U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   Form 10-Q

Mark One

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

 

For the quarterly period ended March 31, 2015

 

☐ 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		1000		20-8055672
(State or Other Jurisdiction of Formation or Organization)		(Primary Standard Industrial Classification Number)		(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 ☐   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 ☐   No ☒

 

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  ☒

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

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 ☐   No ☒

 

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: 172,025,238 shares as of May 12, 2015.

 

 

 

WESTERN GRAPHITE INC.

 

FORM 10-Q

 

MARCH 31, 2015

 

INDEX

 

PART I -- FINANCIAL INFORMATION

 

Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17

 

PART II -- OTHER INFORMATION

 

Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Funds	17
Item 3.	Defaults upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
	SIGNATURES	19

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The unaudited financial statements for the quarter ended March 31, 2015 immediately follow.

 

Western Graphite, Inc.

CONDENSED BALANCE SHEETS

 

		March 31,				December 31,
		2015				2014
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	6,204			$	28
Prepaid expenses			50,558				122,655
Total Current Assets			56,762				122,683
TOTAL ASSETS		$	56,762			$	122,683
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	14,600			$	6,200
Accrued expenses - related party			59,769				45,841
Convertible notes payable, net			306,040				228,823
Derivative liabilities			1,182,442				1,024,627
Loans payable - related parties			41,575				41,575
Loan payable			3,000				3,000
Accrued interest			55,801				40,091
Note payable - related party			15,000				15,000
Notes payable			170,000				170,000
Total Current Liabilities			1,848,227				1,575,157
TOTAL LIABILITIES			1,848,227				1,575,157
Commitments and contingencies			-				-
STOCKHOLDERS' DEFICIENCY
Common stock, $0.001 par value; 750,000,000 shares authorized, 146,846,667 and 146,846,667 shares issued and outstanding, respectively			146,847				146,847
Additional paid-in capital			6,783,208				6,783,208
Accumulated deficit			(8,721,520	)			(8,382,529	)
TOTAL STOCKHOLDERS' DEFICIENCY			(1,791,465	)			(1,452,474	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY		$	56,762			$	122,683

 

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

 

 

Western Graphite, Inc.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

 

		Three Months Ended March 31,
		2015				2014
REVENUES
Revenues		$	-			$	-
TOTAL REVENUES			-				-
OPERATING EXPENSES
General and administrative expenses			131,250				17,159
TOTAL OPERATING EXPENSES			131,250				17,159
LOSS FROM OPERATIONS			(131,250	)			(17,159	)
OTHER EXPENSE
Interest expense, net			(15,709	)			(3,699	)
Change in fair value of derivative liabilities			(114,815	)			-
Amortization of debt discount			(77,217	)			-
TOTAL OTHER EXPENSE			(207,741	)			(3,699	)
NET LOSS		$	(338,991	)		$	(20,858	)
Basic and diluted loss per share		$	(0.00	)		$	(0.00	)
Weighted average number of common shares outstanding			146,846,667				71,666,667

 

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

 

 

Western Graphite, Inc.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

 

		Three Months Ended March 31,
		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(338,991	)		$	(20,858	)
Adjustment to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative			114,815				-
Amortization of debt discount			77,217				-
Convertible promissory notes issued for services			18,000				-
Amortization of prepaid consulting fees			72,097				-
Changes in operating assets and liabilities:
Accounts payable and accrued expenses			8,400				-
Accrued expenses - related party			13,928				-
Accrued interest			15,710				3,699
NET CASH USED IN OPERATING ACTIVITIES			(18,824	)			(17,159	)
CASH FLOWS FROM INVESTING ACTIVITIES:			-				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable			25,000				-
NET CASH PROVIDED BY FINANCING ACTIVITIES			25,000				-
Net increase (decrease) in cash			6,176				(17,159	)
Cash, beginning of period			28				18,314
Cash, end of period		$	6,204			$	1,155
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt discount on convertible promissory notes		$	43,000			$	-

 

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

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

NOTE 1. DESCRIPTION OF BUSINESS

 

Western Graphite 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, CEO and Chief Financial Officer (“CFO”) of the Company. On April 1, 2015 David Wimberly resigned as an officer and director of the Company and Jennifer Andersen was appointed as CEO and director and Mark Corrao was appointed as CFO and a director 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 2014 Form 10-K filed with SEC on April 14, 2015. 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 2014 as reported in the Form 10-K 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 March 31, 2015 and December 31, 2014, 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 three months ended March 31, 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.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

The Company currently has convertible debt, which, if converted, as of March 31, 2015, would have caused the Company to issue diluted shares totaling 484,028,804. The Company had no potentially dilutive commitments to issue common stock as of March 31, 2014.

 

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, 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 December 31, 2014, on a recurring basis:

 

Assets and liabilities measured at fair value on a recurring basis at March 31, 2015		Level 1				Level 2				Level 3				Total Carrying Value
Derivative liabilities		$	-			$	-			$	(1,182,442	)		$	(1,182,442	)

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

Assets and liabilities measured at fair value on a recurring basis at December 31, 2014		Level 1				Level 2				Level 3				Total Carrying Value
Derivative liabilities		$	-			$	-			$	(1,024,627	)		$	(1,024,627	)

 

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.

 

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.

 

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.

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

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, the Company pays 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 three months ended March 31, 2015 and 2014, the Company had no stock based compensation.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

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 has adopted this new standard for the fiscal year ending December 31, 2014, and the current three months ending March 31, 2015, and the Company will continue to assess the impact on its financial statements.

 

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt instrument, consistent with debt discounts. The amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015 and for interim periods therein. The Company is in the process of assessing the impact the adoption of ASU 2015-03 will have 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.

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

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 $338,991 and $20,858 during the three months ended March 31, 2015 and 2014, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of March 31, 2015 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of March 31, 2015 and December 31, 2014, the Company had working capital deficits of $1,791,465 and $1,452,474, 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. PREPAID EXPENSES

 

The Company issued four separate convertible promissory notes totaling $295,500 in 2014 for consulting fees, which are being amortized over the term of the convertible promissory notes, with due dates ranging from October 2014 through August 2015. For the three months ended March 31, 2015 and 2014, the Company amortized consulting fees of $72,098 and $0, respectively. As of March 31, 2015 and December 31, 2014, the balance of these prepaid consulting fees was $50,558 and $122,655, respectively.

 

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 March 31, 2014 and December 31, 2014, the balance for accrued expenses – related party is $59,769 and $45,841, respectively.

 

As a result of his termination on April 1, 2015, Mr. Wimberly has agreed to forgo all outstanding debts due him, and therefore, the Company will accept $59,769 of accrued expenses due him as capital in the second quarter of 2015.

 

NOTE 6. CONVERTIBLE NOTES PAYABLE

 

At March 31, 2015 and December 31, 2014, convertible notes and debentures consisted of the following:

 

		March 31, 2015				December 31, 2014
Convertible notes payable		$	385,750			$	342,750
Unamortized debt discount			(79,710	)			(113,927	)
Carrying amount		$	306,040			$	228,823

 

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 7 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company fully amortized $63,000 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $10,745 as of March 31, 2015. This convertible promissory note is currently in default.

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

On May 1, 2014, the Company issued a convertible promissory note for $50,000 to an unrelated party. 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 7 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $3,616 as of March 31, 2015. On December 30, 2014, the holder of this convertible promissory note elected to convert $2,750 of principal to 6,250,000 shares of common stock at a share price of $0.00044 per share.

 

On August 26, 2014, the Company issued a convertible promissory note for $120,000 to the former CEO of the Company 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 7 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $26,238 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $43,146. Accrued interest was $7,355 as of March 31, 2015.

 

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 7 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $19,779 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $3,991 as of March 31, 2015. This convertible promissory note is currently in default.

 

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 7 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $22,288 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $2,476. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $2,375 as of March 31, 2015.

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

On February 2, 2015, the Company issued a convertible promissory note for $43,000 to an unrelated party. The note was issued for $25,000 in cash and $18,000 in payments towards services rendered. The note is due on November 4, 2015 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 55% of the average of the three lowest trading prices for the fifteen 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 $73,687 on the date the note was executed. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $8,913 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $34,087. Accrued interest was $848 as of March 31, 2015.

 

NOTE 7. 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.

 

For the year ended December 31, 2014, the Company valued the initial conversion features using the following assumptions: dividend yield of zero, years to maturity of 0.5 to 1.00 year, average risk free rates of between 0.10% and 0.12%, and annualized volatility of between 190.42% and 271.67% to record derivative liabilities of $846,959. For the three months ended March 31, 2015, the Company valued the initial conversion features using the following assumptions: dividend yield of zero, years to maturity of 0.76 year, average risk free rate of 0.17%, and annualized volatility of 373.19% to record derivative liabilities of $73,687.

 

At March 31, 2015, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.41 and 1.00 years, a risk free rate between 0.14% and 0.26%, and annualized volatility at 373.19%, and determined that, during the three months ended March 31, 2015, the Company’s derivative liability increased to $1,182,442. The Company recognized a corresponding loss of $84,128 on derivative liability in conjunction with this revaluation during the year ended March 31, 2015, which combined with derivative liability expenses in excess of debt discount of $30,687 resulted in a total derivative liability expense of $114,815 for the three months ended March 31, 2015.

 

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.

 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of March 31, 2015:

 

		Debt Derivative Liability
Balance, December 31, 2014		$	1,024,627
Additions			73,687
Change in fair value of derivative liabilities			84,128
Balance, March 31, 2015		$	1,182,442

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

NOTE 8. LOAN PAYABLE – RELATED PARTY

 

On September 22, 2014 and October 23, 2014, the Company received proceeds of $3,800 and $450, respectively, from the former CEO of the Company, through a business entity in which the former CEO is a partner in, for working capital. The loan is non-interest bearing and is due on demand.

 

As a result of his termination on April 1, 2015, Mr. Wimberly has agreed to forgo all outstanding debts due him, and therefore, the Company will accept $4,250 of loans payable due him as capital in the second quarter of 2015.

 

As of March 31, 2015, $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 March 31, 2015 and December 31, 2014, the balance of loans payable – related parties is $41,575 and $41,575, respectively.

 

NOTE 9. NOTE PAYABLE – RELATED PARTY

 

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.

 

NOTE 10. 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 $9,452 and $8,219 as of March 31, 2015 and December 31, 2014, respectively.

 

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 $17,041 and $14,575 as of March 31, 2015 and December 31, 2014, respectively.

 

On December 7, 2014, the Company issued an unsecured promissory note for $20,000 to an unrelated third party for professional fees. The note accrues interest at 6% per annum and is due on June 7, 2015. Accrued interest was $378 and $82 as of March 31, 2015 and December 31, 2014, respectively.

 

NOTE 11. STOCKHOLDERS’ DEFICIENCY

 

The stockholders deficiency section of the Company contains the following class of capital stock as of March 31, 2015 and December 31, 2014: Common Stock, $0.001 par value: shares issued and outstanding of 146,846,667 and 146,846,667, 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 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.

 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Three Months Ended March 31, 2015 and 2014

 

On September 18, 2014, the Company committed to issue 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.

 

On November 13, 2014, the Company issued 2,430,000 shares of common stock, valued at $0.0035 per share totaling $8,505 to a related party for consulting services regarding the financing and management of the Company’s business.

 

On December 30, 2014, the Company issued 6,250,000 shares of common stock to the holder of the $50,000 convertible promissory note issued on May 1, 2014 for a conversion of $2,750 in principal at a share price of $0.00044 per share.

 

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.

 

NOTE 12. SUBSEQUENT EVENTS

 

Management has evaluated all transactions and events after the balance sheet date through the date on which these financials were available to be issued, and except as already included in the notes to these unaudited condensed financial statements, has determined that no additional disclosures are required.

 

On April 1, 2015, the Chairman and CEO of the Company, David Wimberly, resigned and Jennifer Andersen became the new Chairman and CEO of the Company. As part of Mr. Wimberly’s resignation from the Board of Directors and as an officer of the Company, Mr. Wimberly received a payment of $3,000, the transfer of 6,000,000 shares of common stock held by Guelph Partners, which is an entity owned by Mr. Wimberly, and a promissory note for $16,000 due on six month anniversary of the issuance date, bearing compounded interest of 6% per annum monthly. The payment, the shares and the note were in settlement of Mr. Wimberly’s employment agreement which was cancelled as a result of his resignation, and Mr. Wimberly has agreed to forgo all outstanding debts due him as of April 1. Additionally, 30,000,000 shares of common stock held by Guelph Partners will not be cancelled because such shares have been pledged as collateral for a note. As of May 13, 2015, the cancellation of the remaining shares by Guelph Partners has not occurred. The Company expects such cancellation to occur in the second quarter of 2015.

 

On April 7, 2015, the Company issued 6,428,571 shares of common stock to the holder of a $50,000 convertible note issued on May 2014 for a conversion of $2,250 of principal at a conversion price of $0.00035.

 

On April 9, 2015, the Company issued a convertible promissory note for $15,000 cash. 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.

 

On May 7, 2015, the Company issued 12,500,000 shares of common stock to the holder of a convertible note for a conversion of $5,000 of principal at a conversion price of $0.0004.

 

On May 8, 2015, the Company issued 6,250,000 shares of common stock to the holder of a convertible note for a conversion of $2,500 of principal at a conversion price of $0.0004.

 

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS 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 unaudited condensed 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 unaudited condensed financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our unaudited condensed 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 unaudited condensed financial statements and accompanying notes to the unaudited condensed financial statements for the three months ended March 31, 2015.

 

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 March 31, 2015 Compared to the Three Months Ended March 31, 2014

 

Revenue:

 

We have generated no revenues to date.

 

Operating Expenses:

 

General and administrative expenses were $131,250 for the three months ended March 31, 2015, an increase of $114,091, or 664.9%, from $17,159 for the three months ended March 31, 2014. The increase is primarily due to an increase in officer compensation of $14,000, an increase in professional fees of $23,917, an increase in rent of $3,600, and increase in amortization of prepaid consulting fees of $72,098.

 

 

Other Expenses:

 

Other expenses were $207,741 for the three months ended March 31, 2015, an increase of $204,042, or 5516.1%, from $3,699 for the three months ended March 31, 2014. The increase is primarily due to $12,010 of interest accrued on notes payable, derivative liability expenses of $114,815, and amortization of debt discount of $77,217.

 

Net Loss:

 

As a result of the above factors, we recognized a net loss of $338,991 for the three months ended March 31, 2015, as compared to a net loss of $20,858 for the three months ended March 31, 2014, an increase of $318,133, or 1525.2%.

 

Liquidity and Capital Resources

 

As of March 31, 2015, the Company had a stockholders’ deficit of $1,791,465. For the three months ended March 31, 2015 and 2014, the Company had a net loss of $338,991 and $20,858, respectively. At March 31, 2015, the Company had a working capital deficit of $1,791,465 compared to $1,452,474 at December 31, 2014.

 

Net cash used in operating activities was $18,824 for the three months ended March 31, 2015 as compared to net cash used in operating activities of $17,159 for the three months ended March 31, 2014. The increase of $1,665 was due to, along with the net loss of $338,991 for the three months ended March 31, 2015, derivative liability expenses of $114,815, amortization of debt discount of $77,217, expenses incurred by note holders of $18,000 on the Company’s behalf, amortization of prepaid consulting fees of $72,097, an increase in accounts payable and accrued expenses of $8,400, an increase in accrued expenses – related parties of $13,928, and an increase in accrued interest to $15,710.

 

Net cash used in investing activities was $0 for the three months ended March 31, 2015 and 2014.

 

Net cash provided by financing activities amounted to $25,000 for the three months ended March 31, 2015, compared to $0 net cash provided by financing activities for the three months ended March 31, 2014 representing an increase of $25,000.  This was due to proceeds from a convertible note payable of $25,000.

 

Going Concern

 

The Company’s unaudited condensed financial statements have been prepared using U.S. GAAP 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 $338,991 and $20,858 during the three months ended March 31, 2015 and 2014, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of March 31, 2015 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of March 31, 2015 and December 31, 2014, the Company had working capital deficits of $1,791,465 and $1,452,474, 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 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 has adopted this new standard for the fiscal year ending December 31, 2014, and the current three months ending March 31, 2015, and the Company will continue to assess the impact on its financial statements.

 

In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs by requiring that such costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt instrument, consistent with debt discounts. The amendments in ASU 2015-03 are effective for fiscal years beginning after December 15, 2015 and for interim periods therein. The Company is in the process of assessing the impact the adoption of ASU 2015-03 will have 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 $9,452 and $8,219 as of March 31, 2015 and December 31, 2014, respectively.

 

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 $17,041 and $14,575 as of March 31, 2015 and December 31, 2014, respectively.

 

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.

 

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 6 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company fully amortized $63,000 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $10,745 as of March 31, 2015. This convertible promissory note is currently in default.

 

 

On May 1, 2014, the Company issued a convertible promissory note for $50,000 to an unrelated party. 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 6 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $3,616 as of March 31, 2015. On December 30, 2014, the holder of this convertible promissory note elected to convert $2,750 of principal to 6,250,000 shares of common stock at a share price of $0.00044 per share.

 

On August 26, 2014, the Company issued a convertible promissory note for $120,000 to the former CEO of the Company 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 6 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $26,238 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $43,146. Accrued interest was $7,355 as of March 31, 2015.

 

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 6 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $19,779 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $3,991 as of March 31, 2015. This convertible promissory note is currently in default.

 

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 6 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $22,288 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $2,476. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $2,375 as of March 31, 2015.

 

On December 7, 2014, the Company issued an unsecured promissory note for $20,000 to an unrelated third party for professional fees. The note accrues interest at 6% per annum and is due on June 7, 2015. Accrued interest was $378 and $82 as of March 31, 2015 and December 31, 2014, respectively.

 

On February 2, 2015, the Company issued a convertible promissory note for $43,000 to an unrelated party. The note was issued for $25,000 in cash and $18,000 in payments towards services rendered. The note is due on November 4, 2015 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 55% of the average of the three lowest trading prices for the fifteen 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 $73,687 on the date the note was executed. See Note 6 for treatment of derivative liability associated with convertible notes payable. For the three months ended March 31, 2015, the Company amortized $8,913 of debt discount related to this note, and as of March 31, 2015, the unamortized debt discount related to this note is $34,087. Accrued interest was $848 as of March 31, 2015.

 

 

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-15e and 15d-15e 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 March 31, 2015 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 January 22, 2015, the Company issued 6,250,000 shares of common stock to a holder of a convertible note (which issuance was deemed effective as of December 31, 2014). The holder converted $2,750 of principal of the convertible note.

 

On April 7, 2015, the Company issued 6,428,571 shares of common stock to a holder of a convertible note. The holder converted $2,250 of principal of the convertible note.

 

 

The shares of the Company’s common stock issued during the three month period ended March 31, 2015 as described above qualified for an exemption under Section 4(a)(2) of the Securities Act because the issuance of shares by the Company did not involve a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) of the Securities Act due to the insubstantial number of persons involved in each of the issuances, size of the offering, manner of the offering and number of shares offered.

 

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
31.1		Sec. 302 Certification of Principal Executive Officer*
31.2		Sec. 302 Certification of Principal Financial Officer*
32.1		Sec. 906 Certification of Principal Executive Officer*
32.2		Sec. 302 Certification of Principal Financial Officer*
101.INS		XBRL Instance *
101.SCH		XBRL Taxonomy Extension Schema*
101.CAL		XBRL Taxonomy Extension Calculation*
101.DEF		Taxonomy Extension Definition*
101.LAB		Taxonomy Extension Labels*
101.PRE		Taxonomy Extension Presentation*

 

* filed herewith

 

 

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: May 15, 2015	By:	/s/ Jennifer Andersen
		Jennifer Andersen, Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Mark Corrao
		Mark Corrao, Chief Financial Officer
		(Principal Financial and Accounting Officer)

 

 

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