Item 1. Business.
Overview
We were incorporated in the State of Wyoming on October 19, 2006, as Sierra Ventures, Inc. and established a fiscal year end of May 31. Our statutory registered agent's office is located at 153 W. Lake Mead Pkwy., Ste. 2240,
Henderson NV 89015 and our business office is located at 5466 Canvasback Rd., Blaine, Washington 98230. Our telephone number is (702) 839-4029. On February 5, 2010 we filed an Amendment to Articles with the Wyoming Secretary of State and changed our name from “Sierra Ventures Inc.” to “Lucky Boy Silver Corp.” On May 9, 2012 we changed the name of our Company to National Graphite Corp. We changed the name of our company to better reflect the direction and business of our company.
On March 22, 2011, the corporation converted from a Wyoming corporation to a Nevada corporation pursuant to Wyoming Statutes Title 17, ch. 16, Sect.(s) 820, 821 and 1114 and Nevada Revised Statutes 92A.205. This conversion did not alter the number of authorized shares, or the number of issued and outstanding shares, of the corporation. The voting and other rights of the common and preferred shares of the company’s capital stock remain substantially similar under Nevada law. The powers of the company’s officers, directors and shareholders also remain substantially the same. Our authorized capital stock continues to consist of 499,000,000 shares of common stock, par value $0.001 per share and 1,000,000 shares of preferred stock, par value $0.001per share.
We are a start-up, exploration-stage company engaged in the search for gold, silver, graphite and related minerals. Our mineral properties are without known reserves and our proposed program is explanatory in nature. There is no assurance that commercially viable mineral deposits exist on our mineral properties. Further exploration and/or drilling will be required before a final evaluation as to the economic and legal feasibility of our projects is determined.
Effective April 6, 2010, we conducted a 15:1 forward stock split of our common stock. The split was approved by FINRA for taking effect on the OTC-BB at the open of business on March 31, 2010. The transfer agent effected the forward split on their records as of April 6, 2010. Our statements of stockholder’s equity have been retroactively restated to reflect the split.
Our Current Business - Mineral Exploration
During the year ended May 31, 2010, the Company issued for cash 425,000 pre-split (6,375,000 post-split) shares of its par value $0.001 common stock for $170,000.
On January 24, 2010 the Company issued 290,000 and 150,000 (10,000 pre-split) shares of the Company’s common stock to a consultant and two board members for services provided to the Company. The shares were valued at $0.40 per share based on the recent cash sales price. The Company recorded $120,000 of expense in professional fees.
During February 2010 the Company entered into two lease agreements for mineral leases located in the Mineral County, Nevada. On February 8, 2010, we acquired 38 unpatented BLM claims including those known as the Silver Summit and Silver Strike claims and two historic, silver mine leases (“AG Properties”) known as Lucky Boy Silver Mine and the Black Butte Silver Mine. The Company issued 150,000 post-split shares of common stock for the mining claims. These shares were valued at $0.40 per share based on the recent cash sale price.
Under these agreements the Company committed $17,500 in non-refundable upfront lease payments, $10,000 in future payments to be made every nine months and $7,500 in future payments to be made annually as long as the lease is in force. In a geological report compiled by Hunsaker dated May 2010, Hunsaker opined that further work on the Lucky Boy project was not recommended while further exploration on the Black Butte project was justified. The lease for the Lucky Boy mineral property was not renewed.
On May 25, 2011 we expanded our claims in the Silver Strike area to 62 unpatented claims renaming them the LAG claims.
On April 20, 2012, the Company entered into an agreement with Habitants Minerals Ltd. (“Habitants”) granting the Company the sole and exclusive right to purchase 100% right, title and interest in and to the applications and subsequent claims to be issued by Quebec Ministry of Resources and Fauna for the following applications:
The Quebec applications cover ground referred to in reports GM19842, GM35169, GM35267, GM19844, GM20308, GM13866, reports which report historic graphite occurrences on Lot 32 and Lot 33 Range 11 in Low Township, Lot 1 Range 2 in Suffolk Township, Lot 9 and Lot 16 Range 3 and Lot 10 Range 9 all in Clarendon Township, Lot 46 Range 11 in Low Township, and ground in Lochaber Township covering historic mag anomalies.
APPLICATION 1186716 (29 claims)
APPLICATION 1187995 (14 claims)
APPLICATION 1187994 (12 claims)
APPLICATION 1187992 (10 claims)
claims approx., 60 hectares each = 3900 hectares
The consideration for the transaction was payment by the Company to Habitants a total of Fifty Thousand United States Dollars (US$50,000.00) consisting of Twenty Five Thousand United States Dollars ($25,000.00) on the date of execution of this Agreement and Twenty Five Thousand United States Dollars ($25,000.00) upon the issuance of the claims in the Company’s name, and the issuance of 100,000 shares of the Company’s common stock within 15 days of the date of the closing of the transaction described in the Agreement or within 15 days of any Regulatory Approvals required for the issuance of the shares.
On April 24, 2012, the Company entered into an agreement with GeoXplor Corporation to purchase a 100% interest in and to the Chedic Graphite Property consisting of 20 Mineral Lode Claims in Township, 15 North, Range 19 East, Sections 25 & 26 Carson City, NV mining claims compromising approximately 400 acres.
The purchase price for the Property is a total of $425,000 in cash, an issuance of 2,500,000 shares of the Company’s Restricted Common Stock, and a work commitment on the Property of up to $1,000,000 over four years as follows:
a.) Cash Consideration: Purchaser will pay Seller $425,000 USD in cash consideration as follows :
i) USD $50,000 upon the signing of the Agreement ( the “Effective Date” ),
ii) an additional USD $25,000 on or before 6 months from the Effective Date ,
iii) an additional USD $25,000 on or before 12 months from the Effective Date,
iv) an additional USD $50,000 on or before 18 months from the Effective Date,
v) an additional USD $75,000 on or before 24 Months from the Effective Date,
vi) an additional USD $50,000 on or before 30 months from the Effective Date,
vii) an additional USD $50,000 on or before 36 months from the Effective Date,
viii) an additional USD $50,000 on or before 42 months from the Effective Date,
ix) an additional USD $50,000 on or before 48 months from the Effective Date ( for a total cash consideration of $425,000 on or before 48 months from and after the Effective Date. )
b) Stock Consideration: (restricted common shares)
i)500,000 shares upon the signing of the Agreement (the “Effective Date“),
ii)500,000 shares on or before 6 months from the Effective Date,
iii)500,000 shares on or before 18 months from the Effective Date,
iv)500,000 shares on or before 24 months from the Effective Date,
v)500,000 shares on or before 48 months from the Effective Date,
c) Work Commitment:
Purchaser will provide funds for the conduct of a program of work to be undertaken by the Seller for the benefit of the property of not less than USD $1,000,000 over 4 years as follows:
i)$100,000 on or before months from the Effective Date,
ii)$300,000 on or before months from the Effective Date,
iii)$300,000 on or before months from the Effective date ,
iv)$300,000 on or before months from the Effective Date.
Our Proposed Exploration Program - Plan of Operation
Our business plan is to proceed with exploration on the Black Butte and Silver Strike projects to determine if there are commercially exploitable deposits of gold and silver, and if we decide not to proceed, to seek other mineral exploration properties.
We do not have any ores or reserves whatsoever at this time on our optioned property or other mineral properties.
During February 2010 the Company entered into two additional lease agreements for mineral leases located in the Mineral County, Nevada, including the Black Butte and Lucky Boy projects. Under these agreements the Company has committed $17,500 in non-refundable up-front lease payments, $10,000 in future payments to be made every nine months and $7,500 in future payments to be made annually as long as the lease is in force. Additionally, the Company has committed to spend a minimum of $100,000 over the first three years of the lease on exploration and property development. The Company also has agreed to pay a total of 3% for each lease net smelter return production royalty which can be bought out for $2,000,000/ per cent NSR ($1,000,000 per lease) with approval and consent of the lessor. If payments are in default for 30 days or the work commitment is not completed as agreed, the lessor must vacate the property immediately and settle all accounts related to the property.
We retained the services of the Hunsaker Inc., a geological company, to assess the results of our program. In a report compiled by Hunsaker dated February 2011, Hunsaker concluded that the Silver Strike claims warranted additional exploration whereas the Silver Summit claims did not. Our mineral properties are currently without known reserves and our proposed programs are exploratory in nature. On May 25, 2011 we expanded our claims in the Silver Strike area to 66 unpatented claims by staking the LAG claims.
Our business plan for the Black Butte and Silver Strike projects is to proceed with the initial exploration of the gold and silver properties to determine if there are commercially exploitable deposits of gold and silver. We retained the services of the Hunsaker Inc., a geological company, to assess the results of our program. In a geological report compiled by Hunsaker dated May 2010, Hunsaker opined that further work on the Lucky Boy project is not recommended while further exploration on the Black Butte project is justified. We did not renew the Lucky Boy Silver Mine lease.
As per the purchase agreement of the Nevada graphite property, the Company is committed to an expenditure of at least $100,000 on the property over the next twelve months.
Competition
We are a mineral resource exploration company. We compete with other mineral resource exploration companies for financing and for the acquisition of new mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties. In addition, they may be able to afford more geological expertise in the targeting and exploration of mineral properties. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and development. This competition could adversely impact on our ability to achieve the financing necessary for us to conduct further exploration of our mineral properties.
We also compete with other mineral resource exploration companies for financing from a limited number of investors that are prepared to make investments in mineral resource exploration companies. The presence of competing mineral resource exploration companies may impact on our ability to raise additional capital in order to fund our exploration programs if investors are of the view that investments in competitors are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to investors. We also compete with other mineral resource exploration companies for available resources, including, but not limited to, professional geologists, camp staff, helicopter or float planes, mineral exploration supplies and drill rigs.
Government Regulations
Any operations at the our mineral properties will be subject to various federal and state laws and regulations in the United States and laws and regulations in Canada which govern prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, protection of the environment, mine safety, hazardous substances and other matters. We will be required to obtain those licenses, permits or other authorizations currently required to conduct exploration and other programs. There are no current orders or directions relating to us or our properties with respect to the foregoing laws and regulations. Such compliance may include feasibility studies on the surface impact of our proposed operations, costs associated with minimizing surface impact, water treatment and protection, reclamation activities, including rehabilitation of various sites, on-going efforts at alleviating the mining impact on wildlife and permits or bonds as may be required to ensure our compliance with applicable regulations. It is possible that the costs and delays associated with such compliance could become so prohibitive that we may decide to not proceed with exploration, development, or mining operations on any of our mineral properties. We are not presently aware of any specific material environmental constraints affecting our properties that would preclude the economic development or operation of property in the United States and in Canada.
The U.S. Forest Service requires that mining operations on lands subject to its regulation obtain an approved plan of operations subject to environmental impact evaluation under the National Environmental Policy Act. Any significant modifications to the plan of operations may require the completion of an environmental assessment or Environmental Impact Statement prior to approval. Mining companies must post a bond or other surety to guarantee the cost of post-mining reclamation. These requirements could add significant additional cost and delays to any mining project undertaken by us.
Under the U.S. Resource Conservation and Recovery Act, mining companies may incur costs for generating, transporting, treating, storing, or disposing of hazardous waste, as well as for closure and post-closure maintenance once they have completed mining activities on a property. Any future mining operations at our mineral properties may produce air emissions, including fugitive dust and other air pollutants, from stationary equipment, storage facilities, and the use of mobile sources such as trucks and heavy construction equipment which are subject to review, monitoring and/or control requirements under the Federal Clean Air Act and state air quality laws. Permitting rules may impose limitations on our production levels or create additional capital expenditures for pollution control in order to comply with the rules.
The U.S. Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA"), imposes strict joint and several liability on parties associated with releases or threats of releases of hazardous substances. Those liable groups include, among others, the current owners and operators of facilities which release hazardous substances into the environment and past owners and operators of properties who owned such properties at the time the disposal of the hazardous substances occurred. This liability could include the cost of removal or remediation of the release and damages for injury to the surrounding property. We cannot predict the potential for future CERCLA liability with respect to our mineral properties or surrounding areas.
Employees
At present, we have no employees. We currently operate with two executive officers, who devote their time as required to our business operations. Our executive officers are not presently compensated for their services and do not have an employment agreement with us.
Item 1A
Item 1A Risk Factors
Risks Associated with our Business
We are an exploration stage company, lack a business history and have losses that we expect to continue into the future. If the losses continue we will have to suspend operations or cease functioning.
We were incorporated in the State of Wyoming on October 19, 2006, and have only started our proposed business but have not realized any revenues. We have no business history upon which an evaluation of our future success or failure can be made. Our net loss since inception is $1,931,241.
Our ability to achieve and maintain profitability and positive cash flow is dependent upon:
• our ability to find a profitable exploration property;
• our ability to generate revenues; and
• our ability to reduce exploration costs.
Because of the speculative nature of exploration of mineral properties, we may never discover a commercially exploitable quantity of minerals, our business may fail and investors may lose their entire investment.
We are in the very early exploration stage and cannot guarantee that our exploration work will be successful or that any minerals will be found or that any production of minerals will be realized. The search for valuable minerals as a business is extremely risky. We can provide investors with no assurance that exploration on our properties will establish that commercially exploitable reserves of minerals exist on our property. Additional potential problems that may prevent us from discovering any reserves of minerals on our property include, but are not limited to, unanticipated problems relating to exploration and additional costs and expenses that may exceed current estimates. If we are unable to establish the presence of commercially exploitable reserves of minerals on our property our ability to fund future exploration activities will be impeded, we will not be able to operate profitably and investors may lose all of their investment in our company.
Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, we face a high risk of business failure.
Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by us in the exploration of the mineral claim may not result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of our exploration do not reveal viable commercial mineralization, we may decide to abandon our claims. If this happens, our business will likely fail.
Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.
The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position.
We have no known mineral reserves and we may not find any gold, silver or graphite if we find gold, silver or graphite it may not be in economic quantities. If we fail to find any gold, silver or graphite or if we are unable to find gold, silver or
graphite in economic quantities, we will have to suspend operations.
We have no known mineral reserves. Even if we find gold, silver or graphite, it may not be of sufficient quantity so as to warrant recovery. Additionally, even if we find gold, silver or graphite in sufficient quantity to warrant recovery it ultimately may not be recoverable. Finally, even if any gold, silver or graphite is recoverable, we do not know that this can be done at a profit. Failure to locate gold, silver or graphite in economically recoverable quantities will cause us to suspend operations.
The potential profitability of mineral ventures depends in part upon factors beyond the control of our company and even if we discover and exploit mineral deposits, we may never become commercially viable and we may be forced to cease operations.
The commercial feasibility of mineral properties is dependent upon many factors beyond our control, including the existence and size of mineral deposits in the properties we explore, the proximity and capacity of processing equipment, market fluctuations of prices, taxes, royalties, land tenure, allowable production and environmental regulation. These factors cannot be accurately predicted and any one or a combination of these factors may result in our company not receiving an adequate return on invested capital. These factors may have material and negative effects on our financial performance and our ability to continue operations.
We may be adversely affected by fluctuations in ore and precious metal prices.
The value and price of our shares of common stock, our financial results, and our exploration, development and mining activities, if any, may be significantly adversely affected by declines in the price of precious metals and ore. Mineral prices fluctuate widely and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of mineral producing countries throughout the world.
The prices used in making resource estimates for mineral projects are disclosed, and generally use significantly lower metal prices than daily metals prices quoted in the news media. The percentage change in the price of a metal cannot be directly related to the estimated resource quantities, which are affected by a number of additional factors. For example, a 10% change in price may have little impact on the estimated resource quantities, or it may result in a significant change in the amount of resources.
Transportation difficulties and weather interruptions may affect and delay proposed mining operations and impact our proposed business.
Our mineral properties are accessible by road. The climate in the area is hot and dry in the summer but cold and subject to snow in the winter, which could at times hamper accessibility depending on the winter season precipitation levels. As a result, our exploration plans could be delayed for several months each year.
Supplies needed for exploration may not always be available.
Competition and unforeseen limited sources of supplies needed for our proposed exploration work could result in occasional spot shortages of supplies of certain products, equipment or materials. There is no guarantee we will be able to obtain certain products, equipment and/or materials as and when needed, without interruption, or on favorable terms. Such delays could affect our proposed business plans.
Management will devote only a limited amount of time to National Graphite’s business. Failure of our management to devote a sufficient amount of time to our business plans may adversely affect the success of our business.
Mr. Kenneth B. Liebscher will be devoting approximately 20 hours per week to National Graphite’s business. Failure of our management to devote a sufficient amount of time to our business plans may adversely affect the success of our business.
Management lacks formal training in mineral exploration.
Our officers and directors have no professional accreditation or formal training in the business of exploration. With no direct training or experience in these areas our management may not be fully aware of many of the specific requirements related to working within this industry. Decisions so made without this knowledge may not take into account standard engineering management approaches that experienced exploration corporations commonly make. Consequently, our business, earnings and ultimate financial success could suffer irreparable harm as a result of management’s lack of experience in the industry. Thus, we will retain such technical experts as are required to provide professional and technical guidance.
We require substantial funds merely to determine if mineral reserves exist on our mineral properties.
Any potential development and production of our exploration properties depends upon the results of exploration programs and/or feasibility studies and the recommendations of duly qualified engineers and geologists. Such programs require substantial additional funds. Any decision to further expand our plans on these exploration properties will involve the consideration and evaluation of several significant factors including, but not limited to:
Costs of bringing the property into production including exploration work, preparation of production feasibility studies and construction of production facilities;
Availability and costs of financing;
Ongoing costs of production;
Market prices for the products to be produced;
Environmental compliance regulations and restraints; and
Political climate and/or governmental regulation and control.
Risks Associated with our Common Stock
There is no active trading market for our common stock and if a market for our common stock does not develop, our investors will be unable to sell their shares.
Few shares of our common stock have been traded on the OTC Bulletin Board. As a result, our stockholders may find it difficult to dispose of, or to obtain accurate quotations of the price of, shares of our common stock. This severely limits the liquidity of shares of our common stock and has a material adverse effect on the market price for shares of our common stock and on our ability to raise additional capital. An active public market for shares of our common stock may not develop, or if one should develop, it may not be sustained, and as a result, investors may not be able to resell shares of our common stock that they have purchased and may lose all of their investment.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends and currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently not provided for in our financing plan, our funding sources may prohibit the payment of a dividend. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’s price. This may never happen and investors may lose all of their investment in our company.
Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and may experience further dilution.
We are authorized to issue up to 499,000,000 shares of common stock, of which 68,669,881 shares are issued and outstanding as of August 23, 2013. We have 1,000,000 preferred shares authorized of which 675,000 are issued and outstanding and held by Kenneth B. Liebscher, our President and CEO with conversion and voting rights of 1 preferred equals 100 common shares. Our board of directors has the authority to cause us to issue additional shares of common stock, and to determine the rights, preferences and privileges of such shares, without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors to not choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
Our stock is a penny stock. Trading of our stock may be restricted by the Securities and Exchange Commission’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
Risks Related to our Financial Results and Need for Additional Financing
Our auditors’ reports contain a statement that our net loss and limited working capital raise substantial doubt about our ability to continue as a going concern.
Our independent registered public accountants have stated in their report, included in this annual report that our significant operating losses and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We had net losses of $519,285 and $375,546, respectively, for the fiscal years ended May 31, 2013 and 2012. We will be required to raise substantial capital to fund our capital expenditures, working capital and other cash requirements since our current cash assets are exhausted. We are currently searching for sources of additional funding, including potential joint venture partners, while we continue the initial exploration phase on our mining claims. The successful outcome of future financing activities cannot be determined at this time and there are no assurances that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operational results.
We will need additional capital to achieve our current business strategy and our inability to obtain additional financing will inhibit our ability to expand or even maintain our research, exploration and development efforts.
In addition to our current accumulated deficit, we expect to incur additional losses in the foreseeable future. Until we are able to determine if there are mineral deposits available for extraction on our properties, we are unlikely to be profitable. Consequently, we will require substantial additional capital to continue our exploration and development activities. There is no assurance that we will not incur additional and unplanned expenses during our continuing exploration and development activities. When additional funding is required, we intend to raise funds either through private placements or public offerings of our equity securities. There is no assurance that we will be able to obtain additional financing through private placements and/or public offerings necessary to support our working capital requirements. To the extent that funds generated from any private placements and/or public offerings are insufficient, we will have to raise additional working capital through other sources, such as bank loans and/or financings. No assurance can be given that additional financing will be available, or if available, will be on acceptable terms.
If we are unable to secure adequate sources of funds, we may be forced to delay or postpone the exploration, development and research of our properties, and as a result, we might be required to diminish or suspend our business plans. These delays in development would have an adverse effect on our ability to generate revenues and could require us to possibly cease operations. In addition, such inability to obtain financing on reasonable terms could have a negative effect on our business, operating results or financial condition to such extent that we are forced to restructure, file for bankruptcy protection, sell assets or cease operations, any of which could put your investment dollars at significant risk.
We are incurring increased costs as a result of being a publicly-traded company.
As a public company, we incur significant legal, accounting and other expenses that we would not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, has required changes in corporate governance practices of public companies. These new rules and regulations have increased our legal and financial compliance costs and have made some activities more time-consuming and costly. For example, as a result of becoming a public company, we have adopted policies regarding internal controls and disclosure controls and procedures. In addition, we have incurred additional costs associated with our public company reporting requirements. These new rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance, which we currently cannot afford to do. As a result of the new rules, it may become more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers. We cannot predict or estimate the amount of additional costs we may incur as a result of being a public company or the timing of such costs and/or whether we will be able to raise the funds necessary to meet the cash requirements for these costs.
Because we may never earn revenues from our operations, our business may fail and then investors may lose all of their investment in our company.
We have no history of revenues from operations. We have never had significant operations and have no significant assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and is in the exploration stage. The success of our company is significantly dependent on the uncertain events of the discovery and exploitation of mineral reserves on our properties or selling the rights to exploit those mineral reserves. If our business plan is not successful and we are not able to operate profitably, then our stock may become worthless and investors may lose all of their investment in our company.
Prior to completion of the exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We therefore expect to incur significant losses into the foreseeable future. We recognize that if we are unable to generate significant revenues from the exploration of our mineral claims in the future, we will not be able to earn profits or continue operations. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks, our business will fail and investors may lose all of their investment in our company.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2
Item 2 Properties.
Principal Office
Our principal office is located at 7230 Indian Creek Lane, Las Vegas, Nevada 89149. Our telephone number is (702) 849-4029. On January 1, 2012 our office rental agreement was adjusted to a $500 per month rental fee for office space in Nevada. The term of the agreement is on a month-to-month basis starting from January 1, 2012.
Our Mineral Properties
The Black Butte and Lucky Boy Projects
On February 8, 2010, we acquired 38 unpatented BLM claims including those known as Silver Strike and 2 historic silver mine leases ("Ag Properties") known as Lucky Boy Silver Mine and the Black Butte Silver Mine. As part of the mining lease proposal for the Lucky Boy Silver Mine, the Company agreed to pay a $10,000 non-refundable lease payment and an additional $10,000 lease payment every nine months commencing on November 17, 2010, and every nine months thereafter as long as the lease is in force. The Company deposited $50,000 in an escrow account to be drawn against invoices for work done on the property including access upgrading, exploration activities and geological expenses. Upon the recommendation of our consulting geologist, we did not renew the lease of the Lucky Boy Silver Mine.
On May 25, 2011 we expanded our claims in the Silver Strike to 66 unpatented claims by staking the LAG claims.
These mineral properties are without known reserves and the proposed program is explanatory in nature.
The Graphite Prospects
On April 20, 2012, Lucky Boy Silver Corp. entered into an agreement with Habitants Minerals Ltd. granting Lucky Boy the sole and exclusive right to purchase 100% right, title and interest in and to the applications and subsequent claims to be issued by Quebec Ministry of Resources and Fauna for the following applications:
The Quebec applications cover ground referred to in reports GM19842, GM35169, GM35267, GM19844, GM20308, GM13866, reports which report historic graphite occurrences on Lot 32 and Lot 33 Range 11 in Low Township, Lot 1 Range 2 in Suffolk Township, Lot 9 and Lot 16 Range 3 and Lot 10 Range 9 all in Clarendon Township, Lot 46 Range 11 in Low Township, and ground in Lochaber Township covering historic mag anomalies.
APPLICATION 1186716 (29 claims)
APPLICATION 1187995 (14 claims)
APPLICATION 1187994 (12 claims)
APPLICATION 1187992 (10 claims)
claims approx., 60 hectares each = 3900 hectares
On April 24, 2012, Lucky Boy Silver Corp. entered into an agreement with GeoXplor Corporation to purchase a 100% interest in and to the Chedic Graphite Property consisting of 20 Mineral Lode Claims in Township, 15 North, Range 19 East, Sections 25 & 26 Carson City, NV mining claims compromising approximately 400 acres.
Location and Means and Access
We have acquired an interest in the Black Butte and Silver Strike projects in the Mineral County, Nevada. Black Butte is in T7N/R34E sections 25 and 26. Silver Strike is in T3N/R35E sections 1,2, and 3; T4N/R35E sections 25, 35, and 36 near Candelaria.
Figure 1: Black Butte and Candelaria Location Map
Black Butte
The Black Butte Project is approximately 30 miles east of Hawthorne on the east flank of Black Dyke Mountain at the eastern end of the Garfield Hills. The project can be reached by traveling 29.5 miles east on U.S. Highway 95 to a well-graded dirt road into the project area. Further access by vehicle is limited to several steep, primitive 4-wheel drive tracks.
The land position initially consisted of the Black Butte unpatented lode mining claims (Table 1 and Figure 2). Additional lode claims (BB-1 to6) were staked on August 12, 2010 to cover the interpreted extensions of the mineralized zone.
Table 1: Black Butte and Lucky Boy Land Description
The claims Black Butte, Black Butte #1 to #3, BB-1 to BB-6 , and LAG 1 to 66 are valid until September 1, 2013.
Figure 2: Black Butte Project Land Map
GEOLOGY
Regional Geology
The Black Butte project area is located in the Walker Lane Mineral Belt in western Nevada (Figure 1). Rocks in the region encompassing the project areas range from Triassic age sediments to recent alluvium filling the basins. The western side of the region is dominated by Cretaceous age intrusive rocks forming the Wassuk Range.
The Walker Lane is a major northwest-southeast-trending fault zone which displays right lateral movement that ranges from 30 to 40 miles in its central portion, and hosts a variety of precious metal and base metal mineral deposits (as well as geothermal activity) along its length. Late Cenozoic faults of the central Walker Lane form a complex array of variably oriented structures characterized by coeval strike-slip and dip-slip motions.
The rock formations for the project areas fit into the regional setting described for Mineral County (Figure 6, and Ross, 1961):
“About 30,000 feet of structurally complex calcareous, clastic, and volcanic rocks of Triassic and Jurassic age exposed in the central part of the county are flanked on the south by a few thousand feet of calcareous and clastic rocks of Cambrian, Ordovician, and Permian age. Intrusive into this sequence are granitic rocks, chiefly quartz monzonite, which are probably satellitic to the composite Sierra Nevada Batholith of Cretaceous age.”
Black Butte Project Geology
The Black Butte Project area lithology is mapped as Triassic Excelsior Formation which is summarized as a sequence of felsic volcanic rocks, clastic rocks, and tuffs (Figure 7). To the south of the project area the Excelsior is in fault contact with the Triassic Luning Formation described as a sequence of limestone, dolomite, and shale.
Figure 6: Legend for all Geological Maps
Figure 7: Black Butte Project Geology Map
Figure 8: Looking west at Black Butte Project Area
Figure 9: Looking at Black Butte Vein Zone
MINERALIZATION
Black Butte Project Mineralization
No historical data was found for the Black Butte Project area. There are at least four adits that collar on the vein and drive along the strike. These adits appear to be interconnected by raises and winzes. The lowermost adit (near samples LBR-14 and 21, Figure 11) has power and lights behind a locked door which services the seismograph equipment located within.
The mineralization is a quartz vein zone trending northeast-southwest and exposed at the surface for approximately 800 feet in a series of adits and prospect pits (Figure 7, Figure 8, and Figure 9). To the northeast the vein appears to go under alluvial cover. Going to the southwest along the strike of the vein the hill becomes higher and beyond the last exposed part of the vein strong, pervasive zones of iron oxidation are much more prominent as well as a zone of carbonate alteration (calcite veining). These alteration zones are typical of the uppermost extent of the alteration associated with an epithermal quartz vein system.
The vein zone is poly-phase, with multiple bands of silica that are sulfide bearing. The vein zone is from two to ten feet wide; within the wider parts of the zone there are distinct anastomosing quartz veins separated by orange and brown clay/gouge (frontispiece-note pencil for scale). Sulfides of iron, copper, lead, and silver were obvious on some of the dumps.
Gold values along the vein are anomalous (2.59, 3.4, and 6.22 ppm gold) to strongly anomalous (46.7 ppm gold) (Figure 12). The 46.7 ppm gold (1.36 opt) sample was a 10 inch channel sample across the quartz vein. Most of the higher grade gold values appear to be in the quartz; however the clay/gouge within the vein zone between the quartz does also carry some lesser gold values.
Silver values along the vein are also highly anomalous (316, 403, 630, 684 ppm silver) (Figure 13). The silver is highly correlative to the gold. Overall the system appears to be silver dominant with silver to gold ratio equal to 43:1.
Lead, copper, and zinc values are also anomalous; as might be expected in a silver dominated epithermal vein system (Figure 14 and Table 2).
Table 2: Black Butte Geochemical Summary Table
Figure 11: Black Butte Rock Sample Location Map
Figure 12: Black Butte Gold in Rock Map
Figure 13: Black Butte Silver in Rock Map
Figure 14: Black Butte Lead in Rock
Item 3.
Item 3. Legal Proceedings.
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to National Graphite.
Item 4.
Item 4. (Removed and Reserved).
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our shares of common stock are quoted on the OTC Bulletin Board under the symbol “NGRC”. Our CUSIP number is 631268 104. The quotation was first posted at the opening on May 29, 2009 with an opening bid of $0.05 ($0.0033 post-split) and offer at $0.10 ($0.0067 post-split).
Holders of our Common Stock
As of the date of this report the shareholders' list of our common shares showed 24 registered shareholders. There are 68,669,881 shares outstanding.
Dividends
We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common shares, our intention is to retain future earnings for use in our operations and the expansion of our business.
Securities Authorized for Issuance under Equity Compensation Plans
We do not have any equity compensation plans in place.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On October 25, 2010 the Company issued 356,154 units consisting of one share of common stock and one warrant for cash at $0.63 per share. The attached warrants are exercisable for two years from issuance and have an exercise price of $0.85 per share for one year from issuance which increased to $1.05 in the second year. The Company used the Black-Scholes option pricing model to value the warrants based on the terms of the warrant, a volatility of 350%risk free rate of 0.37%, and a stock price and issuance of $0.65. Based on this calculation, the Company determined that the relative fair value of the warrants is $113,148 and allocated this amount of the additional paid-in capital to the warrants. These warrants expired during the year ended May 31, 2013.
On December 15, 2010 the Company issued 47,060 shares of its restricted common stock issued to 20 shareholders subscribed for at a price of $0.85 per share in private placements for $40,000 cash.
During the year ended May 31, 2012 the Company issued 500,000 shares of its restricted common stock issued to non-afilliated shareholders subscribed for at a price of $0.60 per share in private placements for $300,000 cash.
During the year ended May 31, 2012 the Company issued 500,000 shares of its restricted common stock as consideration for the purchase of certain mineral interests in Carson City, Nevada. These shares were valued at $0.60 per share, resulting in an aggregate value of $300,000.
During the year ended May 31, 2013 the Company issued 416,667 shares of its restricted common stock issued to non-affiliated shareholders subscribed for at a price of $0.60 per share in private placements for $250,000 cash.
During the year ended May 31, 2013 the Company issued 500,000 shares of its restricted common stock issued to non-affiliated shareholders subscribed for at a price of $0.50 per share in private placements for $250,000 cash.
All of these shares were issued to accredited investors under the exemption from Section 5 of the Securities Act of 1933 (the “Act”) contained in Section 4(6) of the Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to audited financial statements included elsewhere in this report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those anticipated in these forward-looking statements.
We are a start-up, exploration stage company engaged in the search for gold, silver, graphite and related minerals. Our mineral properties are without known reserves and our proposed program is explanatory in nature. There is no assurance that commercially viable mineral deposits exist on our mineral properties. Further exploration and/or drilling will be required before a final evaluation as to the economic and legal feasibility of our projects is determined.
Our business plan is to proceed with exploration of the Black Butte and our unpatented Silver Strike LAG claims to determine if there are commercially exploitable deposits of gold and silver, and if we decide not to proceed, to seek other mineral exploration properties. As per our purchase agreement, the Company is obligated to spend a minimum of $300,000 over the next twelve months on its Chedic graphite claims in Nevada.
The Black Butte Project - Our Proposed Exploration Program
Our business plan for the Black Butte Project is to proceed with the initial exploration of the gold and silver properties to determine if there are commercially exploitable deposits of gold and silver. We retained the services of the Hunsaker Inc., a geological company, to assess the results of our program. In a geological report compiled by Hunsaker dated May 2010, Hunsaker opined that further exploration on the Black Butte project is justified.
Over the twelve months ending May 31, 2014 we intend to use almost all available funds to commence exploration of our mineral properties in Nevada. We anticipate that phase II will not be carried out until 2014 or 2015 and will be contingent upon favorable results from phase I and specific recommendations in the resulting report. Specifics of the work to be carried out have not yet been determined and will be delineated as recommendations in the reporting of the results of phase I. The second phase may require up to six weeks work. Four months may be required for analysis and the preparation of a report and evaluation on the work accomplished.
Employees
We intend to continue to use the services of subcontractors for manual labor exploration work and an engineer or geologist to manage the exploration program. In regards to phase I of the planned exploration program, we have retained Buster Hunsaker as senior geological consultant.
At present, we have no employees. We currently operate with two executive officers, who devote their time as required to our business operations. Our executive officers are not presently compensated for their services and do not have an employment agreement with us.
We presently do not have pension, health, annuity, insurance, stock options, profit sharing or similar benefit plans; however, we may adopt such plans in the future. There are presently no personal benefits available to employees.
Results of Operations
Revenue
We have not earned any revenues since our inception.
Expenses
Our operating expenses for the years ended May 31, 2013 and 2012 are outlined in the table below:
Operating expenses for the year ended May 31, 2013, increased by $143,739 as compared to 2012, primarily as a result of the commencement of our business plan.
During the year ended May 31, 2013, National Graphite incurred operating expenses of $519,285 as compared to $375,546 for 2012 and a total of $1,931,241 for the period from inception on October 19, 2006, to May 31, 2013. The costs incurred can be further subdivided into the following categories.
PROFESSIONAL FEES: National Graphite incurred $97,544 in professional fees for the fiscal year ended on May 31, 2013, as compared to $256,566 for the previous fiscal year. From inception to October 19, 2006, we have incurred $1,093,629 in professional fees mainly spent on legal and accounting matters. This expense category will vary annually depending on corporate capital raising activities.
EXPLORATION OF RESOURCE PROPERTIES COSTS: We incurred $107,846 in mineral interest acquisition and exploration costs for the year ended May 31, 2013 compared to $27,316 for the year ended May 31, 2012. For the period October 19, 2006 (inception) through May 31, 2013, $198,991 was recorded for exploration work on our optioned projects. This category will vary from year to year dependent on the exploration activities of the Company.
IMPAIRMENT OF MINING CLAIMS: During the year ended May 31, 2013 the Company elected to fully-impair certain mineral claims as no proven reserves had yet been established. This resulted in the Company recognizing a $171,369 and $-0- impairment charge recorded in operating expenses for the years ended May 31, 2013 and 2012.
GENERAL AND ADMINISTRATIVE EXPENSES: National Graphite incurred $141,717 in general and administrative expenses during the fiscal year ended May 31, 2013 as compared to $90,856 in 2012. Since inception through May 31, 2013 the Company has incurred a total of $350,365. The Company spent more on officer compensation and travel expenses during 2013 which contributed to the increase in expenses.
RESEARCH AND DEVELOPMENT: National Graphite has not incurred any expenses for research and development since inception on October 19, 2006.
INCOME TAX PROVISION: As a result of operating losses, there has been no provision for the payment of income taxes to date in 2008 - 2013 or from the date of inception.
At the end of the fiscal year under review, May 31, 2013, and as of the date of this report, National Graphite had 68,669,881 common shares issued and outstanding.
Liquidity and Financial Condition
Working Capital
Cash Flows
Since inception we have used common stock to raise money for our optioned mineral acquisition and corporate expenses. Net cash provided by financing activities in the most recent fiscal year ended May 31, 2013 was $500,000, compared to $ 300,000 during the fiscal year ended May 31, 2012. Net cash provided by financing activities from inception on October 19, 2006 was $1,400,000.
Presently, our revenues are not sufficient to meet operating and capital expenses. We have incurred operating losses since inception, and this is likely to continue through fiscal 2013 - 2014. Management projects that we may require $1,730,000 to fund our ongoing operating expenses and working capital requirements for the next twelve months, broken down as follows:
As at May 31, 2013, we had a working capital surplus of $178,027. We plan to raise the additional capital required to meet the balance of our estimated funding requirements for the next twelve months primarily through the sale of equity based securities or loans from related parties. We do not anticipate that we will be able to satisfy any of these funding requirements internally until we significantly generate revenues.
Going Concern
We are in the exploration stage, have not yet achieved profitable operations and are dependent on our ability to raise capital from stockholders or other sources to meet obligations arising from normal business operations when they become due. Therefore, in their report on our audited financial statements for the year ended May 31, 2013, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosure describing the circumstances that lead to this disclosure.
Future Financings
We will require additional financing in order to enable us to proceed with our plan of operations. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due. We are pursuing various alternatives to meet our immediate and long-term financial requirements.
On October 29, 2010 we announced that the Company had entered into an equity financing agreement for up to $2,500,000 from Cardinal Capital Holdings, Limited. Under the terms of the agreement, the Company may from time to time request a purchase of up to $250,000 per request. On October 28, 2010 we received our first draw of $225,000. Under the terms of the agreement, we may draw up to a total of $1,500,000 through October 19th, 2011. The investment group, at its discretion, may invest an additional $1,000,000 at $.65 when the total first round has been completed.
Based on our current plan of operations, we have sufficient funds for the next 6 months, after which time we will require additional funds to continue our exploration operations.
Presently, our revenues are not sufficient to meet operating and capital expenses. We have incurred operating losses since inception, and this is likely to continue through fiscal 2012-2013. Management projects that we will require up to $1,730,000 to fund ongoing operating expenses and working capital requirements for the next 12 months, broken down as follows:
We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of equity securities or arrange for debt or other financing to fund our planned business activities.
We presently do not have any arrangements for additional financing and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with our plan of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
The Reports of the Independent Registered Public Accounting firm by Sadler, Gibb & Associates LLC for the audited financial statements for the year ended May 31, 2013,
NATIONAL GRAPHITE CORP.
(FKA Lucky Boy Silver Corp.)
(An Exploration Stage Company)
AUDIT REPORT OF INDEPENDENT ACCOUNTANTS
AND
FINANCIAL STATEMENTS
May 31, 2013 and 2012
NATIONAL GRAPHITE CORP.
(FKA Lucky Boy Silver Corp.)
(An Exploration Stage Company)
INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
National Graphite Corp.
(An Exploration Stage Company)
We have audited the accompanying balance sheets of National Graphite Corp. as of May 31, 2013 and 2012 and the related statements of operations, stockholders’ equity and cash flows for the years then ended and from the period from inception on October 19, 2006 through May 31, 2013. 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its 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, as well as 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 National Graphite Corp. as of May 31, 2013 and 2012 and the results of their operations and cash flows for the years then ended and for the period from inception on October 19, 2006 through May 31, 2013, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered accumulated net losses of $1,931,241 and will need additional working capital for its planned business activities. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
August 29, 2013
The accompanying notes are an integral part of these financial statements.
NATIONAL GRAPHITE CORP.
(FKA Lucky Boy Silver Corporation)
(An Exploration Stage Company)
Notes to Financial Statements
May 31, 2013 and 2012
NOTE 1 - NATURE OF OPERATIONS
National Graphite Corporation formerly known as Lucky Boy Silver Corporation, which was formerly known as Sierra Ventures, Inc. (“the Company”) was incorporated under the laws of the State of Wyoming on October 19, 2006. On May 8, 2012 the Company filed an Amendment to Articles with and changes its name from “Lucky Boy Silver Corporation” to “National Graphite Corporation.” On February 5, 2010 the Company filed an Amendment to Articles with the Wyoming Secretary of State and changed its name from “Sierra Ventures Inc.” to “Lucky Boy Silver Corporation.” On March 22, 2011, the Company pursuant to Wyoming and Nevada law converted from a Wyoming corporation to a Nevada corporation.
The Company is an “exploration stage company” as defined in the ASC Topic Accounting and Reporting by Development Stage Companies. The Company is devoting its resources to establishing the new business, and its planned operations have not yet commenced, accordingly, no revenues have been earned during the period from October 19, 2006 (date of inception) to May 31, 2013.
NOTE 2 - GOING CONCERN
The Company’s financial statements at May 31, 2013 and 2012 and for the period October 19, 2006 (inception) through May 31, 2013 have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company incurred a loss of $1,931,241 for the period from October 19, 2006 (inception) through May 31, 2013. In addition, the Company has not generated any revenues and no revenues are anticipated until the Company begins extracting and selling ore, and there is no assurance that commercially viable deposits exist on the mineral claims that the Company has under option. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.
Management’s plan to support the Company in its operations and to maintain its business strategy is to raise funds through public offerings and to rely on officers and directors to perform essential functions with minimal compensation. If the Company does not raise all of the money it needs from public offerings, it will have to find alternative sources, such as a second public offering, a private placement of securities, or loans from its officers, directors or others. If the Company requires additional cash and can’t raise it, it will either have to suspend operations until the cash is raised, or cease business entirely.
The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States of America applicable to exploration stage enterprises. The Company has elected a May 31 fiscal year end.
Use of Estimates
In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses in the statement of operations. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC insurance limit.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Impairment or Disposal of Long Lived Assets
In August 2001, ASC Topic, “Accounting for the Impairment or Disposal of Long-Lived Assets” was issued. It clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to their estimated fair value based on the best information available.
Fair Value of Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, accrued liabilities, notes payable, and amounts due to related parties. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Mineral Property Acquisition Costs
The costs of acquiring mineral properties are capitalized and amortized over their estimated useful lives following the commencement of production or expensed if it is determined that the mineral property has no future economic value or the properties are sold or abandoned.
Cost includes cash consideration and the fair market value of shares issued on the acquisition of mineral properties. Properties acquired under option agreements, whereby payments are made at the sole discretion of the Company, are recorded in the accounts at such time as the payments are made.
The recoverable amounts for mineral properties is dependent upon the existence of economically recoverable reserves; the acquisition and maintenance of appropriate permits, licenses and rights; the ability of the Company to obtain financing to complete the exploration and development of the properties; and upon future profitable production or alternatively upon the Company's ability to recover its spent costs from the sale of its interests. The amounts recorded as mineral properties reflect actual costs incurred and are not intended to express present or future values.
The capitalized amounts may be written down if potential future cash flows, including potential sales proceeds, related to the property are estimated to be less than the carrying value of the property. Management of the Company reviews the carrying value of each mineral property interest quarterly, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Reductions in the carrying value of each property would be recorded to the extent the carrying value of the investment exceeds the estimated future net cash flows.
Exploration and Development Costs
Exploration costs are expensed as incurred. When it is determined that a mining deposit can be economically and legally extracted or produced based on established proven (measured) and probable (indicated) reserves, further exploration costs and development costs incurred after such determination will be capitalized. The establishment of proven and probable reserves is based on results of final feasibility studies which indicate whether a property is economically feasible. Upon commencement of commercial production, capitalized costs will be transferred to the appropriate asset category and amortized over their estimated useful lives. Capitalized costs, net of salvage values, relating to a deposit which is abandoned or considered uneconomic for the foreseeable future, will be written off.
Impairment of Mineral Rights
The Company reviews mineral rights for indicators of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the review indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow method using a discount rate that is considered to be commensurate with the risk inherent in the company's current business model. During the years ended May 31, 2013 and 2012, the Company recorded impairment to mineral rights of $171,369 and $-0-, respectively.
Asset Retirement Obligations
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations," which establishes standards for the initial measurement and subsequent accounting for obligations associated with the sale, abandonment or other disposal of long-lived tangible assets arising from the acquisition, construction or development and for normal operations of such assets. The adoption of this standard has had no effect on the Company's financial position or results of operations. As of May 31, 2013 any potential costs relating to the ultimate disposition of the Company's mineral property interests have not yet been determinable.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with ASC 718 “Stock Compensation.” The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees.
Income Taxes
The Company has adopted the ASC 740 “Income Taxes” as of its inception. The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax bases of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Basic and Diluted Net Loss Per Share
The Company computes net income (loss) per share in accordance with ASC 260 “Earnings per Share”. The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per share gives effect to all dilutive potential common shares outstanding during the period using the “as if converted” basis. As of May 31, 2013 and 2012, there were -0- and 356,154 common stock warrants outstanding, none of which were considered “in the money” at May 31, 2013 and 2012.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
NOTE 4 - PROPERTY AND EQUIPMENT
The Company’s property and equipment consist of the following amounts as of May 31, 2013 and 2012:
Depreciation expense was $809 and $808, for the years ended May 31, 2013 and 2012, respectively.
NOTE 5 - MINERAL INTERESTS
On February 23, 2010 the Company entered into an agreement to purchase 38 unpatented BLM claims and two historic silver mine leases located in Mineral County, Nevada. As consideration for options on the mineral properties, the Company paid $55,000 in cash and issued 150,000 shares at $0.40 for $60,000 for a total purchase price of $115,000 of the Company’s common stock. During 2010 the Company had a preliminary geology study performed to assess the potential reserves of these newly acquired claims. Based on this report and managements’ future expectations of additional capital expenditures and future cash flows of the claims, management determined that the carrying value of the claims be fully impaired to a net book value of $57,500. In 2011 the Company impaired the remaining claims to $-0 and recorded an impairment loss of $57,500 for the period ended May 31, 2011. As of the year ended May 31, 2012 and 2013, the Company determined no further development would be pursed towards the development of these claims.
NOTE 5 - MINERAL INTERESTS (CONTINUED)
Candelaria Claims
During the year ended May 31, 2012 the Company incurred various costs of exploration and development on mining claims owned by the Company located in the Candelaria region of Nevada. The ongoing acquisition costs incurred with respect to these claims were capitalized as mineral interests and totaled $51,389 as of May 31, 2012. The Company capitalized an additional $9,979 in costs during the 2013 fiscal year. During the year ended May 31, 2013 the Company elected to fully-impair these claims as no proven reserves had yet been established. The Company recognized $61,368 and $-0- of impairment charges recorded in operating expenses during the years ended May 31, 2013 and 2012, respectively.
Canadian Claims
On April 20, 2012, the Company entered into an agreement to purchase mineral claims in Quebec, Canada. As consideration for the acquisition, the Company agreed to pay $50,000 in cash and issue 100,000 shares of common stock valued at $0.60 per share. The Company has paid the $50,000 in cash, and has issued the agreed upon shares of common stock valued at $60,000. These acquisition costs totaling $110,000 were capitalized as mineral interests. The Company has not been able to perform the geological analysis necessary to establish proven mineral reserves within these claims. Therefore, the Company elected to fully-impair these claims during the year ended May 31, 2013. As a result the Company recorded impairment expense of $110,000 which is the amount of acquisition costs that had been capitalized for the claims.
Carson City Claims
On April 24, 2012, the Company entered into an agreement to purchase mineral claims in Carson City, Nevada. As consideration for the purchase, the Company agreed to pay a total $425,000 in cash and to issue a total 2,500,000 shares of common stock. The Company has also agreed to a work commitment of no less than $1,000,000 in exploration and development costs over the next 48 months. As of May 31, 2013, the Company has paid $100,000 in cash and has issued 1,000,000 shares of common stock (valued at an aggregate of $475,000) under the following payment structure:
a) Cash Consideration:
i)
USD $50,000 upon the signing of the Agreement (the “Effective Date” ),
ii)
an additional USD $25,000 on or before 6 months from the Effective Date ,
iii)
an additional USD $25,000 on or before 12 months from the Effective Date,
iv)
an additional USD $50,000 on or before 18 months from the Effective Date,
v)
an additional USD $75,000 on or before 24 Months from the Effective Date,
vi)
an additional USD $50,000 on or before 30 months from the Effective Date,
vii)
an additional USD $50,000 on or before 36 months from the Effective Date,
viii)
an additional USD $50,000 on or before 42 months from the Effective Date,
ix)
an additional USD $50,000 on or before 48 months from the Effective Date
(for a total cash consideration of $425,000).
b) Stock Consideration:
i)
500,000 shares upon the signing of the Agreement (the “Effective Date“),
ii)
500,000 shares on or before 6 months from the Effective Date,
iii)
500,000 shares on or before 18 months from the Effective Date,
iv)
500,000 shares on or before 24 months from the Effective Date,
v)
500,000 shares on or before 48 months from the Effective Date, (for a total
stock consideration of 2,500,000 common shares).
NOTE 5 - MINERAL INTERESTS (CONTINUED)
Carson City Claims (Continued)
c) Work Commitment:
The Company has agreed to provide funds for the conduct of a program of work to be undertaken by the seller for the benefit of the property of not less than USD $1,000,000 over years as follows:
NOTE 6 - STOCKHOLDERS’ EQUITY
The Company’s authorized capital consists of 1,000,000 preferred shares with 675,000 preferred shares issued and outstanding at a par value of $0.001 per preferred share. Common stock consists of 499,000,000 authorized shares of $0.001 par value common stock. As of May 31, 2013 and 2012 there were 68,669,881 and 75,153,214 shares issued and outstanding, respectively.
Common Stock Activity, Fiscal Year Ended May 31, 2013
The Company issued 916,667 shares of common stock for cash of $500,000.
The Company issued 600,000 shares of common stock for the acquisition of mineral claims. The shares were valued at fair market value of $235,000.
On October 17, 2012 the Company entered into a Share Issuance Agreement with an unrelated third party entity. Pursuant to the terms of the agreement, the third party agreed to provide a financing line to the Company of no greater than $2,500,000, from which the Company can receive advances of no more than $250,000 per advance. In exchange for any advances made, the Company agrees to issue shares of its common stock. The number of shares to be issued shall be based upon a ten percent discount to the average of the closing trading prices of the five day period immediately prior to issuance. As of May 31, 2013 no advances have been received by the Company.
On October 19, 2012 the Company cancelled 8,000,000 shares of common stock held by a director of the Company who is a related party.
Common Stock Activity, Fiscal Year Ended May 31, 2012
The Company issued 500,000 shares of its common stock at $0.60 per share for $300,000 cash. The shares issued were valued at the cash price per share received. The Company also issued 500,000 shares of its common stock at $0.60 for acquisition of mineral interests in Carson City, NV. The shares issued were valued at the value of the most recent issuance of common stock for cash.
NOTE 7 - STOCK OPTIONS AND WARRANTS
The Company utilizes the Black-Scholes option-pricing model for calculating the fair value of the options granted as defined by ASC Topic 718, which is an acceptable valuation approach under ASC 718. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock.
Projected data related to the expected volatility and expected life of stock options is based upon historical and other information, and notably, the Company's common stock has limited trading history. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore, the existing valuation models do not provide a precise measure of the fair value of the Company's employee stock options.
On October 25, 2010 the Company issued 356,154 units consisting of one share of common stock and one warrant for cash at $0.63 per share. The attached warrants are exercisable for two years from issuance and have an exercise price of $0.85 per share for one year from issuance which increased to $1.05 in the second year. The Company used the Black-Scholes option pricing model to value the warrants based on the terms of the warrant, a volatility of 350 percent, risk free rate of 0.37 percent, and a stock price and issuance of $0.63. Based on this calculation, the Company determined that the relative fair value of the warrants is $136,699 and allocated this amount of the additional paid-in capital to the warrants. These warrants expired during the year ended May 31, 2013.
A summary of all warrants outstanding and exercisable as of May 31, 2013 and changes during the year then ended is set forth below:
A summary of all employee options outstanding and exercisable under the plan as of May 31, 2012 and changes during the year then ended is set forth below:
NOTE 8 - INCOME TAXES
The Company follows ASC 740, under which deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
The cumulative tax effect at the expected rate of 34 percent of significant items comprising our net deferred tax amount is as follows:
The cumulative tax effect at the expected rate of 34 percent of significant items comprising our net deferred tax amount is as follows:
NOTE 9 - SUBSEQUENT EVENTS
In accordance with ASC 855 Company management reviewed all material events through filing of these financial statements and there are no material subsequent events to report.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
On April 15, 2010 our Board of Directors approved of the engagement of Sadler Gibb & Associates LLC, PO Box 411, Farmington UT, 84025, as its independent auditor. None of the reports of Sadler Gibb & Associates LLC on the Company's financial statements for either of the two most recent fiscal years, contain an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that the Registrant's audited financial statements contained in its Form 10-K for the fiscal year ended May 31, 2012, a going concern qualification in the registrant's audited financial statements. There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the past two fiscal years and interim periods.
Item 9A(T).
Item 9A(T). Controls and Procedures.
As of May 31, 2013, under the direction of the Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a - 15(e) under the Securities Exchange Act of 1934, as amended. Based on the evaluation of these controls and procedures required by paragraph (b) of Sec. 240.13a-15 or 240.15d-15 the disclosure controls and procedures have been found to be ineffective.
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in our reports filed under the securities Exchange Act, is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Internal Control Over Financial Reporting
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of May 31, 2013. In making this assessment, management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. In management’s assessment of the effectiveness of internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) as required by Exchange Act Rule 13a-15(c), our management concluded as of the end of the fiscal year covered by this Annual Report on Form 10-K that our internal control over financial reporting has not been effective.
As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that results more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of May 31, 2013:
i) Lack of segregation of duties. At this time, our resources and size prevent us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management will periodically reevaluate this situation.
ii) Lack of an independent audit committee. Although we have an audit committee it is not comprised solely of independent directors. We may establish an audit committee comprised solely of independent directors when we have sufficient capital resources and working capital to attract qualified independent directors and to maintain such a committee.
iii) Insufficient number of independent directors. At the present time, our Board of Directors does not consist of a majority of independent directors, a factor that is counter to corporate governance practices as set forth by the rules of various stock exchanges.
Our management determined that these deficiencies constituted material weaknesses. Due to a lack of financial resources, we are not able to, and do not intend to, immediately take any action to remediate these material weaknesses. We will not be able to do so until we acquire sufficient financing to do so. We will implement further controls as circumstances, cash flow, and working capital permit. Notwithstanding the assessment that our ICFR was not effective and that there were material weaknesses as identified in this report, we believe that our financial statements fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, that has materially affected, or is reasonable likely to materially affect, our internal controls over financial reporting.
The Company has not taken any steps at this time to address these weaknesses but will formulate a plan before fiscal year ending May 31, 2014.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our fourth fiscal quarter ended May 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
At a shareholders meeting held in December 2009, the stockholders approved the election of director, Kenneth B. Liebscher, to serve until the next Annual General Meeting of Shareholders or until his respective successor is elected or appointed;
At a shareholders meeting held in January 2010, the stockholders approved the name change of the corporation from Sierra Ventures Inc to Lucky Boy Silver Corp. and the forward split of our company stock of 15:1. On May 9, 2012 the stockholders approved the name change of our Company to National Graphite Corp.
Change of Jurisdiction
On March 22, 2011, the corporation converted from a Wyoming corporation to a Nevada corporation pursuant to Wyoming Statutes Title 17, ch. 16, Sect.(s) 820, 821 and 1114 and Nevada Revised Statutes 92A.205. This conversion did not alter the number of authorized shares, or the number of issued and outstanding shares, of the corporation. The voting and other rights of the common and preferred shares of the company’s capital stock remain substantially similar under Nevada law. The powers of the company’s officers, directors and shareholders also remain substantially the same. Our authorized capital stock continues to consist of 499,000,000 shares of common stock, par value $0.001 per share and 1,000,000 shares of preferred stock, par value $0.001per share.
Name Change
On February 5, 2010 we filed an Amendment to Articles with the Wyoming Secretary of State and changed our name from “Sierra Ventures Inc.” to “Lucky Boy Silver Corp.” On May 9, 2012 we changed the name of our Company to National Graphite Corp. Our shares of common stock are quoted on the OTC Bulletin Board under the symbol “NGRC”. Our CUSIP number is 631268 104. The quotation was first posted at the opening on May 29, 2009 with an opening bid of $0.05 ($0.0033 post-split) and offer at $0.10 ($0.0067 post-split).
Letter Agreement
On February 8, 2010, Ken Liebscher, our President, Chief Executive Officer, signed a letter agreement with Monte Cristo Projects LLC and Alan Chambers, whereby Mr. Liebscher has agreed to acquire 38 unpatented BLM claims including those known as Silver Summit and Silver Strike and two historic silver mine leases known as Lucky Boy Silver Mine and the Black Butte Silver Mine (“AG Properties”), all located in Mineral County, State of Nevada.
In consideration for the claims, Mr. Liebscher has agreed to pay US$55,000 to Monte Cristo Projects LLC and issue 75,000 shares of common stock of our company to Monte Cristo Projects LLC and 75,000 shares of common stock of our company to Alan Chambers.
On February 23, 2010, Mr. Liebscher assigned all of his right, title and interest in and to the letter agreement and the AG Properties to our company in consideration for $1.00. Our company will carry out the obligations and take the benefit of the letter agreement.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The following individuals serve as the directors and executive officers of our company as of the date of this annual report. All directors of our company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.
None of the directors or officers has professional or technical accreditation in the exploration, development or operations of mining or mining related projects. During the past year, our president, Mr. Liebscher, spent approximately 50% of his time (approximately 20 hours per week) on the affairs of National Graphite. For the coming year, it is anticipated that time commitment and requirement will remain approximately the same.
Business Experience
The following is a brief account of the education and business experience during at least the past five years of each director and executive officer of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Kenneth B. Liebscher, Chief Executive Officer, President, Director
Ken Liebscher was appointed as our President, Chief Executive Officer and a director of our company on December 14, 2009. Mr. Liebscher was our Chief Financial Officer and Secretary from December 14, 2009 to January 5, 2010.
Mr. Liebscher is a seasoned international businessman with over 35 years of securities and executive management experience. Mr. Liebscher is a graduate of St. George's School, Vancouver, British Columbia and also attended the University of British Columbia.
Mr. Liebscher held executive level positions while at the world's largest dental products manufacturer, Dentsply International Inc., where he spent over 22 years in positions culminating as the Manager of their West Coast Division, headquartered in San Francisco, California. Mr. Liebscher was recruited by a major Europe-based competitor, Ivoclar Liechtenstein in 1990 to lead their entry into the North American market and, from 1990 to 1992, became Executive Vice President of Sales and Marketing and helped expand this company’s sales to $300M US.
Mr. Liebscher became a director of a publicly held company called E.T.C. Industries Ltd. in 1992 and became President of its wholly owned subsidiary, THE ELECTRIC CAR COMPANY and, in 1994, led a team that developed the MI-6 prototype electric car from the ground up.
Mr. Liebscher served as a director on Belmont Resources Inc (TSX BEA), a mining exploration company from 1992 until November 2009. He served as an officer and director of Highbank Resources Inc (TSX HBK) from 1992 through 2002. This experience has resulted in his involvement in mineral exploration projects in Peru, Eastern Europe (Slovak Republic), and British Columbia, Ontario, Quebec and New Brunswick (Canada).
Mr. Liebscher currently also serves on the Board of Directors of Tiger Oil & Energy, Inc. (TGRO.OTC BB).
We believe Mr. Liebscher is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations in addition to his education and business experiences as described above.
Dr. Fortunato Villamagna, Secretary, Director
Dr. Fortunato Villamagna was appointed as Secretary and a director of our company on January 5, 2010.
Dr. Villamagna has over 25 years of domestic and international experience in the mining services, specialty and bulk chemicals, capital equipment, bioenergy, aerospace and energetic materials businesses used in the mining industry. Dr. Villamagna holds a PhD in Chemistry and MBA in Global Management, and has worked throughout North America, Europe, Australia and West Africa. In addition to joining National Graphite, Dr. Villamagna also served as CEO of UTEC Inc. Prior to the role Dr. Villamagna served as President of BioEnergy Systems, a technology company serving the biofuels industry. Prior to that Dr. Villamagna was Vice President - Business Development for American Pacific Corporation (AMPAC), a publically listed company with divisions and subsidiaries that manufacture active pharmaceutical ingredients and registered intermediates, energetic products used primarily in space flight, aerospace and defense systems, clean fire- extinguishing agents and water treatment equipment. Prior to that Dr. Villamagna was the Vice President Technology, Americas and Europe for Orica Inc., an Australian-owned, publicly-listed global company, and global leader in mining products and services. Prior to that Dr. Villamagna was the Director of Bulk Delivered Products for Energetic Solutions, Inc., a part of UK Based ICI Explosive.
Dr. Villamagna currently also serves on the Board of Directors of Northumberland Resources Inc. (NHUR.OTC BB).
We believe Dr. Villamagna is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations in addition to his education and business experiences as described above.
Howard Bouch, Chief Financial Officer, Director.
Howard Bouch, age 67, is a Private Practice Chartered Accountant with over 36 years of Public and Private international experience. Mr. Bouch originally qualified as a Chartered Accountant (English and Wales Institute) in 1968. Mr. Bouch started his career in the Mining Sector when he joined Deloitte & Co, Lusaka, Zambia from 1970 - 1972. Mr. Bouch joined Anglo American Corp, Zambia working as Head Office Chief Accountant for Nchanga Consolidated Copper Mines (world's 2nd largest) from 1972 - 1976. In 1976, Mr. Bouch returned to the UK and joined Babcock and Wilcox, Engineers, Nottinghamshire, England as Chief Accountant for one of their subsidiaries. Mr. Bouch was Chief Accountant of a private building firm in Cumbria, England from 1978 - 1984. In 1984 Mr. Bouch established a Private Practice as a Chartered Accountant and continues to provide professional services to Cumbrian firms to the present. Mr. Bouch is also a Director of Viavid Broadcasting Inc., (symbol VVDB), Tiger Oil and Energy, Inc. (symbol TGRO), Universal Potash Corp., (symbol UPCO), and Black Hawk Exploration (symbol BHWX).
We believe Mr. Bouch is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations in addition to his education and business experiences as described above.
Family Relationships
There are no family relationships between any of our directors or executive officers.
Involvement in Certain Legal Proceedings
During the past ten years, none of our executive officers or directors have had any of the following events occur:
a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offenses;
being subject to any order, judgment or decree, not substantially reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking business;
being found by a court of competent jurisdiction, in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated;
Being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of our common stock to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during the fiscal year ended May 31, 2013, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following:
Code of Ethics
Our board of directors on March 22, 2007, adopted a formal written Code of Business Conduct and Ethics and Compliance Program for all officers, directors and senior employees. Our Code of Business Conduct and Ethics and Compliance Program was filed as an exhibit to our Form SB-2 filed with the SEC on October 12, 2007.
Audit Committee and Audit Committee Financial Expert
Our board of directors has determined that we do not have an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K under the Exchange Act.
We believe that the members of our board of directors are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. We believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any material revenues to date. In addition, we currently do not have an audit committee or committee performing similar functions nor do we have a written audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes the functions of such committee can be adequately performed by our board of directors.
Nominating and Compensation Committees
We do not have nominating or compensation committees, or committees performing similar functions. Our board of directors believe that it is not necessary to have a compensation committee at this time because the functions of such committee are adequately performed by our board of directors. Our board of directors has not adopted a charter for the compensation committee.
Our board of directors also is of the view that it is appropriate for us not to have a nominating committee because our board of directors has performed and will perform adequately the functions of a nominating committee. Our board of directors has not adopted a charter for the nomination committee. There has not been any defined policy or procedure requirements for shareholders to submit recommendations or nomination for directors. Our board of directors does not believe that a defined policy with regard to the consideration of candidates recommended by shareholders is necessary at this time because we believe that, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level. There are no specific, minimum qualifications that our board of directors believes must be met by a candidate recommended by our board of directors. The process of identifying and evaluating nominees for director typically begins with our board of directors soliciting professional firms with whom we have an existing business relationship, such as law firms, accounting firms or financial advisory firms, for suitable candidates to serve as directors. It is followed by our board of directors’ review of the candidates’ resumes and interview of candidates. Based on the information gathered, our board of directors then makes a decision on whether to recommend the candidates as nominees for director. We do not pay any fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominee.
Item 11.
Item 11. Executive Compensation.
General
The particulars of the compensation paid to the following persons:
our principal executive officer;
each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended May 31, 2013, and 2014; and
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended May 31, 2013, and 2012,
whom we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year.
Notes:
(1)Mr. Liebscher was appointed as our President, Chief Executive Officer and a director of our company on December 14, 2009. Mr. Liebscher was our Chief Financial Officer and Secretary from December 14, to January 5, 2011.
(2)	Dr. Villamagna was appointed as our Chief Financial Officer, Secretary and a Director on January 5, 2010.	
(3)	Howard Bouch was appointed as our Chief Financial Officer and a Director November 1, 2012.
On November 5, 2012 the Board of Directors authorized payments of $1,000 per month to Directors as Directors Fees.
Options Grants During the Last Fiscal Year / Stock Option Plans
We do not currently have a stock option plan in favor of any director, officer, consultant or employee of our company. No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or director since our inception; accordingly, no stock options have been granted or exercised by any of the officers or directors since we were founded.
Aggregated Options Exercises in Last Fiscal Year
No individual grants of stock options, whether or not in tandem with stock appreciation rights known as SARs or freestanding SARs have been made to any executive officer or any director since our inception; accordingly, no stock options have been granted or exercised by any of the officers or directors since we were founded.
Long-Tem Incentive Plans and Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance. No individual grants or agreements regarding future payouts under non-stock price-based plans have been made to any executive officer or any director or any employee or consultant since our inception; accordingly, no future payouts under non-stock price-based plans or agreements have been granted or entered into or exercised by any of the officers or directors or employees or consultants since we were founded.
Compensation of Directors
On January 24, 2010, we issued 150,000 post-split (10,000 pre-split) shares of our common stock to Ken Liebscher and 30,000 post-split (2,000 pre-split) shares of our common stock to Fortunato Villamgna as director compensation.
On November 5, 2012 the Board of Directors authorized payments of $1,000 per month to Directors as Directors Fees.
Except as disclosed above, the members of the Board of Directors are not compensated by National Graphite for acting as such. Directors are reimbursed for reasonable out-of-pocket expenses incurred. There are no arrangements pursuant to which directors are or will be compensated in the future for any services provided as a director.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
There are no employment contracts or other contracts or arrangements with our officers or directors other than those disclosed in this report. There are no compensation plans or arrangements, including payments to be made by National Graphite, with respect to the officers, directors, employees or consultants of National Graphite that would result from the resignation, retirement or any other termination of such directors, officers, employees or consultants. There are no arrangements for directors, officers or employees that would result from a change-in-control.
Indebtedness of Directors, Senior Officers, Executive Officers and Other Management
None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this report, the total number of shares owned beneficially by each of our directors, named executive officers and current executive officers, individually and our directors and current executive officers as a group, and the present owners of 5% or more of our total outstanding shares. The shareholder listed below has direct ownership of his shares and possesses sole voting and dispositive power with respect to the shares.
Notes:
*	Less than 1%.
(1)Beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this report as of which there were 75,669,881 shares of our common stock issued and outstanding.
(2)Based on 75,669,881 number of shares of common stock issued and outstanding as of the date of this report.
(3)These shares are held of record by Wannigan Consulting Corp., a private company of which Mr Liebscher is also President and CEO.
(4)Does not include Ian Jackson who resigned as our President, Chief Executive Officer, Chief Financial Officer and Secretary on December 14, and as a director of our company on January 5, 2010.
(5)Includes 10,000 pre-split (150,000 post-split) shares issued to Mr. Liebscher for compensation.
(6)Consists of 2,000 pre-split (30,000 post-split) shares issued to Mr. Villamagna for compensation.
Changes in Control
We do not anticipate at this time any changes in control of National Graphite. There are no arrangements either in place or contemplated which may result in a change of control of National Graphite. There are no provisions within our Articles or Bylaws that would delay or prevent a change of control.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Transactions with Related Persons
Except as disclosed herein, there has been no transaction, since June 1, 2008, or currently proposed transaction, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest.
any director or executive officer of our company;
any beneficial owner of shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; and
any member of the immediate family (including spouse, parents, children, siblings and in-laws) of any of the foregoing persons.
Director Independence
Our board of directors consists of Kenneth B. Liebscher, Dr. Fortunato Villamagna and Howard Bouch. Our securities are quoted on the OTC Bulletin Board which does not have any director independence requirements. According to the definition of “independent director” used in NASDAQ rule 5605(a)(2), Mr. Liebscher,Dr. Villamagna and Howard Bouch are not independent directors as Mr. Liebscher is our President and Chief Executive Officer and Dr. Villamagna is our Secretary and Howard Bouch is our Chief Finacial Officer.
Item 14.
Item 14. Principal Accounting Fees and Services.
The aggregate fees billed for the most recently completed fiscal year ended May 31, 2013, and for fiscal year ended May 31, 2012, for professional services rendered by the principal accountants for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows: Sadler, Gibb & Associates LLC.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Registered Public Accounting Firm
Our board of directors, which acts as our audit committee, pre-approves all services provided by our independent registered public accounting firms. All of the above services and fees were reviewed and approved by our board of directors before the respective services were rendered.
Our board of directors has considered the nature and amount of fees billed by our independent registered public accounting firms and believes that the provision of services for activities unrelated to the audit is compatible with maintaining their independence.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL GRAPHITE CORP.
/s/ Kenneth B. Liebscher
By: Kenneth B. Liebscher
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 27, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Kenneth B. Liebscher
By: Kenneth B. Liebscher
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 27, 2013
/s/ Fortunato Villamagna
By: Fortunato Villamagna
Secretary and Director
Date: August 27, 2013
/s/ Howard Bouch
By: Howard Bouch
Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)
Date: August 27, 2013