Annual Financial Report
FORTUNE GRAPHITE INC.:
GXG FIRST QUOTE MARKET ANNOUNCEMENT - 2013 AUDITED FINANCIALS
Date: September 02, 2013
As part of its continued compliance with the GXG First Quote Market, Fortune
Graphite Inc. has prepared the following announcement, which includes extracts
from its audited financial statements as at January 31, 2013.
I hereby confirm that to the best of my knowledge, the information appearing
within this announcement is true and valid of Fortune Graphite Inc.
Sincerely,
Avi Amar
Director
Fortune Graphite Inc.
Fortune Graphite Inc.
(An Exploration Stage Enterprise)
Financial Statements
As of and for the Years Ended
January 31, 2013 and 2012
And
Report of Independent Public Accounting Firm
Fortune Graphite Inc.
(An Exploration Stage Enterprise) Index to Financial Statements
January 31, 2013 and 2012
Report of Independent Public Accounting Firm 1
Financial Statements:
Balance Sheets 2
Statements of Comprehensive 3
Statements of Changes in Shareholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-10
GREGORYSCOTT
875 N Michigan Ave Suite 3100
Chicago, IL 6061 1 USA (312) 752-5426 www.gregoryscottinternational.com
REPORT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Fortune Graphite Inc.:
Report on the Financial Statements
We have audited the financial statements of Fortune Graphite Inc., (an
exploration stage enterprise) which are comprised of the balance sheets as at
January 31, 2013 and 2012, and the related statements of comprehensive loss,
changes in shareholders' equity, and cash flows for each of the years then
ended, and a summary of significant accounting policies and other explanatory
notes.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation of financial statements that give
a true and fair view in accordance with International Financial Reporting
Standards ("IFRS") and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit in accordance with International Standards
on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the
amounts and disclosures in the financial statements. The procedures selected
depend on the auditor's judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation of financial statements that give a true
and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statements give a true and fair view
of the financial position of Fortune Graphite Inc. as at January 31, 2013 and
2012, and of their financial performance and cash flows for each of the years
then ended in accordance with IFRS.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 of the
accompanying financial statements, the Company is dependent on generating
revenue and obtaining outside sources of financing for the continuation of its
operations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Chicago, Illinois USA March 20, 2013
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Balance Sheet
As of January 31, 2013 and 2012
Assets Note 2013 2012
Non-current assets
Intangible assets - mineral rights 4 $3,900,000 $3,900,000
Furniture and fixtures 2,988 4,336
Total non-current assets $3,902,988 $3,904,336
Current assets
Cash and cash equivalents 3 71,365 85,000
Total current assets $71,365 $85,000
Total assets $3,974,353 $3,989,336
Shareholders' Equity (Deficit ) and Liabilities
Shareholders' equity
Common stock 5 $1,039,800 $539,800
Additional paid-in capital - -
Accumulated deficit (223,722) (166,368)
Total shareholders' equity (deficit ) $816,078 $373,432
Long-term liabilities
Notes payable - related party 4 $1,100,000 $1,100,000
Total long-term liabilities $1,100,000 $1,100,000
Current liabilities
Common stock payable - related party 4 1,800,000 2,300,000
Notes payable - related party - -
Due to related parties 3 258,275 215,904
Total current liabilities $2,058,275 $2,515,904
Total liabilities $3,158,275 $3,615,904
Total shareholders' equity and liabilities $3,974,353 $3,989,336
The accompanying notes are in integral part of the financial statements.
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Comprehensive Loss
For the Year Ended January 31, 2013 and 2012
Note 2013 2012
Revenue
Commission fee income 2 $ - $ -
Total revenue $ - $ -
Operating expenses
Transportation 3,557 9,581
Professional fees 25,263 42,533
Management fees 3,964 2,128
Telecommunications 2,146 2,840
Rent 6,710 10,427
Filing and transfer agent fees 6,949 12,494
General and administrative 8,765 10,745
Total operating expenses 2 $ 57,354 $ 90,748
Loss from operations $ 57,354 $ 90,748
Income tax expense 2 - -
Net loss $ 57,354 $ 90,748
Other comprehensive income 2 $ - $ -
Total comprehensive income $ 57,354 $ 90,748
Loss per share - Basic and diluted $ 0.0074 $ 0.0174
Weighted average number of common shares 7,704,318 5,205,000
- Basic and diluted
The accompanying notes are in integral part of the financial statements.
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Changes in Shareholders' Equity
For the Year Ended January 31, 2013 and 2012
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
Balance at February 1, 2011 5,203,636 $ 539,800 $ - $ (75,620) $ 464,180
Net loss for the year
ended January 31, 2012 - - - (90,748) (90,748)
Balance at January 31, 2012 5,203,636 $ 539,800 $ - $ (166,368) $ 373,432
Net loss for the year ended - - - (57,354) (57,354)
January 31, 2013
Common stock payable issued 5,000,000 500,000 - - 500,000
for acquisition of mineral
rights
Balance at January 31, 2013 10,203,636 $1,039,800 $ - $(223,722) $ 816,078
The accompanying notes are in integral part of the financial statements.
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Cash Flows
For the Year Ended January 31, 2013 and 2012
2013 2012
Cash flow from operating activities $(57,354) $(90,748)
Net loss
Adjustments to reconcile net loss to cash
Depreciation $ 1,348 $ 1,084
Increase in due to related parties 42,371 174,664
Cash provided by operating activities $(13,635) $ 85,000
Cash flow from investing activities $ - $ -
Cash flow from financing activities $ - $ -
Net change in cash and cash equivalents $(13,635) $85,000
Cash and cash equivalents at beginning of the $ 85,000 $ -
period
Cash and cash equivalents at end of the period $71,365 $85,000
Interest paid $ - $ -
Taxes paid $ - $ -
Non-cash financing activities:
Acquisition of mineral rights for:
Common stock $500,000 $ -
Common stock payable - related party $(500,000) $ -
The accompanying notes are in integral part of the financial statements.
Notes to the Financial Statements
As of and for the Years Ended January 31, 2013 and 2012
1. Nature of Operations
Fortune Graphite Inc. ("Fortune Graphite" or "the Company") was incorporated on
March 10, 2010, in British Columbia, Canada. The Company identifies and brings
to market valuable mining properties bearing graphite carbon, gold, silver and
other precious metals. The Company is the legal and registered owner of a total
of 6,813 hectares containing graphite carbon, 348 hectares containing gold, and
188 hectares containing silver.
Based on the Company's business plan, it is an exploration stage enterprise
since planned principle mining operations have not yet commenced. Accordingly,
the Company has prepared its financial statements in accordance with
International Financial Reporting Standards ("IFRS") that apply to developing
enterprises.
2. Going Concern
The preparation of financial statements in accordance with IFRS contemplates
that operations will be sustained for a reasonable period. The Company is in
the exploration stage and is dependent on generating revenue and outside
sources of financing for continuation of its operations. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern for a reasonable period.
The company plans to improve its financial condition through raising capital
and ultimately generating revenue. However, there is no assurance that the
company will be successful in accomplishing this objective. Management believes
that this plan provides an opportunity for the Company to continue as a going
concern. We cannot give any assurances regarding the success of management's
plans. Our financial statements do not include adjustments relating to the
recoverability of recorded assets or liabilities that might be necessary should
we be unable to continue as a going concern.
3. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of these financial
statements are set out below.
Basis of Preparation - The financial statements are presented in Canadian
dollars in accordance with IFRS, using the historical cost convention.
The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Management believes that the estimates are
reasonable.
Intangible Assets: Mineral Rights - Purchased intangible assets are recorded
at cost, where cost is the amount of cash or cash equivalents paid or the fair
value of other consideration given to acquire an asset at the time of its
acquisition. The cost of such an intangible asset is measured at fair value
unless the exchange transaction lacks commercial substance or the fair value of
neither the asset received nor the asset given up is reliably measurable. If
the fair value of either the asset received or the asset given up can be
measured reliably, then the fair value of the asset given up is used to measure
cost unless the fair value of the asset received is more clearly evident.
The Company capitalizes acquisition and annual renewal costs associated with
mineral rights as intangible assets. The amount capitalized represents fair
value at the time the mineral rights are acquired. Upon commencement of
commercial production, the mineral rights will be amortized using the
unit-of-production method over their expected useful life.
Cash and Cash Equivalents -For purposes of the statement of cash flows, the
Company considers all highly liquid investments with original maturities of
three months of less to be cash equivalents. Cash and cash equivalents are
stated at cost which approximates fair value.
Due to Related Parties - Due to related parties represent related obligations
allocated from affiliated entities to pay for goods or services that have been
acquired in the ordinary course of business from suppliers.
Revenue and Associated Costs - The Company recognizes revenue when persuasive
evidence of an arrangement exists, services are rendered, the sales price or
fee is fixed or determinable, and collectability is reasonably assured. Costs
associated with the production of revenues are expensed as incurred.
Impairment of Non-Financial Assets- Assets that are subject to amortization
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is
recognized for the amount by which the asset's carrying amount exceeds its
recoverable amount. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash
flows, such as the mining property level.
Income Taxes- The Company follows the asset and liability method of accounting
for future income taxes. Under this method, future income tax assets and
liabilities are recorded based on temporary differences between the carrying
amount of assets and liabilities and their corresponding tax basis. In
addition, the future benefits of income tax assets including unused tax losses,
are recognized, subject to a valuation allowance to the extent that it is more
likely than not that such future benefits will ultimately be realized. The
Company has provided a 100% valuation allowance to its deferred tax assets
associated with net operating losses, resulting in no net tax impact for any of
the years presented.
Future income tax assets and liabilities are measured using enacted tax rates
and laws expected to apply when they are to be either settled or realized. The
Company does not have any significant deferred tax asset or liabilities at
January 31, 2012. The Company's effective tax rate approximates the Federal
statutory rates.
Other Comprehensive Income- Other comprehensive income represents the change
in equity of an enterprise during a period from transactions from non-owner
sources. The Company has no accounts or transactions that give rise to other
comprehensive income.
Loss Per Common Share- Basic loss per common share is calculated by dividing the
net loss by the weighted average number of common shares outstanding during
that period. Diluted loss per share is calculated by based on the treasury
stock method, by dividing loss available to common shareholders, adjusted for
the effects of dilutive convertible securities, by the weighted average number
of common shares outstanding during the period and all additional common shares
that would have been outstanding had all potential dilutive common share been
issued. This method computes the number of additional shares by assuming all
dilutive options are exercised. That the total number of shares is then reduced
by the number of common shares assumed to be repurchased from the total of
issuance proceeds, using the average market price of the Company's common
shares for the period. There were no dilutive securities during the period
presented in the accompanying financial statements.
Segment Reporting- Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision-maker. The
chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the
steering committee that makes strategic decisions. The Company operates in one
segment described in Note 1, consisting of its mining operations.
Critical Accounting Estimates and Judgments- Estimates and judgements are
continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances. The Company makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year include:
Mineral Rights - Significant estimates and assumptions are required to
determine the expected useful lives for amortizing the Company's intangible
assets with finite useful lives. Estimates are also necessary in assessing
whether there is an impairment of their value requiring a write-down of their
carrying amount. In order to ensure that its assets are carried at no more than
their recoverable amount, the Company evaluates at each reporting date certain
indicators that would result, if applicable, in the calculation of an
impairment test. The recoverable amount of an asset or group of assets may
require the Company to use estimates and mainly to assess the future cash flows
expected to arise from the asset or group of assets and a suitable discount
rate in order to calculate present value. Any negative change in relation to
the operating performance or the expected future cash flows of individual
assets or group of assets will change the expected recoverable amount of these
assets or group of assets, and therefore may require a write-down of their
carrying amount.
Contingent Liabilities - The Company is required to make judgments about
contingent liabilities including the probability of pending and potential
future litigation outcomes that, by their nature, are dependent on future
events that are inherently uncertain. In making its determination of possible
scenarios, management considers the evaluation of outside counsel knowledgeable
about each matter, as well as known outcomes in case law.
Future Accounting Policy Changes
In November 2009, the IASB issued IFRS 9 Financial Instruments as the first
step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 retains but simplifies the mixed measurement model and establishes
two primary measurement categories for financial assets: amortized cost and fair value.
The basis of classification depends on an entity's business model and the
contractual cash flow of the financial asset. Classification is made at the time
the financial asset is initially recognized, namely when the entity becomes a party to
the contractual provisions of the instrument. IFRS 9 amends some of the requirements of IFRS 7
Financial Instruments: Disclosures including added disclosures about
investments in equity instruments measured at fair value in OCI, and guidance
on financial liabilities and de-recognition of financial instruments. In
December 2011, the IASB issued an amendment that adjusted the mandatory
effective date of IFRS 9 from January 1, 2013 to January 1, 2015. We are
currently assessing the impact of adopting IFRS 9 on our financial statements.
In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements to
replace IAS 27 Consolidated and Separate Financial Statements and SIC 12
Consolidation - Special Purpose Entities. The new consolidation standard
changes the definition of control so that the same criteria apply to all
entities, both operating and special purpose entities, to determine control.
The revised definition focuses on the need to have both power and variable
returns before control is present. IFRS 10 must be applied starting January 1,
2013 with early adoption permitted. We are currently assessing the impact of
adopting IFRS 10 on our financial statements.
In May 2011, the IASB issued IFRS 11 Joint Arrangements to replace IAS 31,
Interests in Joint Ventures. The new standard defines two types of
arrangements: Joint Operations and Joint Ventures. Focus is on the rights and
obligations of the parties involved to reflect the joint arrangement, thereby
requiring parties to recognize the individual assets and liabilities to which
they have rights or for which they are responsible, even if the joint
arrangement operates in a separate legal entity. IFRS 11 must be applied
starting January 1, 2013 with early adoption permitted. We are currently
assessing the impact of adopting IFRS 11 on our financial statements.
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities
to create a comprehensive disclosure standard to address the requirements for
subsidiaries, joint arrangements and associates including the reporting
entity's involvement with other entities. It also includes the requirements for
unconsolidated structured entities (i.e. special purpose entities). IFRS 12
must be applied starting January 1, 2013 with early adoption permitted. We are
currently assessing the impact of adopting IFRS 12 on our financial statements.
In May 2011, the IASB issued IFRS 13 Fair Value Measurement as a single source
of guidance for all fair value measurements required by IFRS to reduce the
complexity and improve consistency across its application. The standard
provides a definition of fair value and guidance on how to measure fair value
as well as a requirement for enhanced disclosures. Enhanced disclosures about
fair value are required to enable financial statement users to understand how
the fair values were derived. IFRS 13 must be applied starting January 1,
2015 with early adoption permitted. We are currently assessing the impact of
adopting IFRS 13 on our financial statements.
In October 2011, the IASB issued IFRIC 20 Stripping Costs in the Production
Phase of a Surface Mine. IFRIC
20 provides guidance on the accounting for the costs of stripping activity in
the production phase of surface mining when two benefits accrue to the entity
from the stripping activity: useable ore that can be used to produce inventory
and improved access to further quantities of material that will be mined in
future periods. IFRIC 20 must be applied starting January 1, 2013 with early
adoption permitted. We are currently assessing the impact of adopting IFRIC 20
on our financial statements.
4. Intangible Assets - Mineral Rights
The Company acquired mineral rights associated with the following properties
from related parties in exchange for shares of its common stock and future cash
payments. The Company utilized the fair value of its equity and cash
consideration to determine the acquisition price because proven or probable
mineral reserves have not been determined for the acquired mineral rights.
The following table provides details on the components of each acquisition,
including the number of shares of common stock issued, the number of shares of
common stock to be issued in the future, and the future cash payments due to
the seller. The future cash payments provided in the table below represent the
payment obligations described in the purchase agreements. However, the seller
has amended the terms of the agreements to defer the payment of future cash
obligations by the Company until February 12, 2014 at a minimum, unless
adequate funding is available to the Company for the payment after all 2013
exploration costs are taken into consideration from a successfully completed
fundraise once listed on the GXG First Quote Market. As a result, all future
cash payments due by the Company are reflected in the balance sheet as non-
current liabilities.
Mineral Rights Acquired Obligations
AA Harris King David McVicar Superior Current Noncurrent
Bentink Gold Creek Castle Graphite Obligations Obligations Total
Components of
acquisition price:
Common stock issued
as of January 31, 2013:
Shares 5,000,000 5,000,000 - - - - -
Price per share $ 0.10 $ 0.10 - - - - -
$ 500,000 $ 500,000 - - - - - $ 1,000,000
Common stock payable
at January 31,2013
Shares - - 5,000,000 3,000,000 10,000,000
Price per share - - $ 0.10 $ 0.10 $ 0.10
Share issue date - - Jun 16,2012 Jun 16,2012 Jun 16,2012
- - $500,000 $300,000 $1,000,000 $1,800,000 - $ 1,800,000
Future Cash Payments
at January 31,2013:
Total payment due - $ 100,000 $250,000 $ 250,000 $ 500,000
Due monthly - $ 5,000 $10,000 $ 10,000 $ 15,000
Months - 20 25 25 20
Start - Sep 15,2012 June 16,2013 Aug 1,2012 May 1,2014
End - Aug 15,2014 May 16,2015 Jul 1,2014 Feb 1,2017
Payments due in:
2012 - $ 20,000 $ - $ 50,000 $ - $ - $70,000
2013 - 60,000 70,000 120,000 - - 250,000
2014 - 20,000 120,000 80,000 120,000 - 340,000
2015 - - 60,000 - 180,000 - 240,000
2016 - - - - 180,000 - 180,000
2017 - - - - 20,000 - 20,000
$ - -
$ 1,100,000
$ - $ 100,000 $ 250,000 $ 250,000 $ 500,000 $ 1,100,000
AA Harris King David McVicar Superior
Bentink Gold Creek Castle Graphite Totals
Date acquired Apr 12, Aug 11, Dec 16, Dec 16, Jan 25,
2010 2010 2010 2010 2011
Total consideration $500,000 $600,000 $750,000 $550,000 $1,500,000 $3,900,000
Pursuant to these acquisitions, the Company owns 5,312 hectares containing
graphite carbon, 348 hectares containing gold, and 188 hectares containing
silver at January 31, 2013.
5. Shareholders' Equity
The Company is authorized to issue an unlimited number of no-par value shares
of common stock.
All shares of the Company's common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to: one non-cumulative vote for each share held of
record on all matters submitted to a vote of the stockholders; to participate
equally and to receive any and all such dividends as may be declared by the
Board of Directors out of funds legally available therefore; and to participate
pro rata in any distribution of assets available for distribution upon
liquidation. Stockholders have no pre-emptive rights to acquire additional
shares of common stock or any other securities. Common shares are not subject
to redemption and carry no subscription or conversion rights. All outstanding
shares of common stock are fully paid and non-assessable.
6. Subsequent Events
No events occurred subsequent to January 31, 2013 that would require adjustment
to the accompanying financial statements.
7. Approval of Financial Statements
The accompanying financial statements were approved by the board of directors
and authorized for issue on March 20, 2013.