The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Next Graphite, Inc.
(A development stage company)
Notes to the Condensed Consolidated Financial Statements
(UNAUDITED)
NOTE 1 – ORGANIZATION
Next Graphite, Inc. (the “Company”) was incorporated in Nevada on September 26, 2012 under the name Zewar Jewellery, Inc. and is a development-stage entity. The Company's current business plan is to engage in the mining business developing graphite properties located in Namibia. The Company is based in Carson City, Nevada.
On November 14, 2013, the Company consummated transactions pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) dated November 14, 2013 by and among the Company and the stockholders of African Graphite, Inc., a private Nevada corporation (“AGI” and the “AGI Stockholders”) whereby AGI Stockholders transferred 100% of the outstanding shares of common stock of AGI held by them, in exchange for an aggregate of 8,980,047 newly issued shares of the Company’s common stock, par value $.0001 per share (“Common Stock”).
On November 14, 2013, AGI entered into a Stock Purchase Option Agreement (the “Option Agreement”) with NMC Corp., a corporation organized under the laws of the Province of Ontario, Canada (“NMC”), whereby NMC granted to AGI an option to purchase 90 ordinary shares, par value one Namibian dollar per share, of Gazania Investments Two Hundred and Forty Two (Proprietary) Limited, a corporation organized under the laws of the Republic of Namibia ("Gazania"), representing 90% of the issued and outstanding shares of Gazania, for $240,000. NMC had entered into an option agreement dated March 29, 2013, as amended on November 4, 2013 (the “Centre Agreement”), with Centre for Geoscience Research CC (formerly known as “Industrial Minerals and Rock Research Centre CC”), a company organized under the laws of the Republic of Namibia ("Centre"), whereby Centre agreed to transfer to Gazania 100% undivided interest in the exclusive prospecting license No. 3895 known as AUKUM originally issued to Centre by the government of the Republic of Namibia on April 4, 2011 and renewed on April 4, 2013 (the “License”). The License grants the right to conduct prospecting operations, bulk sampling and pilot production in the license area called AUKAM located in southern Namibia in the Karas Region within the Betaine district. The license area covers about 49,127 hectares. The only mine in Namibia which has produced graphite is situated in the license area. The transfer of the License to Gazania was approved by the Ministry of Mines and Energy of the Republic of Namibia on February 25, 2014.
Under the Option Agreement, AGI was required to pay to NMC $90,000 as an advance payment to be credited towards the purchase price of the Gazania shares. The Company made the advance payment on November 14, 2013. The balance of the purchase price in the amount of $150,000 was paid by AGI upon exercise of the option that was completed on March 14, 2014. As a result, Gazania became a direct 90% owned subsidiary of the Company.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Company is considered to be in the development stage as defined in ASC 915-10-05, “Development Stage Entity.” The Company is devoting substantially all of its efforts to the execution of its business plan.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash consists principally of currency on hand, demand deposits at commercial banks, and liquid investment funds having a maturity of three months or less at the time of purchase. The Company had no cash equivalents as of March 31, 2014, and December 31, 2013.
Start-up Costs
In accordance with ASC 720-15-20, “Start-up Activities,” the Company expenses all costs incurred in connection with the start-up and organization of the Company.
We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on Financial Accounting Standards Board (FASB) ASC Topic 718, “Compensation – Stock Compensation”, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with ASC Topic 505, “Equity”, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable and deferred taxes. Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and tax operating loss carry forwards. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. Estimated interest and penalties related to uncertain tax positions are included as a component of general and administrative expense.
Basic and Diluted Loss per Common Share
Basic loss per common share amounts are computed by dividing net loss by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share amounts are computed assuming the issuance of common stock for potentially dilutive common stock equivalents.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts payable, and related party payables approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported for convertible notes payable approximate fair value based on the value of the common stock into which the notes are convertible. The carrying amounts reported for notes payable approximate fair value because the underlying instruments are at interest rates that approximate current market rates.
Reverse Merger Accounting
The Merger was accounted for as a reverse-merger and recapitalization in accordance with generally accepted accounting principles in the United States (“GAAP”). African Graphite, Inc. is the acquirer for financial reporting purposes and Next Graphite, Inc. is the acquired company. African Graphite, Inc. was incorporated on August 29, 2013 (“Inception”). Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of African Graphite, Inc. from Inception and are recorded at the historical cost basis of African Graphite, Inc, and the consolidated financial statements after completion of the Merger include the assets and liabilities of African Graphite, Inc. and Next Graphite, Inc; and historical operations of Next Graphite, Inc and African Graphite, Inc. since the closing date of the Merger. Common stock and the corresponding capital account of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger.
NOTE 3 - PROVISION FOR INCOME TAXES
The Company recognizes the tax effects of transactions in the year in which such transactions enter into the determination of net income regardless of when reported for tax purposes. Deferred taxes are provided in the financial statements under FASC 740-10-65-1 to give effect to the temporary differences which may arise from differences in the bases of fixed assets, depreciation methods and allowances based on the income taxes expected to be payable in future years. Minimal development stage deferred tax assets arising as a result of net operating loss carry-forwards have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods.
The Company recognizes interest accrued relative to unrecognized tax benefits in interest expense and penalties in operating expense. During the period from August 29, 2013 (inception) to March 31, 2014 the Company recognized no income tax related interest and penalties. The Company had no accruals for income tax related interest and penalties at March 31, 2014.
NOTE 4 - STOCKHOLDERS’ EQUITY
As of March 31, 2014 the Company had (i) 100,000,000 shares of Common Stock authorized with a par value of $.0001 per share, of which 49,431,439 shares were issued and outstanding, and (ii) 25,000,000 shares of preferred stock, par value $.0001 per share, authorized, none of which was issued and outstanding. 8,980,047 shares of Common Stock have been issued to founders, of which 400,016 shares were issued to the President and director as part of their consulting agreements. The shares were valued at par for a value of $898.
On November 14, 2013, the Company entered into and consummated transactions pursuant to a Subscription Agreement (the “Subscription Agreement”) with certain accredited investors whereby the Company issued and sold to the investors for $1.00 per share an aggregate of 249,998 shares of the Company’s Common Stock for an aggregate purchase price of $250,000.
As share-based compensation to employees and non-employees, the Company issued 2,369,991 shares of common stock valued at $2,369,991, based on the market price of the stock on the date of issuance.
On November 14, 2013, the Company consummated transactions pursuant to the Share Exchange Agreement with AGI dated November 14, 2013 by and among the Company and the stockholders of AGI whereby the AGI Stockholders transferred 100% of the outstanding shares of common stock of AGI held by them, in exchange for an aggregate of 8,980,047 newly issued shares of Common Stock.
On November 14, 2013, the Company issued 12,600,003 shares of Common Stock to NMC in connection with the option grant closing under the Option Agreement.
All shares presented in these financial statements and accompanying footnotes have been retroactively adjusted to reflect the increased number of shares resulting from the seven point eight-to-one forward stock split effective on December 16, 2013.
On February 3, 2014, the Company sold 271,400 shares of Common Stock, for gross proceeds of $271,400 at a per share price of $1.00 pursuant to a Subscription Agreement with an accredited investor.
During March 2014 the company sold advance subscriptions to purchase 700,000 shares of Common Stock for gross proceeds of $700,000 at a per share price of $1.00 pursuant to Subscription Agreements with accredited investors. On April 18, 2014 the shares were issued to the investors.
On March 14, 2014, AGI exercised its option under the Option Agreement and the Company paid to NMC the balance of the purchase price in the amount of $150,000 outstanding under the Option Agreement.
On March 14, 2014, the Company sold 550,000 shares of Common Stock, for gross proceeds of $550,000 at a per share price of $1.00 pursuant to a Subscription Agreement with an accredited investor.
On March 25, 2014, the Company sold 150,000 shares of Common Stock, for gross proceeds of $150,000 at a per share price of $1.00 pursuant to a Subscription Agreement with an accredited investor.
On March 21, 2014 the Company cancelled 25,740,000 shares of common stock. The cancellation of the shares decreased the amount of common stock by $2,574 and increased additional paid in capital by the same amount. The shares were held by African Graphite and were cancelled for internal company restructuring.
NOTE 5 –ACCOUNTS PAYABLE
As of March 31, 2014, the Company’s accounts payable totaled $47,580. The following table shows the content of the account as of March 31, 2014:
|
Professional Fees
|
|
$ |
47,580 |
|
|
Total Accounts Payable
|
|
$ |
47,580 |
|
NOTE 6 -GOING CONCERN
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has incurred approximately $2,800,664 in operating deficit since its inception, and has generated no operating revenue, which could raise substantial doubt about the Company’s ability to continue as a going concern.
In view of these matters, realization of the assets of the Company is dependent upon the Company’s ability to meet its financial requirements through equity financing and the success of future operations. These financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
NOTE 7 – ACQUISITION OF GAZANIA
As of March 31, 2014, the Company had $240,000 in long term assets for the purchase of mining rights, $60,000 is reported is an intangible asset and $180,00 is goodwill which $240,000 was paid in cash as total purchase price.
NOTE 8 –CONSULTING AGREEMENT
On March 20, 2014, the Company entered into a consulting agreement with Wall Street Relations, Inc. (the “Consultant”). Under the agreement, the Consultant will provide to the Company public relations, communications, advisory and consulting services. The term of the agreement is 12 months. For the services to be rendered under the agreement, the Company paid to the Consultant $500,000 in cash.
NOTE 9 –SUBSEQUENT EVENTS
On April 29, 2014, the Company sold 50,000 shares of Common Stock, for gross proceeds of $50,000 at a per share price of $1.00 pursuant to a Subscription Agreement with an accredited investor.