U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Mark One

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to _______

 

Commission File No. 000-54665

 

WESTERN GRAPHITE INC.

 (Exact name of registrant as specified in its charter)

 

Nevada (State or Other Jurisdiction of Formation or Organization)

1000 (Primary Standard Industrial Classification Number)

20-8055672  (IRS Employer Identification Number)

 

1045 East Washington Street

Monticello, FL 32344

850-270-2808

(Address and telephone number of principal executive offices)

 

Prepared By:

Sunny J. Barkats, Esq.

JS Barkats, PLLC

18 East 41^st Street, 14^th Floor

New York, NY 10017

P: (646) 502-7001

F: (646) 607-5544

www.JSBarkats.com

 

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ¨   Nox

 

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 ¨   Nox

 

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

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No x

 

Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years: N/A

 

Indicate by checkmark whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court.  Yes¨  Nox

 

Applicable Only to Corporate Registrants:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:  140,596,667 shares as of January 8, 2015.

 

 

WESTERN GRAPHITE INC.

 

FORM 10-Q

 

SEPTEMBER 30, 2014

 

INDEX

 

PART I—	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II—	OTHER INFORMATION	22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Funds	22
Item 3.	Defaults upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	22
	SIGNATURES	23

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The un-audited financial statements for the quarter ended September 30, 2014 immediately follow.

 

  

Western Graphite, Inc.

(formerly Lucky Strike Explorations, Inc.)

CONDENSED BALANCE SHEETS

 

		September 30,				December 31,
		2014				2013
		(Unaudited)				(Restated)
ASSETS
CURRENT ASSETS
Cash		$	5,732			$	18,314
Prepaid expenses			206,871				-
Investments, net			-				986
Total Current Assets			212,603				19,300
Property and equipment, net			-				-
TOTAL ASSETS		$	212,603			$	19,300
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	550			$	-
Accrued expenses - related party			20,462				-
Convertible notes payable, net			151,586				-
Derivative liabilities			1,804,275				-
Loans payable - related parties			41,125				37,325
Accrued interest			25,882				7,795
Note payable - related party			15,000				-
Notes payable			150,000				150,000
Total Current Liabilities			2,208,880				195,120
LONG TERM LIABILITIES
Note payable - related party			-				15,000
TOTAL LIABILITIES			2,208,880				210,120
Commitments and contingencies			-				-
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 par value; 750,000,000 shares authorized, 138,166,667 and 71,666,667 shares issued and outstanding, respectively			138,167				71,667
Additional paid-in capital			6,780,633				6,817,333
Accumulated deficit			(8,915,077	)			(7,079,820	)
TOTAL STOCKHOLDERS' DEFICIENCY			(1,996,277	)			(190,820	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY		$	212,603			$	19,300

 

The accompanying notes are an integral part of these unaudited condensed financial statements

 

  

Western Graphite, Inc.

(formerly Lucky Strike Explorations, Inc.)

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
						(Restated)								(Restated)
REVENUES
Revenues		$	-			$	-			$	-			$	-
TOTAL REVENUES			-				-				-				-
OPERATING EXPENSES
Impairment of investments and mining properties			-				14,014				-				6,514,014
General and administrative expenses			152,877				326,039				206,209				367,355
TOTAL OPERATING EXPENSES			152,877				340,053				206,209				6,881,369
LOSS FROM OPERATIONS			(152,877	)			(340,053	)			(206,209	)			(6,881,369	)
OTHER EXPENSE
Interest expense			(8,719	)			(3,315	)			(18,687	)			(4,014	)
Change in fair value of derivative liabilities			(1,256,750	)			-				(1,524,624	)			-
Amortization of debt discount			(55,442	)			-				(85,737	)			-
TOTAL OTHER EXPENSE			(1,320,911	)			(3,315	)			(1,629,048	)			(4,014	)
NET LOSS		$	(1,473,788	)		$	(343,368	)		$	(1,835,257	)		$	(6,885,383	)
Basic and diluted loss per share		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	(0.10	)
Weighted average number of common shares outstanding			103,253,624				71,494,565				82,311,356				68,071,429

 

The accompanying notes are an integral part of these unaudited condensed financial statements

 

 

Western Graphite, Inc.

(formerly Lucky Strike Explorations, Inc.)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended
		September 30,
		2014				2013
						(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1,835,257	)		$	(6,885,383	)
Adjustment to reconcile net loss to net cash used in operating activities:
Stock issued for services			19,800				-
Stock based compensation			-				290,000
Impairment on investment			986				1,514,014
Impairment on asset purchase			-				5,000,000
Change in fair value of derivative			1,524,624				-
Amortization of debt discount			85,737				-
Convertible promissory notes issued for services			20,000				-
Amortization of prepaid consulting fees			88,629				-
Changes in operating assets and liabilities:
Prepaid expenses			-				3,466
Accounts payable and accrued expenses			550				120
Accrued expenses - related party			20,462				-
Accrued interest			18,087				4,014
NET CASH USED IN OPERATING ACTIVITIES			(56,382	)			(73,769	)
CASH FLOWS FROM INVESTING ACTIVITIES:			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable			-				150,000
Proceeds from convertible notes payable			30,000				-
Proceeds from loans payable - related parties			3,800				6,000
Issuance of common stock for cash			10,000				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			43,800				156,000
Net (decrease) increase in cash			(12,582	)			82,231
Cash, beginning of year			18,314				73
Cash, end of year		$	5,732			$	82,304
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	600			$	-
Cash paid for income taxes		$	-			$	-
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for investment		$	-			$	1,500,000
Common stock issued for asset purchase		$	-			$	5,000,000
Promissory note issued for acquisition of mining deeds		$	-			$	15,000
Debt discount on convertible promissory notes		$	279,651			$	-
Convertible promissory notes issued for prepaid consulting fees		$	295,500			$	-

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

NOTE 1. DESCRIPTION OF BUSINESS

 

Western Graphite Inc. (f/k/a Lucky Strike Explorations Inc.) (the “Company”) was incorporated under the laws of the State of Nevada on December 15, 2006. The Company was formed to engage in the acquisition, exploration and development of natural resource properties.

 

On August 26, 2014, the Chairman and Chief Executive Officer (“CEO”) of the Company, Lauren Notar, resigned and David Wimberly became the new Chairman and CEO of the Company.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING

 

The Company’s policy is to maintain its books and prepare its financial statements on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s 2013 Form 10-K/A filed with SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 as reported in the Form 10-K/A have been omitted.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

The Company considers highly liquid investments with original maturities of three months or less when purchased as cash equivalents. At times throughout the year, the Company might maintain bank balances that may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions, and has not experienced any losses in such accounts. As of September 30, 2014 and December 31, 2013, the Company did not have bank balances that exceeded the FDIC insured limits.

 

EARNINGS PER SHARE

 

The Company computes basic and diluted earnings per share amounts in accordance with Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share. Basic earnings 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 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.

 

For the nine months ended September 30, 2014 and 2013, the effect of common stock equivalents has been excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

The Company currently has convertible debt, which, if converted, as of September 30, 2014, would have caused the Company to issue diluted shares totaling 236,914,498. The Company had no potentially dilutive commitments to issue common stock as of September 30, 2013.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company follows paragraph 820-10-35-37 of the Financial Accounting Standards Board (“FASB”) ASC (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB ASC for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

Level 1		Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2		Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3		Pricing inputs that are generally unobservable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts reported in the Company’s financial statements for cash, prepaid expenses, other current assets, accounts payable and accrued expenses, and loans payable approximate their fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported in the balance sheet for its notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

It is not, however, practical to determine the fair value of advances from stockholders, if any, due to their related party nature.

 

The following table presents assets and liabilities that are measured and recognized at fair value as of September 30, 2014, on a recurring basis:

 

Assets and liabilities measured at fair value on a recurring basis at September 30, 2014		Level 1				Level 2				Level 3				Total Carrying Value
Derivative liabilities		$	-			$	-			$	(1,804,275	)		$	(1,804,275	)

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

CONVERTIBLE INSTRUMENTS

 

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities”.

 

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.  Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument”.

 

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

 

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.

 

LONG-LIVED ASSETS

 

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s long-lived assets may be impaired. An asset’s value may be impaired only if management’s estimate of the aggregate future cash flows, on an undiscounted basis, to be generated by the asset are less than the carrying value of the asset.

 

If impairment has occurred, the loss is measured as the excess of the carrying amount of the asset over its fair value. The Company’s estimates of aggregate future cash flows expected to be generated by each long-lived asset are based on a number of assumptions that are subject to economic and market uncertainties. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved. During the nine months ended September 30, 2014 and 2013, total asset impairment was $0 and $5,000,000, respectively.

 

FAIR VALUE MEASUREMENT

 

The carrying amounts reported in the Company’s financial statements for prepaid expenses, accounts payable and accrued expenses, and loans payable approximate their fair value because of the immediate or short-term nature of these financial instruments. The carrying amounts reported in the balance sheet for its notes payable approximates fair value as the contractual interest rate and features are consistent with similar instruments of similar risk in the market place.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

STOCK BASED COMPENSATION

 

On July 30, 2013, the Company’s Board of Directors approved the adoption of the 2013 Stock Option Plan, which permits the Company to issue up to 10,665,000 shares of common stock to directors, officers, employees and consultants upon the exercise of stock options granted under the 2013 Stock Option Plan.

 

The Company follows ASC 718, “Compensation – Stock Compensation”, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired.  Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights.  Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity–based Payments to Non-Employees”.  Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable:  (a) the goods or services received; or (b) the equity instruments issued.  The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

Through newly issued restricted common stock, we pay qualified contractors and advisors common shares in lieu of compensation for services provided including business development, management, technology development, consulting, legal services and accounting services.

 

For the nine months ended September 30, 2014 and 2013, the Company had stock based compensation totaling $0 and $290,000, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In June 2014 the FASB issued Accounting Standards Update (“ASU”) 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). The amendments in ASU 2014-10 remove the definition of a development stage entity from the master glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

 

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations.

 

The Company has elected to adopt the provisions of ASU 2014-10 for the fiscal year ending December 31, 2013 and the current nine months ending September 30, 2014. The adoption of ASU 2014-10 did not have a significant impact on our results of operations, financial condition or cash flow.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

NOTE 3.  GOING CONCERN

 

The Company’s unaudited condensed financial statements have been 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 incurred net losses of $1,835,257 and $6,885,383 during the years ended September 30, 2014 and 2013, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of September 30, 2014, and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of September 30, 2014 and December 31, 2013, the Company had working capital deficits of $1,996,277 and $175,820, respectively. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to seek equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

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

 

NOTE 4.  INVESTMENT IN MINING PROPERTIES

 

On February 27, 2013, the Company acquired all the rights, title and interest in certain lands covering approximately 495 hectares known as the Amorf Graphite property located in the district of Bozyazi, in the village of Cabukkoyaoi, Mersin Province, Turkey.  The Company acquired the rights to the property pursuant to an agreement with Dr. Ahment Unsai in exchange for 3,000,000 shares, of the Company’s common stock valued at $0.50 per shares for a total of $1,500,000, along with two future payments totaling $1,500,000. As of February 27, 2013, the Company does not have control of the property and therefore has accounted for the acquisition as an investment. The Company no longer is pursuing the purchase of the Amorf Graphite property, and thus the remaining terms of the deal have nullified. The Company has determined that the fair market value of the Amorf Graphite property cannot be reliably determined and therefore it has deemed a total impairment of $1,500,000 and corresponding impairment expense on the rights to the property during the nine months ended September 30, 2013.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

On March 4, 2013, the Company entered into an agreement with Seyit Kucuk for the acquisition of five claims located in the Omineca Mining Division of the Province of British Columbia.  The claims, which cover approximately 2,524 hectares, are known as the Pure Flake Graphite property and are subject to a 2% net milling royalty.  In consideration for the acquisition of these claims, the Company issued 10,000,000 shares, valued at $0.50 per shares for a total of $5,000,000, of the company’s restricted common stock. The Company has determined that the fair market value of the Pure Flake Graphite property cannot be reliably determined and therefore it has deemed a total impairment of $5,000,000 and corresponding impairment expense on the property during the nine months ended September 30, 2013.

 

On August 7, 2013, the Company acquired mining claims for mineral tenures which cover approximately 2,464 hectares, in British Columbia, Canada, from a related party through the issuance of a $15,000 unsecured promissory note. The Company has determined that the fair market value of the deeds cannot be reliably determined and the only value that can be supported for these deeds is the acquisition fee price paid initially by the original owner of the deeds. The acquisition price at the time of original purchase on March 29, 2012 was $0.40 per hectare, or $986, resulting in an impairment of $14,014 during the nine months ended September 30, 2013. On July 28, 2014, the mining claims expired, resulting in the Company impairing the remaining $986, and writing off and reversing the full value of the mining claims and the full impairment of $15,000.

 

NOTE 5. ACCRUED EXPENSES – RELATED PARTY

 

As stated in the employment agreement for David Wimberly, Chairman and CEO of the Company, on July 1, 2014, compensation in the amount of $7,500, along with $1,200 in reimbursable rent paid on behalf of the Company, is being accrued monthly for a term of five years. From July 1, 2014 through August 25, 2014, Mr. Wimberly was appointed as Chief Operating Officer of the Company, until he was appointed CEO on August 26, 2014. As of September 30, 2014, the balance in accrued expenses – related party is $20,462.

 

NOTE 6. LOANS PAYABLE – RELATED PARTIES

 

On September 22, 2014, the Company received proceeds of $3,800 from the CEO of the Company, through a business entity in which the CEO is a partner in, for working capital. The loan is non-interest bearing and is due on demand.

 

As of September 30, 2014, $37,325 is due to a former officer and director of the Company and is non-interest bearing with no specific repayment terms. The Company plans to repay this loan through stock issuances, or through funding from the next round of financing.

 

As of September 30, 2014 and December 31, 2013, the balance of loans payable – related parties is $41,125 and $37,325, respectively.

 

NOTE 7. NOTE PAYABLE – RELATED PARTY

 

On August 7, 2013, the Company issued an unsecured promissory note for $15,000 to the former CEO of the Company in exchange for the acquisition of mining deeds. There is no interest associated with this note and the note matures on August 7, 2015.

 

NOTE 8. NOTES PAYABLE

 

On May 10, 2013, the Company issued an unsecured promissory note for $50,000 to an unrelated third party for cash. The note accrues interest at 10% per annum and is due on demand. Accrued interest was $6,959 as of September 30, 2014.

 

 

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

On July 18, 2013, the Company issued an unsecured promissory note for $100,000 to an unrelated third party for cash. The note accrues interest at 10% per annum and is due on demand.  Accrued interest was $12,055 as of September 30, 2014.

 

NOTE 9. CONVERTIBLE NOTES PAYABLE

 

At September 30, 2014 and December 31, 2013 convertible notes and debentures consisted of the following:

    

		September 30, 2014				December 31, 2013
Convertible notes payable		$	345,500			$	-
Unamortized debt discount			(193,914	)			-
Carrying amount		$	151,586			$	-

 

On April 3, 2014, the Company issued a convertible promissory note for $63,000 to an unrelated party for consulting services. The note accrues interest at 12% per annum, compounded monthly and matures on October 3, 2014. In the event of default, any overdue amounts will accrue interest at 20% per annum, compounded monthly. The principal balance of the note is convertible to common stock at the lower of either $0.03, or 50% of the lowest traded price 20 days prior to conversion, and is limited to 4.99% of the Company’s outstanding common stock at the time of conversion. All interest that accrues is convertible at $0.0001. The Company determined the note qualified for derivative liability treatment under ASC 815, “Derivatives and Hedging” (“ASC 815”). The Company recorded initial derivative liabilities of $102,456 on the date the note was executed, and a debt discount of $63,000, resulting in excess derivative liability expense of $39,456.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $61,967 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $1,033. Accrued interest was $3,843 as of September 30, 2014.

 

On May 1, 2014, the Company issued a convertible promissory note for $50,000. The note was issued for $30,000 in cash and $20,000 in payments towards services rendered. The note is due on demand and accrues interest at a rate of 8% per annum. In the event of default, the interest rate increases to 22% per annum on a simple interest basis. The note is convertible at a rate of 10% of the average of the three lowest trading prices for the ten days prior to conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $502,678 on the date the note was executed.   See Note 10 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $1,677 as of September 30, 2014.

 

On August 26, 2014, the Company issued a convertible promissory note for $120,000 for consulting services. The note is due on August 26, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of the note is convertible at X-(X*25%), where X is the lesser of the closing price on date of conversion, or the closing price on date the note was executed multiplied by 1.25, and can be converted at any time at the option of the holder of the note. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $106,408 on the date the note was executed, and a debt discount of $106,408.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $10,203 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $96,204. Accrued interest was $1,185 as of September 30, 2014.

 

On September 3, 2014, the Company issued a convertible promissory note for $60,000 for consulting services. This note is due on March 3, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of this note is convertible at the lesser of $0.0037 or the closing price on the date of conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $57,743 on the date the note was executed, and a debt discount of $57,743.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $8,614 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $49,130. Accrued interest was $460 as of September 30, 2014.

 

  

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

On September 10, 2014, the Company issued a convertible promissory note for $52,500 for consulting services. The note is due on April 10, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of this note is convertible at the lesser of $0.0025 or the closing price on the date of conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $77,675 on the date the note was executed, and a debt discount of $52,500, resulting in excess derivative liability expense of $25,175.  See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $4,953 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $47,547. An interest payment of $600 was made toward the balance of accrued interest, which exceeds the amount accrued through September 30, 2014. As a result, accrued interest was ($298) as of September 30, 2014.

 

NOTE 10. DERIVATIVE LIABILITY

 

The Company follows ASC 815, which defines determining whether an instrument (or embedded feature) is solely indexed to an entity’s own stock. In accordance with ASC 815, the Company has bi-furcated the conversion feature of the note and recorded a derivative liability.

 

ASC 815 requires Company management to assess the fair market value of certain derivatives at each reporting period and recognize any change in the fair market value as another income or expense item. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liabilities associated with convertible notes payable.

 

At origination, the Company valued the conversion features using the following assumptions: dividend yield of zero, years to maturity of 0.5 to 1.00 year, average risk free rates over between 0.10% and 0.12%, and annualized volatility of between 190.42% and 271.67% to record derivative liabilities of $846,959.

 

At September 30, 2014, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.42 and 1.00 years, a risk free rate at 0.13%, and annualized volatility at 271.67%, and determined that, during the period ended September 30, 2014, the Company’s derivative liability increased to $1,804,275. The Company recognized a corresponding loss of $1,231,577 and $957,316, respectively on derivative liability in conjunction with this revaluation during the three and nine months ended September 30, 2014, which combined with derivative liability expenses in excess of debt discount of $25,175 and $567,308 resulted in a total derivative liability expense of $1,256,750 and $1,524,624, respectively for the three and nine months ended September 30, 2014.

 

The debt derivative liabilities is measured at fair value using quoted market prices and estimated volatility factors based on historical prices for the Company’s common stock and are classified within Level 3 of the valuation hierarchy. 

 

  

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2014:

 

		Debt Derivative Liability
Balance, December 31, 2013		$	-
Additions			846,959
Change in fair value of derivative liabilities			957,316
Balance, September 30, 2014		$	1,804,275

 

NOTE 11. STOCKHOLDERS’ EQUITY

 

The stockholders equity section of the Company contains the following classes of capital stock as of September 30, 2014 and December 31, 2013: Common Stock, $0.001 par value: shares issued and outstanding of 138,166,667 and 71,666,667, respectively.

 

Transactions, other than employee’s stock issuance, are in accordance with ASC 505.  These issuances shall be accounted for based on the fair value of the consideration received.  Transactions with employee’s stock issuance are in accordance with ASC 718.  These issuances shall be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, or whichever is more readily determinable.

 

On February 27, 2013 the Company effected a 10 for 1 forward split of its issued and outstanding share capital such that everyone’s share of common stock issued and outstanding prior to the split was exchanged for ten post-split shares of common stock.  The number of shares referred to in these financial statements reflect a post-split number of shares. The Company’s post-split authorized capital has increased to 750,000,000 shares of common stock with a par value of $0.001 per share.  All share amounts have been retroactively adjusted for all periods presented.

 

On March 6, 2013 the Company issued a total of 3,000,000 shares of common stock to one individual for consideration for the rights to purchase the Amorf Graphite property, valued at $0.50 per share for a total of $1,500,000.  

 

On March 6, 2013 the Company issued a total of 10,000,000 shares of common stock to one individual for the acquisition of the Pure Flake property, valued at $0.50 per share for a total of $5,000,000.  

 

On July 1, 2013, the Company issued a total of 500,000 shares of common stock, valued at $0.58 per share totaling $290,000, to two unrelated third parties as stock based compensation.

 

On November 25, 2013, the Company issued a total of 166,667 shares of common stock, valued at $0.15 per share totaling $25,000, to the former CEO of the Company for services rendered.

 

On August 15, 2014, the Company issued 62,000,000 shares of common stock, valued at $0.0002 per share totaling $10,000 to a related party, for cash.

 

In addition, in a private sale, on July 29, 2014, Lauren Notar, former Chief Executive Officer, sold to the Guelph Partners, LLC 10,000,000 shares of common stock out of her personal ownership which, when combined with the Stock Purchase Agreement of August 20, 2014, grants the Purchaser an aggregate of 72,000,000 shares, representing 54% of the issued and outstanding shares of the Company, on a fully-diluted basis.

 

On September 18, 2014, the Company issued 4,500,000 shares of common stock, valued at $0.0044 per share totaling $19,800 to an unrelated third party for legal services rendered.

 

  

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Unaudited Condensed Financial Statements

For the Nine Months Ended September 30, 2014 and 2013

 

NOTE 12. SUBSEQUENT EVENTS

 

On November 13, 2014, the Company issued 2,430,000 shares of common stock to a related party for consulting services regarding the financing and management of the Company’s business.

 

 

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

 

Forward Looking Statements

 

This quarterly report on Form 10-Q and other reports filed by Western Graphite Inc. (“we,” “us,” “our,” or the “Company”) from time to time with the SEC contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

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

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates. This discussion and analysis should be read in conjunction with the Company’s financial statements and accompanying notes to the financial statements for the nine months ended September 30, 2014.

 

This report contains forward-looking statements that involve risk and uncertainties.  We use words such as “anticipate”, “believe”, “plan”, “expect”, “future”, “intend”, and similar expressions to identify such forward-looking statements.  Investors should be aware that all forward-looking statements contained within this report are good faith estimates of management as of the date of this report and actual results may differ materially from historical results or our predictions of future results.

 

Results of Operations for the Three Months Ended September 30, 2014

 

Revenue:

 

We have generated no revenues to date.  

 

Operating Expenses:

 

Impairment of investments and mining properties was $0 for the three months ended September 30, 2014 a decrease of $14,014 or 100.0% from $14,014 for the three months ended September 30, 2013. The decrease is primarily due to a $14,014 impairment of assets in 2013 related to the mining properties.

 

General and administrative expenses were $152,877 for the three months ended September 30, 2014, a decrease of $173,162, or 53.1%, from $326,039 for the three months ended September 30, 2013. The decrease is primarily due to a $290,000 decrease in stock based compensation, offset by an increase in professional fees of $105,347, an increase in officer compensation of $7,534, and an increase in administrative expenses of $3,957.

 

 

Other Expenses:

 

Other expenses were $1,320,911 for the three months ended September 30, 2014, an increase of $1,317,596, or 39746.5%, from $3,315 for the three months ended September 30, 2013. The increase is primarily due to the change in derivative liabilities of $1,256,750, amortization of debt discount of $55,442, and an increase in accrued interest on notes payable of $5,404.

 

Net Loss:

 

As a result of the above factors, we recognized net loss of $1,473,788 for the three months ended September 30, 2014, as compared to a net loss of $343,368 for the three months ended September 30, 2013, an increase of $1,130,420, or 329.2%.

 

Results of Operations for the Nine Months Ended September 30, 2014

 

Revenue:

 

We have generated no revenues to date.  

 

Operating Expenses:

 

Impairment of investments and mining properties was $0 for the nine months ended September 30, 2014, a decrease of $6,514,014, or 100.0%, from $6,514,014 for the nine months ended September 30, 2013. The decrease is primarily due to a $6,514,014 impairment of assets in 2013 related to the mining properties.

 

General and administrative expenses were $206,209 for the nine months ended September 30, 2014, a decrease of $161,146, or 43.9%, from $367,355 for the nine months ended September 30, 2013. The decrease is primarily due to a $290,000 decrease in stock based compensation, a $12,277 decrease in geology service fees and a decrease in administrative expenses of $2,598, offset by an increase of $136,445 for professional fees, and an increase in officer compensation of $7,284.

 

Other Expenses:

 

Other expenses were $1,629,048 for the nine months ended September 30, 2014, a decrease of $1,625,034, or 40484.2%, from $4,014 for the nine months ended September 30, 2013. The decrease is primarily due to a change in derivative liabilities of $1,524,624, amortization of debt discount of $85,737 and an increase in accrued interest on notes payable of $14,673.

 

Net Loss:

 

As a result of the above factors, we recognized net loss of $1,835,257 for the nine months ended September 30, 2014, as compared to a net loss of $6,885,383 for the nine months ended September 30, 2013, a decrease of $5,050,126, or 73.3%.

 

Liquidity and Capital Resources

 

As of September 30, 2014, the Company had a stockholders’ deficit of $1,996,277. For the nine months ended September 30, 2014 and 2013, the Company had a net loss of $1,835,257 and $6,885,383, respectively. At September 30, 2014, the Company had working capital deficit of $1,996,277 compared to $175,820 at December 31, 2013.

 

Net cash used in operating activities was $56,382 for the nine months ended September 30, 2014, compared to net cash used in operating activities of $73,769 for the nine months ended September 30, 2013. Along with the Company’s net loss of $1,835,257, the decrease of $17,387 for net cash used in operating activities was primarily due to decrease in stock based compensation of $290,000, and an impairment of investments and mining properties of $6,514,014 in 2013, along with increase common stock issued for services of $19,800, a change in derivative liabilities of $1,524,624, amortization of debt discount of $85,737, convertible promissory notes issued for services of $20,000, amortization of prepaid expenses of $88,629, an increase in related party accrued expenses of $20,462, and an increase in accrued interest of $18,087 in 2014.

 

 

Net cash used in investing activities was $0 for the nine months ended September 30, 2014 and 2013.

 

Net cash provided by financing activities amounted to $43,800 for the nine months ended September 30, 2014, compared to $156,000 net cash provided by financing activities for the nine months ended September 30, 2013 representing a decrease of $112,200.  This was due to proceeds from notes payable of $150,000 and proceeds from a related party loan payable of $6,000 in 2013, as compared to proceeds from convertible notes payable of $30,000, proceeds from a related party loan payable of $3,800, and an issuance of common stock for cash of $10,000 in 2014.

 

Going Concern

 

The Company’s unaudited condensed financial statements have been 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 incurred net losses of $1,835,257 and $6,885,383 during the nine months ended September 30, 2014 and 2013, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of September 30, 2014 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of September 30, 2014 and December 31, 2013, the Company had working capital deficits of $1,996,277 and $175,820, respectively. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to seek equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

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

 

Critical Accounting Policies and Estimates

 

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

 

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our unaudited condensed results of operations, financial position or liquidity for the periods presented in this report. Please refer Note 2 – Summary of Significant Accounting Policies in the notes to the unaudited condensed financial statements.

 

Recent Accounting Pronouncements

 

In June 2014 the FASB issued Accounting Standards Update (“ASU”) 2014-10, “Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (“ASU 2014-10”). The amendments in ASU 2014-10 remove the definition of a development stage entity from the master glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

 

 

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations.

 

The Company has elected to adopt the provisions of ASU 2014-10 for the fiscal year ending December 31, 2013 and the current nine months ending September 30, 2014. The adoption of ASU 2014-10 did not have a significant impact on our results of operations, financial condition or cash flow.

 

In June 2014, the FASB issued ASU 2014-12, "Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period." This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the financial statements.

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2014 and the Company will continue to assess the impact on its financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

 

Contractual Obligations

 

On May 10, 2013, the Company issued an unsecured promissory note for $50,000 to an unrelated third party for cash.  The note accrues interest at 10% per annum and is due on demand. Accrued interest was $6,959 as of September 30, 2014.

 

On July 18, 2013, the Company issued an unsecured promissory note for $100,000 to an unrelated third party for cash.  The note accrues interest at 10% per annum and is due on demand.  Accrued interest was $12,055 as of September 30, 2014.

 

On August 7, 2013, the Company issued an unsecured promissory note for $15,000 to the CEO of the Company in exchange for the acquisition of mining deeds.  There is no interest associated with this note and the note matures on August 7, 2015. 

 

On April 3, 2014, the Company issued a convertible promissory note for $63,000 to an unrelated party for consulting services. The note accrues interest at 12% per annum, compounded monthly and matures on October 3, 2014. In the event of default, any overdue amounts will accrue interest at 20% per annum, compounded monthly. The principal balance of the note is convertible to common stock at the lower of either $0.03, or 50% of the lowest traded price 20 days prior to conversion, and is limited to 4.99% of the Company’s outstanding common stock at the time of conversion. All interest that accrues is convertible at $0.0001. The Company determined the note qualified for derivative liability treatment under ASC 815, “Derivatives and Hedging” (“ASC 815”). The Company recorded initial derivative liabilities of $102,456 on the date the note was executed, and a debt discount of $63,000, resulting in excess derivative liability expense of $39,456.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $61,967 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $1,033. Accrued interest was $3,843 as of September 30, 2014.

 

On May 1, 2014, the Company issued a convertible promissory note for $50,000. The note was issued for $30,000 in cash and $20,000 in payments towards services rendered. The note is due on demand and accrues interest at a rate of 8% per annum. In the event of default, the interest rate increases to 22% per annum on a simple interest basis. The note is convertible at a rate of 10% of the average of the three lowest trading prices for the ten days prior to conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $502,678 on the date the note was executed.   See Note 10 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $1,677 as of September 30, 2014.

 

 

On August 26, 2014, the Company issued a convertible promissory note for $120,000 for consulting services. The note is due on August 26, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of the note is convertible at X-(X*25%), where X is the lesser of the closing price on date of conversion, or the closing price on date the note was executed multiplied by 1.25, and can be converted at any time at the option of the holder of the note. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $106,408 on the date the note was executed, and a debt discount of $106,408.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $10,203 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $96,204. Accrued interest was $1,185 as of September 30, 2014.

 

On September 3, 2014, the Company issued a convertible promissory note for $60,000 for consulting services. This note is due on March 3, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of this note is convertible at the lesser of $0.0037 or the closing price on the date of conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $57,743 on the date the note was executed, and a debt discount of $57,743.   See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $8,614 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $49,130. Accrued interest was $460 as of September 30, 2014.

 

On September 10, 2014, the Company issued a convertible promissory note for $52,500 for consulting services. The note is due on April 10, 2015 and accrues interest at a rate of 10% per annum, compounded monthly. The principal balance of this note is convertible at the lesser of $0.0025 or the closing price on the date of conversion, and can be converted at any time at the option of the holder. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $77,675 on the date the note was executed, and a debt discount of $52,500, resulting in excess derivative liability expense of $25,175.  See Note 10 for treatment of derivative liability associated with convertible notes payable. For the period ended September 30, 2014, the Company amortized $4,953 of debt discount related to this note, and as of September 30, 2014, the unamortized debt discount related to this note is $47,547. An interest payment of $600 was made toward the balance of accrued interest, which exceeds the amount accrued through September 30, 2014. As a result, accrued interest was ($298) as of September 30, 2014.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Inflation

 

We believe that inflation has not had, and is not expected to have, a material effect on our operations.

 

Climate Change

 

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

None.  

  

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15€ and 15d-15€ under the Securities and Exchange Act of 1934, as of the end of the period covered by this report.  Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is accumulated and communicated to our management, including our principal executive and financial officer, recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.

 

Changes in Internal Controls Over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this item.

 

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

 

On September 18, 2014, the Company issued four million and five hundred thousand (4,500,000) of its common stock at a price of $0.0044 per share totaling $19,800 to an unrelated third party for legal services rendered.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY PROCEDURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are included with this quarterly filing:

 

Exhibit No.		Description
31		Sec. 302 Certification of Principal Executive Officer
32		Sec. 906 Certification of Principal Executive Officer
101		Interactive data files pursuant to Rule 405 of Regulation S-T

 

  

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	Western Graphite Inc.
Dated: January  14, 2015	By:	/s/David Wimberly
	David Wimberly, Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial and Accounting Officer)