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EX-31.1 - CERTIFICATION - Western Graphite Inc.f10q0615ex31i_western.htm
EX-32.1 - CERTIFICATION - Western Graphite Inc.f10q0615ex32i_western.htm
EX-31.2 - CERTIFICATION - Western Graphite Inc.f10q0615ex31ii_western.htm
EX-32.2 - CERTIFICATION - Western Graphite Inc.f10q0615ex32ii_western.htm

 

 

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 June 30, 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 41st Street, 14th 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: 310,983,593 shares as of August 18, 2015.

 

 

 

 
 

 

WESTERN GRAPHITE INC.

 

FORM 10-Q

 

JUNE 30, 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 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
Item 4. Controls and Procedures 20

 

PART II -- OTHER INFORMATION

 

Item 1. Legal Proceedings 21
Item 1A. Risk Factors 21
Item 2. Unregistered Sales of Equity Securities and Use of Funds 21
Item 3. Defaults upon Senior Securities 21
Item 4. Mine Safety Disclosures 21
Item 5. Other Information 21
Item 6. Exhibits 22
     
  SIGNATURES 23

 

 
 

  

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

The un-audited financial statements for the quarter ended June 30, 2015 immediately follow.

 

 

 

1
 

 

Western Graphite, Inc.
CONDENSED BALANCE SHEETS
         
   June 30,   December 31, 
   2015   2014 
   (Unaudited)     
ASSETS
         
CURRENT ASSETS        
Cash  $8,185   $28 
Prepaid expenses   18,411    122,655 
Total Current Assets   26,596    122,683 
           
TOTAL ASSETS  $26,596   $122,683 
           
LIABILITIES AND STOCKHOLDERS' DEFICIENCY          
           
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $20,429   $6,200 
Accrued expenses - related party   59,769    45,841 
Convertible notes payable, net   353,837    228,823 
Derivative liabilities   885,402    1,024,627 
Loans payable - related parties   41,575    41,575 
Loan payable   3,000    3,000 
Accrued interest   74,889    40,091 
Note payable - related party   -    15,000 
Notes payable   170,000    170,000 
Total Current Liabilities   1,608,901    1,575,157 
           
TOTAL LIABILITIES   1,608,901    1,575,157 
           
Commitments and contingencies   -    - 
           
STOCKHOLDERS' DEFICIENCY          
Common stock, $0.001 par value; 750,000,000 shares authorized, 232,400,238 and 146,846,667
shares issued and outstanding, respectively
   232,400    146,847 
Additional paid-in capital   6,717,605    6,783,208 
Accumulated deficit   (8,532,310)   (8,382,529)
TOTAL STOCKHOLDERS' DEFICIENCY   (1,582,305)   (1,452,474)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY  $26,596   $122,683 

 

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

 

2
 

 

Western Graphite, Inc.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
                 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2015   2014   2015   2014 
                 
REVENUES                
Revenues  $-   $-   $-   $- 
TOTAL REVENUES   -    -    -    - 
                     
OPERATING EXPENSES                    
General and administrative expenses   83,994    36,173    215,244    53,332 
TOTAL OPERATING EXPENSES   83,994    36,173    215,244    53,332 
                     
LOSS FROM OPERATIONS   (83,994)   (36,173)   (215,244)   (53,332)
                     
OTHER INCOME (EXPENSE)                     
Interest expense, net   (19,089)   (6,269)   (34,798)   (9,968)
Change in fair value of derivative liabilities   345,040    (267,874)   230,225    (267,874)
Amortization of debt discount   (52,747)   (30,295)   (129,964)   (30,295)
TOTAL OTHER INCOME (EXPENSE)   273,204    (304,438)   65,463    (308,137)
                     
NET INCOME (LOSS)  $189,210   $(340,611)  $(149,781)  $(361,469)
                     
Basic and diluted income (loss) per share  $0.00   $(0.00)  $(0.00)  $(0.01)
                     
Weighted average number of common shares outstanding   182,490,112    71,666,667    164,766,852    71,666,667 

 

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

 

3
 

 

Western Graphite, Inc.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
         
   Six Months Ended
June 30,
 
   2015   2014 
         
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss  $(149,781)  $(361,469)
Adjustment to reconcile net loss to net cash used in operating activities:          
Change in fair value of derivative   (230,225)   267,873 
Amortization of debt discount   129,964    30,295 
Convertible promissory notes issued for services   54,000    5,000 
Amortization of prepaid consulting fees   104,244    30,639 
Changes in operating assets and liabilities:          
Accounts payable and accrued expenses   14,229    - 
Accrued expenses - related party   13,928    - 
Accrued interest   34,798    9,969 
           
NET CASH USED IN OPERATING ACTIVITIES   (28,843)   (17,693)
           
CASH FLOWS FROM INVESTING ACTIVITIES:   -    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from convertible notes payable   52,000    - 
Principal payments towards notes payable - related parties   (15,000)   - 
Proceeds from loan payable   -    - 
Issuance of common stock for cash   -    - 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   37,000    - 
           
Net increase (decrease) in cash   8,157    (17,693)
           
Cash, beginning of period   28    18,314 
           
Cash, end of period  $8,185   $621 
           
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  $91,000   $63,000 
Convertible promissory notes issued for prepaid consulting fees  $-   $113,000 
Conversion of debt to common stock  $19,950   $- 

 

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

 

4
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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.

 

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, 2015. 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 the date of this filing, the cancellation of the remaining shares by Guelph Partners has not occurred. The Company expects such cancellation to occur in the third quarter of 2015.

 

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. The Company had no cash equivalents as of June 30, 2015 and December 31, 2014. 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 June 30, 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 six months ended June 30, 2015 and 2014, 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 June 30, 2015 and 2014, would have caused the Company to issue diluted shares totaling 2,296,152,619 and 60,058,874.

 

5
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 2015 and 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 June 30, 2015 and December 31, 2014, on a recurring basis:

 

Assets and liabilities measured at fair value on a
recurring basis at June 30, 2015
  Level 1     Level 2     Level 3     Total
Carrying
Value
 
                                 
Derivative liabilities   $ -     $ -     $ (885,402 )   $ (885,402 )

 

6
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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.

 

7
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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 six months ended June 30, 2015 and 2014, the Company had no stock based compensation.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

ASU 2015-03

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2015-02

 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2015-01

 

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-17

 

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.

 

8
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 2015 and 2014

  

ASU 2014-16

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.

 

ASU 2014-15

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-12

 

In June 2014, the FASB issued ASU No. 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 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-09

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year.

 

ASU 2014-08

 

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.

  

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.

 

9
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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 $149,781 and $361,469 during the six months ended June 30, 2015 and 2014, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of June 30, 2015 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of June 30, 2015 and December 31, 2014, the Company had working capital deficits of $1,582,305 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 six months ended June 30, 2015 and 2014, the Company amortized consulting fees of $104,244 and $30,639, respectively. As of June 30, 2015 and December 31, 2014, the balance of these prepaid consulting fees was $18,411 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 June 30, 2015 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 third quarter of 2015.

 

NOTE 6. CONVERTIBLE NOTES PAYABLE

 

At June 30, 2015 and December 31, 2014, convertible notes and debentures consisted of the following:

 

   June 30,
2015
   December 31,
2014
 
Convertible notes payable  $428,800   $342,750 
Unamortized debt discount   (74,963)   (113,927)
Carrying amount  $353,837   $228,823 

 

10
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 2015 and 2014

 

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 June 30, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $14,483 as of June 30, 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 7 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $4,490 as of June 30, 2015. Through June 30, 2015, the holder of this convertible promissory note elected to convert a total of $8,950 of principal to 48,053,571 shares of common  stock at a share price of between $0.00044 and $0.0001 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 six months ended June 30, 2015, the Company amortized $52,767 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $16,617. Accrued interest was $10,556 as of June 30, 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 six months ended June 30, 2015, the Company amortized $19,779 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $7,235 as of June 30, 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 six months ended June 30, 2015, the Company amortized $24,764 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $0. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $5,002 as of June 30, 2015. This convertible promissory note is currently in default.

 

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 and a debt discount of $43,000, resulting in excess derivative liability expense of $30,687. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $23,142 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $19,858. Accrued interest was $1,404 as of June 30, 2015.

 

On April 9, 2015, the Company issued a convertible promissory note for $15,000 to an unrelated party. The note was issued for $15,000 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 $220,486 on the date the note was executed resulting in excess derivative liability expense of $220,486. See Note 7 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $273 as of June 30, 2015.

  

11
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 2015 and 2014

 

On April 24, 2015, the Company issued a convertible promissory note for $15,000 to an unrelated party. The note was issued for $15,000 in cash, which was used to pay off the August 7, 2013 related party note payable from the former CEO. The note is due on April 24, 2016 and accrues interest at a rate of 5% per annum. The note is convertible at a rate of 40% of the lowest trading price for the forty days prior to conversion, and can be converted at any time at the option of the holder. Should the trading price for the Company’s common stock go below $0.0001 at any time, the note will then be convertible at the option of the holder at a rate of either the lower of (i) $0.0001 or (ii) 40% of the lowest trading price for the forty days prior to conversion. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $44,308 on the date the note was executed and a debt discount of $15,000, resulting in excess derivative liability expense of $29,308. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $2,746 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $12,254. Accrued interest was $50 as of June 30, 2015. Through June 30, 2015, the holder of this convertible promissory note elected to convert a total of $13,750 of principal to 43,750,000 shares of common stock at a share price of between $0.0004 and $0.0001 per share.

 

On May 4, 2015, the Company issued a convertible promissory note for $33,000 to an unrelated party. The note was issued for $12,000 in cash and $21,000 in payments towards services rendered. The note is due on February 6, 2016 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 $87,139 on the date the note was executed and a debt discount of $33,000, resulting in excess derivative liability expense of $54,139. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $6,766 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $26,234. Accrued interest was $420 as of June 30, 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 six months ended June 30, 2015, the Company valued the initial conversion features using the following assumptions: dividend yield of zero, years to maturity of 0.76-1.00 years, average risk free rate of 0.17-0.25%, and annualized volatility of 373.19-381.95% to record derivative liabilities of $425,619.

 

At June 30, 2015, the Company revalued the conversion features using the following assumptions: dividend yield of zero, years to maturity of between 0.16 and 1.00 years, a risk free rate between 0.11% and 0.28%, and annualized volatility at 381.95%, and determined that, during the six months ended June 30, 2015, the Company’s derivative liability increased to $885,402. The Company recognized a corresponding gain of $564,844 on derivative liability in conjunction with this revaluation during the year ended June 30, 2015, which combined with derivative liability expenses in excess of debt discount of $334,619 resulted in a total derivative liability expense of $230,225 for the six months ended June 30, 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 June 30, 2015:

 

   Debt Derivative
Liability
 
Balance, December 31, 2014  $1,024,627 
Additions   425,619 
Change in fair value of derivative liabilities   (564,844)
Balance, June 30, 2015  $885,402 

  

12
 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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 third quarter of 2015.

 

As of June 30, 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 June 30, 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. This note was paid in full on April 24, 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 $10,699 and $8,219 as of June 30, 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 $19,534 and $14,575 as of June 30, 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 compounded interest at 6% per annum and is due on June 7, 2015, and defaults to compounded interest at 10% per annum. Accrued interest was $742 and $82 as of June 30, 2015 and December 31, 2014, respectively.

 

NOTE 11. STOCKHOLDERS’ EQUITY

 

The stockholders equity section of the Company contains the following class of capital stock as of June 30, 2015 and December 31, 2014: Common Stock, $0.001 par value: shares issued and outstanding of 232,400,238 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.

 

13
 

 

Western Graphite, Inc.
Notes to Unaudited Condensed Financial Statements
For the Periods Ended June 30, 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.

  

During the six months ended June 30, 2015, a total of $19,950 in principal on convertible notes payable was converted to 85,553,571 shares of common stock at shares prices from $0.0004 to $0.0001.

 

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.

 

From July 1, 2015 through August 18, 2015, a total of $12,948 in principal on convertible notes payable was converted to 78,583,355 shares of common stock at shares prices from $0.0002 to $0.0001.

 

14
 

 

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 six months ended June 30, 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 June 30, 2015 Compared to the Three Months Ended June 30, 2014

 

Revenue:

 

We have generated no revenues to date.  

 

Operating Expenses:

 

General and administrative expenses were $83,994 for the three months ended June 30, 2015, an increase of $47,821, or 132.2%, from $36,173 for the three months ended June 30, 2014. The increase is primarily due to an increase in officer compensation of $2,000, an increase in professional fees of $44,400, and increase in amortization of prepaid consulting fees of $1,507.

 

15
 

 

Other Income (Expenses):

 

Other income was $273,204 for the three months ended June 30, 2015, an increase of $577,642, or 189.7%, from other expense of $(304,438) for the three months ended June 30, 2014. The increase is primarily due to changes of $12,820 of interest accrued on notes payable, derivative liability gain of $612,914, and amortization of debt discount of $22,452.

 

Net Income (Loss):

 

As a result of the above factors, we recognized net income of $189,210 for the three months ended June 30, 2015, as compared to a net loss of $(340,611) for the three months ended June 30, 2014, an increase of $529,821, or 155.6%.

 

Results of Operations for the Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

 

Revenue:

 

We have generated no revenues to date.  

 

Operating Expenses:

 

General and administrative expenses were $215,244 for the six months ended June 30, 2015, an increase of $161,912, or 303.6%, from $53,332 for the six months ended June 30, 2014. The increase is primarily due to an increase in officer compensation of $16,000, an increase in professional fees of $68,317, an increase in rent of $3,600, and increase in amortization of prepaid consulting fees of $73,605.

 

Other Income (Expenses):

 

Other income was $65,463 for the six months ended June 30, 2015, an increase of $373,600, or 121.2%, from $(308,137) for the six months ended June 30, 2014. The increase is primarily due to changes of $24,830 of interest accrued on notes payable, derivative liability gain of $498,099, and amortization of debt discount of $99,669.

 

Net Loss:

 

As a result of the above factors, we recognized a net loss of $149,781 for the six months ended June 30, 2015, as compared to a net loss of $361,469 for the six months ended June 30, 2014, a decrease of $211,688, or 58.6%.

 

Liquidity and Capital Resources

 

As of June 30, 2015, the Company had a stockholders’ deficit of $1,582,305. For the six months ended June 30, 2015 and 2014, the Company had a net loss of $149,781 and $361,469, respectively. At June 30, 2015, the Company had a working capital deficit of $1,582,305 compared to $1,452,474 at December 31, 2014.

 

Net cash used in operating activities was $28,843 for the six months ended June 30, 2015 as compared to net cash used in operating activities of $17,693 for the six months ended June 30, 2014. The increase of $11,150 was due to, along with the net loss of $149,781 for the six months ended June 30, 2015, changes in: derivative liability gain of $498,098, amortization of debt discount of $99,669, expenses incurred by note holders of $49,000 on the Company’s behalf, amortization of prepaid consulting fees of $73,605, an increase in accounts payable and accrued expenses of $14,229, an increase in accrued expenses – related parties of $13,928, and an increase in accrued interest to $24,829.

 

Net cash used in investing activities was $0 for the six months ended June 30, 2015 and 2014.

 

Net cash provided by financing activities amounted to $37,000 for the six months ended June 30, 2015, compared to $0 net cash provided by financing activities for the six months ended June 30, 2014 representing an increase of $37,000.  This was due to proceeds from a convertible notes payable of $52,000, and a principal payment of $15,000 towards related party notes payable.

 

16
 

 

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 $149,781 and $361,469 during the six months ended June 30, 2015 and 2014, respectively. Cash on hand will not be sufficient to cover debt repayments scheduled as of June 30, 2015 and operating expenses and capital expenditure requirements for at least twelve months from the balance sheet date. As of June 30, 2015 and December 31, 2014, the Company had working capital deficits of $1,582,305 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

 

ASU 2015-03

 

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The amendments are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The amendments are to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance. We do not expect the adoption of ASU 2015-03 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2015-02

 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. In addition to reducing the number of consolidation models from four to two, the new standard simplifies the FASB Accounting Standards Codification and improves current U.S. GAAP by placing more emphasis on risk of loss when determining a controlling financial interest, reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity (“VIE”), and changing consolidation conclusions for companies in several industries that typically make use of limited partnerships or VIEs. The ASU will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not expect the adoption of ASU 2015-02 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2015-01

 

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This ASU eliminates from U.S. GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. We do not expect the adoption of ASU 2015-01 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-17

 

In November 2014, the FASB issued ASU No. 2014-17, “Business Combinations (Topic 805): Pushdown Accounting.” This ASU provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is applied to an individual change-in-control event, that election is irrevocable. ASU 2014-17 was effective on November 18, 2014. The adoption of ASU 2014-17 did not have any effect on our financial position, results of operations or cash flows.

 

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ASU 2014-16

 

In November 2014, the FASB issued ASU 2014-16, “Derivatives and Hedging (Topic 815).” ASU 2014-16 addresses whether the host contract in a hybrid financial instrument issued in the form of a share should be accounted for as debt or equity. ASU 2014-16 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not currently have issued, nor are we investors in, hybrid financial instruments. Accordingly, we do not expect the adoption of ASU 2014-16 to have any effect on our financial position, results of operations or cash flows.

 

ASU 2014-15

 

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40)”. ASU 2014-15 provides guidance related to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for interim and annual periods thereafter. Early application is permitted. We do not expect the adoption of ASU 2014-15 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-12

 

In June 2014, the FASB issued ASU No. 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 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. ASU 2014-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. We do not expect the adoption of ASU 2014-12 to have a material effect on our financial position, results of operations or cash flows.

 

ASU 2014-09

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are still evaluating the effect of the adoption of ASU 2014-09. On April 1, 2015, the FASB voted to propose to defer the effective date of the new revenue recognition standard by one year.

 

ASU 2014-08

 

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) and Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU 2014-08 amends the definition for what types of asset disposals are to be considered discontinued operations, as well as amending the required disclosures for discontinued operations and assets held for sale. ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2014. The adoption of ASU 2014-08 did not have any effect on our financial position, results of operations or cash flows.

 

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.

 

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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 $10,699 and $8,219 as of June 30, 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 $19,534 and $14,575 as of June 30, 2015 and December 31, 2014, respectively.

 

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. This note was paid in full on April 24, 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 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 June 30, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $14,483 as of June 30, 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 7 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $4,490 as of June 30, 2015. Through June 30, 2015, the holder of this convertible promissory note elected to convert a total of $8,950 of principal to 48,053,571 shares of common stock at a share price of between $0.00044 and $0.0001 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 six months ended June 30, 2015, the Company amortized $52,767 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $16,617. Accrued interest was $10,556 as of June 30, 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 six months ended June 30, 2015, the Company amortized $19,779 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $0. Accrued interest was $7,235 as of June 30, 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 six months ended June 30, 2015, the Company amortized $24,764 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $0. In September 2014, an interest payment of $600 was made toward the balance of accrued interest. As a result, accrued interest was $5,002 as of June 30, 2015. This convertible promissory note is currently in default.

 

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 compounded interest at 6% per annum and is due on June 7, 2015, and defaults to compounded interest at 10% per annum. Accrued interest was $742 and $82 as of June 30, 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 and a debt discount of $43,000, resulting in excess derivative liability expense of $30,687. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $23,142 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $19,858. Accrued interest was $1,404 as of June 30, 2015.

 

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On April 9, 2015, the Company issued a convertible promissory note for $15,000 to an unrelated party. The note was issued for $15,000 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 $220,486 on the date the note was executed resulting in excess derivative liability expense of $220,486. See Note 7 for treatment of derivative liability associated with convertible notes payable. Accrued interest was $273 as of June 30, 2015.

 

On April 24, 2015, the Company issued a convertible promissory note for $15,000 to an unrelated party. The note was issued for $15,000 in cash, which was used to pay off the August 7, 2013 related party note payable from the former CEO. The note is due on April 24, 2016 and accrues interest at a rate of 5% per annum. The note is convertible at a rate of 40% of the lowest trading price for the forty days prior to conversion, and can be converted at any time at the option of the holder. Should the trading price for the Company’s common stock go below $0.0001 at any time, the note will then be convertible at the option of the holder at a rate of either the lower of (i) $0.0001 or (ii) 40% of the lowest trading price for the forty days prior to conversion. The Company determined the note qualified for derivative liability treatment under ASC 815. The Company recorded initial derivative liabilities of $44,308 on the date the note was executed and a debt discount of $15,000, resulting in excess derivative liability expense of $29,308. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $2,746 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $12,254. Accrued interest was $50 as of June 30, 2015. Through June 30, 2015, the holder of this convertible promissory note elected to convert a total of $13,750 of principal to 43,750,000 shares of common stock at a share price of between $0.0004 and $0.0001 per share.

 

On May 4, 2015, the Company issued a convertible promissory note for $33,000 to an unrelated party. The note was issued for $12,000 in cash and $21,000 in payments towards services rendered. The note is due on February 6, 2016 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 $87,139 on the date the note was executed and a debt discount of $33,000, resulting in excess derivative liability expense of $54,139. See Note 7 for treatment of derivative liability associated with convertible notes payable. For the six months ended June 30, 2015, the Company amortized $6,766 of debt discount related to this note, and as of June 30, 2015, the unamortized debt discount related to this note is $26,234. Accrued interest was $420 as of June 30, 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 period ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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.

 

During the six months ended June 30, 2015, a total of $19,950 in principal on convertible notes payable was converted to 85,553,571 shares of common stock at shares prices from $0.0004 to $0.0001.

 

The shares of the Company’s common stock issued during the six months ended June 30, 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 

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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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. 906 Certification of Principal Financial Officer
101   Interactive data files pursuant to Rule 405 of Regulation S-T

 

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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: August 19, 2015 By: /s/ Jennifer Andersen
    Jennifer Andersen,
Chief Executive Officer
    (Principal Executive Officer)

 

 

 

 

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