Item 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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General
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes and the other financial information appearing elsewhere in this report. This report contains numerous forward-looking statements relating to our business. Such forward-looking statements are identified by the use of words such as believes, intends, expects, hopes, may, should, plan, projected, contemplates, anticipates or similar words. Actual operating schedules, results of operations and other projections and estimates could differ materially from those projected in the forward-looking statements.
Overview
Aurum, Inc. is an exploration stage company and was incorporated in Florida on September 29, 2008, to develop and market financial software. In July 2009, Golden Target Pty Ltd, an Australian corporation ("Golden") acquired a 96% interest in Aurum from Daniel McKelvey and certain other stockholders. Commencing August 2009, the Company decided to focus on mineral exploration for gold and copper in the Lao Peoples Democratic Republic. The Company is considered to be in the exploration stage. On January 20, 2010, the Company re-incorporated in the State of Delaware through a merger involving Liquid Financial Engines, Inc. (Liquid) and Aurum, Inc., with Aurum being the surviving entity. For the purpose of the Company’s financial reporting status, Aurum is deemed a successor to Liquid.
In December 2010, the Company executed a Management and Shareholders Agreement with Argonaut Overseas Investments Ltd (“AOI”), an indirectly wholly owned Subsidiary of Argonaut Resources N.L., in respect to Argonaut’s 70% held, 55,105 acre Century Concession in Laos.
The agreement appointed Aurum as the manager of the Century Thrust Joint Venture Agreement, which existed between Argonaut and two other parties, and the Company had the right to earn 72.86% of AOI’s interest in the Joint Venture which was equivalent to a 51% beneficial interest in the Century Concession. In order to acquire this interest, Aurum was to spend US$6.5 million on exploration within the five year period ending, December 2015.
The Century Concession expired in fiscal 2014 and was not renewed. As a result, the Company no longer has any exploration interests in Laos.
On April 1, 2016 the Company announced that it had entered into an agreement with an Israeli company, PayItSimple Ltd and its subsidiaries (PayItSimple) whereby the Company will invest $15 million directly into PayItSimple by September 5, 2016 to acquire a 30% interest in PayItSimple, and a further $7.5 million into PayItSimple over 18 months to acquire a further 10% interest in PayItSimple, taking its holding to 40% of interest in PayItSimple. PayItSimple owned a business known as Splitit. On April 6, 2016 the Company terminated the proposed acquisition of PayItSimple.
On June 27, 2016 the Company announced that it has entered into a binding term sheet with the shareholders of Israeli company, Humavox Ltd (Humavox), a company that creates wireless charging solutions. Aurum will acquire 100% of the shares of Humavox and 100% of the warrants and options to acquire shares of Humavox in exchange for the issue of shares of common stock of Aurum representing 50% of the shares of common stock of Aurum post issue on a fully-diluted basis, including the investment of an amount of US$16 million in Humavox. The investment will take place in unconditional instalments over a period of 24 months following the closing. The closing of the merger is subject to certain closing conditions, including the investment in Humavox of the first instalment of the investment in the amount of $5.5 million. On July 29, 2016 the Company terminated the proposed acquisition of Humavox.
On July 19, 2017, the Company entered into a Term Sheet with Lior Wayn, Erez Glazer and Dr Guy Shalom, (collectively, the ‘’Sellers”) for the acquisition of all of the issued shares of a medical technology business. The Company has a 120 day period to conduct due diligence and negotiate a formal share sale agreement.
The purchase price is up to USD$7,500,000 which is to be satisfied as follows:
a)
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The sum of USD$100,000 payable to the Sellers for due diligence expenses, 30 business days from the execution of the Term Sheet;
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b)
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A further USD$100,000 each month after the date in a) above for due diligence expenses, for 3 months, payable to the Sellers for working capital purposes;
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c)
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An issue of fully paid ordinary shares of common stock of the Company to the value of USD$2,500,000 (less any payments made to the Sellers under (a) and (b) above) to the Sellers at an issue price of USD$0.22 per share of common stock (Consideration Shares);
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d)
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The issue to the Sellers of shares of common stock to the equivalent to USD$2,500,000 at the issue price of USD$0.22, subject to the Sellers achieving sales revenue of USD$100,000 within twelve months after the first anniversary of Completion; and
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e)
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The issue to the Sellers of shares of common stock to the equivalent to USD$2,500,000 at the issue price of USD$0.22, subject to the Sellers achieving sales revenue of USD$1,000,000 within twelve months after the first anniversary of Completion.
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If the Transaction is terminated or is in the reasonable opinion of the Company unable to proceed at any point, the Vendors and the Sellers have agreed to convert any monies paid to the Sellers under (a) and (b) above into convertible securities in the Sellers.
As part of the agreement and as a condition to completion, the Company will raise USD$2,500,000.
Pending completion, the Sellers are required to carry on business in the ordinary course.
We have incurred net losses since our inception and may continue to incur substantial and increasing losses for the next several years. We have incurred accumulated losses of approximately $9.2 million which has been funded primarily by the sale of equity securities and advances from affiliates.
RESULTS OF OPERATIONS
Three Months Ended July 31, 2016 vs. Three Months Ended July 31, 2015.
Costs and expenses decreased from $45,933 in the three months ended July 31, 2015 to $10,350 in the three months ended July 31, 2016. The increase in costs and expenses is a net result of:
a)
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A decrease in legal, accounting and professional expense from $23,218 for the three months ended July 31, 2015 to $9,600 for the three months ended July 31, 2016, primarily due to a decrease in professional fees and share registry expenses and offset by a small increase in tax consultant costs.
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b)
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A decrease in administrative expenses from $22,610 in the three months ended July 31, 2015 to $750 in the three months ended July 31, 2016, is primarily as a result of a decrease in employment costs, XBRL conversion costs, insurance expense and travel costs.
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As a result of the foregoing, the income from operations decreased from $45,933 for the three months ended July 31, 2015 to a loss from operations of $10,350 for the three months ended July 31, 2016.
Other income decreased from $57,809
for the three months ended July 31, 2015 to $nil for the three months ended July 31, 2016.
The Company recorded a foreign currency exchange gain of $444 for the three months ended July 31, 2016 compared to a foreign currency exchange gain of $580,111 for the three months ended July 31, 2015, primarily due to the revaluation of the advances from affiliate which is denominated in Australian dollars at quarter end.
The net loss was $9,906 for the three months ended July 31, 2016 compared to a net income of $591,988 for the three months ended July 31, 2015.
Nine Months Ended July 31, 2016 vs. Nine Months Ended July 31, 2015.
Costs and expenses decreased from $93,491 in the nine months ended July 31, 2015 to $38,300 in the nine months ended July 31, 2016. The decrease in costs and expenses is a net result of:
a)
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a decrease in legal, accounting and professional expense from $49,640 for the nine months ended July 31, 2015 to $32,475 for the nine months ended July 31, 2016, primarily as a result of a decrease in professional fees and share registry expenses offset by a small increase in tax consultant costs.
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b)
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a decrease in administrative expenses from $43,737 in the nine months ended July 31, 2015 to $5,577 in the nine months ended July 31, 2016, primarily due to a decrease in employment costs, XBRL conversion expenses, IT support costs, insurance and travel costs.
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As a result of the foregoing, the loss from operations decreased from $93,491 for the nine months ended July 31, 2015 to $38,300 for the nine months ended July 31, 2016.
Other income decreased from $66,646
for the nine months ended July 31, 2015 to $nil for the nine months ended July 31, 2016.
The Company recorded a foreign currency exchange loss of $54,694 for the nine months ended July 31, 2016 compared to a foreign currency exchange gain of $1,208,259 for the nine months ended July 31, 2015, primarily due the (i) the issue of shares in satisfaction of a significant part of the debt which was denominated in Australian dollars thus reducing the level of debt the subject of foreign currency fluctuations; and (ii) revaluation of the advances from affiliate which is denominated in Australian dollars at quarter end.
The net loss was $92,994 for the nine months ended July 31, 2016 compared to a net income of $1,181,414 for the nine months ended July 31, 2015.
Liquidity and Capital Resources
For the nine months ended July 31, 2016, net cash generated by operating activities was $33,229 primarily consisting of the net loss of $92,994, adjusted for non-cash items being foreign currency loss of $54,694 and a decrease in accounts payable and accrued expenses of $71,529.
Net cash used in investing activities was $nil; and net cash used in financing activities was $33,453.
As of July 31, 2016 the Company has short term obligations of $276,884 comprising accounts payable and accrued expenses.
The Company has $437 in cash at July 31, 2016.
The Company’s ability to continue operations the foreseeable future is dependent upon future funding from affiliated entities, capital raisings, or its ability to commence revenue producing operations and positive cash flows, of which there can be no assurance.
The Company continues to search for additional sources of capital, as and when needed; however, there can be no assurance funding will be successfully obtained. Even if it is obtained, there is no assurance that it will not be secured on terms that are highly dilutive to existing shareholders.
Information Concerning Forward Looking Statements
This report and other reports, as well as other written and oral statements made or released by us, may contain forward looking statements. Forward looking statements are statements that describe, or that are based on, our current expectations, estimates, projections and beliefs. Forward looking statements are based on assumptions made by us, and on information currently available to us. Forward-looking statements describe our expectations today of what we believe is most likely to occur or may be reasonably achievable in the future, but such statements do not predict or assure any future occurrence and may turn out to be wrong. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. The words "believe", "anticipate", "intend", "expect", "estimate", "project", "predict", "hope", "should", "may", and "will", other words and expressions that have similar meanings, and variations of such words and expressions, among others, usually are intended to help identify forward-looking statements.
Forward-looking statements are subject to both known and unknown risks and uncertainties and can be affected by inaccurate assumptions we might make. Risks, uncertainties and inaccurate assumptions could cause actual results to differ materially from historical results or those currently anticipated. Consequently, no forward-looking statement can be guaranteed. The potential risks and uncertainties that could affect forward looking statements include, but are not limited to:
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The risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015,
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The risks and hazards inherent in the mineral exploration business (including environmental hazards, industrial accidents, weather or geologically related conditions),
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The uncertainties inherent in our exploratory activities, including risks relating to permitting and regulatory delays,
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The political, governmental and regulatory risks affecting mineral exploration activities in foreign countries,
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The effects of environmental and other governmental regulations, and
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Uncertainty as to whether financing will be available to enable further exploration and development.
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Movements in foreign exchange rates,
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Performance of information systems,
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Ability of the Company to hire, train and retain qualified employees,
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Our ability to enter into key exploration agreements and the performance of contract counterparties.
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In addition, other risks, uncertainties, assumptions, and factors that could affect the Company's results and prospects are described in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, including under the heading “Risk Factors” and elsewhere herein and therein and may further be described in the Company's prior and future filings with the Securities and Exchange Commission and other written and oral statements made or released by the Company.
We caution you not to place undue reliance on any forward-looking statements, which speak only as of the date of this document. The information contained in this report is current only as of its date, and we assume no obligation to update any forward-looking statements.
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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At July 31, 2016, the Company had no outstanding loan facilities.
The Company reports in US$ and holds cash in Australian dollars. At July 31, 2016, this amounted to A$437. A change in the exchange rate between the A$ and the US$ will have an effect on the amounts reported in the Company’s consolidated financial statements, and create a foreign exchange gain or loss. A movement of 1% in the A$ versus the US$ exchange rate will have a US$4 effect on the balance sheet and statement of operations.
Item 4.
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Controls and Procedures.
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a)
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Disclosure Controls and Procedures
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Our principal executive officer and our principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as amended) as of the end of the period covered by this report. Based on that evaluation, such principal executive officer and principal financial officer concluded that, the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable level of assurance.
b)
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Change in Internal Control over Financial Reporting
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There were no changes in our internal control over financial reporting during the third of fiscal 2016 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives, and our principal executive officer and principal financial officer have concluded, as of July 31, 2016, that our disclosure controls and procedures were effective in achieving that level of reasonable assurance.