On January 15, 2013, the Company granted Santeo Financial Corp ("Santeo")
the option to convert 25% of accrued management fees owed to Santeo at a conversion rate of $0.001 per share and the option to
convert the remaining 75% of accrued management fees at a conversion rate of $0.01 per share. The conversion feature was accounted
for under ASC Topic 470-20 and the discount of the beneficial conversion feature of $148,077 was immediately charged to operations pursuant to ASC Topic 470-20-35.
In February 2012, the Company issued 500,000 shares of its common
stock to pursuant to the terms of the agreement with its director of exploration, David Gibson. The shares were valued
at $40,000.
In March 2012, the Company issued 139,400 shares of its common stock
to Trio Gold Corp pursuant to the Amendment to February 22, 2010 Exploratory Agreement. The shares were valued at $11,152
(See Note 3).
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 April 30, 2013 had a combined accumulated deficit of $4,909,597. 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 April 30, 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 April 30, 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 April 30, , 2013, the Company has incurred additional acquisition costs totaling $128,986. The capitalized
costs of the McNeil claim as of April 30, 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 April 30,
2013consist of the following:
Beginning
balance – November 1, 2012 $ 689,710
Acquisition
related costs ___
--
Ending balance
– April 30, 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. Total consulting fees charged to operations under
this agreement for the three months ended April 30, 2013 and 2012 were $45,000 and $45,000, respectively. Total consulting fees
charged to operations under this agreement for the six months ended April 30, 2013 and 2012 were $90,000 and $90,000, respectively.
On January 15, 2013, the Company
granted Santeo the option to convert up to 25% of all accrued compensation due it 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 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 April 30, 2013 and 2012 were $45,000 and $45,000, respectively. Total consulting fees charged
to operations for the six months ended April 30, 2013 and 2012 were $238,077 (including stock based compensation of $148,077) and
$90,000, respectively. Accrued compensation due Santeo at April 30, 2013 amounted to $220,000, of which $175,000 is reflected on
the accompanying balance sheet and is included in accrued compensation – related party, convertible. The remaining $45,000
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 is fully due and payable on July 1, 2013. If the outstanding balance and accrued interest are not paid on July 1, 2013,
then the note and accrued interest will be 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. Accrued interest charged to operations for the three
months ended April 30, 2013 and 2012 amounted to $1,199 and $0, respectively. Accrued interest charged to operations for the six
months ended April 30, 2013 and 2012 amounted to $1,379 and $0, respectively. The outstanding balance due at April 30, 2013 including
accrued interest was $47,679.
NOTE 6 – STOCKHOLDERS’
EQUITY
For the six months ended
April 30, 2013 and 2012
The Company did not enter into
any equity transactions during the six months ended April 30, 2013.
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 April 30, 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, April 30, 2013
|
3,000,000
|
|
$0.75
|
|
0.49 Years
|
|
At April 30, 2013, the entire 3,000,000 warrants were
fully vested.
Options
The following is a schedule of options outstanding as
of April 30, 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, April 30, 2013
|
500,000
|
|
$0.75
|
|
0.32 Years
|
|
At April 30, 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 April 30, 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 April 30, 2013, the Company’s gross deferred tax asset totaled
$1,270,000. 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 six months ended April 30, 2013 or for the six months ended April 30, 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 six months ended April 30, 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]