UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE YEAR ENDED SEPTEMBER 30, 2016
Commission file number 000-55256
KIBUSH CAPITAL CORPORATION
(Exact Name of Small Business Issuer as specified in its charter)
NEVADA
(State or other Jurisdiction of Incorporation or Organization)
c/o McGee Law Firm LLC
5635 N. Scottsdale Road, Suite 170
Scottsdale, AZ 85250
(Address of principal executive offices)
+(61) 398464288
(Issuer’s telephone number, including area code)
| Securities registered pursuant to Section 12(b) of the Act: | Securities registered pursuant to section 12(g) of the Act: |
| None | Common Stock |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: YES [ ] NO [X]
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 if the Exchange Act.
| Large Accelerated Filer | [ ] | Accelerated Filer | [ ] | |
| Non-accelerated Filer (Do not check if smaller reporting company) | [ ] | Smaller Reporting Company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
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 sold, or the average bid and asked price of such common equity, as of September 30, 2016: $1,524,098 (based upon 203,213,157 shares of non-affiliate stock)
As of January 15, 2017, there were 476,392,976 shares of the registrant’s common stock outstanding.
EXPLANATORY NOTE:
Kibush Capital Corp, together with its consolidated subsidiary, is filing this amendment (the “Amendment” or “Form 10-K/A” to its Annual Report on Form 10-K for the year ended September 30, 2016, which was originally filed with the Securities and Exchange Commission (“SEC”) on February 10, 2016 (the “Original Form 10-K”). The purpose of this Amendment No. 2 to Form 10-K is to add to the Note 15 to the Financial Statements, a discussion regarding the settlement agreement that occurred between the date of the Original Form 10-K and the date of Amendment No. 1 to Form 10-K.
This Form 10-K/A restates the Original Form 10-K in its entirety. It includes both items that have been changed as a result of the amended disclosures and items that are unchanged from the Original Form 10-K. Other than the revisions of the disclosures as discussed above and expressly set forth herein, the Form 10-K/A speaks as of the original filing date of the Form 10-K and has not been updated to reflect other events occurring subsequent to the original filing date.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING EXPLORATION STAGE STATUS
We are considered an “exploration stage” company under the U.S. Securities and Exchange Commission (“SEC”) Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations (“Industry Guide 7”), because we do not have reserves as defined under Industry Guide 7. Reserves are defined in Guide 7 as that part of a mineral deposit which can be economically and legally extracted or produced at the time of the reserve determination. The establishment of reserves under Guide 7 requires, among other things, certain spacing of exploratory drill holes to establish the required continuity of mineralization and the completion of a detailed cost or feasibility study.
Because we have no reserves as defined in Industry Guide 7, we have not exited the exploration stage and continue to report our financial information as an exploration stage entity as required under Generally Accepted Accounting Principles (“GAAP”). Although for purposes of FASB Accounting Standards Codification Topic 915, Development Stage Entities, we have exited the development stage and no longer report inception to date results of operations, cash flows and other financial information, we will remain an exploration stage company under Industry Guide 7 until such time as we demonstrate reserves in accordance with the criteria in Industry Guide 7.
Because we have no reserves, we have and will continue to expense all mine construction costs, even though these expenditures are expected to have a future economic benefit in excess of one year. We also expense our reclamation and remediation costs at the time the obligation is incurred. Companies that have reserves and have exited the exploration stage typically capitalize these costs, and subsequently amortize them on a units-of-production basis as reserves are mined, with the resulting depletion charge allocated to inventory, and then to cost of sales as the inventory is sold. As a result of these and other differences, our financial statements will not be comparable to the financial statements of mining companies that have established reserves and have exited the exploration stage.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking information. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management of Kibush Capital Corporation (hereinafter referred to as the “Company,” “Kibush Capital,” or “we”) and other matters. Forward-looking information may be included in this Annual Report on Form 10-K or may be incorporated by reference from other documents filed with the Securities and Exchange Commission (the “SEC”) by the Company. One can find many of these statements by looking for words including, for example, “believes,” “expects,” “anticipates,” “estimates” or similar expressions in this Annual Report on Form 10-K or in documents incorporated by reference in this Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events.
The Company has based the forward-looking statements relating to the Company’s operations on management’s current expectations, estimates and projections about the Company and the industry in which it operates. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In particular, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, the Company’s actual results may differ materially from those contemplated by these forward-looking statements. Any differences could result from a variety of factors, including, but not limited to general economic and business conditions, competition, and other factors.
| ITEM 1. | BUSINESS. |
Kibush Capital Corporation (“we”, “us”, “our”, the “Company” or the “Registrant”) is a mineral and natural resources exploration company. We are currently involved in mineral exploration and timber logging through our subsidiary Aqua Mining. Aqua Mining operates a timber logging and processing operation in Papua New Guinea and is also active in mineral exploration in Papua New Guinea where we are exploring for gold.
We are an exploration stage company as defined by the Security and Exchange Commission’s (“SEC”) Industry Guide 7 as the Company has no established reserves as required under the Industry Guide 7.
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History
We were incorporated in the State of Nevada on January 5, 2005 under the name Premier Platform Holding Company, Inc. The Company changed its name to Paolo Nevada Enterprises, Inc. on February 4, 2005. On August 18, 2006, the Company completed a merger with Premier Platform Holding Company, Inc., a Colorado corporation, where Paolo Nevada Enterprises, Inc. was the surviving entity. On November 1, 2006, the Company changed its name to the David Loren Corporation. On July 5, 2013, More Superannuation Fund, an Australian entity (“More”), obtained control of the Company from Beachwood Capital, LLC, a Nevada limited liability company. On August 23, 2013, the Company changed its name to Kibush Capital Corporation.
On May 26, 2014, we became an initial subscriber to Aqua Mining Limited, a Papua New Guinea limited company (“Aqua Mining”) resulting in a 49% interest. On March 23, 2015, the Company increased its ownership in Aqua Mining from 49% to 90% in exchange for assignment of the Company’s entire interest in the Koranga Joint Venture to Aqua Mining. Due to the increase in ownership and due to the fact that the additional interest in Aqua Mining was acquired from a related party we changed the ament accounting treatment for this asset and are now consolidating its financials with our own. For the fiscal year ended September 30, 2016, Aqua Mining had revenues of $138256, $118,889 in assets and $605,243 in liabilities, of which $493,443 are loans from Kibush Corp.
The Company acquired control of Angel Jade Pty Ltd., an Australian limited company (“Angel Jade”) through a series of transactions as follows: In October 2014, the Company negotiated the acquisition of a 50% interest in Angel Jade (which was 90,000,000 shares of common stock) from Five Arrows Limited in exchange for 14,000,000 shares of our common stock. However, this agreement was not formalized until December 10, 2014. On October 9, 2014, the Company acquired 3,673,470 shares of newly issued common stock of Angel Jade in exchange for $17,170 ($19,584 AUD). These two transactions combined were intended to provided Kibush Capital with exactly 51% of the common stock of Angel Jade and control of the that company. On November 6, 2014, the Company further increased its ownership of Angel Jade by purchasing an additional 45,918,300 shares of common stock directly from Angel Jade for $215,994 ($250,000 AUD) and by purchasing 18,367,350 share of common stock from Laima Trust for $86,398 ($100,000 AUD). However, in May of 2016, Angel Jade director and minority owner Alexander King was able to gain control of the company terminate all of Kibush Capital’s ownership interest in Angel Jade. As a result, the Company has not consolidated any financial information of Angel Jade and has written off Angel Jade for the purposes of this report. However, that does not mean the Company will forfeit its available remedies regarding Angel Jade, as the Company believes that the changes Mr. King made to Angel Jade were in violation of Australian law. In fact, on or about September 12, 2016, the Company commenced legal proceedings against Mr. King and others in Australia as described further in Item 3, Legal Proceedings below.
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”).
Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any significant revenues from our current business. In addition, we have sustained losses for the past two years and have a negative working capital at September 30, 2016. We must raise cash from sources other than operations. Our only other source for cash at this time is investments by others in our company. We must raise cash to continue our mining exploration activities and business development.
Our Business
Our business is comprised of timber logging and mining exploration through our subsidiary Aqua Mining. Our primary office is located at 7 Sarah Crescent, Templestowe, Victoria 3106, Australia. The Company is an exploration stage company and there is no assurance that a commercially viable mineral deposit exists on any of our properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility is determined.
On February 14, 2014, we entered into an Assignment and Bill of Sale with Five Arrows Limited (“Five Arrows”) pursuant to which Five Arrows agreed to assign to the Company all of its right, title and interest in two 50 ton per hour trammels, one 35 ton excavator, a warehouse/office, a concrete processing apron and four 35 ton per hour particle concentrators which may be utilized for alluvial mining, the assignment also conveyed Five Arrow’s interest in a joint venture with the holders of mining leases (“Leaseholders”) for gold exploration in Papua New Guinea, specifically Mining Leases ML296-301 and ML278 covering approximately 26 hectares located at Koranga in Wau, Morobe Province, Papua, New Guinea (the “Koranga Property”). In consideration therefore, the Company issued 40,000,000 shares of its common stock to Five Arrows. On February 28, 2014, we entered into a joint venture agreement with the Leaseholders (the “Joint Venture Agreement”) for the exploration of minerals on the Koranga Property. The Joint Venture Agreement entitles the leaseholders to 30% and the Company to 70% of net profits from the joint venture. On May 23rd 2015 this Joint Venture was sold to our subsidiary Aqua Mining (PNG) Ltd. Aqua Mining will manage and carry out the exploration at the site, including entering into contracts with third parties and subcontractors (giving priority to the Leaseholders and their relatives and the local community for employment opportunities and spin-off business) at its cost, and all assets, including equipment and structures built on the site, will be the property of the Company. The Leaseholders and Aqua Mining will each contribute 1% from their share of net profits to a trust account for landowner and government requirements. For the period ending September 30, 2014 we have incurred expenditure of $208,512 primarily spent on exploration. From October through to December there has been an expenditure of $56,526 on capital equipment and further exploration costs.
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The joint venture involves a lease that, between 2008 and 2011, has produced a total of 55,300 cubic meters of mined material which was processed to extract 51,000 grams of gold – raw weight (approximately 31kg pure gold) over the three years of mining activities. Gold production in 2010 averaged 1.97kg per month and in 2011 averaged 2.26kg per month. The overall raw gold grade is 0.92g per cubic meter. Pure gold grade is 0.55g per cubic meter. The Company is currently in the exploration stage for this lease. If and when successful, the Company may endeavor to undertake additional joint ventures on neighboring leaseholds (8 leaseholds border the area) to capitalize on the infrastructure and equipment we may install at Koranga.
We entered into a memorandum of understanding, dated May 1, 2014 with New Guinea Gold Corporation, for the purchase of New Guinea Gold Ltd., which was terminated by us on May 24, 2014 prior to commencing any transactions contemplated in connection therewith. The Company has no continuing obligations as a result of such termination.
Aqua Mining
Mining:
Aqua Mining is currently in the exploration stage. Aqua Mining was created to undertake certain opportunities that exist within the mining sector of the economy of Papua New Guinea. The Director Mr. Vincent Appo, has extensive experience and knowledge in this sector and has over the years assembled a vast network of contacts and contractors that will assist the company in their managerial and operational endeavors. From the outset the company is negotiating over 2 mine sites for further exploration.
Aqua Mining in the past six months has negotiated and finalized with landowners in the WAU area of PNG, Joint Ventures to conduct mineral exploration activities. These Joint Venture Agreements will form the basis of applications to the Mining Resource Authority in PNG for Mining Licenses. In addition, Aqua Mining has been accepted as a developer of AML 694-695.
On or about April 8, 2015, the Company commenced exploration of the Alluvial Mining Lease 694/695 via its Subsidiary Aqua Mining PNG Limited. Mr. Vincent Appo, PNG Operations Manager, is overseeing the construction of the required infrastructure which is required for the Company’s exploration activities.
On or about April 16, 2015, the Company announced commencement of a Jorc/43-101 report on the Mining Lease 694/695 and pending Mining Lease 296/301 held by its subsidiary, Aqua Mining PNG Limited.
Ken Unamba, a member of the Advisory Committee has been nominated to oversee this report. Vincent Appo, PNG Operations Manager, has undertaken substantial testing over the past 12 months on both areas and has enough data as a basis for assessment and review. Mr. Unamba will undertake additional surveys and sampling where necessary to provide further data to finalize the report to Kibush Capital.
Logging:
The Company, through its subsidiary Aqua Mining, was successful in obtaining Government approval for the commercialization of timber resources at Kubuna and Rigo, Papua New Guinea. The area that we have agreements with the landowners cover at Kubuna 40,000 hectares and Rigo 25,000 hectares. We have commenced logging during the December quarter at Rigo and expect to commence at Kubuna during the March quarter. Both sites are excellent resources covering many species of wood, mainly hardwoods kwila and rosewood, there are a number of exotic wood types. It has taken us some time to establish the infrastructure at Rigo, but we have now completed the access road works and established a base camp for 38 on-site workers.
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Paradise Gardens Development
Kibush Capital Corporation had entered into a management agreement with Paradise Gardens Development (PNG) Ltd, a Timber Logging and Processing Company with operations in Papua New Guinea (“Paradise Gardens”). The Company has the right to Paradise Gardens operates a Timber Authority registered with the PNG Forest Authority which permits an annual timber harvest of 5000 cubic meters, the total area under the Timber Authority is 3300 hectares. Predominant species include Terminalia, Aglaia, White Cheesewood, Pink Satinwood, Erima, Taun, Rosewood, Kwila and other hardwoods. Paradise Gardens primarily sells its timber locally to retailers and wholesalers in Papua New Guinea. The Company concluded the acquisition of Paradise Gardens on October 7th 2016. During the negotiation period, (June 2015 to October 7th 2016) the Company’s management fee includes the profit earned by Paradise Gardens during such period.
Market
Mining:
The primary product is Gold and our market price based on the London Metals Exchange Daily Rate. This rate determines a market price for all material sold within the Refinery Market. Outside of that market competition dictates the price available, and that competition has effectively no difference in the quality of the material as it based on a gold percentage. A higher price can be obtained by selling to the spot traders who can distribute the material at lower volumes to industry consumers.
Timber:
Initially, we are focusing on the domestic market in Papua New Guinea, where there are a number of major suppliers to the retail market place. As our capacity increases, we will look to export timber to the nearby Australian and Asian markets where demand is greater than supply.
Marketing and Distribution:
As the principal material is gold, the options are to sell either to a refinery and be paid the daily spot rate, or to sell to the jewelry wholesale market. Both of these options exist internally within PNG however the wholesale market is quite small. There are several options when the material is exported from PNG, again it could be to any refinery within the region and that rate again would be the daily spot rate. The wholesale market outside the country would be significant and there are many opportunities within Australia to sell at a higher than spot rate to that market. There may also be parties that would take up the material on a contractual basis.
The timber products will be marketed and distributed from our Timber Yard at Laloki (30 minutes North East from Port Moresby PNG). This facility is within easy reach of trade customers and gives quick access to our wholesale customers. In addition, it provides an opportunity for retail sales to be made direct to end consumers. We have developed marketing and distribution strategies based upon our experience working with the Paradise Gardens customer base over the last 12 months.
Competition
The mining industry is acutely competitive in all of its phases. We face strong competition from other mining companies in connection with the acquisition of exploration stage properties or properties containing gold, jade and other mineral reserves. Many of these companies have greater financial resources, operational experience and technical capabilities than us. It is our goal to find undervalued properties and team up with local joint venture partners to streamline our time to market and costs. In PNG in particular we are finding a number of such properties, as the enforcement of the Mining Act has forced traditional landowners to comply with the relevant requirements of the act. Their ability to do so is limited as they do not have the financial, or management resources to comply.
The logging industry is very competitive in Papua New Guinea. We believe that our policy of working with the landowners and providing direct employment to the local villagers appears to provide us with a competitive advantage of greater acceptance of our activities by government officials, local businesses and local Papua New Guineans.
Raw Materials, Principal Suppliers and Customers
We are not dependent on any principal suppliers and our raw materials are produced principally through our own mining activities. Our principal customers for our mining activities are refineries based in PNG. A wholesale customer base is yet to be established but that will occur over the next 12 months, after the company received the appropriate export licenses from the PNG government.
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We are not dependent on any principal suppliers and our timber materials are produced principally through our logging activities. There are number of principal customers that we are focused on with the domestic market in PNG. We have established that customer base over the last 12 months and the company is now concentrating on formalizing supply agreements to those customers.
Intellectual Property
Intellectual property is not a large part of our current business model as we are selling non-unique materials through primarily conventional channels. One or more brands may yet be developed if we determine branding will benefit the Company.
Government Regulations
Our products and services are subject to foreign, federal, state, provincial and local laws and regulations concerning business activities in general, including the laws of Papua New Guinea and Australia. Our operations will be affected from time to time in varying degrees by domestic and foreign political developments, foreign, federal and state laws.
Aqua Mining
As the 90% owner of Aqua Mining [PNG] Limited, a Papua, New Guinea company, we are required to obtain approval from the Investment Promotion Authority of Papua New Guinea to be recognized as a foreign investor for our mineral exploration joint venture with the Leaseholders of approximately 26 hectares located at Koranga in Wau, Morobe Province, Papua, New Guinea.
On July 24, 2015, we received final approval from the Papua New Guinea Department of Environment and Conservation, the Papua New Guinea Mining Resources Authority and the Mining Advisory Committee. This approval allows for mechanized processing on land controlled by the Koranga Joint Venture for a period of 20 years and Aqua Mining is the licensed contract miner for a period of 5 years. This AML license is limited to 50,000 tones of processing per year and to a maximum of 5-hectares of mining at any one time. We must report our exploration activities and sales monthly to the Mining Resource Authority and comply with the terms of the agreements with the landowners. The tribute agreement for this land requires contribution of 2% of gross sales over 3 grams of ton and 2% of gross sales when under 5 grams per ton.
Environmental Regulations:
Under our Alluvial Mining Lease, we must comply with the provisions of the Mining Act pertaining to Environmental requirements. We are subject to applicable environmental legislation including specific site conditions attached to the mining tenements imposed by the PNG Government Department of Environment and Conservation (“DEC”), the terms and conditions of operating licenses issued by the PNG Mineral Resources Authority (“MRA”) and DEC, and the environment permits for water extraction and waste discharge issued by DEC. In the fourth quarter of fiscal 2014, the PNG Parliament approved a name change for the Department of Environment and Conservation to the Conservation Environment Protection Authority and that change has become effective.
Under our Logging TA, we must comply with the provisions of the Forestry Act 1991 pertaining to Environmental requirements. We are subject to applicable environmental legislation including specific site conditions attached to the Logging TA imposed by the PNG Government Department of Environment and Conservation (“DEC”), the terms and conditions of operating licenses issued by the PNG Forest Authority (“FA”) and DEC, and the environment permits for water extraction and waste discharge issued by DEC. In the fourth quarter of fiscal 2014, the PNG Parliament approved a name change for the Department of Environment and Conservation to the Conservation Environment Protection Authority and that change has become effective.
Employees
As of January 15, 2017, the Company has 49 full time employees.
| ITEM 1A. | RISK FACTORS. |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
Not applicable to smaller reporting companies.
| ITEM 2. | PROPERTIES. |
The Company does not lease any properties or facilities. We own a building consisting of 1,200 square feet of office and warehouse space on property owned by James Koitamara, a member of the Kornaga Joint Venture, located on mining lease ML297 in New Guinea. The building and other personal property was assigned to us by Five Arrows pursuant to the Assignment Agreement attached as Exhibit 10.5. The Company utilizes office space from its corporate counsel for a nominal quarterly fee, this space is physically located at 5635 N. Scottsdale Road, Suite 170, Scottsdale, AZ 85250. Management has determined that this arrangement is adequate for its current and immediate foreseeable operating needs.
1. The Koranga Joint Venture properties located in Papua, New Guinea:
Description and Location of the Leases
The Company does not own or lease any of the mining properties directly and we have no right to acquire a lease or license for the Koranga properties. Rather titles are held by the landowners who were given the properties covered by the mining leases by the Papua, New Guinea government from 1966 to 1968. The Company has the right to manage and finance the exploration of each mining license pursuant to a Joint Venture Agreement with each of the landowners. As part of that agreement, the Company is entitled to 70% of the net profits from mineral exploration and any production. The mining licenses included in the Koranga Joint Venture are: ML296, ML297, ML298, ML299, ML300 and ML301.
Our conversion application for Mining Lease Nos. ML 296 through ML 301 was approved on July 24, 2015. The permit requires payment of K6440.96 (approximately $2,329 U.S. Dollars) within 30 days. This fee is comprised of a Security Deposit, a Tribute Agreement Fee, and rent through July 23, 2015. Furthermore, the permit holder must carry out works associated with the mining activity in accordance with the plans and specifications in the environment permit. Such requirements include nominal monetary payments, development of an environmental management plan, a waste management plan, water extraction plan, monitoring and reporting.
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Exploration History
The historic alluvial mining activities for the Koranga leases was previously undertaken by New Guinea Gold Ltd. from 1935 to 1942, by Koranga Aluvial Mining Ltd. from 1943 to 1944, and by Koranga Westland Ltd. from 2008 to 2011. Koranga Westland Ltd.’s results were follows:
The results were produced by utilizing day and night shifts each day. Available production data collected over two years shows the following:
1. An average of 75 cubic meters of materials was processed per shift. However, records from Koranga Westland Ltd. show that without breakdowns, 130-50 cubic meters could be processed in a shift period.
2. The gold grade of the material ranges between 0.1g and 5 grams per cubic meter and averages around 0.6grams per cubic meter. Raw weight is around 0.92grams per cubic meter.
3. Fineness of the alluvial gold from the lease area is between 58% and 65%, and at times higher.
4. A total of 55,300 cubic meters of mined material was processed to extract 51,000 grams of gold – raw weight (approximately 31kg pure gold) over the two years of mining activities, during the period from 2008 to 2011.
5. The mined material is comprised both of conglomerates and interbedded conglomerate, siltstone, sandstone and mudstones.
6. The mined material was rare to weakly lithified, free digging, poorly consolidated with rock clasts dislodging easily.
7. Only sluice boxes were used to capture the concentrates. The recovery was 80% during the period from 2008 to 2011.
All production data was recorded in a computer on site. A summary of the production data is given in Table 001 below
| Date | Total Loads | Production | Grade ( Ave ) | Trommels in | ||||||||||||
| From | To | M3 | Gold (g) | (g/m3) | Operation | |||||||||||
| 11/27/2009 | 12/21/2009 | 311.04 | 245.6 | 0.8 | Trommel 1 | |||||||||||
| 1/01/2010 | 08/16/2010 | 10295.2 | 9136.2 | 0.9 | Trommel 1 | |||||||||||
| 8/17/2010 | 08/31/2010 | 924.8 | 2097.1 | 2.3 | Trommel 1 | |||||||||||
| 09/01/2010 | 09/30/2010 | 1730 | 3447.2 | 1.3 | Trommel 1 | |||||||||||
| 10/01/2010 | 10/31/2010 | 2513 | 2584.8 | 1.03 | Trommel 1 | |||||||||||
| 11/01/2010 | 11/30/2010 | 4332 | 2605.3 | 0.6 | Trommel 1 | |||||||||||
| 01/01/2011 | 01/31/2011 | 1555 | 2018.6 | 1.3 | Trommel 1 | |||||||||||
| 02/01/2011 | 02/28/20 | 11 2061 | 915.9 | 0.45 | Trommel 1&2 | |||||||||||
| 03/01/2011 | 03/31/20 | 11 3666 | 2967.3 | 0.81 | Trommel 1&2 | |||||||||||
| 04/01/2011 | 04/30/20 | 11 4195 | 4051.4 | 0.97 | Trommel 1&2 | |||||||||||
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Koranga Westland Ltd. ceased production in 2011 due to capital constraints.
The Company does not plan to undertake any exploration and/or development of the property. The property is split by the Koranga creek with sedimentary deposits running through the creek and side walls with visible gold strata’s. The exploration activities will be alluvial mining and to that nature will be open pit. The present condition of the property is an open area with a river running through the center of the mining leases.
The equipment used is new, the modernization is basic as the type of mining at this stage is sluice boxes and pressure hoses. The current mining lease only allows for non-mechanized processing. The current cost of equipment is approximately $150,000 and if and when we move to mechanized processing, we estimate the cost of equipment to be in excess of $1,000,000.
There has been no annual production of minerals to report for the Koranga Joint Venture properties for fiscal years 2016 and 2015.
Geology
The tectonic feature that hosts the project site and may have been influential in creating an environment conducive for the alluvial gold deposit is the Bulolo graben. It is bounded on the East and West by sub parallel Northwest trending transfer structures while bounded by Northeast trending transfer structures on the North and South. The Northwest trending structures and the subsidiary fractures have accommodated much of the mineralization and have controlled a series of intrusions. The basement rock of the area is metamorphics, intruded by Miocene granodiorite, and believed to be the source of high fineness gold mineralization in the area. A serious of other intrusions occurred, giving rise to further mineralization which is believed to have contributed to much of the prospects in the project area. These intrusions where associated with volcanism that resulted in blocking off of the Bulolo River and consequently the formation of the gold bearing sequence.
Otibanda Formation
The Otibanda Formation is the target alluvial gold bearing sedimentary sequence. It is a lacustrine sequence that was deposited in a fresh water lake. Mapping shows the apparent thickness of the sequence to be 700m and is alluvial gold bearing. The sequence is comprised of interbedded agglomerates, sandstones, siltstones and intercalated thin mudstone. The deposit is the result of an eruptive volcanism that blocked off the Bulolo River resulting in blockage and setting up of a fresh water lake. All sediments including gold shedding off from the surrounding hills and mountains were deposited into the lake. The enriched sequence is the source of gold for the miners down creek and our target in this project.
Proven or probable reserves have not been established.
The Koranga property has been physically inspected by Ken Unamba, a professional geologist, but a formal feasibility study for the property has not been prepared. Furthermore, there are no current detailed plans to conduct exploration on the property, nor are any phased programs planned.
Exploration work will be performed and/or supervised by Mr. Ken Unamba, a geologist and member of our advisory committee. Mr. Unamba has a Science Degree majoring in Geology. His 22 years’ work experience covers Exploration Geologist for Tolukuma Gold Mine Ltd., Consulting Geologist for Harmony Gold SE Asia and Filmena Resources Corp Philippines. He was appointed to the then Mining Advisory Board in 2000 for five years as Technical Advisor.
Our exploration budget for Aqua Mining is $200,000, including geophysics, sampling and exploration labor.
At this time, we are uncertain how our exploration work will be funded.
| ITEM 3. | LEGAL PROCEEDINGS. |
We are currently in litigation with Alexander King (“King”) and other defendants regarding the Company’s ownership of Angel Jade. The action was commenced by the Company on September 12, 2016, in the Supreme Court of Victoria (Australia) as Case No. S ECI 2016 01205, In the matter of Angel Jade Pty Ltd (ACN 146 720 578). The Principal parties are Kibush Capital, Angel Jade, New Century, 4K Nominees and Alexander King.
| - 10 - |
In September 2014 Angel Jade was owned 50% by the King and 50% by Five Arrows. Alexander King and Warren Sheppard were the sole directors. In October of 2014, Five Arrows transferred its shares in Angel Jade to the Company. On October 8, 2014, Angel Jade issued an additional 1% of its shares to Kibush resulting in Angel Jade being held 49% by King (90,000,000 shares) and 51% by Kibush Capital (93,673,470 shares). On November 6, 2014, King agreed to sell Kibush Capital 18,367,350 shares in Angel Jade for the sum of $100,000 of which King has been paid $25,000, resulting in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 112,040,720. The agreement is recorded in a document headed ’Share Purchase Form’ dated November 6, 2014. On 6 November 2014 Angel Jade agreed to issue 45,918,375 shares to Kibush Capital for the price of $250,000 of which Kibush Capital has paid $67,358.19, resulting in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 157,959,195. The transaction is recorded in the Minutes of a Meeting of Directors of Angel Jade signed by King dated November 6, 2014. On or about November 12, 2015 the shareholding in Angel Jade was adjusted to 71,632,650 shares held by King (30%), and 157,959,195 shares held by Kibush Capital (70%), total issued number of shares in Angel Jade 229,591,845).
On or about May 5, 2016 and without his knowledge or consent, Warren Sheppard was removed as a director of Angel Jade. On or about May 5, 2016 and without the knowledge or consent of Warren Sheppard or Kibush Capital, the issued and outstanding shares in Angel Jade was reduced to 200,001,000. On or about May 5, 2016 and without the knowledge or consent of Kibush Capital or Warren Sheppard, the shareholder records of Angel Jade were altered to show ownership of Angel Jade as follows:
| New Century | 90,000,000 shares; | ||
| 4K Nominees | 90,000,000 shares; | ||
| Five Arrows | 500 shares; | ||
| Fourth Defendant | 20,000,000 shares, and | ||
| King holding | 500 shares |
The Company claims that King’s alteration of the directors and ownership of Angel Jade was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Kibush Capital contrary to section 232 of the Corporations Act 2010. The Company is seeking a declaration that the Kibush Capital is entitled to 70% of the issued shares of the First Defendant; or in the alternative, a declaration that Kibush Capital is entitled to 51% of the issued shares of Angel Jade; damages equal to the $67,358.19 paid to Angel Jade and damages of the $ paid to King. However, there remains a possibility that the litigation may be settled prior to adjudication by the Court.
We are not presently a party to any other litigation.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not Applicable.
| ITEM 5. | MARKET PRICE FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Market Information
| Fiscal Year – 2016 | High Bid | Low Bid | ||||||
| Fourth Quarter: 7/1/16 to 9/30/16 | 0.0072 | 0.0011 | ||||||
| Third Quarter: 4/1/16 to 6/30/16 | 0.0299 | 0.0011 | ||||||
| Second Quarter: 1/1/16 to 3/31/16 | 0.0176 | 0.005 | ||||||
| First Quarter: 10/1/15 to 12/31/15 | 0.035 | 0.0075 | ||||||
| Fiscal Year – 2015 | High Bid | Low Bid | ||||||
| Fourth Quarter: 7/1/15 to 9/30/15 | 0.045 | 0.0075 | ||||||
| Third Quarter: 4/1/15 to 6/30/15 | 0.12 | 0.027 | ||||||
| Second Quarter: 1/1/15 to 3/31/15 | 0.32 | 0.1004 | ||||||
| First Quarter: 10/1/14 to 12/31/14 | 0.50 | 0.1101 | ||||||
| - 11 - |
Our shares of common stock are traded on the OTC Pink operated by the OTC Markets Group, Inc., under the symbol “DLCR”. The shares trading of our common stock began on August 1, 2013.
Holders
As of January 15, 2017, we had 202 stockholders of record.
Dividends
We have never declared or paid cash dividends. There are currently no restrictions which limit our ability to pay dividends in the future.
On January 13, 2017 the closing bid price of our common stock on the OTC pink sheets quotation system was $0.0012 per share.
As of January 15, 2017, there were 202 holders of record of our common stock.
Dividends
We have not declared or paid any cash dividends on our common stock and we do not anticipate paying any dividends in the foreseeable future. We expect to retain any future earnings to finance our business activities and any potential expansion. The payment of cash dividends in the future will depend upon our future revenues, earnings and capital requirements and other factors the Board considers relevant.
Warrants or Options
The Company does not have any warrants outstanding and the Company has not yet adopted a stock option plan.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any equity compensation plans.
Repurchase of Securities
None.
Recent Sales of Unregistered Securities
On January 5, 2016, the Company issued a $47,615 Convertible Promissory Note to the McGee Law Firm for services rendered. The Note is due on October 31, 2016 and accrues interest at 12.0% per annum. On or after May 1, 2016, at the option of the holder, the then outstanding amount of the Note may be converted into common stock of the Company at a conversion price equal to the lesser of $0.01 per share or 50% of the three lowest closing prices average for the 10 business days prior to the conversion date.
On August 23, 2016, the Company issued a 9.00% Convertible Promissory Note due August 23, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
On September 17, 2016, the Company issued a 9.00% Convertible Promissory Note due September 17, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
| - 12 - |
Each of the foregoing issuances was exempt from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2).
As of January 15, 2017, there are 476,392,976 shares of the Company’s common stock issued and outstanding.
Securities authorized for issuance under equity compensation plans
We have no equity compensation plans at the present time.
Section 15(g) of the Securities Exchange Act of 1934
Our company’s shares are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as “bid” and “offer” quotes, a dealers “spread” and broker/dealer compensation; the broker/dealer compensation, the broker/dealers duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers rights and remedies in causes of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your shares.
| ITEM 6. | SELECTED FINANCIAL DATA. |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related notes and our unaudited consolidated interim financial statements and their notes. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Such statements are only predictions, and actual events or results may differ materially.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| ● | have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| ● | comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
| ● | submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| ● | disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation |
.
| - 13 - |
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 take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
We will remain 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 total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares 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.
The following discussion of the financial condition and results of our operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K for the year ended September 30, 2016 (this “Report”). This report contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements including, without limitation, statements containing the words “believes”, “anticipates,” “expects” and the like, constitute “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.
Plan of Operations
The Company’s current plan of operation is to continue and expand our logging operations and to refocus on mining activities after achieving sufficient cash flow from logging and timber sales.
The Company has spent considerable time and effort understanding and developing processes for our logging, processing and sale of finished products. The Company is now ready to deliver to the market place approximately 150 cubic meters of processed timber for sale to both the wholesale and retail markets. We anticipate that the average sales revenue for processed timber will be approximately $750.00 per cubic meter.
Within the next 6 months, the Company plans to (1) acquire and place additional processing equipment in our new Timber yard at Laloki, and (2) acquire additional logging equipment to be deployed as required in Rigo and Kubuna. We have placed deposits on various processing equipment, but we may need to finance the balance of the processing equipment and the additional logging machinery. Once the additional logging and processing equipment is placed, we believe that our capacity will increase to approximately 500 cubic meters per month. Moreover, the new processing equipment will allow us to customize our products to specific customer requirements and offer additional value added timber products, which should help the Company increase profit margins on its timber sales.
With current operations at Rigo and Kubuna, we are optimistic that we can sell an average quantity of 300 cubic meters of timber per month by March of 2017. To support this target, we plan to develop export markets for our finished timber products to avoid relying too heavily on sales to any one region, diversify our customer base and build a more stable sales market. In addition to Rigo and Kubuna, we are investigating additional areas in PNG for potential timber operations to support our projected volume for the next 3 years.
Once we have sustainable excess profits from our logging activities, we plan to renew our mining exploration efforts at Wau. That project needs considerable additional capital to commence any substantial revenue producing activities. At this time, the Company plans to self-fund the mining exploration at Wau with anticipated revenues from its timber operations rather than utilizing third party financing. We anticipate renewed exploration activities at Wau during our 2017 fiscal year.
| - 14 - |
Results of Operations
For the year ended September 30, 2016 and September 30, 2015
Revenues
The Company had $141,187 in revenue for the year ended September 30, 2016 and $32,000; for the year ended September 30, 2015. The increase in revenue of $109,187 is attributable to the sale of timber under the management agreement with Paradise Gardens.
Operating expenses
The Company had operating expenses of $ 899,982 for the year ended September 30, 2016 consisting of general and administrative expenses, as compared with operating expenses of $1,121,574 for the year ended September 30, 2015 consisting of general and administrative expenses. The decrease of $221,592 was attributable to the Company focusing primarily on its Logging Operations, a decrease in expenditure on the Koranga Gold Leases, and a decrease in the cost of the derivative financing.
Net Loss
The Company had a net operating loss of $1,301,909 for the year ended September 30, 2016 compared with a net operating loss of $1,290,613 for the year ended September 30, 2015. The decrease of $11,296 was primarily attributable to the improved revenues from the logging operations and a decrease in expenditure at Koranga.
Operating Activities
Net cash used in operating activities was $419,812 for the year ended September 30, 2016 compared to net cash used in operating activities of $925,854 for the year ended September 30, 2015. The decrease of $506,042 was a result improved revenue from the logging operations and a decrease in expenditure on the infrastructure at Koranga.
Investing Activities
Net cash used in investing activities was $92,086 for the year ended September 30, 2016 compared to $17,050 for the year ended September 30, 2015. This increase resulted from the acquisition of Plant and Equipment for the logging operations.
Financing Activities
Net cash provided by financing activities was $317,184 for the year ended September 30, 2016 compared to $809,414 for the year ended September 30, 2015. The decrease of $492,230 was mainly due to a decrease in the cost of derivative financing.
Liquidity and Capital Resources
As of September 30, 2016, the Company had total current assets of $25,221 and total current liabilities of $3,099,080 resulting in a working capital deficit of $3,073,859. As of September 30, 2015, the Company had total current assets of $10,763 and total current liabilities of $1,923,195 resulting in a working capital deficit of $1,912,432. The decrease in working capital deficit arose mainly due to increase in loans owing to related parties, who provided advances to the Company for working capital purposes. The Company had cash as of September 30, 2016 of $221. The Company intends to fund its exploration through the revenues from the logging activities and the sale of its equity securities. However, there can be no assurance that the Company will be successful doing so. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. We currently believe that the Company will need approximately $2,000,000 over the next 12 months to implement our desired expansion of mining activities and logging activities.
Going Concern
The Company is in the development stage and has insufficient revenues to cover its operating costs. As of September 30, 2016, the Company had an accumulated deficit of $12,288,586 and a working capital deficiency and insufficient cash resources to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan for our continued existence includes selling additional stock through private placements and borrowing additional funds to pay overhead expenses while maintaining marketing efforts to raise our sales volume. Our future success is dependent upon our ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that we will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds. Our inability to obtain additional cash could have a material adverse effect on our financial position, results of operations and our ability to continue as a going concern.
| - 15 - |
We have only had operating losses which raise substantial doubts about our viability to continue our business and our auditors have issued an opinion expressing the uncertainty of our Company to continue as a going concern. If we are not able to continue operations, investors could lose their entire investment in our Company.
Contractual Obligations
The Company is not party to any contractual obligations other than indicated in Notes 5 and 6.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements other than as described above.
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
INDEX TO FINANCIAL STATEMENTS
| - 16 - |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Kibush Capital Corporation
We have audited the accompanying consolidated balance sheets of Kibush Capital Corporation as of September 30, 2016, and 2015, and the consolidated related statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2016. Kibush Capital Corporation’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kibush Capital Corporation as of September 30, 2016, and 2015, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2016, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations the past two years. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ DLL CPAS, LLC | |
| Bonita Springs, FL | |
| February 14, 2017 |
| - 17 - |
KIBUSH CAPITAL CORPORATION
September 30,
| September 30, 2016 | September 30, 2015 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 221 | $ | 10,763 | ||||
| Cash in transit | $ | 25,000 | ||||||
| Total current assets | 25,221 | 10,763 | ||||||
| Property and equipment, net | 100,291 | 48,544 | ||||||
| Paradise Gardens | 18,377 | |||||||
| Shares in Aqua Mining | - | - | ||||||
| Other assets | 25,112 | 22,627 | ||||||
| Deposits Paid | - | 9,562 | ||||||
| Goodwill | - | 14,000 | ||||||
| Total assets | $ | 169,001 | $ | 105,496 | ||||
| LIABILITIE AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | - | $ | 11,147 | ||||
| Accrued expenses | 715,048 | 326,187 | ||||||
| Promissory notes payable | - | 34,374 | ||||||
| Convertible notes payable, net of discounts of $80,434 and $3,099, respectively | 234,591 | 182,166 | ||||||
| Loan from related party | 1,162,741 | 834,527 | ||||||
| Derivative liabilities | 986,700 | 498,417 | ||||||
| Deposits | ||||||||
| Shares to be Issued - Five Arrows | - | 36,378 | ||||||
| Total current liabilities | 3,099,080 | 1,923,195 | ||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $0.001 par value; 50,000,000 shares authorized; Series A 3,000,000 shares issued and outstanding at September 30, 2016 and 2015, respectively | 3,000 | 3,000 | ||||||
Common stock, $0.001 par value; 500,000,000 shares authorized at September 30, 2016 and 2015, respectively; 267,513,362 and 77,399,187 shares issued and outstanding at September 30, 2016 and 2015, respectively | 267,513 | 77,399 | ||||||
| Additional paid-in capital | 9,136,631 | 9,151,960 | ||||||
| Accumulated Operating Deficit | (12,288,586 | ) | (10,986,677 | ) | ||||
| Total stockholders' deficit, including non-controlling interest | (2,881,441 | ) | (1,754,318 | ) | ||||
| Non-Controlling interest | (48,637 | ) | (63,381 | ) | ||||
| Total stockholders’ deficit | (2,930,079 | ) | (1,817,699 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 169,002 | $ | 105,496 | ||||
“See notes to financial statements”
| - 18 - |
KIBUSH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIENCY)
For the years ended September 30, 2016 and 2015
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Non | Other | Total | |||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Controlling | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Interest | Deficit | Income | Deficit | ||||||||||||||||||||||||||||
| Balance at September 30, 2014 | 53,837,485 | 53,837 | 3,000,000 | 3,000 | 8,454,962 | 3 | -9,696,066 | - | -1,184,264 | |||||||||||||||||||||||||||
| Repayment of convertible loans @ .001 per share of common stock | 6,560,000 | 6,560 | 6,560 | |||||||||||||||||||||||||||||||||
| Common stock issued - Warren Sheppard | 3,001,702 | 3,002 | 696,998 | 700,000 | ||||||||||||||||||||||||||||||||
| Common stock issued - Five Arrows | 14,000,000 | 14,000 | 14,000 | |||||||||||||||||||||||||||||||||
| Exchange rate variation | -928 | 2 | -926 | |||||||||||||||||||||||||||||||||
| Net Income (Loss) | -62,456 | -1,290,613 | -1,353,069 | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2015 | 77,399,187 | 77,399 | 3,000,000 | 3,000 | 9,151,960 | -63,381 | -10,986,677 | - | -1,817,699 | |||||||||||||||||||||||||||
| Common stock issued for repayment of convertible note | 165,669,175 | 165,669 | (15,329 | ) | 150,340 | |||||||||||||||||||||||||||||||
| Common stock issued for bonus | 24,445,000 | 24,445 | 24,445 | |||||||||||||||||||||||||||||||||
| Exchange rate variation | -10 | -10 | ||||||||||||||||||||||||||||||||||
| Net Income (Loss) | 14,754 | -1,301,909 | -1,287,155 | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2016 | 267,513,362 | 267,513 | 3,000,000 | 3,000 | 9,136,631 | -48,637 | -12,288,586 | - | -2,930,078 | |||||||||||||||||||||||||||
“See notes to financial statements”
| - 19 - |
KIBUSH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30,
| Year Ended | Year Ended | |||||||
| Sept 30, 2016 | Sept 30, 2015 | |||||||
| Net revenues | $ | 141,187 | $ | 32,000 | ||||
| Cost of sales | - | - | ||||||
| Gross profit | 141,187 | 32,000 | ||||||
| Operating expenses: | ||||||||
| Research and development | - | - | ||||||
| General and administrative | ||||||||
| General and administrative | 899,982 | 1,121,574 | ||||||
| Total operating expenses | 899,982 | 1,121,574 | ||||||
| Loss from operations | (758,796 | ) | (1,089,574 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | - | - | ||||||
| Interest expense | (582,762 | ) | (389,425 | ) | ||||
| Other income | - | - | ||||||
| Change in fair value of derivative liabilities | (7,525 | ) | 247,098 | |||||
| Total other expense, net | (590,287 | ) | (142,328 | ) | ||||
| Loss before provision for income taxes | (1,349,082 | ) | (1,231,902 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss from Operations | $ | (1,349,082 | ) | $ | (1,231,902 | ) | ||
| Less: Loss attributable to non-controlling interest | 21,874 | 63,381 | ||||||
| Gain/Loss from deconsolidation | 132,677 | |||||||
| Less net loss from discontinued operations | (107,377 | ) | (122,092 | ) | ||||
| Net loss attributable to Holding Company | (1,301,909 | ) | (1,290,613 | ) | ||||
| Basic and diluted loss per common share | $ | (0.04 | ) | $ | (0.03 | ) | ||
| Weighted average common shares outstanding | ||||||||
| basic and diluted | 36,026,011 | 36,026,011 | ||||||
“See notes to financial statements”
| - 20 - |
KIBUSH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30,
Year Ended | Year Ended | |||||||
| September 30, 2016 | September 30, 2015 | |||||||
| Operating Activities: | ||||||||
| Net loss | $ | (1,301,909 | ) | $ | (1,290,613 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 22,289 | 5,604 | ||||||
| Amortization of debt discount | 480,758 | 334,731 | ||||||
| Discontinued operations | 107,377 | 122,092 | ||||||
| Gain/Loss from deconsolidation | (132,677 | ) | (122,092 | ) | ||||
| Change in fair value of derivative instruments | 7,525 | (247,098 | ) | |||||
| Stock based payments | - | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | - | 6,035 | ||||||
| Others asset | 29,008 | (22,128 | ) | |||||
| Accounts payable | - | 8,190 | ||||||
| Accrued expenses | 265,813 | 137,500 | ||||||
| Accrued interest | 102,004 | 76,187 | ||||||
| Deposits | - | 65,738 | ||||||
| Net cash used in operating activities | (419,812 | ) | (925,854 | ) | ||||
| Investing Activities: | ||||||||
| Investment in Angel Jade | - | |||||||
| Goodwill on Consolidation | - | (14,000 | ) | |||||
| Paradise Gardens | 18,377 | - | ||||||
| Purchase of property and equipment | 73,709 | 31,050 | ||||||
| Net cash used in investing activities | 92,086 | 17,050 | ||||||
| Financing Activities: | ||||||||
| Proceeds from issuance of convertible debt, net of debt discounts | - | - | ||||||
| Repayment of loan from related party | - | - | ||||||
| Proceeds from related party loans, net of debt discounts | 334,387 | 745,204 | ||||||
| Effective of exchange rates on cash | (17,203 | ) | 64,211 | |||||
| Net cash provided by financing activities | 317,184 | 809,414 | ||||||
| Net change in cash | (10,542 | ) | (99,390 | ) | ||||
| Cash, beginning of year | 10,763 | 110,152 | ||||||
| Cash, end of year | $ | 221 | $ | 10,763 | ||||
“See notes to financial statements”
| - 21 - |
KIBUSH CAPITAL CORPORATION
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Business
Kibush Capital Corporation (formerly David Loren Corporation) (the “Company”) includes its 90% owned subsidiary Aqua Mining (PNG). See Basis of Presentation below. The Company has two primary businesses: (i) mining exploration within Aqua Mining, and (ii) timber operations in Papua New Guinea by Aqua Mining.
Basis of Presentation
The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The consolidated financial statements of the Company include the accounts of the Company, and all entities in which a direct or indirect controlling interest exists through voting rights or qualifying variable interests. All intercompany balances and transactions have been eliminated in the consolidated financial statements.
Change in Fiscal Year End
The Board of Directors of the Company approved on September 14, 2014, a change in the Company’s fiscal year end from December 31 to September 30 of each year.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As at September 30, 2015, the Company has an accumulated deficit of $10,986,677 and $12,288,586. as of September 30, 2016, and has not earned sufficient revenues to cover operating costs since inception and has a working capital deficit. The Company intends to fund its mining exploration through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements for the year.
The ability of the Company to emerge from the development stage is dependent upon, among other things, obtaining additional financing to continue mining exploration and execution of its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Functional and Reporting Currency
The consolidated financial statements are presented in U.S. Dollars. The Company’s functional currency is the U.S. Dollar. The functional currency of Aqua Mining is the Papua New Guinean kina. Assets and liabilities are translated using the exchange rate on the respective balance sheet dates. Items in the income statement and cash flow statement are translated into U.S. Dollars using the average rates of exchange for the periods involved. The resulting translation adjustments are recorded as a separate component of other comprehensive income/(loss) within stockholders’ equity.
The functional currency of foreign entities is generally the local currency unless the primary economic environment requires the use of another currency. Gains or losses arising from the translation or settlement of foreign-currency-denominated monetary assets and liabilities into the functional currency are recognized in the income in the period in which they arise. However, currency differences on intercompany loans that have the nature of a permanent investment are accounted for as translation differences as a separate component of other comprehensive income/(loss) within stockholders’ equity.
| - 22 - |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the principal accounting policies are set out below:
Cash
The Company maintains its cash balances in interest and non-interest bearing accounts which do not exceed Federal Deposit Insurance Corporation limits.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Kibush Capital and Aqua Mining. All intercompany accounts and transactions have been eliminated.
Other Comprehensive Income and Foreign Currency Translation
FASB ASC 220-10-05, Comprehensive Income, establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distribution to owners.
The accompanying consolidated financial statements are presented in United States dollars.
Reclassifications
Reclassifications have been made to prior year consolidated financial statements in order to conform the presentation to the statements as of and for the period ended September 30, 2014.
On June 10, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-10, Development Stage Entities (Topic 915) – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates the concept of a development stage entity (DSE) in its entirety from current accounting guidance. The Company has elected early adoption of this new standard.
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States of America (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management are, recoverability of long-lived assets, valuation and useful lives of intangible assets, valuation of derivative liabilities, and valuation of common stock, options, warrants and deferred tax assets. Actual results could differ from those estimates.
Non-Controlling Interests
Investments in associated companies over which the Company has the ability to exercise significant influence are accounted for under the consolidation method, after appropriate adjustments for intercompany profits and dividends.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It requires an acquirer to recognize, at the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination achieved in stages (step acquisitions), the acquirer will be required to re-measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting principles. U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
A non-controlling interest in a subsidiary is an ownership interest in a consolidated entity that is reported as equity in the consolidated financial statements and separate from the Company’s equity. In addition, net income/(loss) attributable to non-controlling interests is reported separately from net income attributable to the Company in the consolidated financial statements. The Company’s consolidated statements present the full amount of assets, liabilities, income and expenses of all of our consolidated subsidiaries, with a partially offsetting amount shown in non-controlling interests for the portion of these assets and liabilities that are not controlled by us.
| - 23 - |
For our investments in affiliated entities that are included in the consolidation, the excess cost over underlying fair value of net assets is referred to as goodwill and reported separately as “Goodwill” in our accompanying consolidated balance sheets. Goodwill may only arise where consideration has been paid.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives as follows:
| Plant equipment | 2 to 15 years | ||
| Computer and software | 1 to 2 years | ||
| Office equipment | 3 to 10 years | ||
| Building improvements | 20 years |
Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in the consolidated statement of operations.
Impairment of Long-Lived Assets
In accordance with FASB ASC 360-10-5, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate that such carrying values may not be recoverable. The Company uses its best judgment based on the current facts and circumstances relating to its business when determining whether any significant impairment factors exist. The Company considers the following factors or conditions, among others, that could indicate the need for an impairment review:
| ● | Significant under performance relative to expected historical or projected future operating results; |
| ● | Significant changes in its strategic business objectives and utilization of the assets; |
| ● | Significant negative industry or economic trends, including legal factors; |
If the Company determines that the carrying values of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company’s management performs an undiscounted cash flow analysis to determine if impairment exists. If impairment exists, the Company measures the impairment based on the difference between the asset’s carrying amount and its fair value, and the impairment is charged to operations in the period in which the long-lived asset impairment is determined by management.
The carrying value of the Company’s investment in Joint Venture contract with leaseholders of certain Mining Leases in Papua New Guinea represents its ownership, accounted for under the equity method. The ownership interest is not adjusted to fair value on a recurring basis. Each reporting period the Company assesses the fair value of the Company’s ownership interest in Joint Venture in accordance with FASB ASC 325-20-35. Each year the Company conducts an impairment analysis in accordance with the provisions within FASB ASC 320-10-35 paragraphs 25 through 32.
Fair Value of Financial Instruments
The carrying amounts of the Company’s cash, accounts payable and accrued expenses approximate their estimated fair values due to the short-term maturities of those financial instruments. The Company believes the carrying amount of its notes payable approximates its fair value based on rates and other terms currently available to the Company for similar debt instruments.
Beneficial Conversion Features of Debentures
In accordance with FASB ASC 470-20, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, we recognize the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public on the day the loan is made to us. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of debentures and related accruing interest is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.
| - 24 - |
Derivative Financial Instruments
We apply the provisions of FASB ASC 815-10, Derivatives and Hedging (“ASC 815-10”). Derivatives within the scope of ASC 815-10 must be recorded on the balance sheet at fair value. During the year ended September 30, 2014, the Company issued convertible debt and recorded derivative liabilities related to a reset provision associated with the embedded conversion feature of the convertible debt. The Company computed the fair value of these derivative liabilities on the grant date and various measurement dates using the Black-Scholes pricing model. Due to the reset provisions within the embedded conversion feature, the Company determined that the Black-Scholes pricing model was the most appropriate for valuing these instruments.
In applying the Black-Scholes valuation model, the Company used the following assumptions during the year ended September 30, 2016:
| For the year ended September 30, 2016 | ||||
| Annual dividend yield | - | |||
| Expected life (years) | 0.50 – 1.00 | |||
| Risk-free interest rate | 0.03% — 0.13 | % | ||
| Expected volatility | 210.12. % —400.48 | % |
The inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.
The Company determines the fair value of its derivative instruments using a three-level hierarchy for fair value measurements which these assets and liabilities must be grouped, based on significant levels of observable or unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These two types of inputs have created the following fair-value hierarchy:
Level 1 — Valuation based on unadjusted quoted market prices in active markets for identical securities. Currently, the Company does not have any items as Level 1.
Level 2 — Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. Currently, the Company does not have any items classified as Level 2.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and involve management judgment. The Company used the Black-Scholes option pricing models to determine the fair value of the instruments.
The following table presents the Company’s embedded conversion features of its convertible debt measured at fair value on a recurring basis as of September 30, 2015, and as of September 30, 2016:
| Carry Value at | Carry Value at | |||||||
| September 30, 2016 | September 30, 2015 | |||||||
| Derivative liabilties: | ||||||||
| Embedded conversion features - notes | $ | 890,568 | $ | 498,417 | ||||
| Total derivative liability | $ | 890,568 | $ | 498,417 | ||||
| For the year ended | For the year ended | |||||||
| September 30, 2016 | September 30, 2015 | |||||||
| Change in fair value included in other income (expense), net | -7,525 | 13,1044 | ||||||
| - 25 - |
The following table provides a reconciliation of the beginning and ending balances for the Company’s derivative liabilities measured at fair value using Level 3 inputs:
| For the year ended September 30,2016 | For the year ended September 30, 2015 | |||||||
| Embedded Conversion | ||||||||
| Features - Notes: | ||||||||
| Balance at beginning of year | $ | 498,417 | $ | 752,997 | ||||
| Change in derivative liabilities | $ | 399,676 | $ | (385,624 | ) | |||
| Net change in fair value included in net loss | (7,525 | ) | 131,044 | |||||
| Ending balance | $ | 890,568 | $ | 498,417 | ||||
The Company re-measures the fair values of all its derivative liabilities as of each period end and records the net aggregate gain/loss due to the change in the fair value of the derivative liabilities as a component of other expense, net in the accompanying consolidated statement of operations. During the years ended September 30, 2016 and 2015, the Company recorded a net increase (decrease) to the fair value of derivative liabilities balance of $ (7,525) and $ 131,044, respectively.
Loss per Share
The Company applies FASB ASC 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods for which no common share equivalents are included because their effect would be anti-dilutive.
Income Taxes
Income taxes are accounted for in accordance with ASC Topic 740, “Income Taxes.” Under the asset and liability method, deferred tax assets and liabilities are recognized for the future consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases (temporary differences). Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are recovered or settled. Valuation allowances for deferred tax assets are established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Mineral Property, Mineral Rights (Claims) Payments and Exploration Costs
Pursuant to EITF 04-02, “Whether Mineral Rights are Tangible or Intangible Assets and Related Issues”, the Company has an accounting policy to capitalize the direct costs to acquire or lease mineral properties and mineral rights as tangible assets. The direct costs include the costs of signature (lease) bonuses, options to purchase or lease properties, and brokers’ and legal fees. If the acquired mineral rights relate to unproven properties, the Company does not amortize the capitalized mineral costs, but evaluates the capitalized mineral costs periodically for impairment. The Company expenses all costs related to the exploration of mineral claims in which it had secured exploration rights prior to establishment of proven and probable reserves.
| - 26 - |
Accounting Treatment of Mining Interests
At this time, the Company does not directly own or directly lease mining properties. However, the Company does have contractual rights and governmental permits which allow the Company to conduct mining exploration on the properties referenced in this report. These contractual relationships, coupled with the government permits issued to the Company (or a subsidiary), are substantially similar in nature to a mining lease. Therefore, we have treated these contracts as lease agreements from an accounting prospective.
Research and Development
Research and development costs are recognized as an expense in the period in which they are incurred. The Company incurred no research and development costs for the years ended September 30, 2016 and 2015, respectively.
Recent Accounting Pronouncements
New accounting standards
Development State Entities. In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-10 – Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation (“ASU 2014-10”). The amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. For other entities, the amendments are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015.
Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915.
The Company has early adopted ASU 2014-10 commencing with its financial statements for the year ended September 30, 2014 and subsequent periods.
Accounting standards to be adopted in future periods
In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which provides guidance for accounting for revenue from contracts with customers. The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity would be required to apply the following five steps: 1) identify the contract(s) with a customer; 2) identify the performance obligations in the contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations in the contract; and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is permitted, FASB has delayed the revenue recognition effective date by one year December 31, 2017.
Entities will have the option to apply the final standard retrospectively or use a modified retrospective method, recognizing the cumulative effect of the ASU in retained earnings at the date of initial application. An entity will not restate prior periods if it uses the modified retrospective method, but will be required to disclose the amount by which each financial statement line item is affected in the current reporting period by the application of the ASU as compared to the guidance in effect prior to the change, as well as reasons for significant changes. The Company will adopt the updated standard in the first quarter of 2017. The Company is currently evaluating the impact that implementing this ASU will have on its financial statements and disclosures, as well as whether it will use the retrospective or modified retrospective method of adoption.
Company management do not believe that the adoption of recently issued accounting pronouncements will have a significant impact on the Company’s financial position, results of operations, or cash flows.
| - 27 - |
NOTE 3 – INVESTMENTS IN SUBSIDIARIES
The Company owns interests in the following entities which was recorded at their book value since they were related party common control acquisitions.
| Investment | Ownership % | |||||||
| Aqua Mining (PNG) | 34 | 90 | % | |||||
As Aqua Mining (PNG) Ltd was acquired from a related entity, Five Arrows Limited (see Note 9 – Business Combinations), the shares were recorded in the accounts at their true cost value.
Angel Jade has been included as a subsidiary of the Company in its prior reports. However, the Company’s ownership and control of Angel Jade was terminated by Angel Jade during 2016 – See Item 3, Legal Proceedings. According to the records of Angel Jade, the Company held no ownership interest in Angel Jade as of September 30, 2016. As such, the Company has removed Angel Jade and its related financial data from this report, including removal of Angel Jade financial data from the 2015 fiscal year for financial comparison purposes.
NOTE 4 – PROPERTY AND EQUIPMENT
| September 30, 2016 | September 30, 2015 | |||||||
| Building and Improvements | $ | - | $ | - | ||||
| Plant Equipment | 16,073 | 3,724 | ||||||
| Computer Equipment | - | - | ||||||
| Office Equipment | - | - | ||||||
| Motor Vehicle | 111,585 | 50,424 | ||||||
| 127,658 | 54,148 | |||||||
| Less accumulated depreciation | -27,367 | -5,604 | ||||||
| $ | 100,291 | $ | 48,544 | |||||
Depreciation expense was approximately $22,289 for the year ended September 30, 2016 and $5,604 for the year ended September 30, 2015.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
| September 30, 2016 | ||||||||||||
| Note Face Amount | Debt Discount | Net Amount of Note | ||||||||||
| 2011 Note | $ | 22,166 | $ | - | $ | 22,166 | ||||||
| 2012 Note | 48,000 | - | 48,000 | |||||||||
| 2013 Note | 12,000 | - | 12,000 | |||||||||
| 2014 Note | 92,300 | - | 92,300 | |||||||||
| 2016 Note | 10,125 | - | 10,125 | |||||||||
| 2016 Note | 25,000 | - | 25,000 | |||||||||
| 2016 Note | 25,000 | - | 25,000 | |||||||||
| Total | $ | 234,591 | $ | - | $ | 234,591 | ||||||
| September 30, 2015 | ||||||||||||
| Note Face Amount | Debt Discount | Net Amount of Note | ||||||||||
| 2011 Note | $ | 22,166 | $ | - | $ | 22,166 | ||||||
| 2012 Note | 48,000 | - | 48,000 | |||||||||
| 2013 Note | 12,000 | - | 12,000 | |||||||||
| 2014 Note | 100,000 | - | 100,000 | |||||||||
| Total | $ | 182,166 | $ | - | $ | 182,166 | ||||||
| - 28 - |
2011 Note
On May 1, 2011, the Company issued a 2.00% Convertible Note due April 30, 2012 with a principal amount of $32,000 (the “2011 Note”) for cash. Interest on the 2011 Note is accrued annually effective from May 1, 2011 forward. The 2011 Note is unsecured and repayable on demand. The 2011 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $22,166. As of September 30, 2016, the note has been discounted by $0.
2012 Note
On January 2, 2012, the Company issued a 2.00% Convertible Note due January 1, 2013 with a principal amount of $48,000 (the “2012 Note”) for cash. Interest on the 2012 Note is accrued annually effective from January 2, 2012 forward. The 2012 Note is unsecured and repayable on demand. The 2012 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $48,000. As of September 30, 2016, the note has been discounted by $0.
2013 Note
On January 3, 2013, the Company issued a 2.00% Convertible Note due January 2, 2014 with a principal amount of $12,000 (the “2013 Note”) for cash. Interest on the 2013 Note is accrued annually effective from January 3, 2013 forward. The 2013 Note is unsecured and repayable on demand. The 2013 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $12,000. As of September 30, 2016, the note has been discounted by $0.
2014 Note
On August 25, 2014, the Company issued two 12.00% Convertible Promissory Note due February 25, 2015 with a principal amount of $50,000 each (the “2014 Note”) for cash. Interest on the 2014 Note is accrued annually effective from August 25, 2014 forward. The 2014 Note is unsecured.
The notes are convertible at a conversion price the lesser of (a) $0.25 per share, or (b) the price per share as reported on the Over-the-Counter Bulletin Board on the conversion date. The Note Holders also received Warrants to purchase an aggregate of 800,000 shares of our common stock at an initial exercise price of $0.25 per share. Each of the Warrants has a term of five (5) years.
The embedded conversion feature of the 2014 Notes and Warrants were recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion price of the 2014 Notes. The fair value on the grant date of the embedded conversion feature of the convertible debt was $145,362 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of $100,000, representing the value of the embedded conversion feature inherent in the convertible debt and warrant, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization of the debt discount of $19,566. The balance of the debt discount was $80,434 at September 30, 2014. For the year ended September 30, 2016, the Company recorded amortization of the debt discount of $0. The balance of the debt discount was $0 at September 30, 2016. The face amount of the outstanding note as of September 30, 2016, is $92,300.
| - 29 - |
2016 Notes
On January 5, 2016, the Company issued a $47,615 Convertible Promissory Note to the McGee Law Firm for services rendered. The Note was due on October 31, 2016 and carried interest at 12.0% per annum. On or after May 1, 2016, at the option of the holder, the then outstanding amount of the Note was convertible into common stock of the Company at a conversion price equal to the lesser of $0.01 per share or 50% of the three lowest closing prices average for the 10 business days prior to the conversion date.
On August 11, 2016, the Company restructured a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction with an assignment of that Note. The restructured Note was a 9.00% Convertible Promissory Note due August 11, 2017 with a principal amount of $30,000. Interest on the 2016 Note is accrued annually effective from September 1, 2016 forward. This Note was unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001. The face amount of the outstanding note as of September 30, 2016, is $0. As of September 30, 2016, the note has been discounted by $0.
On September 13, 2016, the Company restructured a portion a Convertible Promissory Note issued on January 5, 2016 in conjunction with an assignment of that Note. The restructured Note was a 9.00% Convertible Promissory Note due September 13, 2017 with a principal amount of $15,836.32. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $10,125. As of September 30, 2016, the note has been discounted by $0.
On August 23, 2016, the Company issued a 9.00% Convertible Promissory Note due August 23, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $25,000. As of September 30, 2016, the note has been discounted by $0.
On September 17, 2016, the Company issued a 9.00% Convertible Promissory Note due September 17, 2017 with a principal amount of $25,000 for cash. Interest on the 2016 Note is accrued annually effective from October 1, 2016 forward. The 2016 Note is unsecured and repayable on demand. The 2016 Note is senior in right to all existing and future indebtedness which is subordinated by its terms and at the option of the Lender, the principal along with any accrued interest may be converted in whole or part into Common Stock at a price of $0.001.
As this note carries a conversion rate that is less than market rate, the rules of beneficial conversion apply. The difference between the conversion rate and the market rate is classified as a discount on the note and accreted over the term of the note, which with respect to this note is 12 months. The face amount of the outstanding note as of September 30, 2016, is $25,000. As of September 30, 2016, the note has been discounted by $0.
| - 30 - |
NOTE 6 – LOAN FROM RELATED PARTY
Convertible Notes Issued to the President and Director of Kibush Capital Corporation:
| September 30, 2015 | ||||||||||||
| Note face amount | Debt Discount | Net Amount of note | ||||||||||
| Loan from related party | $ | 834,527 | $ | 0 | $ | 834,527 | ||||||
| Total | $ | 834,527 | $ | 0 | $ | 834,527 | ||||||
| September 30, 2016 | ||||||||||||
| Note face amount | Debt Discount | Net Amount of note | ||||||||||
| Loan from related party | $ | 1,162,741 | $ | 0 | $ | 1,162,741 | ||||||
| Total | $ | 1,162,741 | $ | 0 | $ | 1,162,741 | ||||||
On March 31, 2014, the Company issued a 12.50% Convertible Promissory Note due March 31, 2015 with a principal amount of $157,500 (the “March 2014 Note”) for cash. Interest on the March 2014 Note is accrued annually effective from March 31, 2014 forward. The March 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing bid price, determined on the then current trading market for the ten business days prior to the conversion date.
The embedded conversion feature of the March 2014 Notes was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion price of the March 2014 Notes. The fair value on the grant date of the embedded conversion feature of the convertible debt was $305,039 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of $157,500, representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization of the debt discount of $78,966. The balance of the debt discount was $78,534 at September 30, 2014. As of September 30, 2016, the balance of the debt discount was $0.
On June 30, 2014, the Company issued a 12.50% Convertible Promissory Note due June 30, 2015 with a principal amount of $110,741 (the “June 2014 Note”) for cash. Interest on the June 2014 Note is accrued annually effective from June 30, 2014 forward. The June 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing bid price, determined on the then current trading market for the ten business days prior to the conversion date.
The embedded conversion feature of the June 2014 Note was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion price of the June 2014 Note. The fair value on the grant date of the embedded conversion feature of the convertible debt was $213,207 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of $110,741 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization of the debt discount of $27,913. The balance of the debt discount was $82,828 at September 30, 2014. As of September 30, 2016, the balance of the debt discount was $0.
On September 30, 2014, the Company issued a 12.50% Convertible Promissory Note due September 30, 2015 with a principal amount of $98,575 (the “September 2014 Note”) for cash. Interest on the September 2014 Note is accrued annually effective from September 30, 2014 forward. The September 2014 Note is unsecured. The note is convertible into common stock at a price of 50 percent of the average closing bid price, determined on the then current trading market for the ten business days prior to the conversion date.
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The embedded conversion feature of the September 2014 Notes was recorded as derivative liabilities in accordance with relevant accounting guidance due to the variable conversion price of the September 2014 Note. The fair value on the grant date of the embedded conversion feature of the convertible debt was $181,771 as computed using the Black-Scholes option pricing model.
The Company established a debt discount of $98,575 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2014, the Company recorded amortization of the debt discount of $0. The balance of the debt discount was $98,575 at September 30, 2014. As of September 30, 2016, the balance of the debt discount was $0.
As of September 30, 2014, and 2013, cumulative interest of $96,579 and $0 respectively, has been accrued on these notes.
The Company established a debt discount of $61,273 representing the value of the embedded conversion feature inherent in the convertible debt, as limited to the face amount of the debt. The debt discount is being amortized over the life of the debt using the straight-line method over the terms of the debt, which approximates the effective-interest method. For the year ended September 30, 2016, the Company recorded amortization of the debt discount of $0. The balance of the debt discount was $0 at September 30, 2016.
On October 1, 2016, the Company issued an 8% Promissory Note due September 30, 2017 with a principal amount of $155,300 (the “October 2016 Note”) for cash received between the period September 30, 2014 and April 28,2015. No interest was to accrue on the first two years of the loan, interest on the October 2016 Note is to be accrued annually effective from October 1, 2016 forward. The October 2016 Note is unsecured. Cavenagh Capital Corporation is a shareholder in Kibush Capital Corporation.
NOTE 7 – STOCKHOLDER’S DEFICIT
Common Stock
On August 22, 2013, the Company’s Board authorized a 225:1 reverse stock split. All share and per share data in the accompanying financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.
On October 12, 2013, the Company issued by director’s resolution, 10,000,000 shares of newly issued common stock for the purchase of a Memorandum of Understanding (dated September 2, 2013) from a related company (Five Arrows Limited); which gave Kibush Capital Corporation the right to acquire 80% ownership in Instacash Pty Ltd, an Australian Currency Services provider, and corporate trustee of the Instacash Trust. As this transaction was with a related party, the value was recorded at the par value of the stock i.e. $0.001 per share of common stock.
Between October 23, 2013 and September 30, 2014, the Company issued a total of 3,274,000 shares of common stock upon the requests from convertible note holders to convert principal totaling $3,274 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
On February 28, 2014, the Company issued by director’s resolution, 40,000,000 shares of newly issued common stock to conclude a Assignment and Bill of Sale (dated February 14, 2014) from a related company (Five Arrows Limited); which gave Kibush Capital Corporation the right to enter into a Joint Venture contract with the leaseholders of certain Mining Leases in Papua New Guinea. As this transaction was with a related party, the value was recorded at par value of the stock i.e. $0.001 per share of common stock.
Between November 1, 2014 and March 31, 2015, the Company issued a total of 4,560,000 shares of common stock upon the requests from convertible note holders to convert principal totaling $3,274 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
Between April 1, 2016 and September 30, 2016, the Company issued a total of 190,114,175 shares of common stock upon the requests from convertible note holders to convert principal totaling $190,114 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
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Preferred Stock
Preferred stock includes 50,000,000 shares authorized at $0.001 par value, of which 10,000,000 have been designated Series A and 5,000,000 designated as Series B. A total of 3,000,000 shares of Series A preferred stock are issued and outstanding as of September 30, 2015, and September 30, 2016. No Series B preferred stock were outstanding as of September 30, 2015, and a total of 5,000,000 shares of Series B preferred stock were issued and outstanding and September 30, 2016.
NOTE 8 – INCOME TAXES
The provision/(benefit) for income taxes for the year ended September 30, 2016 and 2015 was as follows (assuming a 15% effective tax rate)
| September 30, 2016 | September 30, 2015 | September 30, 2014 | ||||||||||
| Current Tax Provision | ||||||||||||
| Federal- | ||||||||||||
| Taxable Income | - | - | - | |||||||||
| Total current tax provisions | - | - | - | |||||||||
| $ | - | $ | - | $ | - | |||||||
| Deferred Tax Provision | ||||||||||||
| Federal- | ||||||||||||
| Loss carry forwards | $ | 195,286 | $ | 193,592 | $ | 263,821 | ||||||
| Change in valuation allowance | $ | -195,286 | $ | -193,592 | $ | -263,821 | ||||||
| Total deferred tax provisions | $ | - | $ | - | $ | - | ||||||
The Company provided a valuation allowance equal to the deferred income tax assets for period ended September 30, 2014 because it is not presently known whether future taxable income will be sufficient to utilize the loss carryforwards.
As of September 30, 2016, the Company had approximately $12,288,586 in tax loss carry forwards that can be utilized future periods to reduce taxable income, and the carry forward incurred for the year ended September 30, 2016 will expire by the year 2035.
The Company did not identify any material uncertain tax positions. The Company did not recognize any interest or penalties for unrecognized tax benefits.
The federal income tax returns of the Corporation are subject to examination by the IRS, generally for three years after they are filed.
NOTE 9 – RELATED PARTY TRANSACTIONS
Details of transactions between the Corporation and related parties are disclosed below.
The following transactions were carried out with related parties:
| September 30, 2016 | September 30, 2015 | |||||||
| Loan from related party | $ | 1,162,741 | $ | 834,527 | ||||
| Convertible Loans (B) | $ | 234,591 | $ | 182,166 | ||||
| Total | $ | 1,397,332 | $ | 1,016,693 | ||||
(a) From time to time, the president and stockholder of the Company provides advances to the Company for its working capital purposes. These advances bear no interest and are due on demand.
(b) See Note 6 for details of Convertible notes.
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(c) On April 29, 2015, the Company issued 3,001,702 shares of its common stock to Warren Sheppard (previously authorized by for issuance by the company on December 10, 2014) pursuant to his employment agreement.
(d) Between April 1, 2015 and June 24, 2015, the Company issued a total of 4,000,000 shares of common stock upon the requests from convertible note holders to convert principal totaling $4,000 into the Company’s common stock based on the terms set forth in the loans. The conversion rate was $0.001.
(e) The Company has entered into related party acquisitions. Details of these transactions are provided therewith Five Arrows, as described in more detail in Note 10 below.
NOTE 10 – BUSINESS COMBINATIONS
et out below are the controlled and non-controlled members of the group as of September 30, 2016, which, in the opinion of the directors, are material to the group. The subsidiaries as listed below have share capital consisting solely of ordinary shares, which are held directly by the Company; the country of incorporation is also their principal place of business.
| Name of Entity | Country of Incorporation | Acquisition Date | Voting Equity Interests | Nature of Relationship | ||||||
| Aqua Mining (PNG) Ltd | Papua New Guinea | 28-Feb-2014 | 90 | % | Note 1 | |||||
Note 1: On February 14, 2014, the Company entered into an Assignment and Bill of Sale with Five Arrows Limited (“Five Arrows”), a related party, pursuant to which Five Arrows agreed to assign to the Company all of its right, title and interest in two 50 ton per hour trammels, one 35 ton excavator, a warehouse/office, a concrete processing apron and four 35 ton per hour particle concentrators for use in our mining exploration. In consideration, the Company issued 40,000,000 shares of its common stock to Five Arrows. On February 28, 2014, the Company entered into a joint venture agreement with the holders of alluvial gold mining leases (“Leaseholders”) of Mining Leases covering approximately 26 hectares located at Koranga in Wau, Morobe Province, Papua, New Guinea for gold mining exploration (“Joint Venture Agreement”). The Joint Venture Agreement entitles the leaseholders to 30% and the Company to 70% of net profits from the joint venture. The Company will manage and carry out mining exploration at the site, including entering into contracts with third parties and subcontractors (giving priority to the Leaseholders and their relatives and the local community for employment opportunities and spin-off business) at its cost, and all assets, including equipment and structures built on the site, will be the property of the Company. The Leaseholders and the Company will each contribute 1% from their share of net profits to a trust account for landowner and government requirements.
On July 27, 2015, we recently received a 5-year extension for our Mining Lease of ML 296-301 from the Mining Resource Authority in Papua New Guinea. ML 296-301 is part of the Koranga Joint Venture and is controlled by our subsidiary Aqua Mining.
The Company’s former subsidiary, Angel Jade has been deconsolidated in accordance with ASC 810-10-40-4A since the Company’s ownership and control of Angel Jade was terminated by Angel Jade during 2016 – See Note 11. According to the records of Angel Jade, the Company held no ownership interest in Angel Jade as of September 30, 2016. As such, the Company has written off Angel Jade and removed it from this report. We have also removed the Angel Jade financial data from the 2015 fiscal year for financial comparison purposes.
NOTE 11 – LEGAL PROCEEDINGS
We are currently in litigation with Alexander King (“King”) and other defendants regarding the Company’s ownership of Angel Jade. The action was commenced by the Company on September 12, 2016, in the Supreme Court of Victoria (Australia) as Case No. S ECI 2016 01205, In the matter of Angel Jade Pty Ltd (ACN 146 720 578). The Principal parties are Kibush Capital, Angel Jade, New Century, 4K Nominees and Alexander King.
In September 2014 Angel Jade was owned 50% by the King and 50% by Five Arrows. Alexander King and Warren Sheppard were the sole directors. In October of 2014, Five Arrows transferred its shares in Angel Jade to the Company. On October 8, 2014, Angel Jade issued an additional 1% of its shares to Kibush resulting in Angel Jade being held 49% by King (90,000,000 shares) and 51% by Kibush Capital (93,673,470 shares). On November 6, 2014, King agreed to sell Kibush Capital 18,367,350 shares in Angel Jade for the sum of $100,000 of which King has been paid $25,000, resulting in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 112,040,720. The agreement is recorded in a document headed ‘Share Purchase Form’ dated November 6, 2014. On 6 November 2014 Angel Jade agreed to issue 45,918,375 shares to Kibush Capital for the price of $250,000 of which Kibush Capital has paid $67,358.19, resulting in the shares in Angel Jade being held by King 71,632,650, and by Kibush Capital 157,959,195. The transaction is recorded in the Minutes of a Meeting of Directors of Angel Jade signed by King dated November 6, 2014. On or about November 12, 2015 the shareholding in Angel Jade was adjusted to 71,632,650 shares held by King (30%), and 157,959,195 shares held by Kibush Capital (70%), total issued number of shares in Angel Jade 229,591,845).
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On or about May 5, 2016 and without his knowledge or consent, Warren Sheppard was removed as a director of Angel Jade. On or about May 5, 2016 and without the knowledge or consent of Warren Sheppard or Kibush Capital, the issued and outstanding shares in Angel Jade was reduced to 200,001,000. On or about May 5, 2016 and without the knowledge or consent of Kibush Capital or Warren Sheppard, the shareholder records of Angel Jade were altered to show ownership of Angel Jade as follows:
| ● | New Century | 90,000,000 shares; | ||
| ● | 4K Nominees | 90,000,000 shares; | ||
| ● | Five Arrows | 500 shares; | ||
| ● | Fourth Defendant | 20,000,000 shares, and | ||
| ● | King holding | 500 shares. |
The Company claims that King’s alteration of the directors and ownership of Angel Jade was oppressive to, unfairly prejudicial to, or unfairly discriminatory against Kibush Capital contrary to section 232 of the Corporations Act 2010. The Company is seeking a declaration that the Kibush Capital is entitled to 70% of the issued shares of the First Defendant; or in the alternative, a declaration that Kibush Capital is entitled to 51% of the issued shares of Angel Jade; damages equal to the $67,358.19 paid to Angel Jade and damages of the $ paid to King. However, there remains a possibility that the litigation may be settled prior to adjudication by the Court.
As a result of the removal of the Company as an owner of Angel Jade, the Company has written off Angel Jade and removed it from the financial statements. The Company has also restated its 2015 fiscal year financial data with regard to Angel Jade.
The Company does not believe that a resulting liability is likely from this litigation. However, the Company has not been in control of Angel Jade or had access to its books and records for more than 8 months. It is likely that Angel Jade has incurred liabilities during that time. While it is not likely that any unknown liabilities of Angel Jade could impact the Company directly, they could impact the Company if the Company reacquires ownership of Angel Jade through its lawsuit. In the event the Company re-acquires a material interest in Angel Jade, it will restate its financial statements accordingly.
NOTE 12 - CONTINGENT LIABILITIES There is a potential for liabilities to exist that we do not yet know about regarding the Angel Jade deconsolidation and we have no way to measure any such potential liability at this time.
NOTE 13 - DECONSOLIDATION OF SUBSIDIARY
As of May 5, 2016, the Company had no power to govern the financial and operating policies of Angel Jade due to the loss of power to cast the majority of votes at meetings of the Board of Directors; accordingly, the Company derecognized related assets, liabilities and noncontrolling interests of Angel Jade.
Consideration Received
The Company did not receive any consideration in the deconsolidation of Angel Jade.
Analysis of the assets and liabilities over which the Company lost control:
| September 30, 2016 | ||||
| Current Assets | ||||
| Cash and cash equivalents | $ | -5 | ||
| Others | - | |||
| Non current assets | ||||
| Deposits paid | 9,562 | |||
| Others | - | |||
| Current Liabilities | ||||
| Accounts payable | -5,013 | |||
| Others | -439 | |||
| Non current liabilities | ||||
| Loans | -100,155 | |||
| Others | - | |||
| Net Assets deconsolidated | $ | -96,050 | ||
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Gain on deconsolidation of subsidiary
| Six Months Ended | ||||
| September 30, 2016 | ||||
| Fair value of interest retained | $ | - | ||
| Less: Carrying amount of interest retained | ||||
| Net Assets deconsolidated | -96,050 | |||
| Non controlling interests | -36,628 | |||
| -132,677 | ||||
| Loss on deconsolidation of subsidiary | $ | -132,677 | ||
Loss on deconsolidation of subsidiary was included in Write off from discontinued operations for the year ended September 30, 2016
Net cash outflow arising from deconsolidation of the subsidiary
| Six Months Ended | ||||
| September 30, 2016 | ||||
| The balance of cash and cash equivalents deconsolidated | $ | -5 | ||
NOTE 14 – DISCONTINUED OPERATIONS
The Company’s former subsidiary, Angel Jade has been deconsolidated in accordance with ASC 810-10-40-4A since the Company’s ownership and control of Angel Jade was terminated by Angel Jade during 2016 – See Note 11. According to the records of Angel Jade, the Company held no ownership interest in Angel Jade as of September 30, 2016. As such, the Company has treated Angel Jade as a discontinued operation and accordingly, the Company’s financial statements have been prepared with the assets, liabilities, results of operations, and cash flows of this business displayed separately. For fiscal years 2016 and 2015, the Company estimated a net loss from discontinued operations of $107,377 and $122,092, respectively. The operating results of the discontinued operations are summarized as follows for the fiscal years ending September 30, 2016 and September 30, 2015:
STATEMENT OF DISCONTINUED OPERATIONS
| Year ended September 30, 2016 | Year ended September 30, 2015 | |||||||
| Net revenues | $ | 0 | $ | 0 | ||||
| Operating income (loss) | (107,377 | ) | (122,092 | ) | ||||
| Income (loss) from operations, net of tax | ||||||||
| Projected loss on disposal, net of tax | - | - | ||||||
| Net income (loss) from discontinued operations | (107,377 | ) | (122,092 | ) | ||||
| Basic and diluted loss per common share | $ | -0.00 | $ | -0.00 | ||||
| Weighted average common shares outstanding basic and diluted | 36,026,011 | 36,026,011 | ||||||
NOTE 15 – SUBSEQUENT EVENTS
On October 7, 2016, the Company’ subsidiary Aqua Mining completed the acquisition of Paradise Gardens Development (PNG) Ltd. (“Paradise Gardens”). Paradise Gardens is engaged in the business of logging and timber processing and the Company had been serving as the management company for Paradise. The purchase price to acquire 100% of the outstanding shares of the Paradise Gardens was AUS $26,250 ($19,687.50 USD). The assets of Paradise Gardens included logging equipment, processing equipment, a lease, and other tangible and intangible property. A full description of the purchase agreement was filed on October 12, 2016 on Form 8-K.
On September 12, 2016, Kibush Capital Corporation (the “Company”) and others commenced a proceeding in the Supreme Court of Victoria in Australia, Proceeding No. SECI 2016 001205 (“Proceeding”) alleging that certain shareholders among others had acted oppressively to it, within the meaning of the Corporations Act 2001 (Cth), in connection with the affairs of Angel Jade Pty Ltd (“Angel Jade”). On February 10, 2017, the Company settled the Proceeding in exchange for AUS $175,000 ($134,342 USD) as disclosed in the Company’s Form 8-K filed on February 15, 2017.
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
On December 22, 2016, the Company dismissed Scrudato & Co., PA (“Scrudato”) from its position as the Company’s independent registered public accounting firm due to the revocation of Scrudato’s registration with the Public Company Accounting Oversight Board, as disclosed in our 8-K filed on December 28, 2016. During the two most recent fiscal years, and through the date of our Scudato’s dismissal, there were no disagreements on accounting and financial disclosures between the Company and Scrudato.
Our financial statements for the fiscal years ended September 30, 2015 and September 30, 2016, included in this report, have been audited by DLL CPAS LLC. There have been no disagreements on accounting and financial disclosures with DLL CPAS LLC through the date of this Form 10-K.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Limitations on the Effectiveness of Controls
Our management, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.
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, controls may become inadequate because of changes in conditions, or the degree of compliance with the 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.
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Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of September 30, 2016, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based upon that evaluation, the Company’s management concluded that the Company’s disclosure controls and procedures are not effective at the reasonable assurance level due to the material weaknesses described below:
| 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. 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. | The Company’s board of directors has no audit committee, independent director or member with financial expertise which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting. |
| 3. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. 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. |
Due to these factors, during the period covered by this report, our internal controls and procedures may not be effective to detect a material misstatement. The lack of a functioning audit committee, the lack of segregation of duties within accounting functions, and the lack of multiple directors on our board of directors may result in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
The Company plans to add additional directors, add accounting personnel and establish an audit committee over time, once it has sufficient income and cash flow to make those changes.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm because we are a smaller reporting company.
CEO and CFO Certifications
Appearing immediately following the Signatures section of this report there is Certification of our CEO/CFO. The Certification is required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the year ended September 30, 2016 that have affected, or are reasonably likely to affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
None.
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The following table presents information with respect to our officers, directors and significant employees as of the date of this Report:
| Name | Age | Position | ||
| Warren Sheppard | 59 | President, Chief Executive Officer and director | ||
| Vincent Appo | 49 | PNG Operations Manager; Director of Aqua Mining |
Our directors hold office until the next annual general meeting of the stockholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.
Biographical Information Regarding Officers and Directors
Warren Sheppard has served as our President, Chief Executive Officer and director since July 5, 2013. Mr. Sheppard has had an Accountancy Practice, primarily tax based in Australia for approximately the last 30 years. In addition Mr. Sheppard also has served in an oversight capacity as Chief Executive Officer of Q6 Pty Ltd., a software development company, from 2005 to date, and in an oversight capacity as Chief Financial Officer of Uniware Pty Ltd., an accounting software company, from 2001 to date; Westvantage Pty Ltd., a software company, from 2011 to date; Xceed Pty Ltd., an internet development company, from 2001 to date; Ozisp Pty Ltd., an internet service provider company, from 2001 to date; and Altius Mining Ltd., a gold exploration mining company from 2008 to 2011, devoting a few hours per month to these entities, none of which compete with the Company. Mr. Sheppard has served as director of several Australian private companies as well as serving as Trustee of the Australian Aiding Australia Trust, More Superannuation Fund and McMahon Superannuation Fund. Mr. Sheppard’s accounting background as well as his experience serving as chief executive officer and chief financial officer and director of various Australian private companies led to his appointment to the board of directors.
Vincent Appo has been mining manager of the Company since October 2013. Prior thereto, from June 2012 to November 2013, Mr. Appo was the Mine Operations Manager/Acting General Manager for Tolukuma Gold Mines Limited in Papua, New Guinea. Mr. Appo served as Consulting Survey Project Manager for Dempsey Australia Ltd, Papua, New Guinea from May 2011 to December 2011, and Mine Technical Services Manager/Acting Mine General Manager for Tolukuma Gold Mines Limited from January 2011 to July 2011 and for other gold mines in Papua, New Guinea in various positions since 2002. From 1997 to 2002, Mr. Appo was Chief Surveyor for two companies in New Guinea. Mr. Appo also serves as director of Aqua Mining, a subsidiary of the Company.
Neither Mr. Sheppard nor Mr. Appo are directors in any other U.S. reporting companies nor have they been affiliated with any company that has filed for bankruptcy within the last ten years. The Company is not aware of any proceedings to which he or any of his associates is a party adverse to the Company or any of the Company’s subsidiaries or has a material interest adverse to it or any of its subsidiaries.
Significant Employees
Vincent Appo has been mining manager of the Company since October 2013. Prior thereto, from June 2012 to November 2013, Mr. Appo was the Mine Operations Manager/Acting General Manager for Tolukuma Gold Mines Limited in Papua, New Guinea. Mr. Appo served as Consulting Survey Project Manager for Dempsey Australia Ltd, Papua, New Guinea from May 2011 to December 2011, and Mine Technical Services Manager/Acting Mine General Manager for Tolukuma Gold Mines Limited from January 2011 to July 2011 and for other gold mines in Papua, New Guinea in various positions since 2002. From 1997 to 2002, Mr. Appo was Chief Surveyor for two companies in New Guinea.
| - 39 - |
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during our most recent fiscal year, to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during our 2016 fiscal year.
Conflicts of Interest
At this time, we are not subject to the listing requirements of any national securities exchange or national securities association and, as a result, we are not required to have our board comprised of a majority of “independent directors.” Furthermore, we do not believe that our director currently meets the definition of “independent” as promulgated by the rules and regulations of the NYSE Alternext US (formerly known as the American Stock Exchange).
We currently have one director who is also our chief executive. We do not have an audit or compensation committee comprised of independent directors, and the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our directors have the authority to determine issues concerning management compensation, in essence their own, and audit issues that may affect management decisions.
Audit Committee
We have no separately-designated audit committee. Audit committee functions are performed by our board of directors. None of our directors are deemed independent. All directors also hold positions as our officers. Our board of directors is responsible for: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by our employees of concerns regarding accounting and auditing matters; and (4) engaging outside advisors. Moreover, our Board of Directors has not established compensation or disclosure committees.
Audit Committee Financial Expert
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Involvement in Certain Legal Proceedings
During the past ten years, Mr. Warren Sheppard has not been the subject of the following events:
| 1. | A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; |
| 2. | Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| 3. | The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities; |
| - 40 - |
| i) | Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
| ii) | Engaging in any type of business practice; or | |
| iii) | Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; |
| 4. | The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity; |
| 5. | Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; |
| 6. | Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; |
| 7. | Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| i) | Any Federal or State securities or commodities law or regulation; or | |
| ii) | Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or | |
| iii) | Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| 8. | Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
| ITEM 11. | EXECUTIVE COMPENSATION. |
Compensation of Officers
Option award compensation is the fair value for stock options vested during the period, a notional amount estimated at the date of the grant using the Black-Scholes option-pricing model. The actual value received by the executives may differ materially and adversely from that estimated. A summary of cash and other compensation paid in accordance with management consulting contracts for our Principal Executive Officer and other executives for the most recent two years is as follows:
| Executive Compensation | ||||||||||||||||||||||||||||||||||
Name and Principal Position (a) | Year (b) | Salary (US$) (c) | Bonus (US$) (d) | Stock Awards (US$) (e) | Option Awards (US$) (f) | Non-Equity Incentive Plan Compensation (US$) (g) | Nonqualified Deferred Compensation Earnings (US$) (h) | All Other Compensation (US$) (i) | Total (US$) (j) | |||||||||||||||||||||||||
| Warren Sheppard | 2016 | 250,000 | 0 | 0 | 0 | 0 | 0 | 0 | 250,000 | |||||||||||||||||||||||||
| President & CEO | 2015 | 250,000 | 0 | 0 | 0 | 0 | 0 | 0 | 250,000 | |||||||||||||||||||||||||
| Vincent Appo | 2016 | 57,457 | 0 | 0 | 0 | 0 | 0 | 0 | 57,457 | |||||||||||||||||||||||||
| Operations Manager & | 2015 | 55,821 | 0 | 0 | 0 | 0 | 0 | 0 | 55,821 | |||||||||||||||||||||||||
| Director of Aqua Mining | ||||||||||||||||||||||||||||||||||
| (1) | Mr. Sheppard was appointed president and CEO on May 20, 2013. Mr. Sheppard earned a salary of $250,000 during the fiscal years ended September 30, 2016 and September 30, 2015. Mr. Sheppard earned no bonuses during the fiscal year ended September 30, 2016 and earned no bonuses during the year ended September 30, 2015. The Company did not have the ability to pay Mr. Sheppard’s earnings in during the fiscal year so those earnings were accrued as a liability of the Company. Mr. Sheppard’s base compensation for the fiscal years ended September 30, 2016 and 2015 may be converted into shares, but such shares have not been issued. Mr. Sheppard has not waived his rights to these shares. |
| (2) | Mr. Appo was appointed as operations manager on January 1, 2014 and became director of Aqua Mining on May 26, 2014. Mr. Appo earned a salary of $57,457 (182,000 PGK) during fiscal year 2016 and $55,821 (156,000 PGK) during fiscal year 2015. |
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Employment Contracts
Warren Sheppard: At the beginning of the fiscal year ended September 30, 2014, we entered into an employment agreement, dated October 1, 2013, with Warren Sheppard to serve as our President and as a director. The initial term of the agreement is five years, which term shall automatically be renewed for additional two-year periods, unless the Company shall notify Mr. Sheppard at least 90 days prior to the expiration of the then current term or its desire not to renew the agreement. As the President, Mr. Sheppard receives an annual base salary of $250,000 which shall not be decreased except in connection with the reduction of the salaries of all executives of the Company. If the Company does not have sufficient funds to pay Mr. Sheppard’s salary, he shall be paid in common stock of the Company in an amount equal to three times the amount of unpaid base salary based on the closing price of the Company’s stock as of the final day of the fiscal year in which such salary was earned. In addition, Mr. Sheppard shall be entitled to a bonus in the amount of $150,000 to be payable in common stock of the Company, upon the acquisition of a subsidiary or business valued at greater than $1,000,000. Such acquisition bonuses will be issued based upon the closing price of the Company’s stock as of the date of the closing of such an acquisition. Mr. Sheppard receives no separate compensation to serve as a director of the Company. In the event Mr. Sheppard employment is terminated for whatever reason, he will be entitled to salary and benefits that have accrued prior to the date of termination. There are no provisions for severance payments upon termination in the agreement. Mr. Sheppard is subject to a non-solicitation prohibition for two years after his termination of employment with the Company.
Other Executive Officers
During 2016, no employment contracts were entered into with any officers.
Retirement, Resignation or Termination Plans
We sponsor no plan, whether written or verbal, that would provide compensation or benefits of any type to an executive upon retirement, or any plan that would provide payment for retirement, resignation, or termination as a result of a change in control of our company or as a result of a change in the responsibilities of an executive following a change in control of our company.
Outstanding Equity Awards
Our officers and directors do not have unexercised options, stock that has not vested, or equity awards. There were no outstanding equity awards to our named executive officers at September 30, 2016.
Compensation of Directors
| Directors’ Compensation | ||||||||||||||||||||||||||||
Name (a) | Fees Earned or Paid in Cash (US$) (b) | Stock Awards (US$) (c) | Option Awards (US$) (d) | Non-Equity Incentive Plan Compensation (US$) (e) | Deferred Compensation Earnings (US$) (f) | All Other Compensation (US$) (g) | Total (US$) (h) | |||||||||||||||||||||
| Warren Sheppard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
The persons who served as members of our board of directors, including executive officers did not receive any compensation for services as a director for 2016.
We do not currently have Board committees, including an audit committee.
| - 42 - |
Indemnification
Our Amended and Restated Articles of Incorporation (“Articles”) provide that our directors and officers be indemnified by us to the fullest extent authorized by the Nevada Revised Statutes, against all expenses and liabilities reasonably incurred in connection with services for us or on our behalf except for (i) acts or omissions that involve intentional misconduct, fraud or a knowing violation of law or (ii the payment of dividends in violation of Nevada law. Our Articles also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in this capacity. Our Articles provide that we will advance all expenses incurred to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil or criminal, upon receipt of an undertaking by or on behalf of such person to repay said amounts should it be ultimately determined that the person was not entitled to be indemnified under our Articles or otherwise.
Our Bylaws provide that our directors and officers be indemnified by us to the fullest extent authorized by the Nevada Revised Statutes, against all expenses and liabilities reasonably incurred in connection with services for us or on our behalf except that there shall be no indemnification if a person is adjudged liable to the Company unless and to the extent that despite such adjudication, the court determines that such person is entitled to indemnity or determined by the majority of directors, independent legal counsel or the stockholders.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted by directors, executive officers or persons controlling us, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The following table lists, as of January 15, 2017: (i) each person or entity known to us to be the beneficial owner of more than 5% of our outstanding common stock or preferred stock; (ii) each of our named executive officers and directors; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of the Company’s stock by our principal stockholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 476,392,976 shares of common stock issued and outstanding as of January 15, 2017 and 8,000,000 shares of our preferred stock issued and outstanding as of the same date.
| - 43 - |
Table of Beneficial Ownership of Stock
| Name of Beneficial Owner | Title of Class | Amount of Direct Ownership | Amount of Indirect Ownership | Total Beneficial Ownership | Percentage of Class | |||||||||||||
| Five Arrows Limited (1) Suite 201, Rogers Office Building Edwin Wallace Ray Drive, George Hill, Anguilla | Common Stock | 64,000,000 | 0 | 64,000,000 | 13.4 | % | ||||||||||||
| More
Superannuation Fund (2) 7 Sarah Crescent | Common Stock | 298,503 | 0 | 298,503 | 0.1 | % | ||||||||||||
| Templestowe, VIC 3106 Australia | Series A Preferred Stock | 3,000,000 | 0 | 3,000,000 | 100 | % | ||||||||||||
| Warren
Sheppard (3) 7 Sarah Crescent | Common Stock | 3,001,702 | 64,298,503 | 67,300,205 | 14.1 | % | ||||||||||||
| Templestowe,
VIC 3106 Australia | Series B Preferred Stock | 5,000,000 | 0 | 5,000,000 | 100 | % | ||||||||||||
| Vincent
Appo 7 Sarah Crescent Templestowe, VIC 3106 Australia | Common Stock | 0 | 0 | 0 | 0.0 | % | ||||||||||||
| All Officers and Directors as a Group (2 Persons) | Common Stock | 3,001,702 | (3) | 64,298,503 | (3) | 67,300,205 | (3) | 14.1 | % | |||||||||
| Series A Preferred Stock | 3,000,000 | (2) | 3,000,000 | (2) | 100 | % | ||||||||||||
| Series B Preferred Stock | 5,000,000 | (3) | 5,000,000 | (3) | 100 | % | ||||||||||||
(1) Richard N. Wilson, Chief Executive Officer of Five Arrows Limited (“Five Arrows”) has voting and investment power over the shares held by Five Arrows. However, Mr. Sheppard, as the sole shareholder of Five Arrows, has the ability to influence or control the voting of such shares.
(2) More Superannuation Fund (“More”) is controlled by Warren Sheppard. More owns all of the 3,000,000 shares of Series A Preferred Stock issued and oustanding as well as 298,503 shares of Common Stock. More controls 60,298,503 votes, 298,503 from common stock and 60,000,000 from its preferred stock which votes with common stock at 20:1.
(3) Warren Sheppard directly owns 3,001,702 shares of Common Stock. Mr. Sheppard holds in notes that are convertible in to 1,510,630,000 shares of common stock based upon the January 17, 2017 closing price, but those shares are excluded from this calculation as they could not be converted into common stock at this time due to the current number of authorized shares. In addition, Mr. Sheppard controls Five Arrows Limited and More Superannuation Fund through which he indirectly owns an additional 64,298,503 shares of common stock. Therefore, Mr. Sheppard’s total beneficial ownership of the Company’s common stock is 67,001,702 shares. In addition to Mr. Sheppard’s ownership of commmon stock, he owns 5,000,0000 shares of Class B Preferred Stock directly and 3,000,000 shares of Class A Preferred Stock indirectly. Class A Preferred votes with common stock at a ratio of 20 to 1 and Class B Preferrred votes with common stock at a ratio of 100 to 1. Including the voting power provided in through the Company’s Preferred Stock, Mr. Sheppard holds approximately 54.7% of the Company’s voting power. These calculations exclude any shares of common stock to which Mr. Sheppard may earn after September 30, 2016 pursuant to his employment agreement with the Company; should the Company have insufficient funds to pay Mr. Sheppard’s salary, in an amount equal to three times the amount of unpaid base salary and shares in the amount of $150,000 upon the acquisition of a subsidiary or business valued at greater than $1,000,000 as a bonus.
The Company does not have any change-in-control agreements with its executive officer nor know of any arrangements which may result in a change of control of the Company.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Related Party Transactions
Except as described below, there were no transactions with any executive officers, directors, 5% stockholders and their families and affiliates during the fiscal year ended September 30, 2016.
Vincent Appo, the Company’s mining manager is a director and a 10% shareholder of our Papua New Guinea subsidiary, Aqua Mining (PNG) Limited
On December 10, 2014, the Company authorized the issuance of 3,001,702 shares of common stock to Warren Sheppard pursuant to the employment contract between the Company and Mr. Sheppard.
| - 44 - |
From time to time, the Warren Sheppard provided advances to the Company for its working capital purposes. These advances bear no interest and are due on demand. For the fiscal year ended September 30, 2016, these advances totaled $339,920. Moreover, from time to time, the Company issued Convertible Notes to Warren Sheppard as detailed in Note 6 to the Financial Statements. For the fiscal year ended September 30, 2016, the Company had issued a total of $366,318 in such Convertible Notes to Warren Sheppard.
The related party loans consist of (1) a five-year loan agreement dated July 15, 2011 for $150,000 AUD loan from Hancore Pty Ltd. (Hancore Pty Ltd. is a related party via it’s more than 10% ownership by Warren Sheppard), and (2) a $230,000 AUD loan dated September 30, 2014 from Warren Sheppard. The Hancore loan is unsecured and has a 20 percent per annum interest rate. The Sheppard note is unsecured and is interest free.
On February 28, 2015 the Company sold to Hancore Pty Ltd., a related party, its interest in Instacash in exchange for cancellation of the $500,000 promissory note and accrued interest owed to Hancore Pty Ltd. from the acquisition of Instacash in October of 2013.
Director Independence
We are not subject to the listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” We do not believe that our director currently meets the definition of “independent” as promulgated by the rules and regulations of the NYSE Alternext US (formerly known as the American Stock Exchange).
The Board of Directors has not established an audit committee and does not have an audit committee financial expert.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
| (1) | Audit Fees |
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and reviews of our interim financial statements included in our Form 10-Q and Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
| 2016 | DLL CPAS LLC | $ | 14,000 | |||||||
| 2016 | Scrudato & Co., PA | $ | 9,000 | |||||||
| 2015 | DLL CPAS LLC | $ | 0 | |||||||
| 2015 | Scrudato & Co., PA | $ | 13,000 |
| (2) | Audit-Related Fees |
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:
| 2016 | DLL CPAS LLC | $ | 0 | |||||||
| 2016 | Scrudato & Co., PA | $ | 0 | |||||||
| 2015 | DLL CPAS LLC | $ | 0 | |||||||
| 2015 | Scrudato & Co., PA | $ | 0 |
| (3) | Tax Fees |
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
| 2016 | DLL CPAS LLC | $ | 0 | |||||||
| 2016 | Scrudato & Co., PA | $ | 0 | |||||||
| 2015 | DLL CPAS LLC | $ | 0 | |||||||
| 2015 | Scrudato & Co., PA | $ | 0 |
| - 45 - |
| (4) | All Other Fees |
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
| 2016 | DLL CPAS LLC | $ | 0 | |||||||
| 2016 | Scrudato & Co., PA | $ | 0 | |||||||
| 2015 | DLL CPAS LLC | $ | 0 | |||||||
| 2015 | Scrudato & Co., PA | $ | 0 |
| (5) | As a smaller reporting company, we do not have an audit committee. Warren Sheppard, our sole director, approves all accounting related activities prior to the performance of any services by any accountant or auditor.
|
| (6) | The percentage of hours expended on the principal accountants engagement to audit our consolidated financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountants full time, permanent employees, to the best of our knowledge, was 0%. |
| - 46 - |
| ITEM 15. | EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES. |
The following is a complete list of exhibits filed as part of this annual report:
| Exhibit | Incorporated by reference | Filed | ||||||||
|
Number |
Document Description | Form | Date | Number | herewith | |||||
| 3.1 | Articles of Incorporation, as amended | Form 10/A | 8/05/15 | 3.1 – 3.6 | ||||||
| 3.2 | Bylaws | Form 10/A | 8/05/15 | 3.7 | ||||||
| 4.1 | Certificate of Designation, dated April 19, 2011 | Form 10/A | 8/05/15 | 4.1 | ||||||
| 4.2 | Certificate of Designation, dated November 22, 2016 | X | ||||||||
| 10.1 | Management Agreement for Paradise Gardens (PNG) | 10-Q | 8/20/15 | 10.1 | ||||||
| 14.1 | Code of Ethics | 10-K | 01/13/16 | 14.1 | ||||||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | ||||||||
| 32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer | X | ||||||||
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension – Schema |
| 101.CAL | XBRL Taxonomy Extension – Calculations |
| 101.DEF | XBRL Taxonomy Extension – Definitions |
| 101.LAB | XBRL Taxonomy Extension – Labels |
| 101.PRE | XBRL Taxonomy Extension – Presentation |
| - 47 - |
In accordance with Section 13 or 15(d) of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 8th day of March, 2017.
| KIBUSH CAPITAL CORPORATION | ||
| BY: | /s/ WARREN SHEPPARD | |
| Warren Sheppard | ||
| President and Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary and Treasurer | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated.
| Signature | Title | Date | ||
| /s/ WARREN SHEPPARD | President, Chief Executive Officer, | March 8, 2017 | ||
| Warren Sheppard | Chief Financial Officer and Director |
| - 48 - |
