Annual Financial Report
FORTUNE GRAPHITE INC.:
GXG FIRST QUOTE MARKET ANNOUNCEMENT - 2013 AUDITED FINANCIALS
Date: March 28, 2014
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, 2014.
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, 2014 and 2013
And
Report of Independent Public Accounting Firm
Fortune Graphite Inc.
(An Exploration Stage Enterprise)
Index to Financial Statements
January 31, 2014 and 2013
Report of Independe nt Public Accounting Firm …………………… ……… 1
Financial Statements:
Statement of Financial Position ……………………… …… 2
Statement of Profit or Loss and
Other Comprehensive Income ………………………… … 3
Statement of Changes in Shareholders' Equity ……………………… …… 4
Statement of Cash Flows …………………………… 5
Notes to Financial Statements …………………………… 6 -10
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.:
Reportonthe FinancialStatements
We have audited the financial statements of Fortune Graphite Inc., (an
exploration stage enterprise) which are comprised of the statement of financial
position as at January 31, 2014 and 2013, and the related statements of profit
of loss and other comprehensive income, 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, 2014 and
2013, 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.
Gregory Scott
Chicago, Illinois USA
March 28, 2014
Page | 1
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Financial Position
As of January 31, 2014 and 2013
January 31,
Assets Note 2014 2013
Non current assets
Intangible assets - mineral rights 6 3,900,000 3,900,000
Furniture and fixtures 3 2,390 2,988
Total noncurrent assets $3,902,390 $3,902,988
Current assets
Cash 3 11,015 71,365
Loan receivable 3 20,000 -
HST receivable 3 3,502 -
Total current assets $34,517 $71,365
Total assets $3,936,907 $3,974,353
Shareholders' Equity & Liabilities
Shareholders' equity
Share capital 7 $3,939,800 $1,039,800
Accumulated deficit 7 (280,275) (223,722)
Total shareholders' equity $3,659,525 $816,078
Noncurrent liabilities
Notes payable - related parties 7 - $1,100,000
Total noncurrent liabilities $ - $1,100,000
Current liabilities
Common stock payable - related parties 7 1,800,000
Due to related parties 8 277,382 258,275
Total current liabilities $2,058,275
Total liabilities $277,382 $3,158,275
Total shareholders' equity and liabilities $3,936,907 $3,974,353
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Profit or Loss and Other Comprehensive Income
For the Years Ended January 31, 2014 and 2013
Year Ended January 31,
Note 2014 2013
Revenue 3 $ - $ -
Operating Expenses $ (24,510) $ (6,949)
Filing and transfer agent fees
General and administrative (11,831) (8,765)
Management fees (4,311) (3,964)
Professional fees (3,210) (25,263)
Rent (7,992) (6,710)
Telecommunications (1,787) (2,146)
Transportation (2,912) (3,557)
Total expenses 3 $ (56,553) $ (57,354)
Income taxes 3 $ - $ -
Net loss $ (56,553) $ (57,354)
Other comprehensive income 3 $ - $ -
Total comprehensive loss $ (56,553) $ (57,354)
Loss per share 3 $ (0.001) $ (0.006)
Loss per common share - basic and
diluted
Weighted average common shares 3 39,203,636 10,203,636
outstanding - basic and diluted
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Changes in Shareholders' Equity
For the Years Ended January 31, 2014 and 2013
Share Capital Accumulated
Note Shares Amount Deficit Total
Balance at February 1, 2012 5,203,636 $ 539,800 $ (166,368 $ 373,432
Common stock issued for 7 5,000,000 500,000 - 500,000
mineral rights
Net loss for the year ended 7 - - (57,354) (57,354)
January 31, 2013
Balance at January 31, 2013 10,203,636 $ 1,039,800 $ (223,722) $ 816,078
Common stock issued for 7 18,000,000 1,800,000 - 1,800,000
mineral rights
Common stock issued for 7 11,000,000 1,100,000 - 1,100,000
notes payable
Net loss for the year ended
January 31, 2014 7 - - (56,553) (56,553)
Balance at January 31, 2014 39,203,636 $ 3,939,800 $ (280,275) $ 3,659,525
The accompanying notes are in integral part of the financial statements.
Fortune Graphite Inc. (An Exploration Stage Enterprise)
Statement of Cash Flows
For the Years Ended January 31, 2014 and 2014
Year Ended January 31,
Cash flow from operating activitie s: 2014 2013
Net loss $ (56,553) $(57,354)
Adjustments to reconcile net loss - -
to cash flow used in operating activities:
Depreciation 598 1,348
Increase in due to related parties 19,107 42,371
Increase in loan receivable (20,000) -
Increase in HST receiveble (3,502) -
Net used in operating activities $ (60,350) $ (13,635)
Cash flow from investing activitie s: $ - $ -
Cash flow from financing activitie s: $ - $ -
Net change in cash and cash equivalents $ (60,350) $ (13,635)
Cash and cash equivalents at beginning of the 71,365 85,000
period
Cash and cash equivalents at end of the period $ 11,015 $ 71,365
Interest paid $ - $ -
Taxes paid $ - $ -
Non cash investing and financing activities - debit (credit)
Acquisition of mineral rights for common stock payable
Common stock payable $ 1,800,000 $ 500,000
Common stock $(1,800,000) $(500,000)
Common stock issued for notes payable - related $ 1,100,000 $ -
party
Notes payable - related party
Common stock $ 1,100,000 $ -
The accompanying notes are in integral part of the financial statements.
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.
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.
Receivables - Receivables are recorded at cost, less any necessary allowance
for impairment in 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, 2014. 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.
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 7Financial 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. The adoption
of this standard had no material impact 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. The adoption of this standard had no
material impact 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. The adoption of this
standard had no material impact 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. The
adoption of this standard had no material impact 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. The adoption of this standard had no material
impact 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. The adoption of this standard had no
material impact on our financial statements.
4. Critical Accounting Estimates and Judgments
Estimates and judgments 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 recovera ble 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.
5. Financial Risk Management Objectives and Policies
The Company has a system of controls in place to create an acceptable balance
between the cost of risks occurring and the cost of managing the risk.
Management continually monitors the Company's risk management process to ensure
that an appropriate balance between risk and control is achieved. Risk
management policies and systems are reviewed regularly to reflect changes in
market conditions and the Company's activities. The Company reviews and agrees
policies and procedures for the management of these risks.
The Company is exposed to financial risks arising from its operations and the
use of financial instruments. The key financial risks include market risk,
credit risk, and liquidity risk. The following section provides details
regarding the Company's exposure to these risks and the objectives, policies
and processes for the management of these risks.
Market Risk - Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will affect the
Company's income or the value of its holdings of financial instruments.
Management believes the Company is not exposed to significant market risk.
Credit Risk - Credit risk is the risk of loss that may arise on outstanding
financial instruments should a counterparty default on its obligations. Credit
risk arising from the inability of a customer to meet the terms of the
Company's financial instrument contracts is generally limited to the amounts,
if any, by which the customer's obligations exceed the obligations of the
Company. The Company's exposure to credit risk arises primarily from its cash &
cash equivalents and amounts due from affiliates for which the Company
minimizes credit risk by dealing with reputable counterparties with high credit
ratings and no history of default
Liquidity Risk - Liquidity risk is the risk that the Company will encounter
difficulty in meeting financial obligations due to shortage of funds. The
Company's exposure to liquidity risk arises primarily from mismatches of the
maturities of financial assets and liabilities. The Company's liquidity risk
management policy is to monitor its net operating cash flows and maintain an
adequate level of cash and cash equivalents through regular review of its
working capital requirements. The Company monitors and maintains a level of
cash considered adequate by management to finance the Company's operations and
mitigate the effects of the fluctuations in cash flows.
Capital Management - The primary objective of the Company's capital management
is to ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximize shareholder value. The
Company manages its capital structure and makes adjustments to it, in light of
changes in economic conditions. To maintain or adjust the capital structure,
the Company may adjust the dividend payment to shareholders, return capital to
shareholders, or issue new shares. The Company has complied with all externally
imposed capital requirements as at January 31, 2014, and no changes were made
to the Company's capital management objectives, policies or processes during
the year then ended.
6. 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, cash, and
notes payable due to the related parties. These mineral rights are located in
the Slocan Mining Division, a reported graphite mineral bearing region i n
British Columbia, Canada, and in the reported gold and silver bearing placer
properties in British Columbia, Canada. The mineral rights are recorded in the
accompanying statement of financial position at their carryover basis,
representing the original cost paid by these related parties to acquire the
mineral rights.
Description Year Mineral
Acquired Rights
AA Bentnick 2010 $ 500,000
Harris Gold Creek 2010 600,000
King David Castle 2010 750,000
McVicar 2010 550,000
Superior 2011 1,500,000
$ 3,900,000
During the year ended January 31, 2014, the Company paid the final contractual
amounts due for the mineral rights by issuing 18,000,000 shares of common stock
to settle the remaining $1,800,000 "common stock payable" obligation due on
various properties, and by issuing 11,000,000 shares of common stock to settle
the remaining $1,100,000 due on various notes payable due to these related
parties in connection with the mineral rights purchase agreements. As a result,
the Company has fully paid for its mineral rights as of January 31, 2014.
Pursuant to these acquisitions, the Company is the legal and registered owner
of 2,924 hectares containing graphite carbon, 60 hectares containing gold, and
21 hectares containing silver at January 31, 2014.
7. Shareholders' Equity
The Company is authorized to issue an unlimited number of no-par value shares
of common stock. At January 31, 2104, the Company has 39,203,636 shares of
common stock issued and outstanding.
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.
8. Due to Related Parties
Due to related parties represents obligations allocated from affiliated
entities to pay for goods or services that have been acquired in the ordinary
course of business from suppliers by the affiliates on the Company's behalf.
This obligation is non-interest bearing, and has no stated maturity date.
9. Subsequent Events
No events occurred subsequent to January 31, 2014 that would require adjustment
to the accompanying financial statements.
10. Approval of Financial Statements
The accompanying financial statements were approved by the board of directors
and authorized for issue on March 28, 2014.
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