XOTC:ORAC Oraco Resources Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-54472


ORACO RESOURCES, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
27-2300414
(State or other jurisdiction of
incorporation of organization)
 
(I.R.S. Employer
Identification No.)

189 Brookview Drive
Rochester, NY 14617
(Address of principal executive offices)

(212) 279-6260
(Registrant’s telephone number, including area code)

Copies of Communications to:
Stoecklein Law Group
401 West A Street, Suite 1150
San Diego, CA 92101
Office (619) 704-1310 • Fax (619) 704-0556

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.

Large accelerated filer  ¨
Accelerated filer  ¨
   
Non-accelerated filer  ¨ (Do not check if a smaller reporting company)
Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No x

The number of shares of Common Stock, $0.001 par value, outstanding on May 7, 2012 was 23,997,560 shares.

 
1

 

ORACO RESOURCES, INC.
QUARTERLY PERIOD ENDED MARCH 31, 2012

Index to Report on Form 10-Q



     
Page No.
   
PART I - FINANCIAL INFORMATION
 
       
Item 1.
 
Financial Statements
3
       
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
12
       
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
17
       
Item 4T.
 
Controls and Procedures
17
       
   
PART II - OTHER INFORMATION
 
       
Item 1.
 
Legal Proceedings
18
       
Item1A.
 
Risk Factors
18
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
18
       
Item 3.
 
Defaults Upon Senior Securities
19
       
Item 4.
 
(Removed and Reserved)
19
       
Item 5.
 
Other Information
19
       
Item 6.
 
Exhibits
19
       
   
Signature
20


 
2

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

ORACO RESOURCES, INC.
 
(AN EXPLORATION STAGE COMPANY)
 
CONSOLIDATED BALANCE SHEETS
 
(unaudited)
 
             
             
   
March 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
             
Current assets:
           
Cash
  $ 175,829     $ 10,888  
Cash - restricted
    -       59,256  
Total current assets
    175,829       70,144  
                 
Other assets:
               
Trademark, net
    5,108       5,252  
Total other assets
    5,108       5,252  
                 
Total assets
  $ 180,937     $ 75,396  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Current liabilities:
               
Accounts payable
  $ 63,190     $ 25,910  
Accrued payroll taxes
    8,742       5,055  
Line of credit - related party
    3,935       6,799  
Customer deposit
    -       59,256  
Total current liabilities
    75,867       97,020  
                 
Total liabilities
    75,867       97,020  
                 
Stockholders' equity (deficit):
               
Preferred stock, $0.001 par value, 10,000,000 shares
               
authorized, no shares issued and outstanding
    -       -  
Common stock, $0.001 par value, 100,000,000 shares
               
authorized, 23,725,360 and 23,645,360 shares issued and outstanding
               
as of March 31, 2012 and December 31, 2011, respectively
    23,725       23,645  
Additional paid-in capital
    379,722       299,762  
Common stock payable
    596,846       204,971  
Deficit accumulated during exploration stage
    (895,223 )     (550,002 )
Total stockholders' equity (deficit)
    105,070       (21,624 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 180,937     $ 75,396  

See Accompanying Notes to Consolidated Financial Statements.

 
3

 


ORACO RESOURCES, INC.
 
(AN EXPLORATION STAGE COMPANY)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
(unaudited)
 
                   
                   
               
Inception
 
               
(August 4, 2010)
 
   
For the three months ended
   
to
 
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
                   
                   
Revenue
                 
Gold and diamond sales
  $ -     $ -     $ 30,000  
Commission income
    6,103       -       26,102  
Total revenue
    6,103       -       56,102  
                         
Cost of goods sold
                       
Cost of goods sold
    2,714       -       33,403  
Cost of goods sold - related party
    -       -       8,300  
Total cost of goods sold
    2,714       -       41,703  
                         
Gross income
    3,389       -       14,399  
                         
Operating expenses:
                       
Depreciation and amortization
    144       -       667  
Executive compensation
    37,986       -       95,239  
General and administrative
    3,786       64       7,686  
Professional fees
    275,139       4,000       704,699  
Professional fees - related party
    31,147       -       74,924  
Total operating expenses
    348,202       4,064       883,215  
                         
Other income (expense):
                       
Interest income
    3       -       9  
Foreign currency transaction loss
    (411 )     -       (876 )
Total other expense
    (408 )     -       (867 )
                         
Net loss
  $ (345,221 )   $ (4,064 )   $ (869,683 )
                         
                         
Weighted average number of common shares
    23,678,767       15,001,500          
outstanding - basic
                       
                         
Net loss per share - basic
  $ (0.01 )   $ -          


See Accompanying Notes to Consolidated Financial Statements.


 
4

 


ORACO RESOURCES, INC.
 
(AN EXPLORATION STAGE COMPANY)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited)
 
                   
                   
               
Inception
 
               
(August 4, 2010)
 
   
For the three months ended
   
to
 
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (345,221 )   $ (4,064 )   $ (869,683 )
Adjustments to reconcile net loss
                       
to net cash used in operating activities:
                       
Shares to be issued for consulting services
    156,875       -       361,146  
Depreciation and amortization
    144       -       667  
Changes in operating assets and liabilities:
                       
Decrease in restricted cash
    59,256       -       -  
Increase in accounts payable
    37,280       -       58,627  
Increase in accrued payroll taxes
    3,687       -       8,742  
Decrease in customer deposits
    (59,256 )     -       -  
                         
Net cash used in operating activities
    (147,235 )     (4,064 )     (440,501 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Cash acquired upon merger
    -       -       78  
Purchase of trademark
    -       -       (5,775 )
                         
Net cash used in investing activities
    -       -       (5,697 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from line of credit - related party
    1,935       4,164       8,734  
Repayments for line of credit - related party
    (4,799 )     -       (4,799 )
Proceeds from sale of common stock, net of offering costs
    80,000       -       355,030  
Proceeds from common stock payable
    235,000       -       262,800  
Donated capital
    40       -       262  
                         
Net cash provided by financing activities
    312,176       4,164       622,027  
                         
NET CHANGE IN CASH
    164,941       100       175,829  
                         
CASH AT BEGINNING OF PERIOD
    10,888       -       -  
                         
CASH AT END OF PERIOD
  $ 175,829     $ 100     $ 175,829  
                         
SUPPLEMENTAL INFORMATION:
                       
Interest paid
  $ -     $ -     $ -  
Income taxes paid
  $ -     $ -     $ -  
                         
NON-CASH SUPPLEMENT:
                       
Acquisition of Oraco Resources and JYORK Industries;
                       
Assets acquired
  $ -     $ -     $ 50,000  
Liabilities assumed
  $ -     $ -     $ (4,564 )
Common stock payable assumed
  $ -     $ -     $ (50,700 )
Total acquired, excluding cash
  $ -     $ -     $ (5,264 )
Common stock for reverse merger
  $ -     $ -     $ 8,344  


See Accompanying Notes to Consolidated Financial Statements.

 
5

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
The interim consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.
 
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these condensed interim consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2011 and notes thereto included in the Company’s 10-K annual report and all amendments.  The Company follows the same accounting policies in the preparation of interim reports.
 
Results of operations for the interim period are not indicative of annual results.

Principles of consolidation
For the three months ended March 31, 2011, the consolidated financial statements include the accounts of Oraco Resources, Inc. (Canada Corporation).  For the three months ended March 31, 2012, the consolidated financial statements include the accounts of Oraco Resources, Inc. (Nevada Corporation), Oraco Resources, Inc. (Canada Corporation) and JYORK Industries, Inc. Ltd.   All significant intercompany balances and transactions have been eliminated.  Oraco Resources, Inc. (Nevada Corporation), Oraco Resources, Inc. (Canada Corporation) and JYORK Industries, Inc. Ltd. will be collectively referred herein to as the “Company”.

Nature of operations
The Company is in the mineral and natural resource exploration and trading business, and has not yet commenced operations to locate commercially exploitable mineral and natural resources. The Company has been in the exploration stage since its formation and has not realized any revenues from its planned operations.

Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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 significantly from those estimates.


 
6

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.

Trademarks
 
ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of ASC 350. This standard also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. As of March 31, 2012, the Company believes there is no impairment of its intangible assets.

The Company's intangible assets consist of the costs of filing and acquiring various trademarks. The trademarks are recorded at cost. The Company determined that the trademarks have an estimated useful life of 10 years and will be reviewed annually for impairment.  Amortization will be recorded over the estimated useful life of the assets using the straight-line method for financial statement purposes. The Company will commence amortization once the economic benefits of the assets begin to be consumed and they plan to record amortization once production begins and the related revenues are recorded.
 
Mineral claim payments and exploration expenditures
The Company expenses all costs related to the acquisition, maintenance and exploration of its unproven mineral properties to which it has secured exploration rights.  If and when proven and probable reserves are determined for a property and a feasibility study prepared with respect to the property, then subsequent development costs of the property will be capitalized.  To date the Company has not established the commercial feasibility of its exploration prospects, therefore all costs have been expensed.  The Company also considers the provisions of ASC 360 which concludes that mineral rights are tangible assets. Accordingly, the Company capitalizes certain costs related to the acquisition of mineral rights where proven or probable reserves are present or when the Company intends to carry out an exploration program and has the funds to do so.
 
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards.  This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award. 
 

 
7

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

Major customers
During the three months ended March 31, 2012, the Company generated its revenue from one customer.

Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earning per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earning per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.

Recent pronouncements
The Company has evaluated all the recent accounting pronouncements through May 2012 and believes that none of them will have a material effect on the Company’s consolidated financial statements.

NOTE 2 – GOING CONCERN
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability and/or acquisition and sale of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the development stage and, accordingly, has not yet generated revenues from operations. Since its inception, the Company has been engaged substantially in financing activities and developing its business plan and incurring start up costs and expenses. As a result, the Company incurred accumulated net losses from Inception (August 4, 2010) through the period ended March 31, 2012 of ($895,223). In addition, the Company’s development activities since inception have been financially sustained through debt and equity financing.
 
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. 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 result from this uncertainty.


 
8

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 – TRADEMARK

Trademarks consisted of the following as of:

   
March 31,
   
December 31,
 
   
2012
   
2011
 
Trademarks
  $ 5,775     $ 5,775  
Accumulated amortization
    (667 )     (523 )
    $ 5,108     $ 5,252  

During the three months ended March 31, 2012, the Company recorded amortization expense of $144.  During the three months ended March 31, 2011, the Company recorded amortization expense of $0.
 
 
NOTE 4 – LINE OF CREDIT – RELATED PARTY

Line of credit consists of the following at:

   
March 31,
2012
   
December 31,
2011
 
Revolving credit line due to shareholder of the Company, unsecured, 0% interest, due upon demand
  $ 3,935     $ 6,799  
                 
    $ 3,935     $ 6,799  

On January 1, 2011, the Company executed a line of credit in the amount of $10,000 with Summit Capital USA, Inc.  The line of credit carries an annual interest rate of 0% and is due upon demand.

During the three months ended March 31, 2012, interest expense was $0.

NOTE 5 – CUSTOMER DEPOSIT

During the year ended December 31, 2011, the Company received $200,000 from a customer and utilized $120,744 to facilitate the purchase and sale of products and the Company earned commission income of $20,000.  As of December 31, 2011, the Company had a balance of $59,256 in customer deposit.

During the three months ended March 31, 2012, the Company received an additional $61,028 from the customer to facilitate additional purchases and sales of products and the Company earned commission income of $6,103.  Due to additional fees and expenses directly related to the commission, the Company reduced $2,714 against the commission income.  As of March 31, 2012, the Company had a balance of $0 in customer deposit.


 
9

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 – STOCKHOLDERS’ EQUITY
 
The Company is authorized to issue 100,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock.

On February 23, 2011, the Company affected an 8-for-1 forward stock split of its $0.001 par value common stock.

All shares and per share amounts have been retroactively restated to reflect the split discussed above.

Common Stock
On July 18, 2011, the Company executed a one year consulting agreement with an entity in exchange for 127,500 shares of common stock and 127,500 warrants (the “units”).  The units are non-forfeitable and fully vested.  The units were valued using the fair value of similar units sold for cash on the agreement date.  As of March 31, 2012, the Company owed 127,500 units valued at $127,500.  During the three months ended March 31, 2012, the Company recorded consulting expense of $31,875.  As of March 31, 2012, the shares were unissued and a total of $90,313 was recorded to common stock payable.

On September 14, 2011, the Company executed a two year consulting agreement with an entity in exchange for a total of 1,000,000 shares of common stock.  The shares are earned equally over the two year period subject to the Company’s unfettered right to cancel the agreement at any time without issuing the consultant any further stock.  The shares were valued according to the fair value of the common stock based on the agreement date.  As of March 31, 2012, the Company owed 270,833 shares of restricted common stock valued at $270,833.  During the three months ended March 31, 2012, the Company recorded consulting expense of $125,000.  As of March 31, 2012, the shares were unissued and a total of $273,833 was recorded to common stock payable.
 
During the three months ended March 31, 2012, the Company sold 315,000 units consisting of 315,000 shares of its common stock and 315,000 warrants at a price of $1 per unit for cash of $315,000 to several investors.  During the three months ended March 31, 2012, the Company issued a total of 80,000 shares of common stock.  As of March 31, 2012, the remaining 235,000 shares were not issued and are recorded into common stock payable.

During the three months ended March 31, 2012, the Company received donated capital of $40 from a former officer, director and shareholder of the Company.

NOTE 7 – WARRANTS AND OPTIONS

During the three months ended March 31, 2012, the Company issued a total of 315,000 warrants to several investors related to the sale of units.  A unit consisted of one share of common stock and one warrant.  See Note 5.

 
10

 
ORACO RESOURCES, INC.
FORMERLY STERILITE SOLUTIONS CORP.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


The following is a summary of the status of all of the Company’s stock warrants as of March 31, 2012 and changes during the three months ended on that date:

 
 
Number
of Warrants
   
Weighted-Average
Exercise Price
 
Outstanding at January 1, 2012
    358,268     $ 2.00  
Granted
    346,875     $ 2.00  
Exercised
    -     $ 0.00  
Cancelled
    -     $ 0.00  
Outstanding at March 31, 2012
    705,143     $ 2.00  
Warrants exercisable at March 31, 2012
    705,143     $ 2.00  
Warrants exercisable at March 31, 2011
    -     $ 0.00  

The following table summarizes information about stock warrants outstanding and exercisable at March 31, 2012:

   
STOCK WARRANTS OUTSTANDING AND EXERCISABLE
 
 
 
Exercise Price
 
 
Number of
Warrants
Outstanding
 
Weighted-Average
Remaining
Contractual
Life in Years
 
 
Weighted-
Average
Exercise Price
$ 2.00
 
705,143
 
0.73
 
$ 2.00

NOTE 8 – RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2012, the Company paid $31,147 to a shareholder of the Company for consulting fees.  During the three months ended March 31, 2011, the Company paid $0 to a shareholder of the Company for consulting fees.

NOTE 9 – SUBSEQUENT EVENTS

In April 2012, the Company received a total of $97,900 from several investors to purchase 97,900 units.  Each unit consists of 1 share of common stock and 1 warrant.

In April 2012, the Company received $15,000 from an investor to purchase 7,500 shares of common stock.



 
11

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements and involves risks and uncertainties that could materially affect expected results of operations, liquidity, cash flows, and business prospects.  These statements include, among other things, statements regarding:
 
o  
our ability to diversify our operations;
 
o  
our ability to attract key personnel;
 
o  
our ability to operate profitably;
 
o  
our ability to efficiently and effectively finance our operations;
 
o  
inability to achieve future sales levels or other operating results;
 
o  
inability to raise additional financing for working capital;
 
o  
inability to efficiently manage our operations;
 
o  
the inability of management to effectively implement our strategies and business plans;
 
o  
the unavailability of funds for capital expenditures and/or general working capital;
 
o  
the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain;
 
o  
deterioration in general or regional economic conditions;
 
o  
changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate;
 
o  
adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

as well as other statements regarding our future operations, financial condition and prospects, and business strategies.  These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, if any and in particular, the risks discussed under the heading “Risk Factors” in Part II, Item 1A and those discussed in other documents we file with the Securities and Exchange Commission.  We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 
12

 

References in the following discussion and throughout this quarterly report to “we”, “our”, “us”, “Oraco”, “the Company”, and similar terms refer to Oraco Resources, Inc. and its subsidiaries, unless otherwise expressly stated or the context otherwise requires.

Overview

Oraco is an exploration stage and exporting company engaged in the discovery, acquisition, development, production, and market of gold, diamonds, and other natural resources.  Our products primarily consist of: metal concentrates, which we sell to custom smelters; unrefined bullion bars (doré), which may be sold as doré or further refined before sale to precious metals traders; unfinished diamonds; and some gem quality diamonds that we have cut and polished before marketing.

On June 3, 2011, we entered into an Acquisition, Distribution and Marketing Agreement with Ozuro Jewelry, a New York corporation (“Ozuro”), wherein we agreed to offer to Ozuro the right to purchase our diamonds and gold (the “Product”) before offering to sell the Product to any other third party, and Ozuro agreed to consider purchasing our Product, in accordance with the terms and conditions set forth in the agreement.  The term of the agreement began on June 3, 2011 and will terminate on June 3, 2014.  The price of the gold shall initially be set at 90% of the London PM fix as reported as of the date of the sale and diamonds pricing shall be initially set at 95% of the Rapaport Diamond Price Index as reported as of the date of sale.

In October 2011 we strengthened our holdings by reviving contractual rights for the disposition of diamonds, gold, and any other minerals recovered in an approximately 10 acre area of mineral rich Boroma, Sierra Leone. These rights had been acquired by JYORK in 2008 before becoming our wholly-owned subsidiary.  The holding is located northwest of the city of Koidu in the Kono District, Sierra Leone.

Under the revived form of the agreement, net revenues generated from the activities at the Boroma site will be divided evenly between JYORK and the Boroma Gbense Chiefdom.  (“Net Revenue” is defined as the gross value of the recovery, as determined by governmental agencies, less any and all costs incurred in connection with the recovery and evaluation of the product).

Subject to adequate financing we plan to begin mining in Boroma within the next 90 days.  Findings will be released shortly after excavation.

Also in October 2011, we further increased our holdings by fulfilling a condition precedent to the effectuation of an agreement that had been entered into on or about April 20, 2011 between JYORK and the authorities representing the Nimikoro Chiefdom in Sierra Leone, which granted to JYORK the rights to recover all precious minerals and natural resources located above and below ground in the area located in the Nimikoro Chiefdom known as Nimini Hills.  The contract called for JYORK to provide all funding necessary to mine the area known as Nimini Hills, and all net profits earned from the recovery and sale of any precious minerals or other natural resources are to be divided 69% to JYORK and 31% to the Chiefdom (1% of which the Chiefdom is to apply to local development). The agreement applied to an area that was believed to be approximately 500 acres. However, since the specific metes and bounds of the area were indeterminate, the effectuation of the agreement was subject to JYORK having a complete survey done to establish these boundaries.

 
13

 

On October 12, 2011, a surveyor was retained. By March 28, 2012, the survey of the Nimini Hills boundaries was completed. It was discovered by the results of the survey that the local Chieftains had misunderstood the conversion of the area to acres. The contract covered an area that is actually 50 square kilometers in size, rather than the 500 acres.

Recent Developments

In connection with the completion of the survey of Nimini Hills, a 50 acre area within the concession was mapped out by the surveyors in which the Company believes that it should be able to commence alluvial mining no later than July of 2012. The site is located around Gondama and Keoma, in the Kono District.

The Company’s wholly-owned subsidiary, JYORK, is in the process of obtaining an Exploratory License and a Small Scale Mechanized Mining License to enable the Company to commence mechanized mining and to determine the locations in the Nimini Hills concessions in which the mining should occur.

Going Concern

The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of the Company as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company is in the development stage and, accordingly, has generated minimal revenues from operations. As shown on the accompanying financial statements, the Company has incurred a net loss of $869,683 for the period from inception (August 4, 2010) to March 31, 2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The future of the Company is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues.

RESULTS OF OPERATIONS

Revenues. In three months ended March 31, 2012, we generated $6,102 in revenue and during the three months ended March 31, 2011, we did not generate any revenue. The increase in revenue for the period ended March 31, 2012 was attributable to our change of business operations as a result of our acquisition of JYORK and ORI in May 2011, as well as some preliminary work on the buy/sell program.

While the Company shall begin artisanal mining shortly, we do not anticipate that these efforts will generate substantial returns while in the nascent stage. We will also be in the exploration stage of our business for an extended period of time and as a result do not anticipate earning revenues from our properties via any mechanized mining (which generates greater returns than artisanal mining) until we have explored the properties and conducted geophysical studies as well.

Depreciation and Amortization. Depreciation and amortization totaled $144 during the three months ended March 31, 2012 and $0 during the three months ended March 31, 2011.

 
14

 

Executive Compensation. Executive compensation totaled $37,986 during the three months ended March 31, 2012 and $0 during the three months ended March 31, 2011.

General and Administrative. General and administrative totaled $3,786 during the three months ended March 31, 2012 and $64 during the three months ended March 31, 2011.

Professional Fees. Professional fees totaled $275,139 during the three months ended March 31, 2012 and $4,000 during the three months ended March 31, 2011.  Professional fees consisted mainly of legal fees, accounting fees, EDGAR filing fees, consulting fees and transfer agent fees.

Professional Fees – Related Party. Professional fees – related party totaled $31,147 during the three months ended March 31, 2012 and $0 during the three months ended March 31, 2011.

Liquidity and Capital Resources
 
As of March 31, 2012, we had $175,829 in cash. The following table provides detailed information about our net cash flow for all financial statement periods presented in this Quarterly Report. To date, we have financed our operations through the issuance of stock and borrowings.

The following table sets forth a summary of our cash flows for the periods indicated:

     
Three Months Ended
March 31,
     
2012
 
2011
Net cash used in operating activities
   
$(147,235)
 
$(4,064)
Net cash used in investing activities
   
$0
 
$0
Net cash provided by financing activities
   
$312,176
 
$4,164
Net increase in cash
   
$164,941
 
$100
Cash, beginning of period
   
$10,888
 
$0
Cash, end of period
   
$175,829
 
$100

Operating activities

Net cash used in operating activities was $147,235 for the three months ended March 31, 2012, as compared to $4,064 used in operating activities for the same period in 2011. The increase in net cash used in operating activities consisted primarily of professional fees.

Investing activities

Net cash used in investing activities was $0 for the three months ended March 31, 2012, as compared to $0 used in investing activities for the same period in 2011.

Financing activities

Net cash provided by financing activities for the three months ended March 31, 2012 was $312,176, as compared to $4,164 for the same period of 2011. The increase in net cash provided by financing activities was mainly attributable to proceeds from sale of common stock.

 
15

 

Since inception, we have financed our cash flow requirements through the issuance of common stock and related party notes payable. Without significant cash flow from operations we will require additional cash resources, including the sale of equity or debt securities, to meet our planned capital expenditures and working capital requirements for the next 12 months.  We will require additional cash resources due to changed business conditions, implementation of our strategy to successfully expand and continue current gold and diamond buy/sell transactions, or acquisitions we may decide to pursue.

If our own financial resources and then current cash-flows from operations are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities.  The sale of additional equity securities will result in dilution to our stockholders.  The incurrence of indebtedness will result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations or modify our plans to grow the business.  Financing may not be available in amounts or on terms acceptable to us, if at all.  Any failure by us to raise additional funds on terms favorable to us, or at all, will limit our ability to expand our business operations and could harm our overall business prospects.

We anticipate that we will incur operating losses in the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development. Such risks for us include, but are not limited to, raise sufficient capital to retain the services of well seasoned professionals to increase our probability of success.  There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Operation Plan

Our current business plan is to expand and continue current gold and diamond buy/sell transactions that provide current revenues for the Company.  Additionally, we plan to engage SRK Worldwide, or another service provider of equal repute, to provide geological and geophysical analysis of our assets in Sierra Leone so as to prepare a feasibility and technical report with respect to the proposed mining operations on certain of our concessions. These studies will commence immediately after the Exploration Licenses have been issued.

While the geophysical reports are being undertaken on our assets, we will expand our gold and diamond buy/sell program to deliver sufficient cash-flow to fund the costs associated with exploration and related geophysical examinations of our mining concessions.  Once the feasibility reports are completed, we anticipate capital expenditures on equipment, labor, housing, fuel, travel and other essential items to prepare the concessions for recovery and resource extraction operations.

 
16

 

Available Information

Our website is located at www.oracoresourcesinc.com. We provide a link to the section of the SEC’s website at www.sec.gov that has all of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, our Proxy Statements, and other ownership related filings. Further, a copy of this Quarterly Report on Form 10-Q is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

The contents of our websites are not intended to be incorporated by reference into this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

This item is not applicable as we are currently considered a smaller reporting company.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Principal Financial Officer, Bradley Rosen, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.  Based on that evaluation and assessment, Mr. Rosen concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 
17

 

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us, which may materially affect us.

Item 1A. Risk Factors

Our significant business risks are described in Item 1A. to Part I of Form 10-K for the year ended December 31, 2011 (filed on April 16, 2012) to which reference is made herein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2012, we sold 315,000 units (each unit consists of 1 share of our restricted common stock and 1 callable common stock purchase warrant priced at $2.00 per share for up to 12 months) to 5 accredited investors for a total purchase price of $315,000 all of which was paid in cash. Of the 315,000 shares of common stock, 80,000 shares were issued during the quarter ended March 31, 2012, 205,000 shares were issued on April 9, 2012 and the remaining 30,000 shares have not been issued.

We believe that the issuance and sale of the above securities were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2), Regulation D and/or Regulation S. The securities were issued directly by us and did not involve a public offering or general solicitation. The recipient of the securities was afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make her investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipient, immediately prior to issuing the securities, had such knowledge and experience in our financial and business matters that she was capable of evaluating the merits and risks of its investment. The recipient had the opportunity to speak with our management on several occasions prior to her investment decision. There were no commissions paid on the issuance and sale of the shares.

Subsequent Sales of Unregistered Securities

On April 2, 2012, we sold 97,900 units (each unit consists of 1 share of our restricted common stock and 1 callable common stock purchase warrant priced at $2.00 per share for up to 12 months) to 7 accredited investors for a total purchase price of $97,900 all of which was paid in cash. Of the 97,900 shares of common stock, 59,700 shares were issued on April 9, 2012 and the remaining 38,200 shares have not been issued.

On April 9, 2012, we sold 7,500 shares of restricted common stock to 1 accredited investor for a total purchase price of $15,000 all of which was paid in cash. The 7,500 shares of common stock were issued on April 19, 2012.

 
18

 

We believe that the issuance and sale of the above securities were exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2), Regulation D and/or Regulation S. The securities were issued directly by us and did not involve a public offering or general solicitation. The recipient of the securities was afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make her investment decision, including our financial statements and 34 Act reports. We reasonably believed that the recipient, immediately prior to issuing the securities, had such knowledge and experience in our financial and business matters that she was capable of evaluating the merits and risks of its investment. The recipient had the opportunity to speak with our management on several occasions prior to her investment decision. There were no commissions paid on the issuance and sale of the shares.

Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities from the time of our inception on August 4, 2010 through the period ended March 31, 2012.

Item 3. Defaults on Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit
     
Incorporated by reference herein
Number
 
Description
 
Form
 
Date
             
31.1*
 
Certification of pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
             
32.1*
 
Certifications of r pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       
             
101.INS**
 
XBRL Instance Document
       
             
101.SCH**
 
XBRL Taxonomy Extension Schema
       
             
101.CAL**
 
XBRL Taxonomy Extension Calculation Linkbase
       
             
101.DEF**
 
XBRL Taxonomy Extension Definition Linkbase
       
             
101.LAB**
 
XBRL Taxonomy Extension Label Linkbase
       
             
101.PRE**
 
XBRL Taxonomy Extension Presentation Linkbase
       

*
Filed herewith.
**
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
19

 

SIGNATURES
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 


ORACO RESOURCES, INC.
(Registrant)

By: /S/ Bradley Rosen                                                                                      
      Bradley Rosen, Chief Executive Officer
      (Principal Financial Officer)


Date: May 21, 2012

 
 
20


XOTC:ORAC Oraco Resources Inc Quarterly Report 10-Q Filling

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