
of this note is $160,000.
In February 2018, under a Securities
Purchase Agreement, the Company issued a 10% Convertible Promissory Note for principal borrowings of up to $180,000 and received
initial proceeds of $60,000. In June 2018, the Company received additional proceeds of $20,000 which resulted to a total of $80,000
proceeds. The 10% convertible promissory notes and all accrued interest are due in twelve months from the effective date of each
tranche. The notes are unsecured and bears interest at the rate of 10% per annum from the issuance date thereof until the notes
are paid. The note holder shall have the right to convert beginning on the issuance date, the outstanding principal amount and
accrued but unpaid interest into the Company’s common stock at a conversion price to a price which is 65% of the lowest trading
price of the Company’s common stock during the 25 prior trading days to the conversion date subject to increases in the discount
rate based on certain future events. If at any time while this note is outstanding, the conversion price is equal to or lower than
$0.15, then an additional 15% discount shall be added into the conversion price resulting in a discount rate of 50%. During the
first 90 days following the date of this note, the Company has the right to prepay the principal and accrued but unpaid interest
due under this note, together with any other amounts that the Company may owe the holder under the terms of this note, at a premium
ranging from 135% to 145% as defined in the note agreement. After this initial 90-day period, the Company does not have a right
to prepay the note. Any amount of principal or interest on this note which is not paid when due shall bear interest at the rate
of 15% per annum from the due date thereof until the same is paid. The conversion price, however, is subject to full ratchet anti-dilution
in the event that the Company issues any securities at a per share price lower than the conversion price then in effect. The Company
paid an original issuance discount of $8,000 and related loan fees of $3,500 in connection with this note payable which is being
amortized over the term of the note. The Note contains representations, warranties, events of default, beneficial ownership limitations,
piggyback registration rights and other provisions that are customary of similar instruments. As of June 30, 2018, the principal
balance of this note is $80,000.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 5–
CONVERTIBLE
NOTES PAYABLE (continued)
The Company evaluated whether or not
the above two convertible promissory notes contains embedded conversion features, which meet the definition of derivatives under
ASC 815 and related interpretations. The Company determined that the terms of the notes discussed above contains conversion terms,
primarily those resulting in an indeterminable number of shares being issued upon conversion which causes the embedded conversion
option to be bifurcated and accounted for as derivative liability at fair value.
In connection with the issuance of these
notes during the nine months ended June 30, 2018, on the initial measurement date of the notes, the fair values of the embedded
conversion option derivatives of $423,778 was recorded as derivative liabilities of which $218,234 was charged to current period
operations as initial derivative expense, and $205,544 was recorded as a debt discount which will be amortized into interest expense
over the term of the note.
At the end of each reporting period,
the Company revalues the embedded conversion option derivative liabilities. In connection with the revaluation, the Company recorded
a gain on derivative liabilities of $110,654 for the nine months ended June 30, 2018. (see Note 2)
In June 2018, under a Securities
Purchase Agreement, the Company issued a 10% Convertible Promissory Note for principal borrowings of up to $58,000.
The 10% convertible promissory note and all accrued interest are due in June 2019. The note is unsecured and bears interest at
the rate of 10% per annum from the issuance date thereof until the notes are paid. The note holder has the right to convert beginning
180 days following the issuance date, the outstanding principal amount and accrued but unpaid interest into the Company’s
common stock at a conversion price equal to 61% of the average of the lowest two trading prices of the Company’s common stock
during the 20 trading days immediately preceding the conversion date. During the first 30 to 180 days following the date of the
note, the Company has the right to prepay the principal and accrued but unpaid interest due under these notes, together with any
other amounts that the Company may owe the holder under the terms of these notes, at a premium ranging from 115% to 140% as defined
in the note agreements. After this initial 180-day period, the Company does not have a right to prepay the note. The Company paid
original issuance cost and related loan fees of $3,000 in connection with this note payable which is being amortized over the term
of the note. The Company granted the note holder 50,000 warrants in connection with the issuance of this note. The warrants had
a term of 5 years from the date of grant and was exercisable at an exercise price of $0.40. The Company accounted for the warrants
by using the relative fair value method and recorded debt discount from the relative fair value of the warrants of $6,206 using
a simple binomial lattice model (see Note 6). The Company has accounted for this convertible promissory note as stock settled debt
under ASC 480 and in 2018, and recorded a debt premium liability of $37,082 and a charge to interest expense of $37,082. As of
June 30, 2018, the principal balance of this note was $58,000.
For the nine months ended
June 30, 2018, amortization of debt discounts related to convertible debentures amounted to $183,208, which has been amortized
to interest expense on the accompanying unaudited statements of operations.
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE 5–
CONVERTIBLE
NOTES PAYABLE (continued)
During the nine months ended
June 30, 2018, the fair value of the derivative liabilities were estimated using the Binomial option pricing method with the following
assumptions:
Dividend rate
|
|
|
0
|
|
Term (in years)
|
|
|
0.01 to 0.14 years
|
|
Volatility
|
|
|
472.9
|
%
|
Risk-free interest rate
|
|
|
2.32% to 2.33%
|
|
At June 30, 2018 and September 30, 2017, convertible promissory notes
consisted of the following:
|
|
June 30,
2018
|
|
September 30,
2017
|
Principal amount
|
|
$
|
298,000
|
|
|
$
|
—
|
|
Add: debt premium liability
|
|
|
37,082
|
|
|
|
—
|
|
Less: unamortized debt discount
|
|
|
(59,792
|
)
|
|
|
—
|
|
Convertible notes payable, net – current
|
|
$
|
275,290
|
|
|
$
|
—
|
|
NOTE 6 -
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
June 30, 2018 and September 30, 2017.
Common Stock
On February 13, 2018, in connection
with a contract agreement, the Company issued 300,000 shares of restricted stock to a consultant. The shares were valued on the
date of grant at their fair value of $105,000, or $0.35 per share, using the closing quoted trading price of the Company’s
common stock on February 13, 2018 which was recorded as a prepaid asset to be recognized through the term of the agreement ended
September 30, 2018. The company recognized $63,000 as of June 30, 2018.
Between April 2018 and June 2018,
the Company issued an aggregate of 185,000 shares of the Company’s common stock to a note holder with a contractual conversion
price ranging from $0.03 to $0.04 to convert $0 in principal amount with $3,987 of accrued and unpaid interest and $1,500 of conversion
fees, totaling $5,487 (see note 5).
Stock Warrants
In June 2018, the Company granted
a note holder 50,000 warrants in connection with the issuance of a convertible note. The warrants have a term of 5 years from the
date of grant and are exercisable at an exercise price of $0.40. The Company accounted for the warrants by using the relative fair
value method. The Company recorded debt discount resulting from the
relative fair value of
the warrants of $6,206 using a simple binomial lattice model with the following assumptions: stock price at date of grant of $0.18,
exercise price of $0.40, dividend yield of zero, years to maturity of 5.00, a risk free rate of 2.80%, and expected volatility
of 473%.
The debt discount will be amortized over the term of the convertible note (see Note 5).
GH CAPITAL, INC.
CONDENSED NOTES TO FINANCIAL
STATEMENTS
June 30, 2018
(Unaudited)
NOTE
7 –
SEGMENT INFORMATION
During
the nine months ended June 30, 2018, the Company operated in two reportable business segments - (1) Transaction processing related
to online money transfer transactions for diversified online merchants with a target market in Europe (2) Consulting for business
development. The Company’s reportable segments were strategic business units that offered different services. They were not
managed separately.
Information
with respect to these reportable business segments for the nine months ended June 30, 2018 and 2017 was as follows:
|
|
For the Nine Months ended
June 30,
|
|
|
2018
|
|
2017
|
Revenues:
|
|
|
|
|
Payment processing
|
|
$
|
5,632
|
|
|
$
|
4,890
|
|
Payment processing – related party
|
|
|
6,364
|
|
|
|
14,129
|
|
Consulting – related party
|
|
|
33,599
|
|
|
|
—
|
|
|
|
|
45,595
|
|
|
|
19,019
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
Payment processing
|
|
|
24,988
|
|
|
|
22,160
|
|
|
|
|
24,988
|
|
|
|
22,160
|
|
|
|
|
|
|
|
|
|
|
Net loss (a)
|
|
$
|
(614,919
|
)
|
|
$
|
(4,269,881
|
)
|
|
(a)
|
The Company does not allocate any general and administrative expense of its U.S. activities to its reportable segments, because these activities are managed at a corporate level.
|
NOTE 8 –
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.