The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2019 AND 2018
1. Organization and Basis of Presentation
Organization
On June 21, 2010, Graphene & Solar Technologies Limited (“Graphene” or “the Company”), was incorporated in Colorado as Vanguard Energy Corporation (“Vanguard”). On July 5, 2017, Vanguard changed its name to Solar Quartz Technologies Corporation. On September 18, 2018, the name was again changed to Graphene & Solar Technologies Limited (“Graphene”).
Business Operations
The Company has the right to mine two high-purity silica quartz mineral deposits: White Springs consisting of approximately 1.5 million tons and Quartz Hill consisting of approximately 14 million tons, all through its wholly-owned subsidiary, Solar Quartz Technologies Limited. The ultra-high purity quartz deposits are located in the State of Queensland, Australia. The material is ideal for processing into high purity quartz sand (HPQS) with sufficient reserve to fuel a minimum of 15 to 20 years of processing into solar crucible and high-end electronics grade HPQS. In addition, the Quartz Hill deposit is ideal for processing into solar grade polysilicon metal, as well as for solar cell wafer production.
HPQ and HPQS are essential primary feedstock materials required for the manufacturing of mono-crystalline solar grade silicon, through the Czochralski process, for the crucibles in which silicon ingots that solar cells are made from are produced. HPQS is also an essential ingredient required for the production of semiconductors. HPQ is the only suitable material for this process as it shares the same element (silicon) and is almost non-reactive, assuring high quality silicon ingots. Apart from this, HPQ also finds primary applications in advanced lighting, telecom, optic and microelectronics industry. HPQ powders are required for epoxy-molding compound used in manufacture of most electronic semiconductors, and is in a fast growth sector, which includes upgraded auto electronics for electric vehicles.
The Company is also primarily focused on the early development of new graphene-enabled photovoltaic solar models, including graphene enabled thin-film solar panels. In this production initiative.
The development of graphene enhanced combination photovoltaic silicon materials is currently one of the most intensive areas of research and development, attracting major interests from most world university research divisions and new technology players.
The Company’s activities are subject to significant risks and uncertainties, including the need for additional capital, as described below. The Company has not yet commenced any revenue-generating operations, does not have positive cash flows from operations, and is dependent on periodic infusions of equity capital to fund its operating requirements.
The Company’s common stock is traded on the Over-the-Counter Market under the symbol “GSTX.”
Going Concern
The Company’s consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not generated any revenues from operations to date and does not expect to do so in the foreseeable future. The Company has a stockholders’ deficit as of September 30, 2019. Furthermore, the Company has experienced recurring operating losses and negative operating cash flows since inception and has financed its working capital requirements during this period primarily through debt financing and the recurring sale of its equity securities.
As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the consolidated financial statements are being issued. In addition, the Company’s independent registered public accounting firm, in their report on the Company’s consolidated financial statements for the year ended September 30, 2019, has also expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to raise additional equity capital to fund its activities and to ultimately achieve sustainable operating revenues and profits. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Because the Company is currently engaged in an early stage of development, it may take a considerable amount of time to develop any product or intellectual property capable of generating sustainable revenues. Accordingly, the Company’s business is unlikely to generate any sustainable operating revenues in the next several years. In addition, to the extent that the Company is able to generate revenues through product sales, there can be no assurance that the Company will be able to achieve positive earnings and operating cash flows.
At September 30, 2019, the Company had cash of $74,241 available to fund its operations. The Company needs to raise additional capital during the year ending September 30, 2020 to fund its ongoing business activities.
The amount and timing of future cash requirements during the year ended September 30, 2020, will depend on the extent of financing the Company is able to arrange. As market conditions present uncertainty as to the Company’s ability to secure additional funds, there can be no assurances that the Company will be able to secure additional financing on acceptable terms, or at all, as and when necessary to continue to conduct operations. If cash resources are insufficient to satisfy the Company’s ongoing cash requirements, the Company would be required to scale back or discontinue its technology and product development programs, or obtain funds, if available (although there can be no certainty), through the sale of mineral resource assets, through strategic alliances that may require the Company to relinquish rights to certain of its assets, or to discontinue its operations entirely.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of Graphene and its wholly-owned subsidiary, Solar Quartz Technologies Ltd. (“SQTNZ”). All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
Basis of Presentation
These accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. Significant estimates include those related to assumptions used in accruals for potential liabilities, valuing equity instruments issued for services, and the realization of deferred tax assets.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments. As of September 30, 2019 and 2018, the Company had $74,241 and $6,704 in cash, respectively, and no cash equivalents.
Financial Instruments and Fair Value Measurements
As defined in ASC 820 “Fair Value Measurements,” fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The Company's financial instruments consist of cash, accounts receivable, accounts payable, accrued interest, and due to related parties. The carrying amounts of these financial instruments approximate fair value due to either length of maturity or interest rates that approximate prevailing rates unless otherwise disclosed in these financial statements.
Derivative Financial Instruments
The Company accounts for freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument or generally as a liability. A contract so designated is carried at fair value on a company’s balance sheet, with any changes in fair value recorded as a gain or loss in a company’s results of operations.
The Company records all derivatives on the balance sheet at fair value, adjusted at the end of each reporting period to reflect any material changes in fair value, with any such changes classified as changes in derivatives valuation in the statement of operations. The calculation of the fair value of derivatives utilizes highly subjective and theoretical assumptions that can materially affect fair values from period to period. The recognition of these derivative amounts does not have any impact on cash flows.
At the date of the conversion of any convertible debt, the pro rata fair value of the related embedded derivative liability is transferred to additional paid-in capital.
The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Binomial pricing model to calculate the fair value as of September 30, 2019. The Binomial model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Binomial valuation model.
For the year ended September 30, 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:
Expected term
|
|
0.142 years
|
|
Expected average volatility
|
|
|
739
|
%
|
Expected dividend yield
|
|
|
-
|
|
Risk-free interest rate
|
|
|
2.44
|
%
|
The following table summarizes the changes in the derivative liabilities during the year ended September 30, 2019:
Fair Value Measurements Using Significant Observable Inputs (Level 3)
|
|
|
|
|
|
Balance - September 30, 2018
|
|
$
|
-
|
|
|
|
|
|
|
Addition of new derivatives recognized as debt discounts
|
|
|
55,109
|
|
Settled due to conversion of debt
|
|
|
(57,649
|
)
|
Loss on change in fair value of the derivative
|
|
|
2,540
|
|
Balance – September 30, 2019
|
|
$
|
-
|
|
Debt Issuance Costs
Costs incurred in connection with the issuance of debt are amortized over the term of the related debt and netted against the liability.
Commitments and Contingencies
The Company follows ASC 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Income Taxes
The Company accounts for income taxes under an asset and liability approach for financial accounting and reporting for income taxes pursuant to ASC 740, “Income Taxes.” Accordingly, the Company recognizes deferred tax assets and liabilities for the expected impact of differences between the financial statements and the tax basis of assets and liabilities.
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax assets would be credited to operations in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to operations in the period such determination was made.
The Company is subject to U.S. federal income taxes and income taxes of various state tax jurisdictions. As the Company’s net operating losses have yet to be utilized, all previous tax years remain open to examination by Federal authorities and other jurisdictions in which the Company currently operates or has operated in the past. The Company had no unrecognized tax benefits as of September 30, 2019 and does not anticipate any material amount of unrecognized tax benefits within the next 12 months.
The Company accounts for uncertainties in income tax law under a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns as prescribed by GAAP. The tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained by the taxing authority as of the reporting date. If the tax position is not considered “more-likely-than-not” to be sustained, then no benefits of the position are recognized. As of September 30, 2019, the Company had not recorded any liability for uncertain tax positions. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
On December 22, 2017, the Tax Reform Act was signed into law. The Tax Reform Act is effective for tax years beginning on or after January 1, 2018, except for certain provisions, and resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. Among other provisions, the Tax Reform Act reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018. The Company has completed the accounting for the effects of the Tax Reform Act during the year ended September 30, 2019. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on the balance sheet.
The Company is currently delinquent with respect to certain of its U.S. federal and state income tax filings.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation. Major improvements are capitalized, while maintenance and repairs are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in the statement of operations when realized. Depreciation and amortization are provided using the straight-line method over a life of five years.
Mineral Rights
Investment in mineral rights consists of the exclusive mining and development rights for the two high purity quartz silica deposits known as Quartz Hill (represented by mining leases ML 30235, ML 30236 and ML 30237) and White Springs (represented by leases ML 30238 and ML 30239) located in North Queensland, Australia. Based on independent expert reports, together they are estimated to contain deposits in excess of 15 million tons of 99.97% pure HPQ which is feedstock that, when refined, may be used for the production of photovoltaic solar panels, and semiconductors as well as polysilicon for the production of photovoltaic solar cells. HPQS is a core ingredient in the production in crucibles for the manufacture of photovoltaic solar cells, as well as high-end microchips. The investment in mineral rights is carried on the books of the Company at the cost of the lease rights. Mineral rights assets are tested for impairment if facts and circumstances indicate that impairment exists.
Long-Lived Assets
The Company periodically evaluates the carrying value of long-lived assets to be held and used when events or circumstances warrant such a review. The carrying value of a long-lived asset to be held and used is considered impaired when the anticipated separately identifiable undiscounted cash flows from such an asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily by reference to the anticipated cash flows discounted at a rate commensurate with the risk involved. No impairment charges have been recorded in the periods presented.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the grant date.
During the year ended September 30, 2019, the Company issued 600,000 shares of the Company’s common stock to members of the Board of Directors, employees and consultants. The fair value of the shares, as determined by reference to the closing price of the Company’s common stock, aggregated $100,200, ($0.17 per share).
During the year ended September 30, 2018, the Company issued 8,200,000 shares of the Company’s common stock to members of the Board of Directors, employees and consultants. The fair value of the shares, as determined by reference to the closing price of the Company’s common stock, aggregated $1,206,412, ($0.15 per share).
Total stock-based compensation expense was $100,200 and $1,206,412 for the years ended September 30, 2019 and 2018, respectively.
Basic and Diluted Net Loss per Common Share
The Company computes basic and diluted earnings (loss) per share amounts in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company.
The common share equivalents of these securities have not been included in the calculations of loss per share because such inclusions would have an anti-dilutive effect as the Company has incurred losses during the year ended September 30, 2019 and 2018.
For the year ended September 30, 2019 and 2018, respectively, the following common stock equivalents were potentially dilutive.
|
|
Years ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(Shares)
|
|
|
(Shares)
|
|
Convertible notes payable
|
|
|
123,378
|
|
|
|
114,171
|
|
Foreign Currency
The accompanying consolidated financial statements are presented in United States dollars (“USD”). The Australian dollar (“AUD”) is the functional currency of Solar Quartz (the operating subsidiary) as it is the currency of Australia, which is the primary economic environment the operating subsidiary operates in and the environment in which the Company primarily utilizes cash.
Assets and liabilities are translated into USD utilizing currency exchange rates as published by XE Currency Data API. Income and expense items are translated at average exchange rates prevailing during the period. The resulting translation adjustments are recorded as a component of shareholders’ deficiency. Gains and losses from foreign currency transactions are included in earnings in the period of settlement.
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Spot AUD: USD exchange rate
|
|
$
|
0.6749
|
|
|
$
|
0.7220
|
|
Average AUD: USD exchange rate
|
|
$
|
0.7038
|
|
|
$
|
0.7605
|
|
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 (Topic 842) "Leases." Topic 842 supersedes the lease recognition requirements in Accounting Standards Codification (“ASC”) Topic 840 "Leases." Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance or operating. Topic 842 is effective for annual reporting periods and interim periods within those years beginning after 15 December 2018. Early adoption by public entities is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, and there are certain optional practical expedients that an entity may elect to apply. Full retrospective application is prohibited. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years beginning after 15 December 2019. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments in this ASU address a narrow-scope financial reporting issue related to the tax effects that may become “stranded” in accumulated other comprehensive income (AOCI) as a result of the Tax Cuts and Jobs Act (TCJA). The amendments in ASU 2018-02 are effective for all entities for fiscal years beginning after 15 December 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company does not anticipate this amendment to have a significant impact on the financial statements.
In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This update addresses several aspects of the accounting for nonemployee share-based payment transactions and expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The main provisions of the update change the way nonemployee awards are measured in the financial statements. Under the simplified standards, nonemployee options will be valued once at the date of grant, as compared to at each reporting period end under ASC 505-50. At adoption, all awards without established measurement dates will be revalued one final time, and a cumulative effect adjustment to retained earnings will be recorded as the difference between the pre-adoption value and new value. Companies will be permitted to make elections to establish the expected term and either recognize forfeitures as they occur or apply a forfeiture rate. Compensation expense recognition using a graded vesting schedule will no longer be permitted. This pending content is the result of the FASB’s Simplification Initiative, to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. Because the Company does not currently have any outstanding awards to non-employees for which a measurement date has not been established the adoption of ASU 2018-07 does not have a material impact to the Company’s financial statements and related disclosures upon adoption. The adoption of this standard will change the way that the Company accounts for non-employee compensation in the future.
In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement” (Topic 820). ASU 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect of adopting this ASU on the Company’s financial statements.
Management does not believe that any other recently issued, including the lease accounting standard; but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. Property and Equipment
Property and equipment as of September 30, 2019 and 2018 are summarized as follows:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Laboratory and factory equipment
|
|
$
|
42,102
|
|
|
$
|
45,062
|
|
Computers
|
|
|
3,305
|
|
|
|
3,538
|
|
Furniture and fixtures
|
|
|
34,408
|
|
|
|
36,830
|
|
|
|
|
79,815
|
|
|
|
85,430
|
|
Less accumulated depreciation
|
|
|
(51,946
|
)
|
|
|
(38,276
|
)
|
Net property and equipment
|
|
$
|
27,869
|
|
|
$
|
47,154
|
|
Depreciation expense for the years ended September 30, 2019 and 2018 was $16,879 and $38,278, respectively.
4. Convertible Notes Payable
The Company’s material future contractual obligations by fiscal years as of September 30, 2019 and 2018 were as follows:
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Notes payable
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Convertible notes payable
|
|
$
|
100,747
|
|
|
$
|
161,244
|
|
Notes Payable
During 2015 and 2016, the Company executed promissory notes payable with six individuals with an aggregate principal balance of $60,000. The notes were due on demand and included interest at 10%. As of September 30, 2019 and 2018, the total promissory notes payable balance was $84,693 and $78,693, including accrued interest of $24,693 and $18,693, respectively. On January 15, 2019, the holder of a note with a principal balance of $10,000 made demand for payment. To date, the note has not been paid.
Convertible Notes Payable
On August 13, 2018, the Company entered into Securities Purchase Agreement with Power Up Lending Group (“Power Up”). In connection therewith, the Company issued Power Up a convertible note payable in the amount of $63,000. The note was due, including interest at 12%, and matured on May 30, 2019. After 170 days, the note carried a 150% of principal outstanding redemption premium. Also, after 170 days the note was convertible into fully paid and non-assessable shares of common stock, after 170 days (January 30, 2019), at a conversion price which is at 55% discount to the lowest trading price during the previous twenty trading days prior to the date of a conversion notice. As the conversion price of the note, which became effective on January 30, 2019, is variable, the conversion option was treated as a derivative liability and on January 30, 2019 the Company recognized and recorded a derivative liability.
On March 15, 2019, Power Up converted $12,000 in principal at $0.0825 per share for 145,455 shares of the Company’s common stock. In connection therewith, the Company recognized a loss on conversion of $9,818.
On April 8, 2019, Power Up converted an additional $20,000 of principal at $.055 cents per share for 363,636 shares of the Company’s common stock.
On April 24, 2019 the Company elected to pay off the remaining $31,000 balance on the loan, with accrued interest in the amount of $4,675, plus a redemption premium of $17,860. In connection with the payoff, the Company charged operations for the remaining unamortized discount on the note of $2,503 and credited additional paid-in capital for the terminal balance of the derivative liability in the amount of $57,649.
As of September 30, 2019 and 2018, the convertible note payable to Power Up totaled $0 and $60,497, net of an unamortized discount of $0 and $2,503; accrued interest on the convertible note payable totaled $3,681 and $994, respectively.
Convertible Notes Payable
On June 29, 2012, the Company issued convertible secured notes payable totaling $8,254,500 to a group of private investors. The notes matured on June 30, 2015. The notes, with interest at 15%, were convertible at the discretion of the holders, into common shares of the Company at the rate of $3.31 per share. Unable to make a required interest payment on March 31, 2014, the notes became due on demand. Effective June 17, 2014, with the noteholder approval, the assets securing the convertible notes were sold with the net proceeds of approximately $5,200,000 being distributed to the noteholders. Noteholders were to receive payment for the remaining balance due on the notes in the form of an exchange for the common stock of the Company at the rate of $3.31 per share. As of September 30, 2019 and 2018, noteholders representing $70,747 in outstanding principal had not requested the exchange of shares of common stock. As of September 30, 2019 and 2018, the exchange obligation payable was $137,032 and $126,420, including accrued interest of $66,285 and $55,673, respectively. As of September 30, 2019 and 2018, the exchange obligation was for 41,399 shares and 38,194 shares of common stock, respectively.
On February 1, 2016, the Company issued convertible secured note payable of $30,000 to an individual. The notes were due on January 31, 2017 and included interest at 10%. The note was convertible at discretion of the holder into common shares of the Company at the rate of $0.50 per shares. The Company has not extended the maturity date and the note is in default. As of September 30, 2019 and 2018, the total convertible note payable balance was $40,989 and $37,989, including accrued interest of $10,989 and $7,989, respectively. As of September 30, 2019 and 2018, the exchange obligation was for 81,078 shares and 75,978 shares of common stock, respectively.
5. Stockholders’ Equity
Preferred Stock
The Company has authorized a total of 5,000,000 shares of preferred stock, par value $0.00001 per share. No preferred shares have been designated by the Company as of September 30, 2019 and 2018.
Common Stock
The Company is authorized to issue up to 500,000,000 shares of common stock (par value $0.00001). As of September 30, 2019 and 2018, the Company had 242,449,767 shares and 236,046,151 shares of common stock issued and outstanding, respectively.
During the year ended September 30, 2019, the Company issued 6,403,616 shares of common stock as follows:
|
·
|
600,000 shares of the Company’s common to members of the Board of Directors, employees and consultants valued at $100,200 ($0.17 per share).
|
|
|
|
|
·
|
5,294,525 shares of the Company’s common at an average price of $0.17 per share for an aggregate purchase price of $880,000.
|
|
|
|
|
·
|
509,091 shares of the Company’s common for the conversion of debt totaling $36,993.
|
During the year ended September 30, 2018, the Company issued 11,619,922 shares of common stock as follow:
|
·
|
8,200,000 shares of the Company’s common to management for stock-based compensation of $1,206,412.
|
|
|
|
|
·
|
3,369,922 shares of the Company’s common stock at an average price of $0.11 per share for an aggregate purchase price of $378,603.
|
|
|
|
|
·
|
50,000 shares of the Company’s common stock in payment of debt totaling $60,730.
|
6. Related Party Transactions
Due to related party
PGRNZ Limited, a management company controlled by the Company’s Chief Executive Officer, and a Company Director, provides management services to the Company for which the Company is charged $75,000(AUD) quarterly, approximately $52,787 (US). During the years ended September 30, 2019 and 2018, the Company incurred charges to operations of $211,149 (US) and $224,878, respectively, with respect to this arrangement. During the year ended September 30, 2019, PGRNZ Limited charged to operations $60,000 (AUD), approximately $42,230 as consulting fees and $119,115 (AUD), approximately $83,836 as of administrative expenses.
During the year ended September 30, 2019, the Company borrowed $312,201 from PGRNZ Limited and repaid $489,863.
The Company’s Chief Executive Officer, and a Company Director, provides office facilities to the Company for which the Company is charged $6,000(AUD) monthly, approximately $4,223 (US). During the years ended September 30, 2019 and 2018, the Company incurred charges to operations of $ 13,232 (US) and $4,791 (US), respectively, with respect to this arrangement.
On September 30, 2019, the Company signed consulting agreement with a consultant company which was affiliated with the Company’s CEO and incurred and paid $10,000 (AUD), approximately $7,038 (US). The Company’s commitment was $150,000 (AUD) fee annual and issuance of 10 million common shares within 60 days of the date of agreement. The Company terminated the agreement on November 11, 2019.
During the year ended September 30, 2019, the Company appointed Frank Herrera as interim Chief Financial Officer. The Company paid $48,415 to F&E Herrera LLC, a Company controlled by Mr. Herrera, with respect to services. Mr. Herrera resigned on September 2019.
During the year ended September 30, 2019, the Company paid a consulting fee of $2,000 to one of the Company’s Director.
As of September 30, 2019 and 2018, due to related parties was $455,577 and $447,764, respectively.
Stock-Based Compensation
During the years ended September 30, 2019 and 2018, stock-based compensation expense relating to directors, officers, affiliates and related parties was $100,200 and $1,206,330, respectively (Note 5).
7. Income Taxes
Graphene & Solar Technologies Limited was formed in 2010. Prior to the acquisition of SQTNZ in July 2017, the Company only had operations in the United States. In July 2017, the Company became the parent of SQTNZ., a wholly owned New Zealand subsidiary, which files tax returns in New Zealand.
The Company provides for income taxes under ASC 740, “Income Taxes.” Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
For the years ended September 30, 2019 and 2018, the local (“United States of America”) and foreign components of loss before income taxes were comprised of the following:
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Tax jurisdiction from:
|
|
|
|
|
|
|
- Local
|
|
$
|
(665,500
|
)
|
|
$
|
(1,644,242
|
)
|
- Foreign
|
|
|
(581,054
|
)
|
|
|
(501,890
|
)
|
Loss before income taxes
|
|
$
|
(1,246,554
|
)
|
|
$
|
(2,146,132
|
)
|
United States of America
Graphene & Solar Technologies Limited is subject to the tax laws of United States of America.
The income tax provision for the years ended September 30, 2019 and 2018, consists of the following:
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net income (loss)
|
|
$
|
(665,500
|
)
|
|
$
|
(1,644,242
|
)
|
Effective tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax expense (benefit)
|
|
|
(139,755
|
)
|
|
|
(345,291
|
)
|
Less: valuation allowance
|
|
|
139,755
|
|
|
|
345,291
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
Net deferred tax assets consist of the following components as of September 30, 2019 and 2018:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating tax carryforwards
|
|
$
|
1,655,439
|
|
|
$
|
1,425,213
|
|
Valuation allowance
|
|
|
(1,655,439
|
)
|
|
|
(1,425,213
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law including lowering the corporate tax rate from 34% to 21%. In addition to applying the new lower corporate tax rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our balance sheet. The Company has completed the accounting for the effects of the Act during the year ended September 30, 2019. Given that current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on the balance sheet.
At September 30, 2019 and 2018, the Company had $7,883,042 and $6,786,730 respectively of the U.S. net operating losses (the “U.S. NOLs”), which begin to expire beginning in 2039. NOLs generated in tax years prior to July 31, 2018, can be carryforward for twenty years, whereas NOLs generated after July 31, 2018 can be carryforward indefinitely
New Zealand
The Company’s subsidiary operating in New Zealand (“NZ”) are subject to the New Zealand Corporate Income Tax at a standard income tax rate range of 28% on the assessable income arising in New Zealand during its tax year. The reconciliation of income tax rate to the effective income tax rate for the years ended September 30, 2019 and 2018 is as follows:
|
|
For the Years Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net income (loss)
|
|
$
|
(581,054
|
)
|
|
$
|
(501,890
|
)
|
Effective tax rate
|
|
|
28
|
%
|
|
|
28
|
%
|
Income tax expense (benefit)
|
|
|
(162,695
|
)
|
|
|
(140,529
|
)
|
Less: valuation allowance
|
|
|
162,695
|
|
|
|
140,529
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
Net deferred tax assets consist of the following components as of September 30, 2018 and September 30, 2018
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Net operating tax carryforwards
|
|
$
|
599,053
|
|
|
$
|
250,018
|
|
Valuation allowance
|
|
|
(599,053
|
)
|
|
|
(250,018
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
As of September 30, 2019, the operations in New Zealand incurred $1,473,975 of cumulative net operating losses which can be carried forward to offset future taxable income. The Company has provided for a full valuation allowance against the deferred tax assets of $412,713 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of September 30, 2019 and 2018:
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating tax carryforwards:
|
|
|
|
|
|
|
United States
|
|
$
|
1,655,439
|
|
|
$
|
1,425,213
|
|
New Zealand
|
|
|
599,053
|
|
|
|
250,018
|
|
Total
|
|
|
2,254,492
|
|
|
|
1,675,231
|
|
Valuation allowance
|
|
|
(2,254,492
|
)
|
|
|
(1,675,231
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Management believes that it is more likely than not that the deferred tax assets will not be fully realizable in the future. Accordingly, the Company provided for a full valuation allowance against its deferred tax assets of $2,254,492 as of September 30, 2019. In the period, the valuation allowance increased by $579,261, primarily relating to net operating loss carryforwards from the foreign tax regimes.
8. Subsequent Events
On September 30, 2019, the Company signed consulting agreement with a consultant company which was afflicted with the Company’s CEO and paid $10,000 (AUD), approximately $7,038 (US). The Company’s commitment was $150,000 (AUD) fee annual and issuance of 10 million common shares within 60 days of the date of agreement. The company terminated the agreement on November 11, 2019.
Subsequent to September 30, 2019, the Company issued 533,333 shares of common stock.
On January 3, 2020, the Company formed Global Advanced Energies Townsville Australia Limited, a company incorporated in New Zealand, retaining an 80% ownership.