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EXCEL - IDEA: XBRL DOCUMENT - National Graphite CorpFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - National Graphite Corpexhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - National Graphite Corpexhibit32-1.htm
EX-31.2 - EXHIBIT 31.2 - National Graphite Corpexhibit31-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (the “Exchange Act”)

For the quarterly period ended February 28, 2014

 

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _______ to _______

 

Commission file number: 333-146675

 

NATIONAL GRAPHITE CORP.

(Exact name of small business issuer in its charter)

 

_____________________

 

Nevada   27-3787574

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

     
230 Indian Creek Ln., Ste, Las Vegas, NV   89149
(Address of principal executive offices)   (Zip Code)

 

Issuer’s telephone number: (702) 839-4029

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required 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 [X] No [   ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes [X ] No [   ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large  accelerated  filer [    ]   Accelerated  filer [    ]
Non-accelerated  filer [    ] (Do  not  check  if  a  smaller  reporting  company) Smaller  reporting  company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [  ] No [  ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

State the number of shares outstanding of each of the issuer’s classes of common and preferred equity, as of March 7, 2014: 68,669,881 shares of common stock and 675,000 preferred shares each carrying a 100:1 voting and conversion rights.

 

 

1
 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION    
     
ITEM 1. FINANCIAL STATEMENTS   3
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.   4
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   9
     
ITEM 4. CONTROLS AND PROCEDURES   10
     
PART II – OTHER INFORMATION    
     
ITEM 1. LEGAL PROCEEDINGS   11
     
ITEM 1A. RISK FACTORS   11
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   16
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   16
     
ITEM 4. MINE SAFETY DISCLOSURES   16
     
ITEM 5. OTHER INFORMATION   16
     
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K   17
     
SIGNATURES   18

 

 

 

2
 

   

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

    Page 
      
Condensed Balance Sheets  – February 28, 2014 (Unaudited) and May 31, 2013   F-1 
      
Condensed Statements of Operations for the three and nine months ended February 28, 2014 and 2013, and for the period from October 19, 2006 (Inception) to February 28, 2014 (Unaudited)   F-2 
      
Condensed Statements of Cash Flows for the Nine months ended February 28, 2014 and 2013, and for the period from October 19, 2006 (Inception) to February 28, 2014(Unaudited)   F-5 
      
Notes to Condensed Financial Statements   F-7 - F-9 
      

 

 

 

 

3
 

 

NATIONAL GRAPHITE CORP.
(FKA LUCKY BOY SILVER CORPORATION)
(An Exploration Stage Company)
Condensed Balance Sheets
February 28, 2014 and May 31, 2013 (Unaudited)
       
   February 28, 2014  May 31, 2013
       
ASSETS          
Current assets          
Cash  $15,745   $187,622 
Total current assets   15,745    187,622 
           
Property and equipment, net   —      541 
           
Other assets          
Deposits   1,400    1,400 
Mineral interests   —      575,000 
Total other assets   1,400    576,400 
           
Total assets  $17,145   $764,563 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
Current liabilities          
Accounts payable and accrued expenses  $11,701   $9,595 
Accounts payable - related party   18,000    —   
Accrued interest   168    —   
Convertible note payable (net of unamortized discount of $17,809)   7,191    —   
Derivative liability   15,640    —   
Total current liabilities   52,700    9,595 
           
Stockholders' Equity (Deficit)          
           
Preferred stock, 1,000,000 shares authorized at par value of $0.001; 675,000 and 675,000 shares issued and outstanding, respectively   675    675 
Common stock, 499,000,000 shares authorized          
at par value of $0.001; 68,669,881 and 68,669,881 shares issued and outstanding, tespectively   68,670    68,670 
Additional paid-in capital   2,616,805    2,616,805 
Other comprehensive income   59    59 
Deficit accumulated during the exploration stage   (2,721,764)   (1,931,241)
Total stockholders’ equity (Deficit)   (35,555)   754,968 
           
Total liabilities and stockholders’ equity (Deficit)  $17,145   $764,563 
           
The accompanying notes are an integral part of these unaudited financial statements.  

 

 

 

F-1
 

 

NATIONAL GRAPHITE CORP.
(FKA LUCKY BOY SILVER CORPORATION)
(An Exploration Stage Company)
Condensed Statement Of Operations (Unaudited)
For the three and nine months ended February 28, 2014 and 2013
For the periods from October 19, 2006 (Inception) to February 28, 2014 (Unaudited)
                
   Three Months Ended February 28, 2014  Three Months Ended February 28, 2013  Nine Months Ended February 28, 2014  Nine Months Ended February 28, 2013  Periods from October 19, 2006 (Inception ) to February 28, 2014
                
Revenue  $—     $—     $—     $—     $—   
                          
Operating expenses                         
Exploration of resource properties   —      6,448    33,624    99,846    232,616 
Impairment of mineral interests   —      —      582,820    —      869,189 
Depreciation expense   137    202    541    606    2,427 
Professional fees   26,888    28,396    76,430    75,348    1,170,061 
General and administrative expenses   26,140    41,660    99,093    116,049    449,456 
Total operating expenses   53,165    76,706    792,508    291,849    2,723,749 
                          
Loss from operations   (53,165)   (76,706)   (792,508)   (291,849)   (2,723,749)
                          
Other income/expense:                         
Gain (loss) on derivative liability   4,931    —      4,931    —      4,931 
Amortization of debt discount   (2,762)   —      (2,762)   —      (2,762)
Interest expense   (184)   —      (184)   —      (184)
Total other income/expense   1,985    —      1,985    —      1,985 
                          
Loss before income taxes   (51,180)   (76,706)   (790,523)   (291,849)   (2,721,764)
                          
Provision for income taxes   —      —      —      —      —   
                          
Net loss  $(51,180)  $(76,706)  $(790,523)  $(291,849)  $(2,721,764)
                          
Basic and diluted loss per share  $0.00   $0.00   $0.00   $0.00      
                          
Basic and diluted weighted average number of shares outstanding   68,669,881    68,569,881    68,669,881    71,978,367      
                          
The accompanying notes are an integral part of these unaudited financial statements.  

 

 

 

F-2
 

 

 

NATIONAL GRAPHITE CORP.
(FKA LUCKY BOY SILVER CORPORATION)
(An Exploration Stgae Company)
Condensed Statement Of Cash Flows (Unaudited)
For the nine months ended February 28, 2014 and 2013
For the period from October 19, 2006 (Inception) to February 28, 2014 (Unaudited)
          
   Nine Months Ended February 28, 2014  Nine Months Ended February 28, 2013  Period from October 19, 2006 (Inception) to February 28, 2014
Cash flow from operating activities               
Net loss  $(790,523)  $(291,849)  $(2,721,764)
Adjustments to reconcile net loss to net cash               
used in operating activities:               
Depreciation expense   541    606    2,428 
Contributed service by an officer   —      —      150 
Other comprehensive loss   —      —      59 
Stock based compensation for services   —      —      681,000 
Impairment of mineral interests   582,820    —      869,189 
Amortization of debt discount   2,762    —      2,762 
Gain (loss) on derivative liability   (4,931)   —      (4,931)
Changes to operating assets and liabilities:               
 (Increase) decrease in deposits   —      25,000    (1,400)
Increase(decrease) in prepaid expenses   —      3,500    —   
Increase(decrease) in accounts payable - related party   18,000    —      18,000 
Increase(decrease) in accounts payable   2,106    2,000    11,701 
Increase(decrease) in accrued interest   168    —      168 
Net cash used in operating activities  $(189,057)  $(260,743)  $(1,142,638)
                
Cash flows from investing activities               
Purchase of computer equipment   —      —      (2,428)
Purchase of mineral interests   (7,820)   (92,478)   (274,189)
Net cash used in investing activities  $(7,820)  $(92,478)  $(276,617)
                
Cash flow from financing activities        (92,478)     
Capital contributions   —      —      10,000 
Common stock issued for cash   —      500,000    1,400,000 
Proceeds from convertible notes payable   25,000    —      25,000 
Net cash provided by financing activities  $25,000   $500,000   $1,435,000 
                
Net increase(decrease) in cash   (171,877)   146,779    15,745 
                
Cash at beginning of period   187,622    108,209    —   
                
Cash at end of period  $15,745   $254,988   $15,745 
                
Supplemental disclosure of cash flow information               
Cash paid for interest  $16   $—     $16 
Cash paid for income taxes  $—     $—     $—   
                
Non cash financing Activities:               
Preferred stock issued in conversin of common stock  $—     $—     $67,500 
Common stock issued for services  $—     $—     $561,000 
Common stock issued for mineral interests  $—     $60,000   $595,000 
                
The accompanying notes are an integral part of these unaudited financial statements.               

   

 

F-3
 

 

NATIONAL GRAPHITE CORPORATION

(FKA Lucky Boy Silver Corporation)

(An Exploration Stage Company)

Notes to Condensed Financial Statements

February 28, 2014

 

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at February 28, 2014, and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's May 31, 2013 audited financial statements. The results of operations for the periods ended February 28, 2014 and 2013 are not necessarily indicative of the operating results for the full years.

 

NOTE 2 –GOING CONCERN

 

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern and no revenues are anticipated until the Company begins extracting and selling gold and silver, and there is no assurance that a commercially viable deposit exists on the mineral claims that the Company has under option. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

Management’s plan to support the Company in its operations and to maintain its business strategy is to raise funds through public offerings and to rely on officers and directors to perform essential functions with minimal compensation. If the Company does not raise all of the money it needs from public offerings, it will have to find alternative sources, such as a second public offering, a private placement of securities, or loans from its officers, directors or others. If the Company requires additional cash and can’t raise it, it will either have to suspend operations until the cash is raised, or cease business entirely.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

NOTE 3 – SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses in the statement of operations. Actual results could differ from those estimates.

 

F-4
 

 

Recent Accounting Pronouncements

 

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.

Basic Loss per Common Share

 

Basic loss per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. Due to net losses at February 28, 2014 and 2013, the effect of the potential common shares resulting from warrants was excluded, as the effect would have been anti-dilutive. The number of common share equivalents were excluded.

 

NOTE 4 – MINERAL INTERESTS

 

As of February 28, 2014 and May 31, 2013 the Company had $0 and $575,000 of costs related to the acquisition of mineral interests on mineral properties located throughout the United States. As of February 28, 2014 impairment of mineral interest was recorded for $582,820, since the company abandoned the property on December 9, 2013 and 100% of the asset value is impaired. The Company has one active exploration project, the Silver Strike project.

 

NOTE 5 – STOCKHOLDERS’ EQUITY 

 

Common Stock Activity, Fiscal Year Ended May 31, 2013

 

The Company’s authorized capital consists of 1,000,000 preferred shares with 675,000 preferred shares issued and outstanding at a par value of $0.001 per preferred share.  Common stock consists of 499,000,000 authorized shares of $0.001 par value common stock. As of February 28, 2014 and May 31, 2013 there were 68,669,881 and 68,669,881 shares issued and outstanding, respectively.

 

On July 18, 2012 the Company issued 916,667 shares of common stock for cash of $500,000.

 

On December 7, 2012 he Company issued 600,000 shares of common stock for the acquisition of mineral claims. The shares were valued at fair market value of $235,000.

 

On October 19, 2012 the Company cancelled 8,000,000 shares of common stock held by a director of the Company who is a related party. 

 

Shares issued and outstanding at February 28, 2014 and May 31, 2013 were 68,669,881 common and 675,000 preferred. Each preferred share carries a 100:1 voting and conversion right.

 

F-5
 

NOTE 6 – CONVERTIBLE NOTE PAYABLE

 

On January 10, 2014 the company issued a convertible note payable to Chancery Lane Investment Group, Inc in the amount of $25,000 at the rate of 5% per annum which is due on January 10, 2015. At any time the holder has the right to convert the note into shares of common stock. The conversion price (the “Conversion Price”) in effect on any Conversion Date shall be the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean the Applicable Percentage (as defined herein) multiplied by the Market Price (as defined herein). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the five (5) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower via facsimile (the “Conversion Date”). “Trading Price” means, for any security as of any date, the intraday trading price on the Over-the-Counter Bulletin Board (the “OTCBB”) as reported by a reliable reporting service (the “Reporting Service”) mutually acceptable to Borrower and Holder and hereafter designated by Holders of a majority in interest of the Notes and the Borrower or, if the OTCBB is not the principal trading market for such security, the intraday trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no intraday trading price of such security is available in any of the foregoing manners, the average of the intraday trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is traded for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. “Applicable Percentage” shall mean 90%; provided, however, that the Applicable Percentage shall be increased to (i) 95% in the event that a Registration Statement covering the shares to be issued upon conversion is filed prior to the Notice of Conversion and (ii) 100% in the event that the Registration Statement becomes effective on or before the Notice of Conversion.

 

As of February 28, 2014, $7,191 (net of unamortized discount of $17,809) was outstanding towards this loan with accrued interest of $168.

 

NOTE 7 – FAIR VALUE MEASUREMENTS AND DERIVATIVE  LIABILITY 

 

The Company evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Under ASC-815 the conversion options embedded in the note payable described in Note 6 require liability classification because they do not contain an explicit limit to the number of shares that could be issued upon settlement.

As defined in FASB ASC 820, 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 utilized the market data of similar entities in its industry 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. FASB 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).

F-6
 

The three levels of the fair value hierarchy are as follows:

 

   
Level 1    – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

   
Level 2     - Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.

 

   
Level 3     – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of February 28, 2014.

 

             
Recurring Fair Value Measures  Level 1  Level 2  Level 3  Total
                     
LIABILITIES:                    
     Derivative liabilities, February 28, 2014  $—     $—     $15,640   $15,640 



The following table summarizes the changes in the derivative liabilities during the quarter ended February 28, 2014:

    
Balance as of May 31, 2013  $-0-
Additions due to new convertible debt and warrants issued   20,571 
Change in fair value   (4,931)
Ending balance as of February 28, 2014  $15,640 



The Company uses the Black-Scholes option pricing model to value the derivative liability and subsequent remeasurements.  Included in the model are the following assumptions: stock price at valuation date of $0.0169 - $0.017, exercise price of $0.0122 - $0.0151, dividend yield of zero, years to maturity of 1, risk free rate of 0.12 percent, and annualized volatility of 139.60 – 142.99 percent.

F-7
 

Note 8- Related Party Transactions

 

On December 29, 2010 the Company entered into a consulting agreement with Wannigan Consulting Corp. (“Wannigan”) having a common director of our President, Ken Liebscher, a related party, wherein Wannigan Consulting Corp. receives $5,500 per month as compensation and minimum of $500 per month towards pre-approved expenses. This contract was terminated in December 31, 2012.

 

During the nine months ended February 28, 2014 and 2013, the company paid consulting fee to Wannigan $0 and $36,000, respectively.

 

On January 1, 2013 the Company entered into a consulting agreement with Harbortown Inc. (“Harbortown”) having a common director of our President, Ken Liebscher, a related party, wherein Harbortown, Inc. receives $5,000 per month as compensation and minimum of $1,000 per month towards pre-approved expenses.

 

During the nine months ended February 28, 2014 and 2013, the company paid consulting fee to Harbortown $54,000 and $18,000, respectively.

 

As of February 28, 2014 amount due to related party of $18,000 is unsecured, non-interest bearing, and due on demand.

 

NOTE 9 – SUBSEQUENT EVENTS

 

In accordance with ASC 855 Company management reviewed all material events through filing of these financial statements and there are no material subsequent events to report.

 

 

F-8
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-looking statements. These forward-looking statements relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this report. Forward-looking statements are often identified by words like: “believe”, “expect”, “estimate”, “anticipate”, “intend”, “project” and similar expressions or words which, by their nature, refer to future events.

 

In some cases, you can also identify forward-looking statements by terminology such as “may”, “will”, “should”, “plans”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in Item 1A. Risk Factors on page 15 that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

GENERAL INFORMATION

 

Our financial statements are stated in United States Dollars (USD or US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. All references to “common shares” refer to the common shares in our capital stock.

 

As used in this quarterly report, the terms “we”, “us”, “our”, “National Graphite Corp and or Lucky Boy Silver Corp.” and “Lucky Boy” or National Graphite mean National Graphite Corp., unless otherwise indicated.

 

Our company is an exploration stage company. There is no assurance that commercially viable mineral deposits exist on the mineral property that we have under option. Further exploration will be required before a final evaluation as to the economic and legal feasibility of the claim is determined.

 

We were incorporated in the State of Wyoming on October 19, 2006, as Sierra Ventures, Inc. and established a fiscal year end of May 31. On February 5, 2010 we filed an Amendment to Articles with the Wyoming Secretary of State and changed our name from “Sierra Ventures Inc.” to “Lucky Boy Silver Corp.” We changed our company name to National Graphite Corp. on May 9, 2012. We changed the name of our company to better reflect the direction and business of our company. On March 22, 2011, the corporation converted from a Wyoming corporation to a Nevada corporation pursuant to Wyoming Statutes Title 17, ch. 16, Sect.(s) 820, 821 and 1114 and Nevada Revised Statutes 92A.205. This conversion did not alter the number of authorized shares, or the number of issued and outstanding shares, of the corporation. The voting and other rights of the common and preferred shares of the company’s capital stock remain substantially similar under Nevada law. The powers of the company’s officers, directors and shareholders also remain substantially the same. Our authorized capital stock continues to consist of 499,000,000 shares of common stock, par value $0.001 per share and 1,000,000 shares of preferred stock, par value $0.001per share. Our statutory registered agent’s office is located at 153 W. Lake Mead Pkwy, Ste. 2240, Henderson, NV 89015. Our telephone number is (702) 839-4029.

 

 

The following analysis of the results of operations and financial condition of the corporation for the period ending February 28, 2014, should be read in conjunction with the corporation’s financial statements, including the notes thereto contained elsewhere in this form 10-Q and in our annual report filed on form 10-K.

 

4
 

Overview

 

We are a start-up, exploration stage, company engaged in the search for gold, silver, graphite and related minerals. Our mineral properties are without known reserves and our proposed program is exploratory in nature. There is no assurance that commercially viable mineral deposits exist on our mineral properties.

 

Active Projects


Silver Strike Silver Property.

 

The Silver Strike area (Candelaria Project) is comprised of 68 unpatented lode mining claims in Esmeralda and Mineral County and currently covers 1363 acres in the Candelaria District immediately east of Silver Standard Resources Northern Belle and Mount Diablo open pit silver mines in sections 25, 35, 36, 1, 2, 3, 10, and 11 T 3 & 4N/R35E. The property is approximately 45 miles west of Tonopah, Nevada

 

Between June and September, 2011 68 new lode claims were located. The claims cover the ground from which high-grade silver samples were taken. The geologic setting of the samples extends from the open pit mines controlled by Silver Standard Resources onto the LAG claims (Table 1 and Figure 2).

 

Claim  Date  Located  County   BLM-NMC  Number  
LAG  1  to  38  April  8,  2011  Esmeralda   1047475-1047512  
LAG  39  to  50  May  25,  2011  Esmeralda  &  Mineral   1051010-1051021  
LAG  50  to  66  June  4,  2011  Esmeralda  &  Mineral   1051022-1051037  
LAG  67  to  68  September  20,  2011  Esmeralda   1060537-1060538  

 

On September 27, 2011 the shares of National Graphite Corp (formerly Lucky Boy Silver Corp.) became Depository Trust Corp. (DTC) eligible for electronic transfer.

  

On May 25, 2011 we expanded our claims in the Silver Strike area from 12 to 68 unpatented claims renaming them the LAG claims.

  

Abandoned Projects

 

Chedic Graphite Property.

 

The Company had a 100% interest in and to the Chedic Graphite Property consisting of 20 U.C. Mineral Lode Claims in Township, 15 North, Range 19 East, Sections 25 & 26 Carson City, NV mining claims compromising approximately 400 acres. On Sept 17th 2012, the Company expanded its interests with the acquisition of 15 additional Lode Claims thus expanding the Chedic holdings to 700 acres.

 

Due to the delays encountered in its application to drill within the Chedic Voltaire lode claim, the Company has cancelled the drill program. On March 5, 2013, we submitted an “Intent to Operate” plan with the Humbolt-Toiyabe National Forestry Service, Elko District Office to drill five holes within the Chedic Voltaire lode claim block. In May 2013, the National Forestry Service determined that the Company submit a “Plan of Operations” to include an environmental impact study. In July, 2013 the Company completed its environmental impact study on the proposed drilling program and submitted a “Plan of Operations” for permitting approval.

 

With the project being tied up in red tape and substantial property payments coming due, the Board of Directors has decided to abandon the project. With the project being abandoned there are no further liabilities being incurred on this property.

5
 

  

  Black Butte Property

 

In a geological report compiled by Hunsaker dated May 2010, further exploration on the Black Butte project was justified, and defined by Hunsaker in their follow up work Summary Report and Update with Recommendations for the Candelaria Project, Esmeralda County, Nevada - December 2011 delivered to the Lucky Boy December 20th, 2011.

 

The Company did not renew the lease of the Black Butte property, but will continue its exploration and expansion of the Silver Strike properties and determine if there are commercially exploitable deposits of gold and silver.

With the project being abandoned there are no further liabilities being incurred on this property.

 

Quebec Graphite Property

 

On April 20, 2012, the Company entered into an agreement with Habitants Minerals Ltd. (“Habitants”) granting the Company the sole and exclusive right to purchase 100% right, title and interest in and to the applications and subsequent claims to be issued by Quebec Ministry of Resources and Fauna for the following applications:

 

The Quebec applications cover ground referred to in reports GM19842, GM35169, GM35267, GM19844, GM20308, GM13866, reports which report historic graphite occurrences on Lot 32 and Lot 33 Range 11 in Low Township, Lot 1 Range 2 in Suffolk Township, Lot 9 and Lot 16 Range 3 and Lot 10 Range 9 all in Clarendon Township, Lot 46 Range 11 in Low Township, and ground in Lochaber Township covering historic mag anomalies.

 

APPLICATION 1186716 (29 claims)

APPLICATION 1187995 (14 claims)

APPLICATION 1187994 (12 claims)

APPLICATION 1187992 (10 claims)

65 claims approx., 60 hectares each = 3900 hectares

 

The consideration for the transaction was payment by the Company to Habitants a total of Fifty Thousand United States Dollars (US$50,000.00) consisting of Twenty Five Thousand United States Dollars ($25,000.00) on the date of execution of this Agreement and Twenty Five Thousand United States Dollars ($25,000.00) upon the issuance of the claims in the Company’s name, and the issuance of 100,000 shares of the Company’s common stock within 15 days of the date of the closing of the transaction described in the Agreement. Upon the renewal date of the claims, the Company decided not to renew these claims. With the project being abandoned there are no further liabilities being incurred on this property.

 

Our Proposed Exploration Program – Plan of Operation

 

We will review the Summary Report and Update with Recommendations for the Candelaria Project, Esmeralda County, Nevada - December 2011 and proceed with exploration on the Silver Strike (Candelaria) project to determine if there are commercially exploitable deposits of gold and silver, and if we decide not to proceed, to seek other mineral exploration properties. As of February 28, 2014 he Silver Strike Property is the only property the Company is exploring.

 

We do not have any ores or reserves whatsoever at this time on our propertie.

 

Results of Operations

 

Our comparative periods for the period ended February 28, 2014 and May 31, 2013 are presented in the following discussion.

 

Since inception, we have used our common stock to raise money for our optioned acquisitions and for corporate expenses. Net cash provided by financing activities (less offering costs) from inception on October 19, 2006 to February 28, 2014, was $1,435,000, with $1,400,000 as proceeds received from sales of our common stock, $10,000 of contributed capital and $25,000 as proceeds from convertible note payable.

  

6
 

Three and Nine Months Ended February 28, 2014 and February 28, 2013.

 

Revenues

 

We did not generate any revenues from operations for the three and Nine month periods ended February 28, 2014 or 2013. To date, we have not generated any revenues from our mineral exploration business.

 

Expenses

 

The table below shows our operating results  for the three and Nine month periods ended February 28, 2014 and 2012.

 

   Nine  months  Nine  months
   Ended  Ended
   February 28, 2014  February 28, 2013
Professional  fees  $76,430   $75,348 
Depreciation   541    606 
Exploration  of  resource  property   33,624    99,846 
Impairment of mineral interests   582,820    —   
General  and  administrative   99,093    116,049 
Total  operating  expenses  $792,508   $291,849 

 

 During the nine month ended February 28, 2013 and 2014, Impairment of mineral interests is $0 and $582,820 due to mineral interest property, the Chedic Voltaire Graphite property abandoned on December 9, 2013

   Three  months  Three  months
   Ended  Ended
   February 28, 2014  February 28, 2013
Professional  fees  $26,888   $28,396 
Depreciation   137    202 
Exploration  of  resource  property   —      6,448 
Impairment of mineral interests   —      —   
General  and  administrative   26,140    41,660 
Total  operating  expenses  $53,165   $76,706 


Operating  expenses have and will vary from quarter to quarter based on the level of corporate activity, exploration operations and capital-raising. Operating expenses in the most recently completed quarter decreased relative to the comparable period of the prior year due primarily to the fact that we have significantly decreased the exploration expenses incurred. For the three months ended February 28, 2014 and 2013, General and administrative expenses decreased to $26,140 from $ 41,660 due to Director Fees and Investor Relation expenses accounted based on cash basis for the three month ended February 28, 2013

 

Other income/expenses for the three months ended February 28, 2014 include Gain (Loss) on derivative liability $4,931, Amortization of debt discount $(2,762) and Interest expense $(184). When compared to the previous three months ended February 28, 2013 amount is $0 for those expenses.

 

We continue to carefully control our expenses and overall costs as we move our business development plan forward. We do not have any employees and engages personnel through outside consulting contracts or agreements or other such arrangements, including for legal, accounting and technical consultants.

7
 

  

Plan of Operation and Anticipated Cash Requirements

 

On October 17, 2012 we announced that the Company had entered into an equity financing agreement for up to $2,500,000. Under the terms of the agreement, the Company may from time to time request a purchase of up to $250,000 per request at price of 10% discount to the average price of our shares over the previous five trading days. As part of the terms of the financing, management cancelled 8,000,000 of its common shares in order to minimize dilution as a result of this transaction.

 

Based on our current plan of operations, we do not have sufficient funds for the next twelve months, and we will require additional funds to continue our exploration operations.

 

Presently, our revenues are not sufficient to meet operating and capital expenses. We have incurred operating losses since inception, and this is likely to continue through fiscal 2013-2014. Management projects that we will require up to $1,410,000 to fund ongoing operating expenses and working capital requirements for the next 12 months, broken down as follows:

 

General  and  administrative  expenses  $80,000 
Future  property  acquisitions   180,000 
Working  capital   450,000 
Development  of  properties   700,000 
   $1,410,000 

  

Going Concern

 

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the annual financial statements for the year ended May 31, 2013, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional notes describing the circumstances that lead to this disclosure by our independent auditors. Our issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There are no assurances that we will be able to obtain further funds required for continued operations. We are pursuing various financing alternatives to meet immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it could be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our obligations as they come due.

 

Liquidity and Capital Resources

 

As of February 28, 2014, we have yet to generate any revenues.

 

Since inception, we have used our common stock and loans or advances from our officers and directors to raise money for our optioned acquisition and for corporate expenses.

 

Working Capital

 

As of February 28, 2014, we had $(36,955) in negative working capital.

 

   February 28, 2014  May  31, 2013
Current  Assets  $15,745    187,622 
Current  Liabilities   52,700    9,595 
Working  Capital  $(36,955)   178,027 

 

We have incurred recurring losses from inception. Our ability to meet our financial obligations and commitments is primarily dependent upon continued financial support of our shareholders, directors and the continued issuance of equity to new and existing shareholders. There are no agreements to supply working capital to the Company.

 

8
 

Cash Flows

 

   Nine months  Nine months
   Ended  Ended
   February 28, 2014  February 28, 2013
       
Net  cash  used  in  operating  activities  $(189,057)  $(260,743)
Net  cash  used  in  investing  activities   (7,820)   (92,478)
Net  cash  provided  by  financing  activities   25,000    500,000 
Net  increase  (decrease)  in  cash  $(171,877)  $146,779 

 

Net cash used in operating activities

 

Net cash used in operating activities from inception on October 19, 2006, to February 28, 2014 was $1,142,638. Net cash used in operating activities for the nine months ended February 28, 2014 and February 28, 2013 is $189,057 and $260,743. This negative cash flow from operations is due to the fact that the Company has not generated revenue to date.

 

Net cash used in investing activities

 

Net cash used in investing activities from inception on October 19, 2006, to February 28, 2014, was $276,617 as a result of the purchase of additional mining claims and computer equipment. The net decreased by $7,820 and $92,478 during the nine month ended February 28, 2014 and February 28, 2013 due to purchase of mineral interests.

 

Net cash provided by financing activities

 

Net cash provided by financing activities from inception on October 19, 2006, to February 28, 2014, was $1,435,000 as a result of gross proceeds received from sales of our common stock, capital contribution from Company officers, and proceeds from convertible notes payable. The net increased by $25,000 and $500,000 during the nine month ended February 28, 2014 due to proceeds from convertible notes payable and February 28, 2013 due to common stock issued for cash.

 

Inflation / Currency Fluctuations

 

Inflation has not been a factor during the nine months ended February 28, 2014. Although inflation is moderately higher than it was during 2013 the actual rate of inflation is not material and is not considered a factor in our contemplated capital expenditure program.

 

Subsequent Events

 

In accordance with ASC 855 Company management reviewed all material events through the date of this report and there are no material subsequent events to report.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable

9
 

 

ITEM 4. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

As of February 28, 2014, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective.

 

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Evaluation of Internal Control Over Financial Reporting

 

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of February 28, 2014. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Annual Report on Form 10-K that our internal control over financial reporting has not been effective.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board (“PCAOB”), a material weakness is a deficiency or combination of deficiencies that results more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of February 28, 2014:

 

i)    Lack of segregation of  duties.    At this  time,  our  resources  and  size  prevent  us  from  being  able  to  
employ  sufficient  resources  to  enable  us  to  have  adequate  segregation  of  duties  within  our  internal  
control  system.    Management will periodically re-evaluate this situation.

 

ii)    Lack of an independent audit committee.  Although we have  an  audit  committee  it  is  not  comprised  
solely  of  independent  directors.  We may establish  an  audit  committee  comprised  solely  of  independent 
directors  when  we  have  sufficient  capital  resources  and  working  capital  to  attract  qualified  independent  
directors  and  to  maintain  such  a  committee.

 

iii)    Insufficient number of independent directors.  At the present  time,  our  Board  of  Directors  does  not 
consist  of  a  majority  of  independent  directors,  a  factor  that  is  counter  to  corporate  governance  practices  
as  set  forth  by  the  rules  of  various  stock  exchanges.
iv)   

Lack of sufficient accounting expertise. We do not have any internal accounting staff with adequate knowledge of US GAAP accounting. We have not maintained adequate internal controls over financial reporting to ensure that we adopted accepted accounting policies with respect to routine matters, such as proper accounting and disclosure for related party transactions with our Chief Executive Officer. In particular we concluded that related party transactions with Wannigan Consulting Corp and Harbourtown Inc. (both companies controlled by our Chief Executive Officer) had not been properly disclosed in our prior SEC filings as related party transactions. Our prior Form 10-K filings did not disclose the proper amount of compensation paid to our CEO in the Form 10-K executive compensation table and these related party transactions were not disclosed in the financial statements and its accompanying footnotes in the Form 10-K filing. We will amend our prior Form10-K filing to properly disclose all related party transactions and update the Executive Compensation Table in the Forms 10-K

 

 

10
 

Our management determined that these deficiencies constituted material weaknesses. Due to a lack of financial resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until we acquire sufficient financing to do so. We will implement further controls as circumstances, cash flow, and working capital permit. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

 

CHANGES IN INTERNAL CONTROLS.

 

There was no change in our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

 

The Company has not taken any steps at this time to address these weaknesses but will formulate a plan before fiscal year ending May 31, 2014.

 

 

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. 

 

ITEM 1A. RISK FACTORS

 

Risks Associated With Our Business

 

We are an exploration stage company, lack a business history and have losses that we expect to continue into the future. If the losses continue we will have to suspend operations or cease functioning.

 

We are in the very early exploration stage and cannot guarantee that our exploration work will be successful or that any minerals will be found or that any production of minerals will be realized. The search for valuable minerals as a business is extremely risky. We have no business history upon which an evaluation of our future success or failure can be made. As of February 28, 2014 our net loss since inception was $2,721,764. Our ability to achieve and maintain profitability and positive cash flow is dependent upon:

 

  our ability to find a profitable exploration property;

 

  our ability to generate revenues; and

 

  our ability to reduce exploration costs.

 

Because of the speculative nature of exploration of mineral properties, we may never discover a commercially exploitable quantity of minerals, our business may fail and investors may lose their entire investment.

 

We can provide investors with no assurance that exploration on our properties will establish that commercially exploitable reserves of minerals exist on our property. Additional potential problems that may prevent us from discovering any reserves of minerals on our property include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. If we are unable to establish the presence of commercially exploitable reserves of minerals on our property our ability to fund future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment in our company.

 

11
 

Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, we face a high risk of business failure.

 

Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by us in the exploration of the mineral claim may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of our exploration do not reveal viable commercial mineralization, we may decide to abandon our claims. If this happens, our business will likely fail.

 

Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.

 

The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.

 

We have no known mineral reserves and we may not find any commercial quantities of graphite, gold or silver if we find graphite, gold or silver it may not be in economic quantities. If we fail to find any graphite, gold or silver or if we are unable to find graphite, gold or silver in economic quantities, we will have to suspend operations.

 

We have no known mineral reserves. Even if we find gold or silver, it may not be of sufficient quantity so as to warrant recovery. Additionally, even if we find gold or silver in sufficient quantity to warrant recovery it ultimately may not be recoverable. Finally, even if any gold or silver is recoverable, we do not know that this can be done at a profit. Failure to locate gold or silver in economically recoverable quantities will cause us to suspend operations.

   

The potential profitability of mineral ventures depends in part upon factors beyond the control of our company and even if we discover and exploit mineral deposits, we may never become commercially viable and we may be forced to cease operations.

 

The commercial feasibility of mineral properties is dependent upon many factors beyond our control, including the existence and size of mineral deposits in the properties we explore, the proximity and capacity of processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental regulation. These factors cannot be accurately predicted and any one or a combination of these factors may result in our company not receiving an adequate return on invested capital. These factors may have material and negative effects on our financial performance and our ability to continue operations.

 

We may be adversely affected by fluctuations in ore and precious metal prices.

 

The value and price of our shares of common stock, our financial results, and our exploration, development and mining activities, if any, may be significantly adversely affected by declines in the price of precious metals and ore. Mineral prices fluctuate widely and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of mineral producing countries throughout the world.

 

The prices used in making resource estimates for mineral projects are disclosed, and generally use significantly lower metal prices than daily metals prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated resource quantities, which are affected by a number of additional factors. For example, a 10% change in price may have little impact on the estimated resource quantities, or it may result in a significant change in the amount of resources.

12
 

 

Transportation difficulties and weather interruptions may affect and delay our proposed mining operations and impact our proposed business.

 

Our mineral properties are accessible by road. The climate in the area is hot and dry in the summer but cold and subject to snow in the winter, which could at times hamper accessibility depending on the winter season precipitation levels. As a result, our exploration plans could be delayed for several months each year.

 

Supplies needed for exploration may not always be available.

 

Competition and unforeseen limited sources of supplies needed for our proposed exploration work could result in occasional spot shortages of supplies of certain products, equipment or materials. There is no guarantee we will be able to obtain certain products, equipment and/or materials as and when needed, without interruption, or on favorable terms. Such delays could affect our proposed business plans.

 

Management will devote only a limited amount of time to Lucky Boy’s business. Failure of our management to devote a sufficient amount of time to our business plans may adversely affect the success of our business.

 

Mr. Kenneth B. Liebscher will be devoting approximately 20 hours per week to Lucky Boy’s business. Failure of our management to devote a sufficient amount of time to our business plans may adversely affect the success of our business.

 

Management lacks formal training in mineral exploration.

 

Our officers and directors have no professional accreditation or formal training in the business of exploration. With no direct training or experience in these areas our management may not be fully aware of many of the specific requirements related to working within this industry. Decisions so made without this knowledge may not take into account standard engineering management approaches that experienced exploration corporations commonly make. Consequently, our business, earnings and ultimate financial success could suffer irreparable harm as a result of management’s lack of experience in the industry. Thus, we will retain such technical experts as are required to provide professional and technical guidance.

  

We require substantial funds merely to determine if mineral reserves exist on our mineral properties.

 

Any potential development and production of our exploration properties depends upon the results of exploration programs and/or feasibility studies and the recommendations of duly qualified engineers and geologists. Such programs require substantial additional funds. Any decision to further expand our plans on these exploration properties will involve the consideration and evaluation of several significant factors including, but not limited to:

 

  Costs of bringing the property into production including exploration work, preparation of production feasibility studies and construction of production facilities;

 

  Availability and costs of financing;

 

  Ongoing costs of production;

 

  Market prices for the products to be produced;

 

  Environmental compliance regulations and restraints; and

 

  Political climate and/or governmental regulation and control.

 

13
 

Risks Associated With Our Common Stock

 

We do not intend to pay dividends on any investment in the shares of stock of our company.

 

We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.

 

Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and may experience further dilution.

 

We are authorized to issue up to 499,000,000 shares of common stock, of which 68,669,881 shares are issued and outstanding as of March 7, 2014 and 1,000,000 shares of preferred stock, of which 675,000 shares are issued and outstanding as of March 7, 2014. Each share of preferred stock is convertible into 100 shares of common stock (1:100) and each share of preferred stock is entitled to 100 votes and thus the conversion of our preferred stock would result in significant dilution to holders of our common stock. Our board of directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.

 

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

 

Our stock is a penny stock. Trading of our stock may be restricted by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.

 

Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

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FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

 

Risks Related To Our Financial Results and Need For Additional Financing

 

Our auditors’ reports contain a statement that our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern.

 

Our independent registered public accountants have stated in their report, included in this annual report that our significant operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We had net losses of $790,523 and $291,849, respectively, for the nine months ended February 28, 2014 and 2013. We will be required to raise substantial capital to fund our capital expenditures, working capital and other cash requirements since our current cash assets are exhausted. We are currently searching for sources of additional funding, including potential joint venture partners, while we continue the initial exploration phase on our mining claims. The successful outcome of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.

   

We will need additional capital to achieve our current business strategy and our inability to obtain additional financing will inhibit our ability to expand or even maintain our research, exploration and development efforts.

 

In addition to our current accumulated deficit, we expect to incur additional losses in the foreseeable future. Until we are able to determine if there are mineral deposits available for extraction on our properties, we are unlikely to be profitable. Consequently, we will require substantial additional capital to continue our exploration and development activities. There is no assurance that we will not incur additional and unplanned expenses during our continuing exploration and development activities. When additional funding is required, we intend to raise funds either through private placements or public offerings of our equity securities. There is no assurance that we will be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements. To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.

 

If we are unable to secure adequate sources of funds, we may be forced to delay or postpone the exploration, development and research of our properties, and as a result, we might be required to diminish or suspend our business plans. These delays in development would have an adverse effect on our ability to generate revenues and could require us to possibly cease operations. In addition, such inability to obtain financing on reasonable terms could have a negative effect on our business, operating results or financial condition to such extent that we are forced to restructure, file for bankruptcy protection, sell assets or cease operations, any of which could put your investment dollars at significant risk.

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We are incurring increased costs as a result of being a publicly-traded company.

 

As a public company, we incur significant legal, accounting, and other expenses that we would not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, has required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have adopted policies regarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. These new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs and/or whether we will be able to raise the funds necessary to meet the cash requirements for these costs.

 

Because we may never earn revenues from our operations, our business may fail and then investors may lose all of their investment in our company.

 

We have no history of revenues from operations. We have never had significant operations and have no significant assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and is in the exploration stage. The success of our company is significantly dependent on the uncertain events of the discovery and exploitation of mineral reserves on our properties or selling the rights to exploit those mineral reserves. If our business plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all of their investment in our company.

 

Prior to completion of the exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our company.

   

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not Applicable

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable

ITEM 5. OTHER INFORMATION

 

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None.


ITEM 6. EXHIBITS AND REPORTS ON FORM 10-K

 

Exhibit  No.  Description
 3.1   Articles of  Incorporation  filed  as  an  exhibit  to  our  Form  SB-2  filed  on  October  12,  2007
 3.2   Bylaws filed  as  an  exhibit  to  our  Form  SB-2  filed  on  October  12,  2007
 3.3   Filed Articles of Conversion and Corporate  Charter  issued  by  the  Secretary  of  State  of  the  State  of Nevada  filed  as  an  exhibit  to  our  Form  8-K  on  April  5,  2011
 3.4   Filed Amended Articles changing name to National Graphite Corp. filed as an exhibit  to  our 
Form  8K  on  9/04/12.
 10.1   Form of Private Placement subscription agreement attached as an exhibit to  our  Form  SB-2 filed  on October  12,  2007
 10.2   Escrow Agreement dated November 25,  2008  between  Ian  Jackson,  Sierra  Ventures  Inc.  and  Harcourt  Chan  filed  as  an  exhibit  to  our  Form  S-1/A  filed  on  January  14,  2009
 10.3   Form of  Private  Placement  subscription  agreement  filed  as  an  exhibit  to  our  Form  8-K  filed  on 
December  31,  2009
 10.4   Letter Agreement dated February 8, 2010  between  Ken  Liebscher,  Monte  Cristo  Projects  LLC  and  Alan Chambers  filed  as  an  exhibit  to  our  current  report  on  Form  8-K  filed  on  March  1,  2010
 10.5   Assignment Agreement dated February 23,  2010  with  Ken  Liebscher  filed  as  an  exhibit  to  our 
current  report  on  Form  8-K  filed  on  March  1,  2010
 10.6   Share Issuance  Agreement  dated  October  25,  2010  between  Lucky  Boy  Silver  Corp.  and  Cardinal  
Capital  Holdings  Limited  (incorporated  by  reference  to  an  exhibit  to  our  current  report  on  Form  8-K  filed  October  29,  2010)
 10.7   Investor Relations  Agreement  dated  December  31,  2010  with  International  IR,  Inc.  (incorporated  by
reference  to  an  exhibit  to  our  current  report  on  Form  10Q  filed  January  17,  2012)
 

10.8

 

10.9

   Share Issuance  Agreement  dated  October  16,  2012  between  National  Graphite  Corp. and Calypso  
Financial  Limited  with  addendum.
 
 Election of director Howard Bouch. (incorporated by reference to an exhibit to our current report on Form 8-K filed November 12, 2012.)
 10.10   Code  of  Ethics  filed  as  an  exhibit  to our Form SB-2 filed on October 12, 2007
 31.1*  Certification Pursuant to Section 302 of  the Sarbanes-Oxley Act Of 2002
 31.2*  Certification Pursuant to Section 302 of  the Sarbanes-Oxley Act Of 2002
 32.1*  Certification Pursuant to Section 906 of  the Sarbanes-Oxley Act Of 2002
 99.0    Form 14c authorizing change in Company shares authorized from 500,000,000 common to 499,000,000 common and 1,000,000 preferred with conversion and voting rights of 1:100 filed on Form  8-K filed  on  December  27,  2010
 99.1   Purchase Agreement  with  Habitant  Minerals  filed  as  an  exhibit  to  our  current  report  on  Form  8K 
filed  on  April  23,  2012.
 99.2   Purchase Agreement  with  GeoXplor Inc.  filed  as  an  exhibit  to  our  current  report  on  Form  8K  filed  on  May  02,  2012.
 99.3*  Consulting Agreement with Harbortown Inc.


*attached herewith 

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

NATIONAL GRAPHITE CORP.

(Registrant)

 

Date: April 18, 2014

 

By:  /s/  Kenneth  Liebscher   By: /s/  FortunatoVillamagna
  KENNETH B.  LIEBSCHER,      DR.  FORTUNATO  VILLAMAGNA, 
  President,  Chief  Executive  Officer      Secretary, Director
 

Principal  Executive  Officer 

 

/s/ Howard Bouch

Treasurer, Chief Financial Officer,

Director

 

 

     
         

 

  

  

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