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Quarterly Report
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This
statement may include projections of future results and "forward looking
statements" as that term is defined in Section 27A of the Securities Act
of 1933 as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934 as amended (the "Exchange Act").
All statements that are included in this Quarterly Report, other than
statements of historical fact, are forward looking statements. Although
management believes that the expectations reflected in these forward looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct.
The
following discussion and analysis provides information which management of
Amarok Resources, Inc. (the "Company") believes to be relevant to
an assessment and understanding of the Company's results of operations and
financial condition. This discussion should be read together with the
Company's financial statements and the notes to financial statements, which
are included in this report.
Because of
the nature of a company with limited operational history the reported results
will not necessarily reflect the future.
Business
Summary
Amarok
Resources, Inc. (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/or 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 $.001. Effective February 23, 2010, the Company
completed 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 ("ASC") 915-10.
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.
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.
Under the
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 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.
During the
earn-in-period, the Company shall provide $5,500,000 in funding to cover
operational costs according to the following schedule: $1,500,000 during the
2010 budget year, $2,000,000 during the 2011 budget year and $2,000,000
during the 2012 budget year. Each budget year shall commence on January 1 of
that year and end on December 31 of that same year. 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.
The
Company is required to pay a minimum annual royalty during the earn-in period
to Trio according to the following schedule: $75,000 cash payment upon
signing of the agreement, $100,000 cash payment on April 1, 2011 and $150,000
cash payment on April 1, 2012. The
Company paid $75,000 to
Trio on February 8, 2010.
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Amarok
Resources, Inc.
In
addition, within three months of the assignment, the Company is required to
issue Trio shares of its common stock equaling 0.20% of its total issued and
outstanding as of February 22, 2010. Upon expenditure of a minimum of
$2,000,000 on the claims, Trio shall receive an additional 0.10% of the
Company's issued and outstanding common shares. Upon expending a minimum of
$4,000,000 million on the claims, Trio shall receive an additional 0.10% of
the Company's issued and outstanding common shares. Upon expenditure of
$5,500,000 million on the claims, Trio shall receive a final 0.10% of the
Company's issued and outstanding common shares. All shares issued shall be
restricted common shares and will be stamped with the applicable hold period.
On February 24, 2010, the Company and Trio Gold, Corp. agreed that the share
issuances pursuant to the January 28, 2010 Exploration Agreement shall not
exceed 360,600 shares.
Trio is a
company incorporated in the Province of Alberta Canada. Trio's current
President is Harry Ruskowsky, the father of the Company's sole officer and
director.
Roger
Janssen is the sole officer, director and shareholder of Carlin and a
business associate of the Company's sole officer and director.
About the
Rodeo Creek Project Area
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Amarok
Resources, Inc.
The
property is without known reserves and our present program is exploratory in
nature.
We believe
the property to have potential for the discovery of one or more gold deposits
similar to those presently being mined elsewhere along the Carlin Trend in
Elko County, Nevada. The property is located approximately 56 km northwest of
the town of Carlin. The property comprises 29 contiguous mineral claims
covering an area of 547 acres (221 hectares).
Access to
the property is limited to unpaved service roads that are subject to weather
conditions that can inhibit access to the property.
Previous
drilling on the property indicates that the geological and alteration
features common to numerous deposits on the Carlin Trend exist at Rodeo
Creek, namely NW&NE-trending faults with decalcification, silicification
and argillization within the highly prospective Popovich Formation, currently
the host to 85% of all deposits along the Carlin Trend.
The
property also contains the anomalous geochemical signature of Carlin Trend
deposits (As-Sb-Tl) in altered Popovich Formation and as "leakage
anomalies" along the NW&NE-trending faults.
One such
"leakage" anomaly (Flower Zone) has drill intercepts of up to 9.60
gm/T Au (0.28 oz/t) across 6m, including 29.10 gm/T Au (0.85 oz/t) over 1.5m.
Mineralization occurs in a small fault-bound area within 90m of surface, and
has the characteristics of a strong leakage anomaly derived from underlying
gold mineralization.
Other
"leakage" anomalies occur as an intensely altered gold-bearing
fault zones (Look and Flower Faults) accompanied by large gold-arsenic soil
anomalies traceable over more than 500m of strike length. These anomalies are
also believed to represent leakages from deeper gold mineralization.
Exploration
permits are current.
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% net smelter return ("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, due on or before April 30, 2010, was
postponed due to an unforeseen delay in receiving the documentation necessary
for the Company to complete satisfactory due diligence. A letter dated April
30, 2010 between the Company and the President of St. Elias documents an
understanding that the agreement shall remain in effect until receipt of
proper documentation, upon which the Company will make the payment. The
Company continues to work with St. Elias to finalize the formal operating
agreement.
The
Company's first payment of $10,000 was paid on June 24, 2010. As of January
31, 2011, the Company has paid $27,603 in fees towards property maintenance
costs on the Cueva Blanca property. These payments are applied towards the
$200,000 due to St. Elias.
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Amarok
Resources, Inc.
About the
Cueva Blanca Gold Project Area
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The
property is without known reserves and the present program is exploratory in
nature.
The
Property is comprised of certain mineral concessions covering approximately
1,200 hectares and is located in the Department of Lambayeque, in northwest
Peru.
Access to
the property is limited to unpaved service roads that are subject to weather
conditions that can inhibit access to the property.
The
Company continues to work with St. Elias to finalize the operating agreement.
Contingent upon satisfactory completion of an operating agreement with St
Elias, the Company will further evaluate the geological data and define an
exploration plan.
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Amarok
Resources, Inc.
Plan of
Operation
Our focus
is to acquire mineral resource properties for exploration and development with
the intent to bring the projects to feasibility at which time we will either
contract out the operations or joint venture the project to qualified
interested parties.
We had
cash of $1,676,976 as of January 31, 2011. In the opinion of management, our
available funds may not satisfy our working capital requirements for the next
twelve months. Our drilling schedules and minimum expenditure requirements
related to our current projects will consume the majority of our current cash
over the next twelve months and we are not presently developing any revenue
from our operations.
In the
event that we experience a shortfall in our capital, we intend to pursue
capital through public or private financing as well as borrowings and other
sources. We cannot guarantee that additional funding will be available on
favorable terms, if at all. If adequate funds are not available, then our
ability to expand our operations may be significantly hindered.
We are not
currently conducting any research and development activities. We do not
anticipate conducting such activities in the near future. We do not
anticipate that we will purchase or sell any significant equipment. In the
event that we expand our property interests or holdings, then we may need to
hire additional employees or independent contractors as well as purchase or
lease additional equipment.
Material
Contracts and Agreements
The Company currently has the majority of its operations vested in the
exploration development of the Rodeo Creek Project under its agreement with
Trio Gold Corp. Drilling operations related to the exploration and
development of this project are provided through Trio. The Company is
required to provide funding only for these operations. This project currently
provides no revenue.
Financial
Summary
For the
three month period ended January 31, 2011 as compared to the three month
period ended January 31, 2010.
Revenues.
The Company had revenue for the three month period ended January 31, 2011 of
$0 and exploratory costs of $243,683, as compared to the three month period
ended January 31, 2010 of revenue $0 and production costs of $0.
Operating
Expenses and Net Loss.
The Company's net loss of $304,615 for the three month period ended January
31, 2011 was comprised of general and administrative expenses of $5,493,
management fees to a related party in the amount of $24,000, contributed
services of $0, professional fees in the amount of $27,930 and rent expenses
of $3,652. The Company also had $143 in net interest income. In comparison to
the three month period ended January 31, 2010, the Company's net loss of
$1,500 was comprised of contributed services of $1,500.
Liquidity
and Capital Resources.
The Company had cash of $1,676,976 as of January 31, 2011, as compared to $0
as of January 31, 2010. As of the three month period ended January 31, 2011,
the Company had prepaid assets of $7,667, as compared to the three month
period ended January 31, 2010; the Company had prepaid assets of $0. The
Company also has $1,200 in security deposits as of January 31, 2011.
For the
three month period ended January 31, 2011, the Company had $21,410 in total
current liabilities, which was represented by $7,934 in accounts payable, and
$13,476 in related party accounts payable. This is in comparison to the three
month period ended January 31, 2010, where the Company had $3,669 in total
current liabilities, which was represented by $3,264 in accounts payable, and
$405 in related party accounts payable.
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Amarok
Resources, Inc.
The
Company had no long-term liabilities for the three month period ended January
31, 2011; therefore the Company had total liabilities of $21,410. This is in
comparison to the three month period ended January 31, 2010, where the
Company had no long-term liabilities and total liabilities of $3,669.
The
Company is not aware of any known trends, events or uncertainties which may
affect its future liquidity.
We are in
exploratory stage operations and have not yet generated any revenues. We
cannot guarantee we will be successful in our business operations. Our
business is subject to risks inherent in the establishment of a new business
enterprise, including limited capital resources and possible cost overruns.
We will
continue to seek additional financing in order to obtain the capital required
to continue implementation of our business plan.
We have no
assurance that future financing will be available to us on acceptable terms.
If financing is not available to us on satisfactory terms, we may be unable
to continue, develop or expand our operations. Equity financing could result
in additional dilution to our existing shareholders.
Going
Concern
The Company has incurred net losses since inception, and as of January 31,
2011, had a combined accumulated deficit of $2,439,361. These conditions
raise substantial doubt as to the Company's ability to continue as a going
concern. We recognize that the Company must generate additional resources to
enable it to continue operations. We intend to raise additional financing
through debt financing and equity financing or through other means that it
deems necessary, with a view to 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 we are unable to raise
additional capital when needed 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.
Off-Balance
Sheet Arrangements
None
Applicable.
Critical
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.
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Amarok
Resources, Inc.
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 sheet as of January 31, 2011. The Company's financial
instruments consist of payables and due to related party. The Company
considers the carrying value of such amounts in the financial statements to
approximate their fair value due to the short-term nature of these financial
instruments.
Loss Per
Share of Common Stock
The Company follows ASC 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 January
31, 2011 that have been excluded from the computation of diluted net loss per
share included warrants exercisable into 6,000,000 shares of common stock.
There were no potential common shares at January 31, 2010.
Concentration
of Credit Risk
The
Company maintains its cash in domestic financial institutions subject to
insurance coverage issued by the Federal Deposit Insurance Corporation
(FDIC). Under FDIC rules, the Company is entitled to aggregate coverage as
defined by Federal regulation per account type per separate legal entity per
financial institution. During the three months ended January 31, 2011 and
2010, and subsequent thereto, respectively, the Company, from time-to-time,
may have had deposits in a financial institution with credit risk exposures
in excess of statutory FDIC coverage. The Company has incurred no losses as a
result of any unsecured situations.
Recent
Accounting Pronouncements
In December 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-29 (ASU 2010-29), Business Combinations
(Topic 805) - Disclosure of Supplementary Pro Forma Information for Business
Combinations. This Accounting Standards Update requires a public entity to
disclose pro forma information for business combinations that occurred in the
current reporting period. The disclosures include pro forma revenue and
earnings of the combined entity for the current reporting period as though
the acquisition date for all business combinations that occurred during the
year had been as of the beginning of the annual reporting period. If
comparative financial statements are presented, the pro forma revenue and
earnings of the combined entity for the comparable prior reporting period
should be reported as though the acquisition date for all business
combinations that occurred during the current year had been as of the
beginning of the comparable prior annual reporting period. The amendments in
this Update affect any public entity as defined by Topic 805 that enters into
business combinations that are material on an individual or aggregate basis.
The amendments in this Update are effective prospectively for business
combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2010.
Early adoption is permitted. The Company does not expect the provisions of
ASU 2010-29 to have a material effect on its financial position, results of
operations or cash flows.
In August
2010, the FASB issued Accounting Standards Update 2010-22 (ASU 2010-22),
Accounting for Various Topics -- Technical Corrections to SEC Paragraphs - An
announcement made by the staff of the U.S. Securities and Exchange
Commission. This Accounting Standards Update amends various SEC paragraphs
based on external comments received and the issuance of SAB 112, which amends
or rescinds portions of certain SAB topics. The Company does not expect the
provisions of ASU 2010-22 to have a material effect on its financial
position, results of operations or cash flows.
In August
2010, the FASB issued Accounting Standards Update 2010-21 (ASU 2010-21),
Accounting for Technical Amendments to Various SEC Rules and Schedules:
Amendments to SEC Paragraphs Pursuant to Release No. 33-9026:
Technical Amendments to Rules, Forms, Schedules and Codification of Financial
Reporting Policies. The Company does not expect the provisions of ASU 2010-21
to have a material effect on its financial position, results of operations or
cash flows.
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Amarok
Resources, Inc.
In July
2010, the FASB issued Accounting Standards Update 2010-20 (ASU 2010-20),
Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. The amendments in this
Update are to provide financial statement users with greater transparency
about an entity's allowance for credit losses and the credit quality of its
financing receivables. The disclosures about activity that occurs during the
reporting period are effective for interim and annual reporting periods
beginning on or after December 15, 2010. The Company does not expect the
provisions of ASU 2010-20 to have a material effect on its financial
position, results of operations or cash flows.
In April
2010, the FASB issued Accounting Standards Update 2010-17 (ASU 2010-17),
Revenue Recognition - Milestone Method (Topic 605). ASU 2010-17 provides
guidance on applying the milestone method of revenue recognition in
arrangements with research and development activities. The amendments in this
Update are effective on a prospective basis for milestones achieved in fiscal
years, and interim periods within those years, beginning on or after June 15,
2010. The Company's adoption of the provisions of ASU 2010-17 did not have a
material impact on its revenue recognition.
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