FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 333-174194
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
(Exact name of registrant as specified in its charter)
COLORADO | 27-2888719 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
433 N. Camden Dr., Suite #600 Beverly Hills, CA | 90212 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (310) 887 1477
Securities registered pursuant to Section 12(b) of the Act: None.
Title of Each Class. N/A
Trading Symbol. N/A
Name of Each Exchange as which registered. N/A
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such filing). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, and/or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging Growth Company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant on March 31, 2020 was approximately $7,852,305.
As of February 17, 2021, the registrant had 251,398,723 outstanding shares of common stock.
Documents Incorporated by Reference: None
2
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements. The Securities and Exchange Commission (the “Commission”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results.
We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
3
Overview.
Our management has 14 years previous experience in the solar industry, high purity quartz (“HPQ”) processing, and high purity quartz sand (“HPQS”) production and manufacturing industry. HPQS is an essential material for the production of photovoltaic solar panels and the high-end electronics and semiconductor industries. Planning has been completed to commence upon securing additional funding the establishment our new commercial production level factory in Townsville, Queensland, Australia to meet the increasing demand for new high purity quartz sand product. HPQS production worldwide seldom meets demand from the photovoltaic solar panel manufacturing and semi-conductor and high-end electronics industries.
Our technology team and our long-term technology associates have a proven track record of their production capability of commercial quality solar grade and potential semiconductor industry quality and purity products. The executive management team has 11 years’ experience in all facets of the production of specialized HPQ products critical for the high-end solar and electronics components industry.
We have mineral rights to the substantial supply of raw silica/quartz feedstock material through our wholly owned subsidiary, Solar Quartz Technologies Limited, a New Zealand private corporation (“SQTNZ”). This is ultra-high purity quartz deposit at our White Springs deposit (estimated at 1.5 million tons) and is located 170 miles inland from the major Australian shipping port of Townsville in the State of Queensland, Australia. The White Springs material is ideal for processing into HPQS with sufficient reserve to meet 15 to 20 years minimum of HPQS processing into solar crucible and high-end electronics grade high purity quartz sand. In addition, this subsidiary also has mining applications for the nearby Quartz Hill deposit that has an “AusIMM JORC” compliant inferred resource of 14 million tons of HPQ, ideal for processing into solar grade polysilicon metal, as well solar cell wafer production. These estimated tons of quartz available to the company under the right to mine.
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 and in fact all high-end electronics. HPQ is the only suitable material for this value-added processing as it shares the same element (silica) and is almost non-reactive, assuring high quality silicon ingots. Apart from this, HPQS also finds primary applications in advanced lighting, telecom, optic and microelectronics industry. HPQS 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.
We are also primarily focused on the early development of new graphene enabled photovoltaic solar modules, including graphene enabled covered thin-film solar panels. In this production initiative, we entered into a non-binding Letter of Intent for a joint venture with NanoGraphene, Inc. (doing business as GrapheneCA), a New York based manufacturer with five years’ experience in the manufacture of pure graphene and of the development of newly evolving graphene enhanced high-tech applications, to jointly develop graphene enhanced solar solutions. Of substantial importance, the principal of GrapheneCA has twelve years of experience in the design, construction and establishment of numerous thin film solar production factories through-out the U.S., Europe and Asia. As of September 30,2020, the joint venture has not been formed nor have there been any operations related to the joint venture.
The development of graphene enhanced combination 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. Massachusetts Institute of Technology has actually manufactured graphene solar panels.
The U.S. Government Solar Investment Tax Credit has stimulated solar panel production development and growth since its initial passage in 2006. In the last decade, solar energy has experienced an average annual growth rate of about 54%. Solar panel installations surged in 2016 ahead of potential drop down of this credit, but an extension in late 2015 has created federal policy stability through 2021. Although the solar panel manufacturing and installation industry is very competitive, our primary manufacturing material operations will not compete in that market as our area of expertise is that of producing the essential raw materials necessary to manufacture photovoltaic solar panels and semiconductors and is relatively competition free.
4
Operational Overview.
The constant demand for high purity quartz sand (HPQS) in high-end global markets has historically exceeded available supply, and the burgeoning global solar industry, due to the rapid growth of utility scale photovoltaic solar farm installations, and micro-grid networks, has substantially increased global demand for high purity quartz sand. The re-tooling of the semiconductor industry to produce nano-chips has also increased high purity quartz sand demand. Many high-tech industries have had to curtail production and expansion of the existing product ranges due to the global shortage of high purity quartz sand.
After three years of extensive development planning, the Company’s wholly owned New Zealand subsidiary registered, in September 2019, the business name (only), Global Advanced Energies Townsville (“GAET”). As of September 30, 2020 the New Zealand subsidiary company had not formed an operational subsidiary company under this name, but did extend the business name registration (only) until September 2021. Consequently, the company has no liabilities and no operations attributed under this business name. The company has the future intention to utilize this business name to establish an operational subsidiary company in Australia to undertake evolving alternative energy solutions production. The GAET technology management team plans to develop a multi-production factory hub that will require funding of approximately $200,000,000 over the first 3 years, consisting of the following 5 core initiatives/facilities:
1: PRE-PROCESSING MINE-SITE PRODUCTS: While the majority of mineral processing will take place at the mineral deposit sites by our Contract Miner, GAET will undertake final-stage quality sorting and washing to enable low-end products (known as SQ1, SQ2 and SQ3) to be prepared and packaged to required specifications for both domestic and export markets. The facility will also conduct final stage refining and processing, producing SQ-5 for export and feedstock for high-tech, clean room processing of HPQS (to be used in the solar and semi-conductor industries, and high-end-electronics, TV screens).
2: THIN FILM SOLAR GRAPHENE ENHANCED MODULE- The thin-film solar panel facility will utilize high grade HPQS to enhance panel capacity of 6MW, expanding to 24MW-36MW. The facility will introduce several graphene-enabled and enhanced panel applications that will further improve the generating properties of the graphene enabled thin film production and enhanced energy conversion efficiencies, creating a more competitive and sustainable product. The quality product is suitable for a number of applications including remote and grid-tied power stations, building integration and the electronics sector.
3: GRAPHENE - HIGH PURITY MANUFACTURING-This facility will focus on establishing high efficiency and volume graphene production facilities to achieve high-quality, eco-friendly, and scalable graphene production in 2020. This initial factory will produce 1.5 tonnes per month (expanding to 12 tonnes +) of medical grade and industrial graphene suitable for applications such as cement 3D printing resin- coatings, epoxy resins and composites, as well as high-end medical connections of brain stem cells and lenses.
4: GREEN HYDROGEN PRODUCTION & AMBIENT AIR - WATER HARVESTING (Unique GAET proprietary technology). Water scarcity is at the center of the world’s most significant challenges. The United Nations estimates approximately 30% of the world’s population will face severe water shortages by 2025. Management of the Company has developed a unique proprietary water harvesting technology utilizing modular, self-contained units that can be solar or grid powered, and deployed in urban and rural environments. The water harvester will extract moisture from the ambient air and collect as 100% pure fresh water. Each domestic water harvester will be capable of generating 30-50 liters (8-13 gal) of pure fresh water per day for personal use, with commercial models collecting up to 50,000 liters (13,000 gal) initially per day. The 100% pure H20 extracted from the atmosphere is also the perfect feed stock for the extraction of pure green hydrogen which is also planned as a major production initiative of the GAET facility complex.
5. AUSTRALIAN HPQS FACTORY. Subject to available capital, we are currently positioned to establish our new commercial scale (50,000 tonnes per annum) high purity quartz sand factory in Australia where it has substantial equipment and infrastructure already located. Production at the new high purity quartz sand (HPQS) factory will commence 6 to 8 months after funding and is expected to be profitable from the first year of operations. The total combined US$50 million factory financing will be a multi-staged investment, with US$10 million required initially to begin construction of the new Townsville, Queensland-located pre-processing plant to facilitate low-end unprocessed sale of quartz rock directly from the Quartz Hill mine site. The balance of funds will be used as set forth below. Funds may come from the sale of the shares in the primary offering or from providing shares to lenders or arrangers of debt financing, or a combination thereof.
5
Stage One – US$ 10 Million – Townsville Pre-Processing Factory “SQ1” and “SQ5” Products
The initial US$10 million application of funds will be specifically allocated to sponsor the generation of early revenue from sales of un-processed raw quartz directly from the Quartz Hill mine site. The raw quartz rock will be shipped to the new Townsville pre-processing factory for low-cost preparation involving high pressure washing, crushing and sizing, ready for shipping to international markets. Our management is confident of re-establishing previous issued US$200 Million plus orders from China and several other new emerging markets that require unprocessed high purity quartz for their own “value-adding” production centers. While we consider generation of early sales revenues is a vital function, the pre-processing factory will also produce “SQ5” feedstock for the new commercial scale high purity quartz sand factory to generate sales into the solar industry, semi-conductor and all high-end electronics markets. By building the new Townsville factory, Stage One funding will provide a base for international sales operations focusing on generating high volume, low-end sales revenues from largely unprocessed quartz. The factory is designed with more than enough production capacity to meet both SQ5 feedstock and low-end production demands.
Stage Two – US$ 35 Million – High Purity Quartz Sand Production Factory - “SQ7” Products
These funds will be required six months after the initial US$10 million funding. Funds will pay for establishing the fully operational solar grade, or crucible grade high purity quartz sand manufacturing facility. The factory will focus on manufacturing solar grade, or crucible grade high purity quartz sand products to industry standard purity grade high purity quartz sand for supply to all high-end electronics manufacturers. The solar industry utilizes SQ7 high purity quartz sand extensively. This operational segment is the most challenging, requiring almost spotless production facilities and high-tech clean rooms to insure ultimate high purity standards in the production process. Our technical team has a previous proven ability to meet these standards and successfully achieve appropriate production quality for solar and crucible grade high purity quartz sand.
Stage Three – HPQS Factory Up-Grade for Semi-Conductor Grade – “SQ9” Productions
With some variances the total $35 -$50 million funding is required within the first year and will be used to purchase additional high-level refining equipment and meet the cost of facility upgrades to the existing high purity quartz sand factory to facilitate production of SQ9 semi-conductor grade high purity quartz. This grade of high purity quartz is the highest purity and yields the largest profit margin. It is extensively used in the semiconductor industry for tool-ware applications and has consistent market demand. Semi-conductor grade SQ9 requires SQ7 solar grade high purity quartz sand as essential feedstock to enable manufacture of SQ9 semi-conductor grade HPQS.
Funding of the GAET Facilities
The Company is in the process of applying for grants and loans of up to $200,000,000 from two of the Australian federal government senior investment regional development funds as well as well as the local Townsville and Queensland state governmental authorities to fund a portion of the initiatives. To fund any shortfall, the Company is also planning to use its best efforts to raise funds in the form of debt or equity or a combination thereof in the US venture capital markets. All of these amounts represent the good faith estimate of Company management, but no assurance can be given that the Company will receive any funding from the Australian government (or if funds are received the amount thereof) or the receipt of funds to cover any shortfall.
6
Three HPQS Producers: United States, Norway and Russia.
There are only three commercial scale high purity quartz sand factories with the capability of processing HPQ raw quartz into commercial grade high purity quartz sand. They are located in the United States, Norway, and Russia; they collectively produce less than 60% of the increasing global demand for high purity quartz sand.
High purity quartz sand currently sells for US$8,000 to US$10,000 per ton with fluctuating pricing according to supply and demand. We can manufacture solar grade high purity quartz sand at a cost of US$2,000-$2,500 per ton. The global market price is predicted to keep increasing due to the ongoing global shortage of high purity quartz sand sufficient to meet the increasing demands of the burgeoning solar and high-end electronics and micro-electronics industries. We have previously operated a research design and a pilot plant production facility in Melbourne, Australia for six years primarily to create new and innovative cost-effective techniques for producing high purity quartz sand applications.
The establishment of the HPQS production plant will enable our company to supply HPQS and poly-silicon feedstock to meet pre-existing sales orders and new global demand necessitating the early establishment of the new HPQS production factory in Townsville, close to the HPQ mineral deposits. The second stage factory development will facilitate further processing of crucible grade HPQS into semiconductor grade quality that is always in very high demand.
The Quartz Hill deposit of 14 million tons of HPQ was previously the target of a joint venture mono-crystalline silicone production factory venture in Townsville, Australia with a leading manufacturer of photovoltaic solar panels (Hanwha QCell). Management believes that the compelling factor driving this initiative was the unusual high purity and extremely low-price HPQ that the company could supply to the project. The Quartz Hill deposit provides attractive opportunities for significant cost savings in the production of solar grade silicon metal for solar cell wafers. Hanwha had previously agreed upon a term sheet to purchase a 50% equity interest in the 14 million ton Quartz Hill HPQ deposit for $250 million. Closing of the transaction did not occur at the time due to Hanwha’s purchase of the majority equity of QCell, the German premier solar panel manufacturer.
We will not be dependent upon third party merchants or agents for the supply of raw feedstock material or the technology required to upgrade and provide value added processing to the quartz feedstock resource. Our management believes that we represent a unique one-stop silica quartz supplier to the solar and semiconductor industry, as well as several other sectors requiring a reliable and consistent quality source of high-purity quartz products.
There are no identified government approvals required for the products or export restrictions for HPQ products. We have previously successfully exported sample volumes of all products without restriction.
Graphene Material.
Graphene, a new material, was discovered in 2004 by two UK based Russian university professors who were awarded the Nobel Prize in 2010 for their discovery. Graphene is a 2D material, (one atom thickness) made from graphite/carbon atoms, and whilst still largely unknown to the world is rapidly becoming a new industrial revolution in its own right with more than 8,800 patent applications for graphene and graphene enabled product applications having been filed recently. We have taken an early-stage leading-edge position in this evolving new technological field of graphene enabling and enhancement, specifically to focus upon development of graphene enabled photovoltaic solar panels. Subject to available capital we plan to work with GrapheneCA and other graphene developers to develop a new range of graphene enhanced thin-film solar module associated applications.
7
Graphene is the world’s thinnest and strongest material ever, with remarkable electrical, thermal and optical properties being the most conductive material ever scientifically measured. A sheet of graphene material is only one single atom in thickness and is referred to as a 2D nano-material having almost no measurable depth, only length and width. Graphene is also highly transparent and can be easily flexed and stretched 25% of its size without breaking. However, it is also 200 times stronger than steel and harder than a diamond. It is said that it would take the weight of an elephant balanced on a needlepoint to break through a single one-atom thick graphene sheet. Graphene material is completely impermeable, even a helium atom (the smallest) cannot pass through graphene. The advent of graphene and the introduction of the extraordinary benefits from combining graphene with existing solar industry materials to thereby create an entirely new range of solar grade materials with dramatically increased attributes and properties not previously believed possible before the advent of graphene is therefore of vital importance to the company.
Our main focus remains dedicated to our original premise of developing new leading-edge technologically advanced solar materials and applications, many of which when combined with graphene will ultimately expand the horizons of what is now possible relevant to the generating capacity of solar panels to sensitivity levels not achievable before the invention of graphene. Researchers have already established that the combination of graphene with existing solar materials and solar panel applications can increase the generating efficiency for conventional solar panels from 10%-12% sensitivity in thin-film solar applications, to recently achieved 17% -22% plus.
Subject to available funding this combination of existing solar industry materials, and silicon combined with graphene will also greatly benefit our company in ultimately achieving our sales revenues and profitability targets for the benefit of our stockholders.
There are thousands of additional unique attributes and properties that make graphene a highly versatile material wit seemingly amazing properties similar to no material other with significant undeveloped potential. The number and variations of possible applications is virtually limitless, including graphene solar panels, graphene super capacitors (game changing graphene batteries that can recharge 5 to 10 times more quickly) than lithium-ion batteries, and cost-effective highly efficient water filtration and purification systems. Researchers have demonstrated graphene-based transistors, flexible networks, quantum dots, spintronic devices, integrated circuits and semiconductor as well as DNA sequencers and drug delivery applications. Adding 1% graphene to plastic makes it electronically conductive.
Sales and Marketing Plan.
We had substantial pre-existing orders from earlier operations that we were then unable to fulfil because of the lack of adequate volume production facilities. We have continuing enquiries from pre-existing clients and new customers for the immediate supply of high purity quartz sand product as they grow market share in the target high purity and higher value/margin off-take market applications. We believe that our cost-effective and efficient production methods, close proximity to primary offtake markets and major coastal shipping port co-located next to our proposed production facility provide us with significant market advantages over our very few competitors.
8
High purity products:
☐ | Consistent and reliable quality | |
☐ | Abundant prompt supply | |
☐ | Easy accessibility to shipping, and short supply lead times | |
☐ | Regular, consistent and stable reliable supply source. |
Australia’s world-renowned politically stable government, combined with the environmentally benign location, makes the company an attractive and secure long-term source of high purity quartz and high purity quartz sand raw materials for manufacturers.
We have an extensive customer data base established and ongoing excellent end-user relationships, for the last 13 years since we first commenced operations’ in our original corporate entity in 2007, when we first obtained a US $1 billion supply contract for raw unprocessed quartz materials from Suntech Power of Wuxi China, then the largest producer of photovoltaic solar panels in China.
Competitive Advantage.
Covia/Unimin, the largest supplier in HPQS, ships its product from their plant in North Carolina. Their product has significant product cost and supply disadvantages compared to that of our company due to an inferior quality raw quartz feedstock with a low purity feldspar base.
We believe we are uniquely well positioned and have several important competitive advantages over the other HPQ products main market players: the ability to provide customers with the most cost-effective high purity commercial product, with short lead times for delivery due to the Company’s Townsville location and its access to easy originating freight sources to United States, Asian and European markets.
The existing supply chains can involve one or more trading companies who distribute raw or partially beneficiated products into or from the value-added processing chain. We will endeavor as our preferred path to retain the downstream process and direct supply of HPQS products at the closest point to end application manufacturers to maximize the supply chain margins. This will involve a direct to end-user sales model. Within some vertically integrated processing corporations (especially in Japan, China, Korea and Taiwan) supply entry as required via their nominated or preferred company affiliates or trading companies. We have assessed the optimum path between direct and indirect distribution based on the downstream end customers on a regional and market segment basis. A blended sales channel will be adopted. The Chinese market will provide a direct end-user sales model and we expect to maintain local sales office presence in China to drive these off-take markets where early contracts will be available to established customers. Our predecessor company previously operated a sales office in Shanghai for six years, then securing approximately $400 million of HPQS sales orders (over 5 Years).
The other key markets in Japan, Korea, Taiwan and S.E. Asia will be addressed through a combination of trading houses aligned with vertically integrated end user corporations or directly, where direct sales access is permitted, and direct distribution cost and margin is justifiable.
9
We recognize the benefit in initially leveraging the supply relationships of established trading houses with diverse and smaller volume off take customers that may be difficult to service in the short term. This approach will expand the initial potential market reach (especially in categories such as EMC & HP fillers where there is much broader and diverse end user customer base) and expedite sales volumes alongside the direct marketing targets.
We continue to build up our off-take customer database and prioritization of the target customers in solar, semiconductor and LCD substrate/quartz glassware. Additional companies in China and Japan have previously received product samples and are targets for purchase of larger production volumes. Expansion of our Australian production facilities will be essential in progressing the next stages of engagement with these new prospects and existing qualified off take customers. The advent of graphene enabled photovoltaic solar materials and our leading position in this as yet undeveloped market segment will also greatly increase our sales and marketing opportunities.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts, Including Duration.
Generally speaking, in the HPQ industry patent protections are not standard practice and not usually required or implemented. This is mainly because only a handful of producers worldwide have ever been able to produce commercial grade high purity quartz sand suitable for the high-end electronics and global solar industry. Subsequently the entire world production is less than 150,000 tons in 2020. This is due to two factors: While quartz/silica is the most abundant substance on earth, covering 69% of the earths’ surface, HPQ grade is one of the rarest substances on earth with only a handful of known deposits worldwide. Accordingly, as a strategically important mineral, in some countries, as in Brazil, the government has banned the export of HPQ to maintain sufficient quantities for their own use. In addition, as one of our chief scientists confirms that due to the fact that each deposit of HPQ has its own particular chemical composition and chemical construction, and different manifestations of impurities, there is no single formula or application for producing high purity quartz sand. As with most mineral beneficiation projects, the process used is unique to the mineral resource. No such generic process is available. Considering that industry standards demand impurities measured in the ppm (parts per million) range, maintaining this high level of purity is a complex procedure that would not be secured by the filing of definitive patent applications given the variations in the HPQ raw feedstock material.
Government Product Approvals.
There are no identified government approvals required for our products and no export restrictions for the products. We have previously been involved in successfully exporting sample volumes of all products (with exception of SQ9) without restriction.
Effect of Existing or Probable Governmental Regulations on the Business.
Management believes that there are no identified existing or probable government regulations that will adversely impact our business.
Research and Development Activities.
Our team members have had dedicated research and development programs since 2005, and from 2009 through 2015 when the company operated its own pilot plant test facility in Melbourne, Australia. The pilot production factory prepared various grades of high purity quartz sand products and supplied sample quantities to customers in Japan, Korea and China. The pilot plant test facility confirmed product feasibility and conformance to required customer standards and validated the business model for building the commercial size and scale full production factory.
10
The primary research and development during the next fiscal year will involve further development and evaluation of new efficient processing techniques and applications recently brought about by the development of the new material graphene and the extensive development of new graphene-enabled products. Also, the dramatic complimentary effect the addition of graphene to many existing solar cell production methods and applications will have on the adoption of graphene-based new applications and products that can greatly enhance the generating capacity of existing photovoltaic solar panels with graphene enhancement.
Additional research and development resources will be progressively committed to develop new graphene/silica (quartz) and solar grade silicon graphene enabled products and applications to expand and diversify the company product offerings into complimentary solar/semiconductor and energy storage markets.
Anticipated Material Acquisition of Plant and Equipment.
Subject to availability of capital, we plan to invest $50 million in plant and equipment for establishing commercial volumes of its HPQ products defined above. The plant and equipment investment will scale product throughput capacity for:
☐ | SQ1-SQ5 products to 65,000-250,000+ tonnes per annum; | |
☐ | SQ7 product to 20,000-50,000 tonnes per annum; and | |
☐ | SQ9 product commencement of volume supply to 5000+ tonnes over 3 years. |
The balance of the funding will be applied to future plant and equipment capacity scaling from Year 2 onwards for high purity quartz products and establishing complimentary graphene/silicon/silica enabled product lines.
Compliance with Environmental Laws.
Based upon our long-term experience management believes that the nature of our mining and processing operations does not involve any onerous environmental compliance requirements. Compliance costs have been identified and quantified in the company plan of operations, business plan including financial plan.
Employees.
Certain members of our management team have been involved in this industry since 2005 and this has resulted in an experienced team of learned employees, advisors and technical experts in various locations and capacities within both Australia, Central Europe, and in the United States. We have an established eight-year relationship with a local contract miner to minimally process and mine raw quartz into feedstock grade product to fuel the factory production for higher purity products. It is planned to increase fulltime and part time employees/contractors from the present levels to a minimum of 30 within the next 12 months, subject to the company securing additional funding.
At the present time we rely upon experienced consultants with whom management has long-term relationships.
11
Executive Management and Technical Team.
Our executive management and technical team have largely co-worked together since 2005, and especially the last 5 years in Melbourne, Australia, China and the USA with the world’s two leading experts in establishing new refining and processing methods for high-purity silica products. One scientist consultant was directly responsible for the establishment of two of the other three high purity quartz sand factories, and the other scientist was extensively involved in the development of the high purity quartz semiconductor markets, working in the USA and China. They have both co-worked extensively with the company’s technical team in Australia. All of the specialized human resources are available to us. We have secured design and operational assistance commitments with the establishment of the company’s Global Advanced Energies Townsville initiative in Australia from highly experienced China based experts.
Collectively our executive management and technical team has worked together for the last 11 years and is extensively experienced in all facets of the high purity silica and solar grade silicon production operations, giving them the skills necessary to operate all sectors of our business operations successfully. We are ready to proceed immediately to the next funding stage to establish a pre-processing factory in Townsville, Queensland, near the high purity silica mine site, that will produce the SQ5 feedstock for processing at the new high purity quartz sand factory.
Rights to Minerals
The sole rights of Company to its HPQ deposits are via five leases governed by the Queensland Department of National Resources, Mines and Energy (“DNRME”), the authorized State Government body under state and Australian federal legislation.
In Australia, mineral resources can be privately owned if no more than ten centimeters below the land surface, with everything below that being owned by the Australian Federal government (AFG). The AFG authorizes each individual state government to manage the business of leasing the mineral resources in its particular state regardless of who owns the land over which the resources lie beneath. The Queensland Government manages these resources on behalf of the state of Queensland. Terms of these leases are subject to the Queensland State Government Resources Acts including the Mineral Resources act 1989 (and amendments) (“MRA”). Mining and exploration rights are issued and managed by the DNRME.
Land compensation agreements are in place for all leases. Land compensation fees become payable once leases become operational. Annual total compensation fees for all leases are AU$27,400 per annum, with annual inflation indexed for the duration of the mining lease, which as of September 30, 2020 have not been incurred as these is not yet operational.
The lease Native Title arrangements are automatically required to be renegotiated under a “Right to Negotiate “(RTN) process under the Legislation as result of the leaseholder becoming an affiliate of a public company in 2017. This RTN is being progressed accordingly. However, royalties are yet to be finalized under the RTN Process. Lease initial term is 15 years from commencement of grant and operations. Since no grant has yet to be received and the Company has not commenced operations, the actual term of the lease has not begun to run.
12
The Company is required to meet all the obligations under the lease conditions; once operational, the following requirements would apply:
- | Statutory reporting (quarterly and/or annually) e.g. production, royalty and environmental reporting. | |
- | Annual lease fees (currently AU$63.70 per hectare per annum x Total area of leases being 233.38 hectares) = AU$14,229.31 per annum | |
- | Government royalty fees of AU$0.90c per tonne minerals (quartz) sold/extracted | |
- | Annual Department of Environment and Heritage Protection (DEHP) fees approx. AU$800 per annum | |
- | Initial security deposit – yet to be adjudicated by DEHP/DNRME |
As of September 30, 2020 and 2019, the lease is not operational.
Not applicable.
ITEM 1.B. UNRESOLVED STAFF COMMENTS.
Not Applicable
We own general office, lab and factory equipment with a net book value of $12,259 and $27,869 as of September 30, 2020 and 2019 respectively, net of depreciation.
We currently maintain a representative office in the Wells Fargo Bank building, 433 North Camden Drive, Suite 600, Beverly Hills, California 90212 (the Company pays monthly rent in the amount of $149 for this office). We also maintain a substantial office at 88 Lorimer Street, Docklands, Melbourne 3008, in the State of Victoria, Australia (the company pays monthly expense for use, equivalent to the amount of AUD$2,200 for this office, which it has occupied for the last six years). These offices are currently adequate for our needs. These are month to month arrangements and therefore scoped out of ASC 842.
Our subsidiary, Solar Quartz Technologies Limited, now renamed Graphene & Solar Technologies Ltd, is the 100% titleholder to 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, is in high demand in the marketplace to be used in the production of HPQS. HPQS is a core ingredient in the production in crucibles for the manufacture of photovoltaic solar cells, as well as high-end microchips.
Not applicable
ITEM 4. MINE SAFETY DISCLOSURE.
Not applicable
13
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock at September 30, 2020 trades in the OTC Markets OTC Pink Market under the symbol “GSTX”. Shown below is the range of high and low closing prices for our common stock for the periods indicated. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
Quarter Ended | High | Low | |||||||
September 30, 2018 | $ | 0.48 | $ | 0.48 | |||||
December 31, 2018 | $ | 0.50 | $ | 0.18 | |||||
March 31, 2019 | $ | 2.50 | $ | 0.00 | |||||
June 30, 2019 | $ | 0.50 | $ | 0.06 | |||||
September 30, 2019 | $ | 0.19 | $ | 0.08 | |||||
December 31, 2019 | $ | 0.15 | $ | 0.08 | |||||
March 31, 2020 | $ | 0.18 | $ | 0.08 | |||||
June 30, 2020 | $ | 0.11 | $ | 0.06 | |||||
September 30, 2020 | $ | 0.25 | $ | 0.07 |
Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors. Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend. No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid.
Our Articles of Incorporation authorize our Board of Directors to issue up to 500,000,000 shares of common stock and up to 10,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow our directors to issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders, generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by our management.
As of September 30, 2020, we had approximately 347 shareholders of record.
We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate declaring or paying any dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings to finance future growth. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of directors considers relevant.
14
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-K. Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
As a result of the sale of Vanguard’s (VNGE) oil and gas properties in June of 2014, as discussed in Item 1 of this report, we no longer had any oil and gas assets or related operations during the periods reported through June 30, 2017, resulting in no revenue or revenue related expenses. Further, in spite of the significant acquisition on July 1, 2017, the asset has not yet begun to be exploited. Thus, we continued through the end of the period reported to have no revenue or revenue related expenses.
New Business Activities
We are currently in the process of securing interim working capital to complete mine expansion plans and to build and establish a pre-processing plant in Townsville, North Queensland, Australia and also build upon our already significant management team and market high purity quartz and HPQS to established markets which our management team have had prior relationships. These organizational efforts will also include securing significant new capital for the acquisition of a site and the building of the pre-processing plant. Upon completion, that plant will enable us to upgrade our newly mined HPQS to a higher level of purity that has a significant world-wide demand for use in the production of advanced photovoltaic solar panels and all high-end electronics, lighting, telecom, optic and microelectronics. Failure to secure these financings will have a negative impact on our ability to continue as a going concern.
15
Results of Operations.
Years Ended September 30, 2020 and 2019
Years Ended | ||||||||||||
September 30, | ||||||||||||
2020 | 2019 | Changes ($) | ||||||||||
Operating expenses | $ | 1,045,887 | 1,148,213 | $ | (102,326 | ) | ||||||
Other Expense | $ | 57,274 | 98,341 | $ | (41,067 | ) | ||||||
Net Income (loss) | $ | (1,103,161 | ) | $ | (1,246,554 | ) | $ | (143,394 | ) |
For the years ended September 30, 2020 and 2019, we generated no revenues, and thus no cost of sales or gross profits.
For the years ended September 30, 2020 and 2019, we incurred $1,045,887 and $1,148,213, respectively in operating expenses. The operating expense decreases are due primarily to lower costs of contracting professional services in the development of markets, financing, legal fees, and other general and administrative expenses.
For the years ended September 30, 2020 and 2019, our other income (expenses) consisted of the following:
Years Ended | ||||||||||||
September 30, | ||||||||||||
2020 | 2019 | Changes ($) | ||||||||||
Other (Income) Expense: | ||||||||||||
Interest expense | $ | (36,839 | ) | $ | (76,135 | ) | $ | 39,293 | ||||
Rental income | 8,146 | 6,334 | 1,812 | |||||||||
Impairment of assets | (28,581 | ) | — | (28,581 | ) | |||||||
Promissory note prepayment penalty | — | (17,860 | ) | 17,860 | ||||||||
Foreign currency transaction gain | — | 1,678 | (1,678 | ) | ||||||||
Change in fair value of derivative liability | — | (2,540 | ) | 2,540 | ||||||||
Loss on settlement of convertible note | — | (9,818 | ) | 9,818 | ||||||||
$ | (57,274 | ) | $ | (98,341 | ) | $ | (41,067 | ) |
For the year ended September 30, 2020, we reported a net loss before taxes of $1,013,161 compared to a net loss before taxes of $1,246,554 for the year ended September 30, 2019. Since there were no tax obligations in either year, net loss in each year was the same as that reported before taxes.
Cash Flows
Years Ended | ||||||||||||
September 30, | ||||||||||||
2020 | 2019 | Changes ($) | ||||||||||
Cash Flows used in Operating Activities | $ | (192,122 | ) | (600,797 | ) | $ | 408,675 | |||||
Cash Flows Provided (Used) by Investing Activities | $ | — | — | $ | — | |||||||
Cash Flows provided by Financing Activities | $ | 167,475 | 671,338 | $ | (503,863 | ) | ||||||
Effect of exchange rate in cash | (49,582 | ) | (3,004 | ) | (46,578 | ) | ||||||
Net Change in Cash During Period | $ | (74,229 | ) | $ | 67,537 | $ | (141,766 | ) |
16
Cash Flow from Operating Activities
Cash flows used in operating activities was $192,122 in the year ended September 30, 2020, while for the year ended September 30, 2019, the Company used $600,797.
The decrease in the year ended September 30, 2020 was primarily due to an increase in accounts payable and accrued expenses, primarily for legal and consulting expenses and due to related parties.
Cash Flow from Investing Activities
During the years ended September 30, 2020 and 2019, we did not have any investing activities.
Cash Flow from Financing Activities
Cash from financing activities in the year ended September 30, 2020 contributed $167,475, $93,623 from the sales of shares to unaffiliated investors, $68,217 from proceeds of a convertible note payable and $5,632 from proceeds of borrowings. For the year ended September 30, 2019 the cash provided from financing activities was $671,338, $880,000 from sale of shares to unaffiliated investors, $312,201 from a related party and repayment of $489,863 to a related party and $31,000 to a convertible note payable.
Liquidity and Capital Resources.
Years Ended September 30, 2020 and 2019.
September 30, 2020 | September 30, 2019 | Changes ($) | ||||||||||
Cash | $ | 12 | $ | 74,241 | $ | (74,229 | ) | |||||
Working capital deficit | $ | (1,684,534 | ) | $ | (1,038,539 | ) | $ | (645,995 | ) | |||
Total assets | $ | 12,271 | $ | 147,406 | $ | (135,135 | ) | |||||
Total liabilities | $ | 1,684,546 | $ | 1,129,661 | $ | 554,885 | ||||||
Total stockholders’ deficit | $ | (1,672,275 | ) | $ | (982,255 | ) | $ | 690,020 |
As of September 30, 2020, we had total current liabilities of $1,684,546, while as of September 30, 2019 we had total current liabilities of $1,129,661, an increase of $554,885. The increase in current liabilities was primarily due to an increase in accounts payable and due to related party.
As of September 30, 2020, we had a working capital deficit of $1,684,534 compared to a working capital deficit of $1,038,539 as of September 30, 2019. As of September 30, 2020, we had cash and cash equivalents of $12 and total assets of $12,271 compared to cash and cash equivalents of $74,241 and total assets of $147,406 as of September 30, 2019.
17
General Discussion.
Whereas management has been successful in the past in raising capital, there are no assurances that these sources of financing will continue to be available to us and/or that demand for our common stock will be sufficient to meet our capital needs, or that financing will be available on terms favorable to us. If funding is insufficient at any time in the future, we may not be able to take advantage of business opportunities or respond to competitive pressures or may be required to reduce the scope of our planned product development and marketing efforts, any of which could have a negative impact on its business and operating results. In addition, insufficient funding may have a material adverse effect on our financial condition, which could require it to:
☐ | seek joint venture partners; | |
☐ | monetize its assets; | |
☐ | seek arrangements with strategic partners or other parties that may require the company to relinquish significant rights to products, technologies or markets; or | |
☐ | explore other strategic alternatives including a merger or sale of our company. | |
☐ | Cease current operations |
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to our existing stockholders. If additional funds are raised through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet its operational needs, we may seek to compensate providers of services by issuance of stock in lieu of cash, which may also result in dilution to our existing stockholders.
Inflation.
The impact of inflation on our costs and the ability to pass on cost increases to its customers over time is dependent upon market conditions. We are not aware of any inflationary pressures that have had any significant impact on its operations over the past quarter and we do not anticipate that inflationary factors will have a significant impact on future operations.
Going Concern and Management’s Liquidity Plans.
As reflected in the consolidated financial statements, the Company had an accumulated deficit at September 30 2020, a net loss and net cash used in operating activities for the year then ended and has generated no revenues since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the issuance date of the consolidated financial statements.
The ability of the Company to continue its operations is dependent on management’s plans, which include the raising of capital through debt and/or equity markets, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. There can be no assurance that the Company will be able to raise any additional capital.
The Company may also require additional funding to finance the growth of our anticipated future operations as well as to achieve its strategic objectives. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.
The Company’s plan regarding these matters is to raise additional debt and/or equity financing to allow the Company the ability to cover its current cash flow requirements and meet its obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, the Company may seek protection under bankruptcy laws. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions relate to COVlD-19, as well as its impact on the U.S. and international economies. The outbreak and any preventative or protective actions that governments or we may take in respect of this COVTD-19 may result in a period of business disruption. Any financial impact cannot be reasonably estimated at this time but may materially affect our future business and financial condition. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 and the actions required to contain the COVID-19 or treat its impact, among others.
18
Off-Balance Sheet Arrangements.
We do not maintain off-balance sheet arrangements nor do we participate in non-exchange traded contracts requiring fair value accounting treatment.
Critical Accounting Policies and New Accounting Pronouncements.
The Securities and Exchange Commission SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the Securities and Exchange Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies are set forth below. The methods, estimates and judgments the company uses in applying these most critical accounting policies have a significant impact on the results the company reports in its financial statements.
A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:
Stock-Based Compensation – We account for employee and non-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.
19
We are required to file federal income tax returns in the United States and in various state and local jurisdictions. Our 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 and is not presented when anti-dilutive.
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 determines our derivative liabilities to be a Level 3 fair value measurement and uses the Binomial pricing model to calculate the fair value. There are no derivative liabilities as of September 30, 2020 and 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.
Recently Issued Accounting Pronouncements – For discussion of recently issued accounting pronouncements, please see Note 2 to the consolidated financial statements included in this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’ of Graphene & Solar Technologies Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Graphene & Solar Technologies Limited and its subsidiary (collectively, the “Company”) as of September 30, 2020 and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The financial statements of Graphene & Solar Technologies Limited as at September 30, 2019 were audited by other auditors, whose report dated January 21, 2020 expressed an unqualified opinion on those statements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management’s plans about these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS. PLLC
We have served as the Company’s auditors since 2020.
Houston, Texas
February 17, 2021
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Graphene & Solar Technologies Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Graphene & Solar Technologies Limited (the Company) as of September 30, 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit, and cash flows for the year then ended (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019, and the results of its operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered continuing net losses and has no revenue-generating operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Pinnacle Accountancy Group of Utah
We have served as the Company’s auditor since 2019.
Pinnacle Accountancy Group of Utah
(a dba of Heaton & Company, PLLC)
Farmington, Utah
January 21, 2020
F-2
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash | $ | 12 | $ | 74,241 | ||||
Prepaid expenses | — | 11,684 | ||||||
Other receivable | — | 5,197 | ||||||
Total Current Assets | 12 | 91,122 | ||||||
Other Assets: | ||||||||
Furniture and equipment, net of depreciation $71,803 and $51,946 | 12,259 | 27,869 | ||||||
Mineral rights | — | 28,415 | ||||||
Total Assets | $ | 12,271 | $ | 147,406 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and other payable | $ | 653,476 | $ | 402,599 | ||||
Accrued interest payable | 132,099 | 110,738 | ||||||
Due to related party | 717,075 | 455,577 | ||||||
Notes payable – in default | 60,000 | 60,000 | ||||||
Convertible notes payable, net of discount $52,703 and $0, $100,747 in default | 116,264 | 100,747 | ||||||
Other loans | 5,632 | |||||||
Total Current Liabilities | 1,684,546 | 1,129,661 | ||||||
Total Liabilities | 1,684,546 | 1,129,661 | ||||||
Stockholders’ Deficit | ||||||||
Preferred stock: 10,000,000 shares authorized; $0.00001 par value; no shares issued and outstanding | — | — | ||||||
Common stock: 500,000,000 shares authorized; $0.00001 par value; 246,248,723 and 242,449,767 shares issued and outstanding | 2,463 | 2,424 | ||||||
Additional paid-in capital | 9,508,943 | 9,047,139 | ||||||
Accumulated deficit | (11,235,696 | ) | (10,132,535 | ) | ||||
Accumulated other comprehensive income | 52,015 | 100,717 | ||||||
Total Stockholders’ Deficit | (1,672,275 | ) | (982,255 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 12,271 | $ | 147,406 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Revenue | $ | — | $ | — | ||||
Operating Expenses: | ||||||||
Professional fees | 881,732 | 881,104 | ||||||
General and administration | 164,155 | 267,109 | ||||||
Total operating expenses | 1,045,887 | 1,148,213 | ||||||
Operating Loss | (1,045,887 | ) | (1,148,213 | ) | ||||
Other Income (Expense): | ||||||||
Interest expense | (36,839 | ) | (76,135 | ) | ||||
Rental income | 8,146 | 6,334 | ||||||
Promissory note prepayment penalty | — | (17,860 | ) | |||||
Foreign currency transaction gain | — | 1,678 | ||||||
Impairment of assets | (28,581 | ) | — | |||||
Change in fair value of derivative liability | — | (2,540 | ) | |||||
Loss on settlement of convertible note | — | (9,818 | ) | |||||
Total Other Expense | (57,274 | ) | (98,341 | ) | ||||
Net Loss | $ | (1,103,161 | ) | $ | (1,246,554 | ) | ||
Other comprehensive income (loss) | ||||||||
Foreign currency translation adjustment | (48,702 | ) | 8,671 | |||||
Comprehensive Loss | $ | (1,151,863 | ) | $ | (1,237,883 | ) | ||
Net Loss available to common shareholders | $ | (1,151,863 | ) | $ | (1,246,554 | ) | ||
Basic and diluted loss per common share | $ | (0.00 | ) | $ | (0.01 | ) | ||
Weighted average number of common shares outstanding | ||||||||
Basic and diluted | 243,913,723 | 238,985,282 |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Accumulated | ||||||||||||||||||||||||
Common Stock | Additional | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Paid-in | Deficit | Income | Deficit | |||||||||||||||||||
Balance September 30, 2018 | 236,046,151 | $ | 2,360 | $ | 7,972,361 | $ | (8,885,981 | ) | $ | 92,046 | $ | (819,214 | ) | |||||||||||
Shares issued for cash | 5,294,525 | 53 | 879,947 | — | — | 880,000 | ||||||||||||||||||
Stock-based compensation | 600,000 | 6 | 100,194 | — | — | 100,200 | ||||||||||||||||||
Shares issued for conversion of note payable | 509,091 | 5 | 36,988 | — | — | 36,993 | ||||||||||||||||||
Terminal balance of derivative liability | — | — | 57,649 | — | — | 57,649 | ||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | 8,671 | 8,671 | ||||||||||||||||||
Net Loss | — | — | — | (1,246,554 | ) | — | (1,246,554 | |||||||||||||||||
Balance September 30, 2019 | 242,449,767 | $ | 2,424 | $ | 9,047,139 | $ | (10,132,535 | ) | $ | 100,717 | $ | (982,255 | ) | |||||||||||
Shares issued for cash | 798,956 | 9 | 93,614 | 93,623 | ||||||||||||||||||||
Stock-based compensation | 3,000,000 | 30 | 299,970 | 300,000 | ||||||||||||||||||||
Debt discount on convertible notes | 68,220 | 68,220 | ||||||||||||||||||||||
Terminal balance of derivative liability | ||||||||||||||||||||||||
Foreign currency translation adjustment | (48,702 | ) | (48,702 | ) | ||||||||||||||||||||
Net Loss | (1,103,161 | ) | (1,103,161 | ) | ||||||||||||||||||||
Balance September 30, 2020 | 246,248,723 | $ | 2,463 | $ | 9,508,943 | $ | (11,235,696 | ) | $ | 52,015 | $ | (1,672,275 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities: | ||||||||
Net loss | $ | (1,103,161 | ) | $ | (1,246,554 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Other comprehensive gain – translation adjustment | — | — | ||||||
Stock-based compensation | 300,000 | 100,200 | ||||||
Depreciation expenses | 16,324 | 16,879 | ||||||
Amortization of debt discounts | 15,517 | 57,612 | ||||||
Loss on conversion of note payable | — | 9,818 | ||||||
Change in fair value of derivative liability | — | 2,540 | ||||||
Foreign currency translation gain | — | (1,678 | ) | |||||
Impairment of assets | 28,581 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | 11,684 | (11,711 | ) | |||||
Other receivable | 5,197 | (5,419 | ) | |||||
Accounts payable | 250,877 | 128,052 | ||||||
Accrued liability | 704 | |||||||
Accrued interest payable | 21,361 | 13,613 | ||||||
Due to related party | 261,498 | 335,147 | ||||||
Net Cash Used in Operating Activities | (192,122 | ) | (600,797 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from common stock issuances | 93,623 | 880,000 | ||||||
Proceeds from other loans | 5,632 | |||||||
Proceeds from related party | — | 312,201 | ||||||
Repayment to related party | — | (489,863 | ) | |||||
Proceeds from convertible notes payable | 68,220 | — | ||||||
Proceeds from short - term loans | — | — | ||||||
Repayment on convertible notes payable | — | (31,000 | ) | |||||
Net Cash Provided by Financing Activities | 167,475 | 671,338 | ||||||
Effect of exchange rate in cash | (49,582 | ) | (3,004 | ) | ||||
Net Change in Cash | (74,229 | ) | 67,537 | |||||
Cash at Beginning of Period | 74,241 | 6,704 | ||||||
Cash at End of Period | $ | 12 | $ | 74,241 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash paid for interest | $ | — | $ | 4,675 | ||||
Cash paid for taxes | $ | — | $ | — | ||||
Supplemental disclosure of non-cash financing activity: | — | — | ||||||
Debt forgiveness from related party | $ | — | $ | — | ||||
Issuance of shares for debt repayment | $ | — | $ | — | ||||
Discount on note payable credited to derivative liability | $ | — | $ | 55,109 | ||||
Terminal balance of derivative liability credited to additional paid-in capital | $ | $ | 57,649 | |||||
Note payable converted into common stock | $ | — | $ | 36,993 | ||||
Debt discount on convertible notes | $ | 68,220 | $ | — |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
GRAPHENE & SOLAR TECHNOLOGIES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020 AND 2019
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, 2020. 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, 2020, has also expressed substantial doubt about the Company’s ability to continue as a going concern.
The Company’s plan regarding these matters is to raise additional debt and/or equity financing to allow the Company the ability to cover its current cash flow requirements and meet its obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, the Company may seek protection under bankruptcy laws. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions relate to COVlD-19, as well as its impact on the U.S. and international economies. The outbreak and any preventative or protective actions that governments or we may take in respect of this COVTD-19 may result in a period of business disruption. Any financial impact cannot be reasonably estimated at this time but may materially affect our future business and financial condition. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 and the actions required to contain the COVID-19 or treat its impact, among others.
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.
F-7
At September 30, 2020, the Company had cash of $12 available to fund its operations. The Company needs to raise additional capital during the year ending September 30, 2021 to fund its ongoing business activities.
The amount and timing of future cash requirements during the year ended September 30, 2021, 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”) nka Graphene and Solar Technologies Limited. 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, 2020 and 2019, the Company had $12 and $74,241 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.
F-8
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.
There was no derivative activity in fiscal 2020. Therefore no derivative liabilities were recorded during the year ended September 30, 2020: Activities for fiscal year 2019 is below:
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 | $ | — | ||
Addition of new derivatives recognized as debt discounts | — | |||
Settled due to conversion of debt | — | |||
Loss on change in fair value of the derivative | — | |||
Balance – September 30, 2020 | $ | — |
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.
F-9
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, 2020 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, 2020, 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 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.
F-10
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.
Due to uncertainty of the realization of being able to utilize the assets the Company determined a full impairment was warranted. An impairment of $28,581 was applied for the year ending September 30, 2020.
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 and non-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 and non-employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values on the grant date. 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).
During the year ended September 30, 2020, the Company issued 3,000,000 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 on each respective grant date, aggregated $300,000, ($0.10 per share).
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 on each respective grant date, aggregated $100,200, ($0.17 per share).
Total stock-based compensation expense was $300,000 and $100,200 for the years ended September 30, 2020 and 2019, respectively.
F-11
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 years ended September 30, 2020 and 2019.
For the years ended September 30, 2020 and 2019, respectively, the following common stock equivalents were potentially dilutive.
Years ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
(Shares) | (Shares) | |||||||
Convertible notes payable | 132,609 | 123,378 |
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 WM/Reuters WM/Refinitiv FX Benchmark Rates | Refinitiv. 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, | |||||||
2020 | 2019 | |||||||
Spot AUD: USD exchange rate | $ | 0.7108 | $ | 0.6749 | ||||
Average AUD: USD exchange rate | $ | 0.6789 | $ | 0.7038 |
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.
F-12
Recent Accounting Pronouncements
Management does not believe that any recently issued 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, 2020 and 2019 are summarized as follows:
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Laboratory and factory equipment | $ | 44,342 | $ | 42,102 | ||||
Computers | 3,481 | 3,305 | ||||||
Furniture and fixtures | 36,239 | 34,408 | ||||||
84,062 | 79,815 | |||||||
Less accumulated depreciation | (71, 803 | ) | (51,946 | ) | ||||
Net property and equipment | $ | 12,259 | $ | 27,869 |
Depreciation expense for the years ended September 30, 2020 and 2019 was $16,324 and $16,879, respectively.
4. Convertible Notes Payable
The Company’s material future contractual obligations by fiscal years as of September 30, 2020 and 2019 were as follows:
September 30, 2020 | September 30, 2019 | |||||||
Notes payable | $ | 60,000 | $ | 60,000 | ||||
Convertible notes payable | $ | 168,967 | $ | 100,747 |
Notes Payable and Other Loans
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, 2020 and 2019, the total promissory notes payable balance was $90,923 and $84,693, including accrued interest of $30,710 and $24,693, 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.
During the year ended September 30, 2020 a Company Advisor, A. Liang, loaned the Company $5,623. The loan is a demand note at zero interest.
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, 2020 and 2019, noteholders representing $70,747 in outstanding principal had not requested the exchange of shares of common stock. As of September 30, 2020 and 2019, the exchange obligation payable was $147,673 and $137,032, including accrued interest of $76,926 and $66,285, respectively. As of September 30, 2020 and 2019, the exchange obligation was for 44,614 shares and 41,399 shares of common stock, respectively.
On February 1, 2016, the Company issued convertible secured note payable of $30,000 to an individual. The note was 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, 2020 and 2019, the total convertible note payable balance was $43,997 and $40,989, including accrued interest of $13,997 and $10,989, respectively. As of September 30, 2020 and 2019, the exchange obligation was for 87,995 shares and 81,078 shares of common stock, respectively.
F-13
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, 2020 and 2019, the convertible note payable to Power Up totaled $0 and $0, net of an unamortized discount of $0 and $0; accrued interest on the convertible note payable totaled $0 and $3,681, respectively.
On December 5, 2019, the Company issued a convertible note payable in the amount of $68,220. The convertible note bear interest at 10% and matures on December 5, 2021 the principal and accrued interest of this convertible note can be converted at the discretion of the holder 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 was $15,517.
5. Stockholders’ Equity
Preferred Stock
The Company has authorized a total of 10,000,000 shares of preferred stock, par value $0.00001 per share. No preferred shares have been designated by the Company as of September 30, 2020 and 2019.
Common Stock
The Company is authorized to issue up to 500,000,000 shares of common stock (par value $0.00001). As of September 30,2020 and 2019, the Company had 246,248,723 shares and 242,449,767 shares of common stock issued and outstanding, respectively.
During the year ended September 30, 2020, the Company issued 3,798,956 shares of common stock as follows:
☐ | 3,000,000 shares of the Company’s common stock to members of the Board of Directors, employees and consultants valued at $300,000 $0.10 per share based on the closing stock price on the date of grant. | |
☐ | 798,956 shares of the Company’s common stock at an average price of $0.117 per share for an aggregate purchase price of $93,623. |
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. |
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 $53,310 (US). During the years ended September 30, 2020 and 2019, the Company incurred charges to operations of $173,341 (US) and $211,149 (US), respectively, with respect to this arrangement. During the year ended September 30, 2020, PGRNZ Limited charged to operations $300,000 (AUD), approximately $213,240 as consulting fees and $94,693 (AUD), approximately $67,308 as of administrative expenses. 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 of administrative expenses.
F-14
During the year ended September 30, 2020, the Company borrowed $291,379 from PGRNZ Limited and repaid $29,881.
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 $4,265 (US). During the years ended September 30, 2020 and 2019, the Company incurred charges to operations of $51,180 (US) and $13,232 (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.
During the year ended September 30, 2020 the Company Chairman, F.J.Garafalo loaned the company $3,500. The loan is a demand note on zero interest.
As of September 30, 2020 and 2019, due to related parties was $717,075 and $455,577, respectively.
Stock-Based Compensation
During the years ended September 30, 2020 and 2019, stock-based compensation expense relating to directors, officers, affiliates and related parties was $300,000 and $100,200, 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, 2020 and 2019, 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, | ||||||||
2020 | 2019 | |||||||
Tax jurisdiction from: | ||||||||
- Local | $ | (564,752 | ) | $ | (665,500 | ) | ||
- Foreign | (538,409 | ) | (581,054 | ) | ||||
Loss before income taxes | $ | (1,103,161 | ) | $ | (1,246,554 | ) |
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, 2020 and 2019, consists of the following:
For the Years Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Net income (loss) | $ | (564,752 | ) | $ | (665,500 | ) | ||
Effective tax rate | 21 | % | 21 | % | ||||
Income tax expense (benefit) | (118,598 | ) | (139,755 | ) | ||||
Less: valuation allowance | 118,598 | 139,755 | ||||||
Income tax expense (benefit) | $ | — | $ | — |
F-15
Net deferred tax assets consist of the following components as of September 30, 2020 and 2019:
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Net operating tax carryforwards | $ | 1,774,037 | $ | 1,655,439 | ||||
Valuation allowance | (1,774,037 | ) | (1,655,439 | ) | ||||
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, 2020 and 2019, the Company had $9,657,079 and $7,883,042 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, 2020 and 2019 is as follows:
For the Years Ended | ||||||||
September 30, | ||||||||
2020 | 2019 | |||||||
Net income (loss) | $ | (538,409 | ) | $ | (581,054 | ) | ||
Effective tax rate | 28 | % | 28 | % | ||||
Income tax expense (benefit) | (150,755 | ) | (162,695 | ) | ||||
Less: valuation allowance | 150,755 | 162,695 | ||||||
Income tax expense (benefit) | $ | — | $ | — |
Net deferred tax assets consist of the following components as of September 30, 2020 and September 30, 2019:
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Net operating tax carryforwards | $ | 749,808 | $ | 599,053 | ||||
Valuation allowance | (749,808 | ) | (599,053 | ) | ||||
Net deferred tax asset | $ | — | $ | — |
As of September 30, 2020, the operations in New Zealand incurred $2,012,384 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 $749,808 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.
F-16
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of September 30, 2020 and 2019:
September 30, | September 30, | |||||||
2020 | 2019 | |||||||
Deferred tax assets: | ||||||||
Net operating tax carryforwards: | ||||||||
United States | $ | 1,774,047 | $ | 1,655,439 | ||||
New Zealand | 749,808 | 599,053 | ||||||
Total | 2,523,855 | 2,254,492 | ||||||
Valuation allowance | (2,523,855 | ) | (2,254,492 | ) | ||||
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 $2,293,546 as of September 30, 2020. In the period, the valuation allowance increased by $269,363, primarily relating to net operating loss carryforwards from the foreign tax regimes.
8. Subsequent Events
Subsequent to September 30, 2020, the Company
a) | issued 5,150,000 shares of common stock, consisting 3,700,000 shares issued in lieu of services rendered and 1,450,000 issued through new stock purchases. All shares were approved by the Board of Directors |
b) | concluded two convertible loan note agreements in October 2020 and November 2020 for US$68,000 and US$53,000 respectively. Note terms are 12 months at 10% interest with conversion options after 180 days at discount rate of 39%. |
The Company has evaluated events occurring subsequent to September 30, 2020 through to the date these financial statements were issued, and has identified no additional events requiring disclosure.
F-17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
(a) Effective on May 6, 2020, the independent accountant who was previously engaged as the principal accountant to audit our financial statements, Pinnacle Accountancy Group of Utah (a dba of Heaton & Company, PLLC) was terminated by the Company. This firm audited our financial statements for the fiscal year ended September 30, 2019. During our most recent fiscal year and the subsequent interim period preceding such resignation, there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. In addition, there were no “reportable events” as described in Item 304(a)(1)(v) Regulation S-K that occurred within the company’s most recent fiscal year and the subsequent interim period preceding the former accountant’s resignation.
(b) Effective on May 7,2020, the firm of M&K CPAS PLLC was engaged to serve as the new principal accountant to audit our financial statements. The decision to retain this accountant was approved by our board of directors. During our two most recent fiscal years, and the subsequent interim period prior to engaging this accountant, neither the company (nor someone on its behalf) consulted the newly engaged accountant regarding any matter.
22
ITEM 9A. CONTROLS AND PROCEDURES.
An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive and Interim Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-K. Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive [and Financial Officer], or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our management concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2020, based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 (“COSO”).
As of period covered by this Annual Report on Form 10-K, we have concluded that our internal control over financial reporting was ineffective. The Company’s assessment identified certain material weaknesses which are set forth below:
Functional Controls and Segregation of Duties
Because of the Company’s limited resources, there are limited controls over information processing.
There is an inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.
Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of our Principal Executive and Financial Officer and implemented by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Roger May, our Principal Executive Officer, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2020 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO Framework (2013). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management has been addressing any underlying causes for our weaknesses in internal control which may have occurred as a result of limited resources. The Company has also engaged local accountants in Australia to assist Company management to prepare the Company’s financial statements.
None.
23
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Our officers and directors are listed below. Our directors are generally elected at our annual shareholders’ meeting and hold office until the next annual shareholders’ meeting, or until their successors are elected and qualified. The executive officers are elected by the directors and serve at their discretion. Frank Herrera resigned as chief financial officer on September 16, 2019. Nils Ollquist was terminated as a director effective November 14, 2019 and as chief executive officer on December 14, 2019.
Name | Age | Position | ||
Roger T. May | 75 | Chief Executive Officer; Director | ||
David A.B. Halstead | 74 | Director and Interim CFO | ||
Michael Selsman | 81 | Director | ||
Frank Garofalo | 70 | Chairman/Director | ||
Juliana Tan | Director |
Roger T. May.
Mr. May was the original founder of our company and has been a director since July 1, 2017. Mr. May assumed the interim positions of President, Chief Executive on November 17, 2019.
Mr. May has extensive international business experience over the last 40 years, resided in the USA for 22 years, returning to Australia in October 2001. He has been founder, chairman and CEO of five publicly listed companies in the USA and Australia. Mr. May has founded several high-tech. communications and mineral resource development companies. He is presently focused on global commercialization of primary component material essential in manufacture of PV solar panels, semi-conductor, and all high-end electronics in the USA and Australia.
David A. B. Halstead.
Mr. Halstead has been a director since July 1, 2017. He has a wide range of corporate, secretarial and trusts experience, in both offshore and onshore companies. In 1973 he became a partner in a local chartered accounting firm and in 1984 a principal in the Hong Kong office of Coopers & Lybrand (now PWC), specializing in international corporate and secretarial services, and offshore tax structures. Upon his return to Auckland, New Zealand in 1994, Mr. Halstead established and operated, several integrated medical centers, a surgical hospital in Auckland and a “state of the art” diagnostic center. He then spent three years working with World Vision fund raising for its micro finance arm “Vision Fund” involved with the capitalization and establishment of Vision Fund Cambodia. Reflecting his interest in health care delivery, in 2003 to this day, Mr. Halstead became, and is a Trustee of the New Zealand based international medical aid charity, Medical Aid Abroad.
24
Since 2006, Mr. Halstead has acted as a director, company secretary and treasurer for a group of international clients. Contemporaneously he established and operated, until recently, a unique world-first web based joint venture service for the New Zealand Government processing immigration medicals online in a secure platform through a company called NZimed Limited. Mr. Halstead is a director of an immigration sector “lead generation” company, Leadgen Matrix Ltd, Business Epic Ltd, a company focused on assisting baby boomer SME owner operators maximize their business exit strategies and value, and Asia Capital (China) Ltd, a NZ registered Financial Services Provider facilitating investment into Australia and New Zealand. He is a director of several Hong Kong and Singapore companies as well as other New Zealand entities.
Mr. Halstead was educated at Kings College, Auckland, the son of a former New Zealand Cabinet Minister and diplomat. He is a graduate of the University of Auckland with a Bachelor of Commerce and further qualifications in accounting and taxation.”
Michael Selsman.
Mr. Selsman has been a director since July 17, 2017. Mr. Selsman, as principal of Public Communications Company, Beverly Hills, California, represents publicly traded companies as a consultant in both public relations and investor relations. He is a director of Gawk, Inc. and is CEO of Archer Entertainment Media Communications, Inc. Mr. Selsman also researches and writes due diligence reports for brokerages, public and private companies (www.publiccommunicationsco.com). He is also a partner in Troika Publishing Media, a digital new media company.
Mr. Selsman has provided investor relations counsel to numerous publicly traded companies. Selsman has served on the boards of a number of major charities and lectured at most of the major universities in the Los Angeles area.
Frank Garofalo.
Mr. Garofalo was appointed to the Board of Director as Chairman on June 1, 2020. For more than three decades Mr. Garofalo has been a Management Consultant and Corporate Finance Advisor working on “special assignment” for Chief Executive Officers and Boards of Directors, primarily in technology driven markets. Mr. Garofalo has assisted companies ranging from $10 million to over $10 billion in size, including several major participants in the Electronics and Computer Systems Applications industry across U.S. as well as in Europe. He is an expert in strategic, competitive and market analysis with an emphasis on positioning companies for maximum equity valuation. Mr. Garofalo’s career in professional services includes serving as Senior Vice President in the Investment Banking division of PaineWebber (now UBS) and as Director and Senior Consultant in Arthur D. Little’s Technology consulting practice. While at Arthur D. Little, Mr. Garofalo was the Lead Manager on major studies for Fortune 500 client organizations in product/market forecasting and technology trends assessments, market research, strategic business planning, and evaluations of diversification and acquisition opportunities. As part of PaineWebber / UBS Corporate Finance his assignments have included dozens of corporate development and corporate finance projects including private placements of equity financing, mergers, acquisition, divestitures and the establishment of joint ventures and strategic alliances. Mr. Garofalo has served on several boards, including biotech spin-off company Medi-Pharmaceuticals Inc. before its merger into Galectin Therapeutics, Inc. and the Board of Sigma Labs. Mr. Garofalo is also member of the MIT Venture Mentoring Service. Mr. Garofalo earned a Bachelor of Science degree in Electrical Engineering from MIT, a Master of Science degree in Computer Systems Engineering from the University of Michigan and an MBA from Harvard University.
25
Juliana Tan.
Effective July 20 2020, Juliana Tan was elected to the Board of Directors of the Company. Ms. Tan has over twenty years of international experience at senior levels in corporate acquisitions, wealth management, and capital raising. Her areas of expertise include international business development, operations, marketing and sales development, strategic planning, intellectual property, process improvement, manufacturing and financial planning. Ms. Tan recently founded Eligius Lab Pte. Ltd, Singapore which establishes architectures and hardware designs for marketing, commercialization and system integration in healthcare technology projects focused on patient engagement systems. She has also served as Executive Director of CIMA Nanotech and Clearview Technology Group where she was responsible for operations, strategy development and marketing. She has served as Executive Director of Egreen Co. Ltd, Seoul Korea, where she led fundraising activities and established regional business relationships including for Sri Lanka, Indonesia, China, India and Spain. Ms. Tan has served as investment advisor for Colliers International (Singapore, China and Hong Kong), Knight Frank (Singapore, China and Malaysia), Fraser and Company (Singapore and Malaysia), SP Setia Sdn Bhd (Malaysia and Australia), Hartemas Real Estate Sdn Bhd (Malaysia), Ascendants Assets Pte Ltd. (Singapore Tudorville Properties Ltd (UK) and Kingfield’s Solicitors (UK).
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation received by our principal executive and financial officers during the two years ended September 30, 2020. The table does not include Nils Ollquist who was appointed chief executive officer on September 19, 2019 but was terminated effective December 14, 2019.
Name and | Fiscal | Other | ||||||||||||||
Principal Position | Year | Salary (1) | Compensation (2) | Total | ||||||||||||
Roger May | 2020 | 213,240 | — | 213,240 | ||||||||||||
Chief Executive Officer | 2019 | — | — | — | ||||||||||||
Frank Herrera (3) | 2020 | — | — | — | ||||||||||||
Principal | 2019 | — | 83,500 | 83,500 | ||||||||||||
Financial and Accounting Officer | ||||||||||||||||
David Halstead (3) | 2020 | — | — | — | ||||||||||||
Director | 2019 | — | — | — | ||||||||||||
Interim Financial and Accounting Officer | ||||||||||||||||
Frank Garofalo | 2020 | — | — | — | ||||||||||||
Director (appointed June 1, 2020) | 2019 | — | ||||||||||||||
Juliana Tan | 2020 | — | — | — | ||||||||||||
Director (appointed July 1, 2020) | 2019 | — |
_____________
(1) | The dollar value of base salary (cash and non-cash) earned. |
(2) | All other compensation received that could not be properly reported in any other column of the table. |
(3) | Mr. Herrera resigned as Chief Financial Officer effective September 16, 2019. |
26
Long-Term Incentive Plans. We do not provide our officers or employees with pension, stock appreciation rights, long-term incentive or other plans.
Employee Pension, Profit Sharing or other Retirement Plans. We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Compensation of Directors During Years Ended September 30, 2020 and 2019. During the years ended September 30, 2020 and 2019, we did not compensate our directors for acting as such.
Compensation Committee Interlocks and Insider Participation. During the years ended September 30, 2020 and 2019, none of our officers was also a member of the compensation committee or a director of another entity, which other entity had one of its executive officers serving as one of our directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table shows the beneficial ownership of our common stock, as of September 30, 2020 (246,248,723 shares issued and outstanding) by (i) each person whom the company knows beneficially owns more than 5% of the outstanding shares of the common stock, (ii) each of the officers, (iii) each of the directors, and (iv) all the officers and directors as a group.
Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock. Unless otherwise indicated, beneficial ownership is determined in accordance with the Rule 13d-3 promulgated under the Securities and Exchange Act of 1934, as amended, and includes voting or investment power with respect to shares beneficially owned.
Number of Shares | ||||||||
Beneficially | Percentage | |||||||
Name and Address of Beneficial Owner (1) | Owned | of Class | ||||||
Phoenix Global Holdings Limited | 122,981,762 | (2) | 49.94 | % | ||||
Level 1, 19 Auburn Street, Grafton, | ||||||||
Auckland, 1021, New Zealand | ||||||||
M-Graphite Holdings Limited | 29,751,197 | (2) | 12.08 | % | ||||
6 Hills View Lane, | ||||||||
Mangawhai, 0505 New Zealand | ||||||||
Pegasus Resources Limited | 3,500,000 | (2) | 1.42 | % | ||||
Level 1, 19 Auburn Street, Grafton, | ||||||||
Auckland, 1021, New Zealand | ||||||||
NZ Macro Limited | 500,000 | (3) | 0.20 | % | ||||
6 Hills View Lane, | ||||||||
Mangawhai, 0505 New Zealand | ||||||||
Michael Selsman | 500,000 | 0.20 | % | |||||
433 North Camden Drive, Suite 600 | ||||||||
Beverly Hills, California 90212 | ||||||||
Roger May | 156,232,959 | 63.45 | % | |||||
88 Lorimer Street | ||||||||
Docklands, Melbourne 3008 Australia | ||||||||
David A.B. Halstead | 500,000 | (3) | 0.20 | % | ||||
6 Hills View Lane, | ||||||||
Mangawhai, 0505 New Zealand | ||||||||
All officers and directors as a group (3 persons) | 157,232,959 | 63.85 | % |
________________
(1) | Neither our officers and directors, nor any company they directly or indirectly control, has entered into any arrangements, agreements (including derivative agreements), or contracts that give or will give anyone else an interest in the company. The directors/officers have not used their shares of the company to secure a loan. |
(2) | Roger May may be deemed to be the beneficial owner of the shares held of record by Phoenix Global Holdings Limited, Pegasus resources Limited and M-Graphite Holdings Limited as a result of his being the sole shareholder of the entity which is the trustee of Phoenix Global which in turn is the sole shareholder of M-Graphene Holdings and Pegasus Resources Limited |
(3) | David Halstead may be deemed to be the beneficial owner of the shares held of record by NZ Macro Limited as a result of his being the sole Director of the entity. |
27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
(a) None.
(b) The company considers Messrs. Halstead, Garofalo and Selsman and Ms Juliana Tan to be independent directors as such term is defined by the NASDAQ Rules or Rule 10A-3 of the Exchange Act.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
M&K CPAS PLLC of Houston was engaged to audit our financial statements for the year ended September 30, 2020. The following table shows the fees billed to us for the period presented by M&K CPAS PLLC and Pinnacle Accounting Group of Utah.
Year Ended | Year Ended | |||||||
September 30, 2020 | September 30, 2019 | |||||||
Audit Fees | $ | 31,000 | $ | 40,000 | ||||
Audit-Related Fees | $ | — | $ | — | ||||
Tax Fees | $ | — | $ | — |
Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements and reviews of our quarterly financial statements.
Audit-related fees represent amounts billed for consents related to regulatory filings, audit/review of financial statements included in our registration statements filed with the Securities and Exchange Commission, and consulting related to the implementation of accounting standards.
Tax fees include professional services for tax return preparation and income tax audit support.
The policy of our directors is to pre-approve all audit and non-audit services provided by our independent auditors.
28
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
EXHIBIT INDEX
29
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 17th day of February 2021.
By: | /s/ Roger May | |
Roger May, Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Roger May | Chief Executive Officer | February 17, 2021 | ||
Roger May | ||||
/s/ David A.B. Halstead | Director & Interim CFO | February 17, 2021 | ||
David A.B. Halstead | ||||
/s/ Frank Garofalo | Director & Chairman | February 17, 2021 | ||
Frank Garofalo | ||||
/s/ Juliana Tan | Director | February 17, 2021 | ||
Juliana Tan | ||||
/s/ Michael Selsman | Director | February 17, 2021 | ||
Michael Selsman |
30