NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION
We were incorporated in Colorado on June 21, 2010 as Vanguard Energy Corporation (Vanguard) (currently known as Graphene & Solar Technologies, Limited) and until June 2014 were involved in the exploration and development of oil and gas properties in southeast Texas. We were never able to earn a profit and in January of 2013 we began investigating the possibility of selling our oil and gas properties. The sale of our oil and gas properties represented the sale of substantially all our assets in June of 2014.
The following history of events describes how the current entity Graphene & Solar Technologies Limited (formerly known as Solar Quartz Technology Corporation) acquired its subsidiary Solar Quartz Technologies Limited (SQTNZ) and all entities described below other than Vanguard were entities under common control.
On June 20, 2016, SQTNZ agreed to acquire Solar Quartz Technologies Pte. Ltd., A Singapore Corporation, (SQTSG) in a transfer of shares or a swap for 122 shares (100%). SQTSG (formerly known as Auzsolar Pte. Ltd.) held ownership of quartz mineral rights.
On October 1, 2016, Australian Oil and Gas Holdings, Inc., our parent company, (AOGH), (formerly known as Anasazi Energy Corporation (ANSZ) and subsequently known as Solar Quartz Technologies, Inc. (SQTI)), entered into a Reorganization and Stock Purchase Agreement and acquired Solar Quartz Technologies Limited., a New Zealand Corporation, (SQTNZ). AOGH issued 201,182,000 shares (95%) in exchange for 100% of SQTNZ shares outstanding.
On July 1, 2017, Vanguard acquired SQTNZ from SQTI in a share exchange wherein Vanguard issued 213,402,755 new shares of common stock to SQTI in exchange for 122 (100%) of the common shares of SQTNZ. The assets acquired in this exchange were reflected in our financial statements at SQTI’s historical cost basis of $30,000 as it was considered an acquisition of assets from entities under common control. The issuance of these shares was equivalent to 95% of the Company's shares issued, as we committed to issue an additional 10,021,224 shares to those holders of our common stock immediately prior to the acquisition. These actions resulted in a total of 224,426,229 shares outstanding.
SQTNZ is a corporation that has no prior business activity other than being the title owner of the exclusive mining and development rights for two High Purity Quartz (HPQ) deposits known as Quartz Hill (represented by leases ML 30235, ML 30236 and ML 30237) and White Springs (represented by leases ML 30238 and ML 30239) located in North Queensland, Australia.
HPQS is an essential primary material for the manufacture of: Photo-Voltaic (PV) solar panels; Semiconductors; all High-end Electronic products; Fiber Optical cables; Halogen Lamps; HD and LCD television screens; and Epoxy Mounding Compounds (EMC).
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Principles of Consolidation and Basis of Presentation
— the consolidated financial statements include the accounts of Graphene & Solar Technologies Limited (formerly known as Solar Quartz Technologies Corporation) and its subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the accounting and disclosure rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(FORMERLY SOLAR QUARTZ TECHNOLOGIES CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
- the Company considers all highly liquid instruments purchased with a maturity date of three months or less to be cash equivalents.
Debt Issuance Costs
- Costs incurred in connection with the issuance of short-term debt are amortized over the term of the related debt and netted against the liability.
Conversion Feature Liability
- the Note payable issued to Power Up Lending has a contingent liability which will become effective 170 days from the date of the loan (August 13, 2018). The conversion option may be exercised after 170 days at a market price based on the average 20 days from the date of the conversion. The contingent liability was not record as this conversion feature was not in effect on September 30, 2018, the end of the fiscal year.
Stock-Based Compensation
- the Company accounts for employee stock-based compensation using the fair value method. The fair value attributable to stock options is calculated based on the Black-Scholes option pricing model and is amortized to expense over the service period which is equivalent to the time required to vest the stock options.
Income Taxes
- Income taxes are provided based on the liability method for financial reporting purposes. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized.
Uncertain tax positions are recognized in the financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
The Company is required to file federal income tax returns in the United States and in various state and local jurisdictions. The Company's tax returns filed since inception are subject to examination by taxing authorities in the jurisdictions in which it operates in accordance with the normal statutes of limitations in the applicable jurisdiction.
Earnings Per Share
- Basic earnings per share have been calculated based upon the weighted-average number of common shares outstanding. Diluted earnings per share have been calculated based upon the weighted-average number of common and potential shares.
Business Combinations
- The Company follows the provisions of ASC 805 in accounting for business combinations. Acquisitions under common control are accounted for using the carryover basis of any assets from the acquired company.
Reclassifications
- Certain amounts previously presented for prior periods have been reclassified to conform to the current presentation. The reclassifications had no effect on net loss, working capital or equity previously reported.
Recently Issued Accounting Pronouncements
- Various accounting standards updates have been recently issued, most of which represented technical corrections to the accounting literature or were applicable to specific industries. Recently accounting pronouncements have been issued that are likely to have a material impact to the Company’s consolidated financial statements. These include accounting standards as they apply to leases. The Company will treat its development of mineral rights under standards for operating leases commonly applied in mineral extraction industries.
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(FORMERLY SOLAR QUARTZ TECHNOLOGIES CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
- The carrying value of cash and cash equivalents, accounts receivable, and accounts payable, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. The estimated fair value of long-term debt was determined by discounting future cash flows using rates currently available to the Company for debt with similar terms and remaining maturities. The Company calculated that the estimated fair value of the long-term debt is not significantly different than the carrying value of the debt.
Fair value is defined as the price that would be received to sell an asset or price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs used in determining fair value are classified for disclosure purposes according to a hierarchy that prioritizes those inputs based upon the degree to which they are observable. The three levels of the fair-value-measurement hierarchy are as follows:
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·
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Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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·
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Level 2—Inputs that reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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·
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Level 3—Unobservable inputs reflecting the Company's own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
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In determining fair value, the Company utilizes observable market data when available, or models that incorporate observable market data. In addition to market information, the Company incorporates transaction-specific details that, in management's judgment, market participants would take into account in measuring fair value. The Company utilizes the most observable inputs available for the valuation technique employed. If a fair value measurement reflects inputs at multiple levels within the hierarchy, the fair-value measurement of both financial and nonfinancial assets and liabilities are characterized based upon the lowest level of input that is significant to the fair value measurement.
NOTE 3 – GOING CONCERN
The sale of the Company’s oil and gas properties raised substantial doubt of the Company to continue as a going concern. The Company also has an accumulated deficit at this point and has experienced net losses for the most part throughout its history. The Company will need additional financing to continue its operations over the next twelve months, and while management believes it will secure such financing, there can be no guarantee that it will occur.
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. These financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate.
NOTE 4 – REORGANIZATION
On July 1, 2017, the Company acquired all of the shares of Solar Quartz Technologies Limited, a company incorporated in New Zealand (“SQTNZ”) and has recorded it as reorganization of entities under common control
.
These shares were purchased from Solar Quartz Technologies, Inc. (“SQTI”). We subsequently changed our name to Graphene & Solar Technologies Limited (formerly known as Solar Quartz Technologies Corporation) in Colorado and have applied FINRA for the name changed and to trade under the symbol “GSTX”. We have not been cleared by FINRA to use the new trading symbol GQTX. During July 2017 the Company issued 213,402,755 new shares of common stock to SQTI in exchange for 122 (100%) of the common shares of SQTNZ. The cost of this acquisition was recorded at $30,000. The difference between the consideration and the equity of the acquired entity was charged to additional paid-in capital. The issuance of these shares was equivalent to 95% of the Company's shares issued, as we committed to issue an additional 10,021,224 shares to those holders of our common stock immediately prior to the acquisition. These actions resulted in a total of 224,426,229 shares outstanding. The Company does not anticipate any further reorganization of its common stock. We plan to apply to trade on the more senior OTCQX exchange or NASDAQ. The mineral rights owned by SQTNZ were acquired from Solar Quartz Technologies Pte., formerly known as Auzsolar Pte Ltd, a Singapore corporation, all companies under common control.
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(FORMERLY SOLAR QUARTZ TECHNOLOGIES CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SQTNZ is a corporation that has no prior business activity other than being the title owner of the exclusive mining and development rights for two High Purity Quartz (HPQ) deposits known as Quartz Hill (represented by leases ML 30235, ML 30236 and ML 30237) and White Springs (represented by leases ML 30238 and ML 30239) located in North Queensland, Australia.
HPQS is an essential primary material for the manufacture of: Photo-Voltaic (PV) solar panels; Semiconductors; all High-end Electronic products; Fiber Optical cables; Halogen Lamps; HD and LCD television screens; and Epoxy Mounding Compounds (EMC).
NOTE 5 – INCOME TAXES
The Company operates in the United States; accordingly, federal and state income taxes have been provided based upon the tax laws and rates of the U.S. The Company has incurred losses since inception and, accordingly has a net operating loss carry forward as of September 30, 2017, of approximately $5,916,688. Since the Company has, on a cumulative basis, experienced net losses for tax purposes, the provisions for income taxes consists of the following:
Description
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2018
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2017
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Tax provision at expected tax rate (35%)
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$
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(586,160
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)
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$
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(574,296
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)
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Increase (decrease) to valuation allowance
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586,160
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574,296
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Income tax provision
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$
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-
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$
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-
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NOTE 6 – STOCKHOLDERS' EQUITY
Preferred Stock
— In July 2017 the Company increased its authorized preferred stock from 5,000,000 to 10,000,000 shares authorized none issued or outstanding.
Common Stock
—In July 2017 the Company increased its authorized common shares from an aggregate of 100,000,000 shares to an aggregate of 500,000,000 shares of common stock with $0.00001 par value.
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Common shares of 23,025 were issued in conjunction with the settlement of debt during the year ended September 30, 2016, resulting in increases to common stock of $1, and additional paid-in capital of $22.
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Common shares of 223,424,095 were issued for the purchase of Solar Quartz Technologies Limited (New Zealand) during the year ended September 30, 2017, resulting in increases to common stock of $2,234, and paid-in capital of ($431,701).
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Common shares of 8,200,000 were issued to management resulting in an increase common stock of $82 and additional paid-in capital of $1,206,330.
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·
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Sale of common shares of 3,3369,922 resulted increase of common stock of $33 and to additional paid-in capital of $378,570
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·
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Related party debt forgiveness resulted in an increase to additional paid in capital of $438,520
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·
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Issuance of shares for debt resulted in an increase to shares of 50,000 and an increase to additional paid in capital of $60,730.
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GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(FORMERLY SOLAR QUARTZ TECHNOLOGIES CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – STOCK-BASED COMPENSATION
On January 10, 2011, the Board of Directors approved a Non-Qualified Stock Option Plan (the "Plan") which authorizes the issuance of up to 1,500,000 shares of Company common stock to persons that exercise options granted pursuant to the Plan. The Company's employees, directors, officers, consultants and advisors are eligible to be granted options pursuant to the Plan, provided however, that bona fide services must be rendered by such consultants or advisors, and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. In fiscal year ending September 30, 2018, 8,200,000 were issued to management for services provided.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Office Lease
– The Company leases a virtual office lease in Beverly Hills, California until June 30, 2019 at $149 per month.
The Power Up convertible note referred to in Note 9 includes a conversion feature which only goes into effect upon default wherein the note can be converted into share of common stock at 55% of the average market value 20 days preceding the conversion date. This conversion feature represents a contingent liability as of September 30, 2018. As of the date these financial statements were available to be issued January 18, 2019. Because the Form 10Q will be filed late, this note is probably in default although the lender has not notified the Company of an event of default.
NOTE 9 – CONVERTIBLE NOTES PAYABLE
The Company’s material future contractual obligations by fiscal year as of September 30, 2018 were as follows:
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Total
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2018
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Thereafter
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Convertible notes
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$
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70,747
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$
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70,747
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-
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Notes Payable
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$
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90,000
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$
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90,000
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-
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Power Up loan payable
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$
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63,000
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$
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63,000
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-
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The notes payable bear interest at 10% and are due on demand. The convertible notes bear interest at 15% and are also due on demand. The principal and accrued interest of these notes can be converted at the discretion of the holders into common shares at $3.31/share. The Power Up loan bears interest at 12% and has the option of converting the debt into shares 170 days after the date of the note at 55% of the average market value 20 days preceding the conversion date. On December 31, 2018 the market share price was $.18.
The Company has contractual capital commitments outstanding in the principal balance of $70,474 at September 30, 2017. Accrued interest of $55,672 is due in addition to the principal balance of the Convertible notes.
NOTE 10 – RELATED PARTY
As of September 30, 2017, the amount due from affiliates was $26,890 and due to affiliates was $418,755. The entire amount was taken over from SQTNZ which essentially came from shareholders of Australian Oil and Gas Holdings Inc. During the fiscal year ending September 30, 2018 Australian Oil and Gas Holdings, Inc. forgave the debt and receivable producing a net gain to the Company of $391,785. In July, 2017 SQTNZ entered into an agreement with PGRNZ to provide services to SQTNZ at the rate of A$75,000 per quarter for a period of 36 months with provision to extent for an additional 12 month. In July 2016 SQTL entered into an agreement with Global Digital Solutions PTY LTD to provide services to SQTL at a rate of $13,500 per month for a period of 12 months to be renewed annually, current amendment commencing January 1, 2018.
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(FORMERLY SOLAR QUARTZ TECHNOLOGIES CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes the financial liabilities measured at fair value on a recurring basis as of September 30, 2018 and 2017:
Description
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Level
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September 30,
2018
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September 30,
2016
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Convertible Notes
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1
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$
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70,474
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$
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70,474
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NOTE 12 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through January 18, 2019, the date these financial statements were available to be released. The only event requiring disclosure is the continent liability associated with the default of the Power Up note reference in Note 8. The fact that the conversion option available in the event of default is at 55% of the average market value 20 days preceding the conversion date, this represent an embedded derivative. The Company has not evaluated the effect of accounting for this liability at fair market value as of January 18, 2019, the date these financial statements were available for issuance.