Notes
to the Financial Statements
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION
Amarok
Resources, Inc. (“Amarok” or the “Company”) was incorporated in the state of Nevada on October 23, 2008
under the name Ukragro Corporation. The Company’s principal activity is the exploration and development of mineral properties
for future commercial development and production.
On
January 29, 2010, the Company filed an amendment to its articles of incorporation changing its name to Amarok Resources, Inc.
In the same amendment, the Company changed its authorized capital to 175,000,000 shares of common stock at a restated par value
of $0.001. Effective February 23, 2010, the Company authorized a 60:1 stock split. The accompanying financial statements have
been restated to reflect the change in capital and stock split as if they occurred at the Company’s inception.
Effective
February 1, 2010, the Company entered the exploratory stage as defined under the provisions of Accounting Codification Standard
915-10.
Going
Concern
The
Company has incurred net losses since inception, and as of July 31, 2013 had a combined accumulated deficit of $4,976,766. These
conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities
that might be necessary should the Company be unable to continue as a going concern.
Management
recognizes that the Company must generate additional funds to enable it to continue operating. Management intends to raise additional
financing through debt and or equity financing and by other means that it deems necessary, with the goal of moving forward and
sustaining a prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in
raising additional capital. Further, even if the company raises additional capital, there can be no assurance that the Company
will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant
revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company follows accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations
for the periods presented have been reflected herein.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments and other short-term investments with a maturity date of three months or
less, when purchased, to be cash equivalents.
Mining
Costs
Costs
incurred to purchase, lease or otherwise acquire property are capitalized when incurred. General exploration costs and costs to
maintain rights and leases are expensed as incurred. Management periodically reviews the recoverability of the capitalized mineral
properties. Management takes into consideration various information including, but not limited to, historical production records
taken from previous mining operations, results of exploration activities conducted to date, estimated future prices and reports
and opinions of outside consultants. When it is determined that a project or property will be abandoned or its carrying value
has been impaired, a provision is made for any expected loss on the project or property.
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 and disclosures
of contingent 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.
Fair
Value of Financial Instruments
Pursuant
to ASC No. 820,
“Fair Value Measurements and Disclosures
,
”
the Company is required to estimate the fair
value of all financial instruments included on its balance sheets as of July 31, 2013 and October 31, 2012. The Company’s
financial instruments consist of accounts payables and a short term note payable. The Company considers the carrying value of
such amounts in the financial statements to approximate their fair value.
Loss
Per Share of Common Stock
The
Company follows Accounting Standard Codification Topic No. 260,
Earnings Per Share
(“ASC No. 260”) that requires
the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net
income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. The
calculation of diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock. In accordance with ASC No. 260, any anti-dilutive effects
on net earnings (loss) per share are excluded. Potential common shares at July 31, 2013 that have been excluded from the computation
of diluted net loss per share include warrants exercisable into 3,000,000 shares of common stock and options exercisable into
500,000 shares of common stock.
Convertible
Debt Instruments
If
the conversion feature of conventional debt instruments provides for a rate of conversion that is below market value at issuance,
this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt
discount pursuant to ASC Topic 470-20
“
Debt with Conversion and Other Options
.”
In those circumstances,
the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to operations
over the life of the debt using the effective interest method. If the convertible instrument is immediately convertible into common
stock, discounts arising from beneficial conversion features are directly charged to expense pursuant to ACS 470-20-35.
Issuances
Involving Non-cash Consideration
All
issuances of the Company’s stock for non-cash consideration have been assigned a dollar amount equaling the market value
of the shares issued on the date the shares were issued for such services. The non-cash consideration received pertains to consulting
services.
Stock-Based
Compensation
The
Company accounts for stock-based compensation under Accounting Standard Codification Topic 505-50,
Equity-Based Payments to
Non-Employees
. This topic defines a fair-value-based method of accounting for stock-based compensation. In accordance with
the Topic, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized
over the vesting period. The value of the stock-based award is determined using Binomial or Black-Scholes option-pricing models,
whereby compensation cost is the excess of the fair value of the award as determined by the pricing model at the grant date or
other measurement date over the amount that must be paid to acquire the stock. The resulting amount is charged to expense on the
straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
Reclassification
Certain
reclassifications have been made to conform the 2012 amounts to 2013 classifications for comparative purposes.
Recent
Accounting Pronouncements
The
Company’s management has evaluated all recent accounting p
ronouncements
since the last audit through the issuance date of these financial statements. In the Company’s
opinion, none of the recent accounting p
ronouncements
will have a material effect on the financial
statements.
NOTE
3 – MINING CLAIMS
McNeil
Claims, Canada
On
March 24, 2011 the Company signed an agreement with Warrior Ventures, Inc. (“Warrior”), a private company, to acquire
100% of the McNeil Gold Property. The McNeil property is located within the Abitibi Greenstone belt, approximately 30 miles southeast
of Timmins, Ontario, Canada and approximately 35 miles west of Kirkland Lake, Ontario, Canada. The purchase price of the property
was in exchange for Warrior receiving 1,400,000 shares of the Company’s restricted common stock along with an option to
purchase 1,400,000 of the Company common shares of the Company at a price of $1.00 per common share until October 1, 2011. Any
options remaining unexercised as of September 1, 2011 may be exercised at a price of $1.25 per common share until March 31, 2012,
after which the option to purchase any shares of Amarok automatically terminates. The Company initially valued the 1,400,000 shares
at $784,000 based upon the trading price of the common shares on the date of issuance. The Company valued the 1,400,000 options
at $98,724 using a binomial option model with a trading price of $0.56 per share, risk-free interest rate of 0.26%, and volatility
of 93.221%. The total of $882,724 was capitalized as mining properties. At October 31, 2011, the Company recognized an impairment
of $322,000 on the reduction in the fair value of mining claim based upon the agreed upon price of $0.33 per share pursuant to
the underlying purchase agreement. The $0.33 per share was based upon the trading price of the Company’s common share on
the March 23, 2011. Through July 31, 2013, the Company has incurred additional acquisition costs totaling $128,986. The capitalized
costs of the McNeil claim as of July 31, 2013 amounted to $689,710.
Rodeo
Creek Project, Nevada
On
February 22, 2010, the Company entered into an agreement with Carlin Gold Resources, Inc., (“Carlin”) in which Carlin
assigned the Company all of its rights, title, and interest in an exploration agreement between it and Trio Gold Corp. (“Trio”).
The assigned exploration agreement was dated January 28, 2010. In consideration for the assignment of the interest in the exploration
agreement, the Company paid Carlin $1 and issued 100,000 shares of its common stock, valued at $168,000 based upon the trading
price of the shares on the date of issuance. The value of these shares has been charged to operations and included in exploration
costs.
Trio
has leased and has an option to purchase a 100% interest in 29 unpatented lode mining claims located in Nevada within the Carlin
Gold Trend (the “Claims”). The Claims are subject to a 1.5% net smelter return (“NSR”).
Under
the terms of the original agreement, the Company earns a 75% undivided interest in the Property during an earn-in period commencing
in January 2010 and completing in December 2012 (the “earn-in period”). Upon completion of the earn-in period, a joint
venture (the “Joint Venture”) is to be formed with the same 75% / 25% interest the parties held during the earn-in
period. The Joint Venture shall remain in effect for twenty-five years or
as long as the claims
are being actively mined or developed, whichever is longer. After the termination of the Joint Venture, the Claims shall revert
back to Trio.
On
March 23, 2012, the Company and Trio entered into an agreement that modified certain terms of the original agreement (“modified
agreement”). During the earn-in-period, the Company is to provide $5,500,000 in funding to cover operational costs. Under
the original agreement, $1,500,000 was to be funded during the 2010 budget year, $2,000,000 was to be funded during the 2011 budget
year, and $2,000,000 was to be funded during the 2012 budget year. The modified agreement eliminates the annual funding requirements
and extends the due date of the $5,500,000 funding to December 31, 2013.
Under
the original agreement, the Company was required to pay a minimum annual royalty during the earn-in period to Trio of which $75,000
was paid upon signing of the agreement, $100,000 was paid on April 1, 2011 and $150,000 was to be paid on April 1, 2012. Under
the terms of the March 23, 2012 modified agreement, the minimum royalty payments have been incorporated into the $5,500,000 funding
requirement and the final $150,000 minimum royalty payment becomes due on April 1, 2013. In consideration for modifying the terms
of the original agreement and extending the due date, the Company issued Trio 139,400 shares of its common shares valued at $11,152,
which was charged to operations and included in exploratory costs.
Once
the Company has provided $5,500,000 in funding for the project, the Company and Trio shall fund the operational costs jointly,
with the Company providing 75% of the funds and Trio providing 25% of the funds. Through July 31, 2012, the Company funded a total
of $2,350,000 in the property’s operational costs as defined under the modified agreement. The funds paid have been charged
to operations and included in exploratory costs.
In
addition, within three months of the assignment, the Company is required to issue Trio 144,240 shares of its common stock. Upon
expenditure of a minimum of $2,000,000 on the claims, Trio shall receive an additional 72,120 shares of the Company’s common
stock. Upon expending a minimum of $4,000,000 on the claims, Trio shall receive an additional 72,120 shares of the Company’s
common stock. Upon expenditure of $5,500,000 on the claims, Trio shall receive a final 72,120 shares of the Company’s common
stock All shares issued shall be restricted common shares and will be stamped with the applicable hold period. On February 22,
2010, the Company issued 144,240 shares of its common stock to Trio valued at $242,323, based upon the trading price of the shares
on the date of issuance. On October 25, 2011, the Company issued 72,120 shares of its common stock to Trio valued at $5,769, based
upon the trading price of the shares on the date of issuance. On March 23, 2012, the Company issued 139,400 shares of its common
stock to Trio valued at $11,152, based upon the trading price of the shares on the date of issuance. The values of the shares
have been charged to operations and included in exploration costs.
On
February 13, 2013, the Company entered into an agreement with Trio Gold Corp to modify the terms of the above indicated final
minimum royalty payment of $150,000, which was due on April 1, 2013. In exchange for paying $15,000 upon the signing of the agreement
and $5,000 on August 1, 2013, the due date of the remaining $130,000 is extended to October 1, 2013, with the date when the full
$5,500,000 must be spent on the Rodeo Claims is extended to December 31, 2014. Of the $20,000 that is due, $15,000 was paid on
February 20, 2013 and $5,000 was paid on March 15, 2013. The $20,000 was charged to exploratory costs.
Trio
is a company incorporated in the Province of Alberta, Canada. Trio’s current President is the father of one of the Company’s
officers and directors.
The
sole officer, director, and shareholder of Carlin is a business associate of one of the Company’s officers and directors.
Cueva
Blanca Gold Property
On
April 16, 2010, the Company entered into an agreement with St. Elias Mines Ltd. (“St. Elias”) in which Amarok is given
an option to earn a 60% interest, subject to a 1.5% NSR”) royalty, in the Cueva Blanca gold property (1,200 hectares) in
Northern Peru, which is wholly owned by St. Elias
.
Under the terms of the letter agreement, it is possible for the
Company to acquire a 60% interest in the Property
(subject to a 1.5% NSR) in consideration of:
(a)
making cash payments of $200,000 to St. Elias over a two-year period;
(b)
issuing 100,000 common shares in the capital of Amarok to St. Elias; and
(c)
incurring at least $1,500,000 in exploration expenditures on the property over a three-year period.
In
addition, the Company shall have the right to purchase one-half of the 1.5% NSR from St. Elias for the sum of $1,500,000, thereby
reducing the NSR payable to from 1.5% to 0.75%.
The
Company’s first payment of $10,000 was paid on June 24, 2010. On April 27, 2011, the agreement between St. Elias and Amarok
was formally terminated by St. Elias. As of January 31, 2012, the Company has paid a total of $27,603 in fees towards property
maintenance costs on the Cueva Blanca property. The Company is currently considering its option following St. Elias’ termination
of the agreement.
Mining
properties at July 31, 2013 consist of the following:
|
Beginning balance
– November 1, 2012
|
$689,710
|
|
Acquisition
related costs
|
-
|
|
Ending balance
– July 31, 2013
|
$689,710
|
NOTE
4 - RELATED PARTY TRANSACTIONS
|
|
|
As
discussed in Note 3, on February 22, 2010 the Company entered into an
agreement with Carlin in which Carlin assigned the Company all of its
rights, title, and interest in an exploration agreement between it and
Trio. Trio is a company incorporated in the Province of Alberta, Canada.
Trio’s current President is the father of one of the Company’s
officers and directors. Further, the sole officer, director, and shareholder
of Carlin is a business associate of one of the Company’s officers
and directors.
|
In
January 2010, an agreement went into effect whereby the Company is paying Santeo Financial Corp (“Santeo”), a company
affiliated with one of the Company’s officers and directors for consulting services of $8,000 a month on a month-to-month
basis. On July 1, 2011, the consulting agreement was amended to increase the monthly payment to $15,000, effective July 1, 2011.
On
January 15, 2013, the Company granted Santeo the option to convert up to 25% of all accrued compensation due it at that date into
shares of the Company’s common stock at a conversion price of $0.001 per share, and to convert the remaining 75% of accrued
compensation due it at that date into shares of the Company’s common stock at a conversion price of $0.01 per share. At
January 15, 2013, the amount of accrued compensation due Santeo was $175,000. Pursuant to ASC Topic 470-20, “Debt with Conversion
and Other Options,” the accrued compensation was recorded net of a discount that includes the debt’s beneficial
conversion feature of $148,077. Since the accrued compensation is immediately convertible into common stock, discounts arising
from beneficial conversion features are directly charged to expense pursuant to ACS 470-20-35. The beneficial conversion features
were calculated using trading prices ranging from $0.001 to $0.01 per share and an effective conversion price of $0.02 per share.
For the three months ended January 31, 2013, discounts amounting to $148,077 were charged to operations and included in management
fees on the statement of operations.
Total
consulting fees charged to operations for the three months ended July 31, 2013 and 2012 were $45,000 and $45,000, respectively.
Total consulting fees charged to operations for the nine months ended July 31, 2013 and 2012 were $283,077 (including stock based
compensation of $148,077) and $135,000, respectively. Accrued compensation due Santeo at July 31, 2013 amounted to $265,000, of
which $175,000 is reflected on the accompanying balance sheet and is included in accrued compensation – related party, convertible.
The remaining $90,000 due is reflected on the accompanying balance sheet and is included in other payables – related party.
NOTE
5 – NOTE PAYABLE – UNRELATED PARTY
On
January 9, 2013, the Company entered into an agreement to borrow a total of $46,300 from an unrelated third party of which $26,300
was received in January 2013 and $20,000 was received in February 2013. The loans are evidenced by an unsecured promissory note.
The $46,300 and interest of $2,500 was fully due and payable on July 1, 2013. As the outstanding principal and accrued interest
were not paid on July 1, 2013, the principal and accrued interest is assessed interest at an annual rate of 8% per annum payable
quarterly, with the outstanding principal and accrued interest balance fully due and payable on July 1, 2014. In addition, the
unrelated third party advanced an additional $2,500 on June 21, 2013. The $2,500 is assessed interest at an annual rate of 8%
per annum payable quarterly, with the outstanding principal and accrued interest fully due and payable on July 1, 2014. Accrued
interest charged to operations for the three months ended July 31, 2013 and 2012 amounted to $1,463 and $0, respectively. Accrued
interest charged to operations for the nine months ended July 31, 2013 and 2012 amounted to $2,842 and $0, respectively. The outstanding
balance due at July 31, 2013 including accrued interest was $51,642.
NOTE
6 – STOCKHOLDERS’ EQUITY
For
the nine months ended July 31, 2013 and 2012
As discussed in Note 4, the Company recorded a debt discount related to the beneficial conversion feature from an option to
convert debt to stock. This debt discount of $148,077 was recorded to expense and additional paid-in capital.
In
February 2012, the Company issued 500,000 shares of its common stock pursuant to the terms of the agreement it has with David
Gibson, director of exploration. The shares were valued at $40,000.
As
discussed in Note 3, the Company issued 139,400 shares of its common stock to Trio Gold Corp pursuant to the amended exploratory
agreement. The shares were valued at $11,152.
Warrants
The
following is a schedule of warrants outstanding as of July 31, 2013:
|
|
|
Warrants
Outstanding
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Life
|
|
Balance,
October 31, 2012
|
|
|
3,000,000
|
|
|
$
|
0.75
|
|
|
|
0.98
Years
|
|
|
Warrants
granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Warrants
exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Warrants
expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Balance, July
31, 2013
|
|
|
3,000,000
|
|
|
$
|
0.75
|
|
|
|
0.23
Years
|
|
At
July 31, 2013, the entire 3,000,000 warrants were fully vested.
Options
The
following is a schedule of options outstanding as of July 31, 2013:
|
|
|
Warrants Outstanding
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Life
|
|
Balance, October 31, 2012
|
|
|
750,000
|
|
|
$
|
0.58
|
|
|
|
0.65 Years
|
|
|
Warrants granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Warrants exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Warrants expired
|
|
|
(250,000
|
)
|
|
$
|
(0.25
|
)
|
|
|
|
|
|
Balance, July 31, 2013
|
|
|
500,000
|
|
|
$
|
0.75
|
|
|
|
0.07
Years
|
|
At
July 31, 2013, the entire 500,000 options were fully vested.
NOTE
7 - INCOME TAXES
The
Company accounts for income taxes under Accounting Standard Codification Topic No. 740 (“ASC 740”),
Accounting
for Income Taxes.
This statement mandates the liability method of accounting for deferred income taxes and permits the recognition
of deferred tax assets subject to an ongoing assessment of realizability.
Deferred
income tax assets and liabilities are computed annually for differences between financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to
the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and liabilities.
As
of July 31, 2013, the Company had estimated federal net operating loss carry forwards totaling approximately $3,700,000 which
can be used to offset future federal income tax. The federal net operating loss carry forwards expire at various dates through
2033. The utilization of the net operating losses to offset future net taxable income is subject to the limitations imposed by
the change in control under Internal Revenue Code Section 382. Deferred tax assets resulting from the net operating losses are
reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured. At July 31, 2013,
the Company’s gross deferred tax asset totaled $1,260,000. This amount was reduced 100% by a valuation allowance, making
the net deferred tax asset $0.
The
Company adopted the provisions of
Accounting Standard Codification
Topic
740-10-50, formerly FIN 48,
Accounting for Uncertainty in Income Taxes
. We had no material
unrecognized income tax assets or liabilities for the nine months ended July 31, 2013 or for the nine months ended July 31, 2012.
Company
management policy regarding income tax interest and penalties is to expense those items as general and administrative expense
but to identify them for tax purposes. During the nine months ended July 31, 2013 and 2012, there were no income tax, or related
interest and penalty items in the income statement, or liability on the balance sheet. The company files income tax returns in
the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal or state income
tax examination by tax authorities for years before 2008. The Company is not currently involved in any income tax examinations.
F-5
[END
NOTES TO FINANCIALS]