DKGH DKG Capital Inc (CE)

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2018 and 2017

(unaudited)

NOTE 1 - ORGANIZATION AND OPERATIONS

DKG Capital, Inc. (“we”, “our”, the “Company”), located in Las Vegas, Nevada, was incorporated on October 2, 2013, in the State of Nevada.

Mr. Andy Kim resigned as President and Chief Executive Officer, Secretary and Treasurer of our Company on January 11, 2017 and Mr. Tesheb Casimir became the President and Chief Executive Officer, Secretary and Treasurer. Mr. Tesheb Casimir ended the binary option software development. Mr. Tesheb Casimir’s new business focuses are: 1. Mobile application development; 2. Provision of online marketing services; 3. Operation of self-developed social media platform; and 4. Provision of various leisure services to high net worth clients who are users of our social media platform.

On January 11, 2017 our Board of Directors and a majority of our shareholders’ voting power approved (1) a corporate name change to “DKG Capital, Inc.”, (2) an increase in our authorized shares of common stock to 5,000,000,000 shares from 100,000,000 shares and (3) a 30:1 forward split of our common stock. These corporate actions are now effective. All share and per share amounts herein have been retroactively restated to reflect the split.

On July 6, 2017, the Company’s Board of Directors approved a merger with DKG Mobilepay Inc., a wholly owned subsidiary incorporated in the State of Nevada. The Merger is related to the Company’s revised business plan and the Company will be the surviving company of the Merger. The plan of merger provides for an exchange ratio of 1:35 for the common stock of both constituent corporations, which has the practical effect of a 1 for 35 reverse split of the Company’s common stock, with fractional shares to be rounded up to the nearest whole number of shares. This corporate action was approved by the Company’s Board of Directors as authorized by Nevada corporate law. The 1 for 35 reverse stock split effected by the Merger was effective on August 4, 2017. All share and per share amounts herein have been retroactively restated to reflect the split.

On June 5, 2018, the Board approved the appointment of Tengku Sulaiman Shah, age 67, as our Chairman.

Tengku Sulaiman Shah is a Malaysian corporate figure and a member of the Selangor Royal Family. He is the second son of eighth Sultan, Sultan Salahuddin Abdul Aziz Shah and the brother of the current Sultan, Sultan Sharafuddin Idris Shah. His Royal Highness Sultan Salahuddin Abdul Aziz Shah Alhaj required him to work with the international advertising company called SH Benson Sdn Bhd (later renamed as Ogilvy Benson & Mather (OBM) Sdn Bhd and latest Ogilvy & Mather Sdn Bhd). He was attached in Audio Visual department and gained wide knowledge in the advertising and branding industry. In 1975, he left the company and began venturing into the construction sector. His motivation drives him to be more enterprising and ultimate goal is to be a major player in the construction industry. He and other partners founded Syarikat Pembinaan Setia Sdn Bhd which later known as SP Setia a public listed company in the main board. In 1997, he relinquished his stake in the company. Currently, he is the Chairman and director at Goodway Integrated Industries Berhad (GIIB) and Khansforge International Sdn Bhd. Tengku Sulaiman Shah is the Chairman of Malaysia - UAE Business Council appointed by Ministry of International Trade and Industry (Malaysia) (MITI). His salary will be $5,000 per month.

On June 5, 2018 Messrs. Nitin Gupta, Jin Tan and Richard Underwood were elected to three vacant positions on our Board Of Directors. The new directors were selected by our existing Board of Directors because of their strong business and financial backgrounds, particularly in Asia. Nitin Gupta was appointed by the Board to be our Chief Technology Officer (CTO) and Jin Tan was appointed our Chief Investment Officer (CIO). Mr. Underwood was appointed as an independent director and is not an officer of the Company.

Mr. Nitin Gupta, age 37, is the Founder of GetVee Technologies Private Limited. Mr. Gupta founded OnGraph Technologies Pvt. Ltd. in 2005 and served as its Chief Executive Officer and Promoter. He started his career with Trilogy Inc. in 2000. He was one of the founding team members which started Trilogy India development center in Bangalore and grew office from 20 to 200 by the end of 2005. Within 5 years, he executed over multiple roles within Trilogy as a developer, architect, delivery manager, operations head and product manager.

Mr Tan, age 33, is third generation investor entrepreneur and runs a licensed investment firm in Malaysia specializing in startup and IT based companies with an international focus. Jin has been instrumental in expanding DKG Capital & DKG Hub throughout the south east region not only generating interest in consumers but investors alike. He is the founding member of TBV Capital (Regulated by Securities Commission) a well-known brand amongst the VC community in South East Asia.

Richard Underwood, age 40, comes from a private banking and stock broking background with extensive experience with new companies. Richard holds a number of Director / Board positions in both active and passive role. US trained and educated and brings a wealth of experience to the DKG Capital Inc.

On August 8, 2018 Mr. Tengku Sulaiman and Mr. Richard Underwood each resigned from all positions as an officer and / or director of the Company in order to pursue other business opportunities. The resignations did not result from any disagreements with the Company as to its business or policies.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim financial statements of DKG Capital, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2017 and 2016, contained in the Company's Form 10K, originally filed with the Securities and Exchange Commission on May 1, 2018.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 

Principle of Consolidation

The consolidated financial statements of the Company include the Company and its wholly-owned subsidiary DKG HUB SDN BHD. All material intercompany balances and transactions have been eliminated. Exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders’ equity.

Use of Estimates

The preparation of consolidated financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less which are not securing any corporate obligations. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Accounts Receivable and Deposits

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms. Credit is extended based on evaluation of a customer's financial condition, the customer’s credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of each period, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Based on the evaluation, the Company has determined that no allowance for doubtful accounts is required as of June 30, 2018 and 2017.

Investment

Equity investments without readily determinable fair values for which we do not have the ability to exercise significant influence are accounted for using the cost method of accounting and classified within long-term investments and other assets. Under the cost method, investments are carried at cost and are adjusted only for other-than-temporary declines in fair value, certain distributions, and additional investments.

We periodically evaluate the recoverability of investments and record a write-down to fair value if a decline in value is determined to be other-than-temporary.

Fixed Assets

Fixed assets are reported at cost less accumulated depreciation. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operating income.

The Company compute depreciation using the straight-line method over the estimated useful lives of the assets, which is ten years for furniture and fixtures and renovation.

Fixed assets are evaluated on a quarterly basis to identify events or changes in circumstances that indicate the carrying value of certain fixed assets may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount of fixed assets is not recoverable.

The carrying amounts of items of fixed assets are derecognized on disposal or when no future economic benefits are expected from their use or disposal. Any gain or loss arising from the derecognition of items of fixed assets, determined as the difference between the net disposal proceeds, if any, and the carrying amounts of the item, is recognised in profit or loss.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows of the asset. If the carrying amount of the asset is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows, or external appraisals, as applicable. The Company reviews long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified.  Based on the evaluation, the Company has determined that no impairment of long-lived assets is required as of June 30, 2018 and 2017.

Revenue Recognition

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers and its related updates as codified under ASC 606, Revenue from Contracts with Customers ("ASC 606") on January 1, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption.

The adoption of ASC 606 represents a change in accounting principle that more closely aligns revenue recognition with the performance of the Company's services and provides financial statement readers with enhanced disclosures. In accordance with ASC 606, revenue is recognized in a manner reflecting the transfer of goods or services to customers based on consideration a company expects to receive. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. To achieve this core principle, ASC 606 requires the Company to apply the following five steps: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation. The five-step model requires management to exercise judgment when evaluating contracts and recognize revenue.

The performance obligations of each of the Company’s services are satisfied when the development services completed and invoiced.

Revenues are recognized when the service is completed and/or installation services are completed.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. 

The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. No liability for unrecognized tax benefits was recorded as of June 30, 2018 and 2017. 

Profit/ (loss) per Common Share

Basic earnings per share are calculated dividing income available to common stockholders by the weighted average number of common shares outstanding.  Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, warrants and options are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.  There were no dilutive shares, options or warrants outstanding as of June 30, 2018 and 2017. 

Recently Adopted Accounting Pronouncements

There are no other recent accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements. 

NOTE 3 - GOING CONCERN

The accompanying unaudited interim financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and marketing. As a result, the Company has incurred net recurring losses and an accumulated deficit. As of June 30, 2018, the Company has a working capital deficit. In addition, the Company’s development activities since inception have been financially sustained through the sale of capital stock and capital contributions from note holders. These conditions raise substantial doubt as to the Company's ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock or through debt financing and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

NOTE 4 – ACCOUNTS RECEIVABLE AND DEPOSITS

Accounts receivable and deposit consisted of account receivable from customer and rental deposits and prepaid rent.

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of royalty fee payable to a third party and other professional charges.

NOTE 6 – AMOUNT DUE FROM DIRECTOR

As of June 30, 2018, the Company has amount receivable from Mr. Tengku Sulaiman Shah, Chairman, with a balance of $316,147.

In July 2018, the investment share was unsuccessful and the full amount of investment cost was refunded.

NOTE 7 – INVESTMENT

In February 2018, we have made a $495,600 investment which is included within long-term investments on our consolidated balance sheet.

NOTE 9 – REVENUE AND COST OF SALES

Revenue consisted of development services income. During the last quarter of 2017, the Company commenced the tokenization and other software solutions sales to customers in Asia Pacific region.

The performance obligations of each of the Company’s services are satisfied when the development services completed and invoiced. Revenues are recognized when the service is completed and/or installation services are completed in accordance to ASC 606.

We did not incurred any direct cost and included as cost of sales on our consolidated Statements of Operation.

NOTE 10 – GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses mainly consist of the operating costs of the Company’s head office in Malaysia and the professional fee incurred on the US company level.

The Company has accumulated net operating loss carryovers of approximately $288,600 as of June 30, 2018 which are available to reduce future taxable income. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes may be subject to annual limitations. A change in ownership may limit the utilization of the net operating loss carry forwards in future years. The tax losses begin to expire in 2033. The fiscal years 2013 through 2017 remains open to examination by federal tax authorities and other tax jurisdictions.

NOTE 12 – RELATED PARTY TRANSACTIONS

As of June 30, 2018 and December 31, 2017, the Company was obligated to a former director for an unsecured, non-interest demand bearing loan with a balance of $2,306.

As of June 30, 2018, the Company was obligated to Mr. Tesheb Casimir, CEO for an unsecured, non-interest demand bearing loan with a balance of $96,843, for the Company’s business expenses paid directly by the CEO on behalf of the Company.

As of June 30, 2018, the Company has amount receivable from Mr. Tengku Sulaiman Shah, Chairman, with a balance of $316,147.

The Company has been provided office space by its chief executive officer at no cost. Management has determined that such cost is nominal and has not recognized any rent expense in its financial statements.

NOTE 13 – STOCKHOLDERS’ EQUITY

On January 11, 2017 our Board of Directors and a majority of our shareholders’ voting power approved an increase in our authorized shares of common stock to 5,000,000,000 shares from 100,000,000 shares and a 30:1 forward split of our common stock. These corporate actions is now effective. All share and per share amounts herein have been retroactively restated to reflect the split.

On July 6, 2017, the Company’s Board of Directors approved a 1 for 35 reverse split of our common stock. These corporate actions are now effective. All share and per share amounts herein have been retroactively restated to reflect the split.

On November 27, 2017, the Company's Articles of Incorporation were amended to 1,000,000,000 shares from 5,000,000,000 shares and to authorize the Company to issue up to 4,000,000,000 shares of preferred stock, par value $0.00001 per share.

There were 14,893,714 shares (17,376,000 shares prior to forward split) of common stock issued and outstanding at June 30, 2018 and December 31, 2017 respectively.