Recent Sales of Unregistered Securities

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.  

In July 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 a company owned by the CEO of the Company for services rendered.

On April 3, 2014, the Company issued a convertible promissory note for $63,000 to an unrelated party for consulting services. 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.

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 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 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.

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.

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.

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.

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.

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 upon the conversion of $2,750 of a principal of a convertible note.

Securities authorized for issuance under equity compensation plans

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. No grants have been made under the 2013 Stock Option Plan.

Penny Stock Rules

The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

A purchaser is purchasing penny stock which limits the ability to sell the stock. Our shares constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:

- contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading;

- contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended;

- contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" price for the penny stock and the significance of the spread between the bid and ask price;

- contains a toll-free telephone number for inquiries on disciplinary actions;

- defines significant terms in the disclosure document or in the conduct of trading penny stocks; and

- contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation;

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:

- the bid and offer quotations for the penny stock;

- the compensation of the broker-dealer and its salesperson in the transaction;

- the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

- monthly account statements showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.

Transfer Agent

The company has retained Vstock Transfer, LLC, 18 Lafayette Place, Woodmere, New York 11598, as transfer agent for the year ended December 31, 2014.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Forward Looking Statements

This annual report on Form 10-K 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 year ended December 31, 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.

Company Overview

Western Graphite Inc., a Nevada corporation (formerly Lucky Strike Explorations Inc.), was incorporated under the laws of the State of Nevada on December 15, 2006 (“Western Graphite” or the “Company”). We were formed to engage in the acquisition, exploration and development of natural resource properties. We are in the exploration stage. Our activities to date have been limited to capital formation, organization and development of our business plan. We have performed limited exploration work and we are currently seeking new mining properties for exploration.

Recent Developments

On April 1, 2015, the Company’s Board of Directors appointed Jennifer Andersen to fill an existing vacancy on the Board of Directors. On the same date, subsequent to Ms. Andersen’s appointment as a director, David Wimberly resigned as the Company’s Chief Executive Officer, Chief Financial Officer, Secretary and as a director. Ms. Andersen was elected as the Company’s Chief Executive Officer. Concurrently therewith, Mark Corrao was appointed to fill the vacancy on the Board resulting from the resignation of David Wimberly. Additionally, Mr. Corrao was elected as the Company’s Chief Financial Officer and Secretary.

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 six million (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. 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. 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 April 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.

Results of Operations for the Year Ended December 31, 2014 and 2013

Revenue:

We have generated no revenues to date.

Operating Expenses:

Impairment of investments and mining properties was $0 for the year ended December 31, 2014, a decrease of $6,539,014, or 100.0%, from $6,539,014 for the year ended December 31, 2013. The decrease is primarily due to a $6,539,014 impairment of assets in 2013 related to the mining properties.

General and administrative expenses were $359,112 for the year ended December 31, 2014, a decrease of $72,524, or 16.8%, from $431,636 for the year ended December 31, 2013. The decrease is primarily due to a $290,000 decrease in stock based compensation, a $10,711 decrease in geology service fees and a decrease in capital raise fees of $28,482, offset by an increase of $87,621 for professional fees, and an increase in consulting fees of $172,845.

Other Expenses:

Other expenses were $943,597 for the year ended December 31, 2014, an increase of $935,802, or 12005.2%, from $7,795 for the year ended December 31, 2013. The increase is primarily due to a change in derivative liabilities of $744,976, amortization of debt discount of $165,724 and an increase in accrued interest on notes payable of $25,102.

Net Loss:

As a result of the above factors, we recognized net loss of $1,302,709 for the year ended December 31, 2014, as compared to a net loss of $6,978,445 for the year ended December 31, 2013, a decrease of $5,675,736, or 81.3%.

Liquidity and Capital Resources

As of December 31, 2014, the Company had a stockholders’ deficit of $1,452,474. For the year ended December 31, 2014 and 2013, the Company had a net loss of $1,302,709 and $6,978,445, respectively. At December 31, 2014, the Company had working capital deficit of $1,452,474 compared to $175,820 at December 31, 2013.

Net cash used in operating activities was $65,536 for the year ended December 31, 2014, compared to net cash used in operating activities of $137,759 for the year ended December 31, 2013. Along with the Company’s net loss of $1,302,709, the decrease of $72,223 for net cash used in operating activities was primarily due to a decrease in stock based compensation of $290,000, and an impairment of investments and mining properties of $6,514,014 in 2013, along with a change in derivative liabilities of $744,976, amortization of debt discount of $165,724, convertible promissory notes issued for services of $20,000, amortization of prepaid expenses of $172,845, a promissory note issued for services of $20,000, an increase in related party accrued expenses of $45,841, and an increase in accrued interest of $24,501 in 2014.

Net cash used in investing activities was $0 for the year ended December 31, 2014 and 2013.

Net cash provided by financing activities amounted to $47,250 for the year ended December 31, 2014, compared to $156,000 net cash provided by financing activities for the year ended December 31, 2013 representing a decrease of $108,750.  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 $4,250, proceeds from a third party loan payable of $3,000, and an issuance of common stock for cash of $10,000 in 2014.

Going Concern

The Company’s 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 $1,302,709 and $6,978,445 during the years ended December 31, 2014 and 2013, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of December 31, 2014 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of December 31, 2014 and 2013, the Company had working capital deficits of $1,452,474 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 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 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 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 year ending December 31, 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 has early adopted this new standard for the fiscal year ending December 31, 2014.

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 $8,219 and $3,220 as of December 31, 2014 and 2013, 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 $14,575 and $4,575 as of December 31, 2014 and 2013, 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $63,000 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $0. Accrued interest was $7,224 as of December 31, 2014. This convertible promissory note is currently in default.

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 11 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $2,684 as of December 31, 2014. 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 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $37,024 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $69,384. Accrued interest was $4,265 as of December 31, 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $37,964 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $19,779. Accrued interest was $1,997 as of December 31, 2014. 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $27,736 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $24,764. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $1,044 as of December 31, 2014.

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 $82 as of December 31, 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Western Graphite, Inc.

(formerly Lucky Strike Explorations, Inc.)

We have audited the accompanying balance sheets of Western Graphite, Inc. (formerly Lucky Strike Explorations, Inc.) (the “Company”) as of December 31, 2014 and 2013, and the related statements of operations, stockholders’ deficiency and cash flows for the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Western Graphite, Inc. (formerly Lucky Strike Explorations, Inc.) at December 31, 2014 and 2013, and the results of its operations and its cash flows for the two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has sustained net losses from operations, working capital deficit and stockholder’s deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 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, 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.

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 December 31, 2014 and 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 years ended December 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.

The Company currently has convertible debt, which, if converted, as of December 31, 2014, would have caused the Company to issue diluted shares totaling 268,980,788. The Company had no potentially dilutive commitments to issue common stock as of December 31, 2013.

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 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:

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 December 31, 2014, on a recurring basis:

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”.

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

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 years ended December 31, 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.

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).

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

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 years ended December 31, 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 year ending December 31, 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 has early adopted this new standard for the fiscal year ending December 31, 2014.

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.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

NOTE 3. GOING CONCERN

The Company’s 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 $1,302,709 and $6,978,445 during the years ended December 31, 2014 and 2013, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of December 31, 2014, and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of December 31, 2014 and 2013, the Company had working capital deficits of $1,452,474 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 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 year ended December 31, 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 year ended December 31, 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 year ended December 31, 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 December 31, 2014, the balance in accrued expenses – related party is $45,841.

Upon the CEO’s resignation on April 1, 2015, the outstanding balance due on the accrued expenses – related party balance to the CEO through April 1, 2015 has been forgiven in full.

The Company uses the services of The CFO Squad for services related to the preparation of our financial statements and other accounting matters. Mark Corrao, our Chief Financial Officer, is a principal of The CFO Squad. During 2014, we paid The CFO Squad $7,500 for its services.

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

NOTE 6. LOANS PAYABLE – RELATED PARTIES

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. Upon the CEO’s resignation on April 1, 2015, the outstanding balance due on the loans payable – related parties balance to the CEO through April 1, 2015 has been forgiven in full.

As of December 31, 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 December 31, 2014 and 2013, the balance of loans payable – related parties is $41,575 and $37,325, respectively.

NOTE 7. LOAN PAYABLE

On November 7, 2014, the Company received proceeds of $3,000, from an unrelated third party, for working capital. The loan is non-interest bearing and is due on demand.

NOTE 8. 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 9. 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 $8,219 and $3,220 as of December 31, 2014 and 2013, 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 $14,575 and $4,575 as of December 31, 2014 and 2013, 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 $82 as of December 31, 2014.

NOTE 10. CONVERTIBLE NOTES PAYABLE

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

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $63,000 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $0. Accrued interest was $7,224 as of December 31, 2014. This convertible promissory note is currently in default.

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 11 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $2,684 as of December 31, 2014. 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 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $37,024 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $69,384. Accrued interest was $4,265 as of December 31, 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 11 for treatment of derivative liability associated with convertible notes payable. For the year ended December 31, 2014, the Company amortized $37,964 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $19,779. Accrued interest was $1,997 as of December 31, 2014. 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 11 for treatment of derivative liability associated with convertible notes payable. For the period ended December 31, 2014, the Company amortized $27,736 of debt discount related to this note, and as of December 31, 2014, the unamortized debt discount related to this note is $24,764. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $1,044 as of December 31, 2014.

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

NOTE 11. 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 December 31, 2014, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.17 and 1.00 years, a risk free rate at 0.25%, and annualized volatility at 332.62%, and determined that, during the period ended December 31, 2014, the Company’s derivative liability increased to $1,024,627. The Company recognized a corresponding loss of $177,668 on derivative liability in conjunction with this revaluation during the year ended December 31, 2014, which combined with derivative liability expenses in excess of debt discount of $567,308 resulted in a total derivative liability expense of $744,976 for the year ended December 31, 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. 

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2014:

NOTE 12. INCOME TAXES

Reconciliation between the statutory United States corporate income tax rate (35%) and the effective income tax rates based on continuing operations is as follows:

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

The Company did not have deferred tax assets or liabilities for the years ended December 31, 2014 and 2013.

At December 31, 2014, the Company has available net operating losses of approximately $933,000 which may be carried forward to apply against future taxable income. These losses will expire in 2032. Deferred tax assets related to these losses have not been recorded due to uncertainty regarding their utilization.

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

The Company has not filed its applicable Federal and State tax returns for the year ended December 31, 2014, 2013 and 2012 and may be subject to penalties for noncompliance.

NOTE 13. STOCKHOLDERS’ EQUITY

The stockholders equity section of the Company contains the following classes of capital stock as of December 31, 2014 and 2013: Common Stock, $0.001 par value: shares issued and outstanding of 146,846,667 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.

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.

WESTERN GRAPHITE INC.

(FORMERLY LUCKY STRIKE EXPLORATIONS, INC.)

Notes to Financial Statements

For the Years Ended December 31, 2014 and 2013

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 14. 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 financial statements, has determined that no additional disclosures are required.