Notes to Financial Statements
January 31, 2014
(unaudited)
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(1)
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ORGANIZATION AND BUSINESS
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Aurum, Inc. ("Aurum” or the “Company") is a Delaware corporation, originally incorporated in Florida as Liquid Financial Engines, Inc. The principal stockholder of Aurum is Golden Target Pty Ltd., an Australian corporation (“Golden”), which owned 96.21% of Aurum as of January 31, 2014.
On January 20, 2010, the Company re-incorporated in the state of Delaware (the “Reincorporation”) through a merger involving Liquid Financial Engines Inc. (“Liquid”) and Aurum, Inc., a Delaware Corporation that was a wholly owned subsidiary of Liquid. The Reincorporation was effected by merging Liquid with Aurum, with Aurum being the surviving entity. For financial reporting purposes Aurum is deemed a successor to Liquid.
In July 2009, Golden acquired a 96% interest in Aurum from certain stockholders. In connection therewith, the Company appointed a new President/Chief Executive Officer and Chief Financial Officer/Secretary and a new sole Director. The sole director and stockholder of Golden is also the President of the Company.
Commencing August 2009, the Company decided to focus on mineral exploration for gold and copper in the Lao Peoples Democratic Republic (Lao P.D.R or Laos). The Company is considered to be in the exploration stage.
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 Century Concession in Laos.
The agreement appoints Aurum as the manager of the Century Thrust Joint Venture Agreement (“Joint Venture”) and the Company has the right to earn 72.86% of AOI’s interest in the Joint Venture which is equivalent to a 51% beneficial interest in the Century Concession. In order to acquire this interest, Aurum may be required to spend US$6.5 million on exploration within the five year period ending, December 2015.
The Company’s ability to continue operations through the remainder of 2014 is dependent upon future funding from affiliated entities, capital raisings, or its ability to commence revenue producing operations and positive cash flows.
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(2)
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RECENT ACCOUNTING PRONOUNCEMENTS
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The Company has implemented all new accounting pronouncements that are in effect and applicable to the Company. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
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(3)
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PROPERTY AND EQUIPMENT
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Property and equipment is stated at cost. The Company records depreciation and amortization, when appropriate, using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and repairs are charged to expense as incurred. Additions, major renewals and replacements that increase the property’s useful life are capitalized. Property sold or retired, together with the related accumulated depreciation is removed from the appropriate accounts and the resultant gain or loss is included in net income (loss).
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At January 31, 2014
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At October 31, 2013
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Depreciable
Life
(in years)
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Cost
$
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Accumulated
Depreciation
$
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Net
Book
Value
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Cost
$
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Accumulated
Depreciation
$
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Net
Book
Value
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$
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$
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Office Equipment
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1-2
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3,830
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(3,830
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)
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-
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3,830
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(3,830
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)
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-
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Computer Equipment
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1-3
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101,975
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(101,975
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)
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-
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101,975
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(101,552
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)
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423
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Furniture
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1-2
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650
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(650
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)
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-
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650
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(650
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)
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-
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106,455
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(106,455
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)
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-
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106,455
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(106,032
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)
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423
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The depreciation expense for the three months ended January 31, 2014 amounted to $423 and for the three months ended January 31, 2013 amounted to $8,590. At January 31, 2014 the Company’s property and equipment is fully depreciated.
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(4)
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AFFILIATE TRANSACTIONS
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The Company entered into an agreement with AXIS Consultants Pty Ltd (“AXIS”) to provide management and administration services to the Company. AXIS is affiliated through common management. The Company is one of nine affiliated companies to which AXIS provides services. Each of the companies has some common Directors, officers and shareholders. Currently, there are no material arrangements or planned transactions between the Company and any of the affiliated companies other than AXIS.
During the three months ended January 31, 2014, AXIS provided services in accordance with the services agreement, incurred direct costs on behalf of the Company and provided funding of $92,405. During the three months ended January 31, 2014, the foreign exchange effect on the amounts owed to affiliates was a gain of $571,807. The amounts owed to affiliates as of January 31, 2014 and October 31, 2013 is $7,080,131 and $7,558,320, respectively, and are reflected in non-current liabilities - advance from affiliates. Included in these amounts is $232,500 respectively being funds advanced by the Manager of the Laos operations. During the three months ended January 31, 2014 and 2013, the affiliates have agreed not to charge interest.
The Company intends to repay these amounts with funds raised either via additional debt or equity offerings. Both affiliates have agreed not to call the advance within the next twelve months and accordingly the Company has classified the amounts payable as non-current in the accompanying balance sheets.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Aurum as a going concern. Aurum has incurred net losses since inception and may continue to incur substantial and increasing losses for the next several years, all of which raises substantial doubt as to its ability to continue as a going concern.
In addition, Aurum is reliant on loans and advances from corporations affiliated with the President of Aurum. Based on discussions with these affiliate companies, Aurum believes this source of funding will continue to be available. Other than the arrangements noted above, Aurum has not confirmed any other arrangement for ongoing funding. As a result Aurum may be required to raise funds by additional debt or equity offerings in order to meet its cash flow requirements during the forthcoming year.
The retained deficit of the Company from inception (September 2008) through January 31, 2014 amounted to approximately $10.3 million.
Aurum files its income tax returns on an accrual basis.
The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of FASB ASC 740, Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of January 31, 2014, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
The Company is required to file tax returns in the United States.
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USA
2013
$
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Total
2013
$
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Deferred tax assets
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Net operating loss carry-forward
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659,242
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659,242
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Less valuation allowance
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(659,242
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)
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(659,242
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)
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Net deferred taxes
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-
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-
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The Company has available net operating loss carry forwards which are subject to limitations aggregating approximately $1,938,900 which would expire in years 2028 through 2033.
The Company’s tax returns for all years since fiscal 2010 remain open to examination by the respective tax authorities. There are currently no tax examinations in progress.
In September 2008, 96,000,000 shares of common stock were issued to the Company’s founder raising $9,000.
In March 2009, the Company raised $12,000 in a registered public offering of 9,600,000 shares of common stock share pursuant to a prospectus dated January 30, 2009.
On September 29, 2009 the Company’s Board of Directors declared an 8-for-1 stock split in the form of a stock dividend that was payable in October 2009 to stockholders of record as of October 23, 2009. The Company has accounted for this bonus issue as a stock split and accordingly, all share and per share data has been retroactively restated.
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(8)
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ISSUE OF OPTIONS UNDER EQUITY INCENTIVE PLAN
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(i)
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In December 2010, the Company issued 2,500,000 options over shares of Common Stock to employees under the 2010 Equity Incentive Plan that has been adopted by the Directors of the Company. The options vested 1/3 on December 13, 2010, 1/3 vested on November 17, 2011 and the balance vested on November 17, 2012. The exercise price of the options is US$1.00 and the latest exercise date for the options is November 17, 2020.
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The Company has accounted for all options issued based upon their fair value using the Binomial pricing model.
An external consultant has calculated the fair value of the 2,500,000 options using the Binomial valuation method using the following inputs:
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Grant date
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Dec 13, 2010
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Dec 13, 2010
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Dec 13, 2010
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Grant date share price
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US$1.10
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US$1.10
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US$1.10
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Vesting date
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Dec 13, 2010
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Nov 17, 2011
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Nov 17, 2012
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Expected life in years
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4.5
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5.0
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5.5
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Risk-free rate
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1.91%
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1.91%
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1.91%
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Volatility
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95%
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95%
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95%
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Exercise price
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US$1.00
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US$1.00
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US$1.00
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Call option value
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US$0.78
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US$0.81
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US$0.83
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At October 31, 2013 and January 31, 2014, there are 2,500,000 options outstanding with an option price per share and weighted average exercise price of US$1.00. The exercise price is US$1.00 per option. The weighted average per option fair value of options granted during fiscal 2011 was US$0.81 and the weighted average remaining contractual life of those options at January 31, 2014 is 6
¾
years. At January 31, 2014 there are 2,500,000 options exercisable.
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(ii)
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In May 2011, the Company issued 750,000 options over shares of Common Stock to employees under the 2010 Equity Incentive Plan that has been adopted by the Directors of the Company. The options vested 1/3 upon grant date, 1/3 vested on February 1, 2012 and the balance vested on February 1, 2013. The exercise price of the options is US$1.00 and the latest exercise date for the options is February 1, 2018.
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The Company has accounted for all options issued based upon their fair value using the Binomial pricing model.
An external consultant has calculated the fair value of the 750,000 options using the Binomial valuation method using the following inputs:
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Grant date
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May 1, 2011
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May 1, 2011
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May 1, 2011
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Grant date share price
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$US1.30
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$US1.30
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$US1.30
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Vesting date
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May 1, 2011
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Feb 1, 2012
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Feb 1, 2013
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Expected life in years
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3.5
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4.0
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4.5
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Risk-free rate
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2.02%
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2.02%
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2.02%
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Volatility
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100%
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100%
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100%
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Exercise price
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$US1.00
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$US1.00
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$US1.00
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Call option value
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$US0.91
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$US0.95
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$US0.99
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At October 31, 2013 and January 31, 2014, there are 750,000 options outstanding with an option price per share and weighted average exercise price of US$1.00. The exercise price is US$1.00 per option. The weighted average per option fair value of options granted during fiscal 2011 was US$0.95 and the weighted average remaining contractual life of those options at January 31, 2014 is 4 years. At January 31, 2014 there are 750,000 options exercisable.
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(9)
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FAIR VALUE OF FINANCIAL INSTRUMENTS
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The Company’s financial instruments consist of cash, receivables, accounts payable, accrued expenses and advances from affiliates. The carrying amounts of cash, receivables, accounts payables and accrued expenses approximates their fair values because of the short term maturities of those instruments. The fair value of advances from affiliates is not readily determinable as no similar market exists for these instruments and it doesn’t have a specified date of repayment.
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(10)
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EXPLORATION STAGE COMPANY
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As a result of the Company’s focus on mineral exploration, it is considered an exploration stage company and accordingly reports operations, stockholders deficit and cash flows since inception through the date that revenues are generated from management’s intended operations. Since inception, the Company has incurred an operating loss of approximately $10.3 million. The Company’s working capital has been primarily generated through the sales of common stock as well as advances from an affiliated entity.
Basic income (loss) per share is computed by dividing net profit (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is similarly calculated using the treasury stock method except that the denominator is increased to reflect the potential dilution that would occur if dilutive securities at the end of the applicable period were exercised. Options to acquire 3,250,000 shares of common stock were not included in the diluted weighted average shares outstanding as such effects would be anti-dilutive.
The Company maintains cash deposits with financial institutions in Australia and in Laos (USD). Cash deposits maintained in Australian dollars are translated into US dollars at the period end exchange rate with the related adjustment recognized in statements of operations.
Pursuant to the Century Thrust Joint Venture Agreement (Joint Venture), the Company may fund up to $6.50 million in exploration
expenditure, of which $4.49 million has already been funded, in order to acquire a 51% beneficial interest in the Joint Venture. Should Aurum wish to execute its rights under the agreement, it may be required to expend an additional $2.01 million on the Century Thrust Concession (see note 1). All such exploration costs are being expensed as incurred.
The Company has evaluated significant events subsequent to the balance sheet date through the date the financial statements were issued and has determined that there were no subsequent events or transactions which would require recognition or disclosure in the financial statements, other than noted herein.