NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION
These consolidated financial
statements of Graphene & Solar Technologies Limited (GSTX or the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP). In the opinion of management, these
financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods. Certain information, accounting policies and footnote disclosures normally included
in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to Securities and Exchange
Commission (SEC) rules and regulations. These financial statements should be read along with Solar Quartz’s audited
financial statements as of September 30, 2019.
Going Concern – The Company
has incurred cumulative net losses throughout 2019 financial periods and currently in 2020 periods. Accordingly, it requires capital
to fund working capital deficits and for future operating activities to take place. The Company’s ability to raise new funds through
the future issuances of debt or common stock is unknown. The obtainment of additional financing, the successful development of
a plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company
to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to
continue as a going concern.
Going Concern – The Company
has incurred cumulative net losses since its inception and will require capital for future operating activities to take place.
The Company’s ability to raise new funds through the future issuances of debt or common stock is unknown. The obtainment of additional
financing, the successful development of a plan of operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial
doubt about the Company’s ability to continue as a going concern.
Future issuances of the Company’s equity
or debt securities will be required for the Company to finance operations and continue as a going concern. The financial statements
do not include any adjustments that may result from the outcome of these uncertainties.
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
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 can be found
in the Company’s Annual Report in form 10-K for the year ended September 30, 2019.
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 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. Actual results could differ from those estimates.
Significant estimates include but are
not limited to the estimated useful lives of equipment for purposes of depreciation and the valuation of common shares issued for
services, equipment and the liquidation of liabilities.
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 June 30 2020 and 2019, the Company had $747 and $15,261 in cash, respectively, and no cash equivalents.
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 uses the Binomial pricing model to calculate the fair value. 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.
Stock-Based Compensation - The
Company accounts for employee stock-based compensation using the fair value method. However, the Company did not evaluate employee-based
compensation as the Company has no employees. The Company did issue stock to vendors/consultants for services performed. 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.
Foreign Currency Translations
– The functional currency of the Company’s foreign subsidiary is primarily the respective local currency. Assets and liabilities
of the Company’s foreign subsidiary are translated into U.S. Dollars at the year-end exchange rate, and revenues and expenses
are translated at average monthly exchange rates. Translation gains and losses are recorded as a component of accumulated other
comprehensive income (loss) within stockholders’ equity. All other foreign currency transaction gains and losses are included
in other (income) expense, net.
Earnings Per Share - Basic earnings
per share have been calculated based upon the weighted-average number of common shares outstanding. Diluted earnings per share
were not calculated as such potential shares would be anti-dilutive.
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.
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. 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.
NOTE 3 – CONVERTIBLE NOTES
PAYABLE
The Company’s indebtedness as of June
30,2020 and September 30, 2019 were as follows:
Description
|
|
June 30,
2020
|
|
September 30,
2019
|
|
|
|
|
|
Convertible notes
|
|
$
|
168,967
|
|
|
$
|
100,747
|
|
Notes Payable
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
$70,747 of the convertible notes bear
interest at 15% and are also due on demand. The principal and accrued interest of these convertible notes can be converted at the
discretion of the holders into common shares at $3.31/share.
$68,220 of the convertible notes bear
interest at 10% and the principal and accrued interest of these convertible notes can be converted at the discretion of the holders
into common shares at 45% discount to the ADR 20 days prior to notification of conversion. The majority shareholder agreed to increase
authorized shares if needed in order to settle this debt. This note was discounted for the full amount and the amount of amortization
during the period.
The Notes Payable bear interest at 10%
and are due on demand.
NOTE 4- 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 $51,225 (US). During the nine months ended June 30, 2020 and 2019, the Company incurred charges to operations
of $68,240 (US) and $52,675(US), respectively, with respect to this arrangement.
As of June 30,2020 and September 30,
2019, accrued expenses due to related parties was $582,011 and $455,577 respectively.
NOTE 5 – STOCKHOLDERS’ EQUITY
Common shares of 3,289,156 were issued
resulting in an increase to capital stock of $33 and an increase to Additional Paid-in Capital of $317,649.
During the 3 month period ending June
30, 2020 period 289,156 new Common shares were issued for cash proceeds of $17,682.
Also during the 3 month period ending
June 30, 2020, the Company issued 3,000,000 shares of the Company’s common stock to consultants. The fair value of the shares,
as determined by reference to the closing price of the Company’s common stock, aggregated $300,000 ($0.10 per share).
The Company has a total of 8,638,167
shares that remain approved, reserved and outstanding and not yet issued by the Transfer Agent at June 30, 2020.
NOTE 6 – SUBSEQUENT EVENTS
During the month of July 2020 additional Common shares of
1,000,000 were issued to members of the Board of Directors.