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

FORM 10-Q/A
(Amendment No. 1)

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

For the quarterly period ended September 30, 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 November 19, 2012 was 24,703,987 shares.

 
1

 

ORACO RESOURCES, INC.
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

Index to Report on Form 10-Q



     
Page No.
   
PART I - FINANCIAL INFORMATION
 
       
Item 1.
 
Financial Statements
  4
       
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
  14
       
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 20
       
Item 4T.
 
Controls and Procedures
  20
       
   
PART II - OTHER INFORMATION
 
       
Item 1.
 
Legal Proceedings
  20
       
Item1A.
 
Risk Factors
  21
       
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
  21
       
Item 3.
 
Defaults Upon Senior Securities
 21
       
Item 4.
 
Mine Safety Disclosures
21
       
Item 5.
 
Other Information
 21
       
Item 6.
 
Exhibits
22
       
   
Signature
22


 
2

 

EXPLANATORY NOTE

Oraco Resources, Inc. (the “Company”), is filing the following Amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2012 to include the unaudited consolidated financial statements reviewed in accordance with SAS 100 as required by Rule 10-01(d).



 
3

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

ORACO RESOURCES, INC.
 
(AN EXPLORATION STAGE COMPANY)
 
CONSOLIDATED BALANCE SHEETS
 
(unaudited)
 
             
   
September 30,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
             
Current assets:
           
Cash
  $ 68,665     $ 10,888  
Cash - restricted
    -       59,256  
Inventory
    425,058       -  
Total current assets
    493,723       70,144  
                 
Other assets:
               
Notes receivable
    200,000       -  
Accrued interest receivable
    1,570       -  
Trademark, net
    4,819       5,252  
Total other assets
    206,389       5,252  
                 
Total assets
  $ 700,112     $ 75,396  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Current liabilities:
               
Accounts payable
  $ 47,578     $ 25,910  
Accrued payroll taxes
    14,479       5,055  
Line of credit - related party
    -       6,799  
Customer deposit
    -       59,256  
Total current liabilities
    62,057       97,020  
                 
Total liabilities
    62,057       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, 24,585,788 and 23,645,360 shares issued and outstanding
               
as of September 30, 2012 and December 31, 2011, respectively
    24,586       23,646  
Additional paid-in capital
    1,766,817       299,762  
Common stock payable
    868,431       204,971  
Deficit accumulated during exploration stage
    (2,021,779 )     (550,003 )
Total stockholders' equity (deficit)
    638,055       (21,624 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 700,112     $ 75,396  

See Accompanying Notes to Consolidated Financial Statements.

 
4

 


ORACO RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
                     
                   
Inception
                   
(August 4, 2010)
   
For the three months ended
 
For the nine months ended
 
to
   
September 30,
 
September 30,
 
September 30,
   
2012
 
2011
 
2012
 
2011
 
2012
                     
                     
Revenue
                   
Gold and diamond sales
 
 $
 
 $               -
 
 $                    -
 
 $                -
 
 $          30,000
Commission income
 
                            -
 
                            -
 
                       6,103
 
                            -
 
                     26,103
Total revenue
 
                            -
 
                            -
 
                       6,103
 
                            -
 
                     56,103
                     
Cost of goods sold
                   
Cost of goods sold
 
                            -
 
                            -
 
                       2,714
 
                            -
 
                     33,404
Cost of goods sold - related party
 
                            -
 
                            -
 
                            -
 
                            -
 
                       8,300
Total cost of goods sold
 
                            -
 
                            -
 
                       2,714
 
                            -
 
                     41,704
                     
Gross profit
 
                            -
 
                            -
 
                       3,389
 
                            -
 
                     14,399
                     
Operating expenses:
                   
Depreciation and amortization
 
                          144
 
                          144
 
                          433
 
                          378
 
                          956
Executive compensation
 
                     42,307
 
                     27,118
 
                   118,724
 
                     27,118
 
                   175,977
General and administrative
 
                   134,131
 
                       1,511
 
                   166,531
 
                       1,626
 
                   170,431
Professional fees
 
                   470,802
 
                   152,743
 
                   954,118
 
                   247,882
 
                1,383,678
Professional fees - related party
 
                   157,195
 
                     18,700
 
                   233,488
 
                     21,200
 
                   277,265
Total operating expenses
 
                   804,579
 
                   200,216
 
                1,473,294
 
                   298,204
 
                2,008,307
                     
Other income (expense):
                   
Interest income
 
                       1,576
 
                            -
 
                       1,579
 
                            -
 
                       1,585
Foreign currency transaction loss
 
                     (1,541)
 
                        (425)
 
                     (3,450)
 
                        (425)
 
                     (3,915)
Total other expense
 
                            35
 
                        (425)
 
                     (1,871)
 
                        (425)
 
                     (2,330)
                     
Net loss
 
 $       (804,544)
 
 $   (200,641)
 
 $    (1,471,776)
 
 $   (298,629)
 
 $   (1,996,238)
                     
                     
Weighted average number of common shares
 
      24,389,599
 
      23,484,123
 
      24,016,789
 
      19,266,062
   
outstanding - basic
                   
                     
Net loss per share - basic
 
 $                    (0.03)
 
 $                    (0.01)
 
 $                    (0.06)
 
 $                    (0.02)
   


See Accompanying Notes to Consolidated Financial Statements.

 
5

 


ORACO RESOURCES, INC.
 
(AN EXPLORATION STAGE COMPANY)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(unaudited)
 
                   
                   
               
Inception
 
               
(August 4, 2010)
 
   
For the nine months ended
   
to
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (1,471,776 )   $ (298,629 )   $ (1,996,238 )
Adjustments to reconcile net loss
                       
to net cash used in operating activities:
                       
Shares to be issued for consulting services
    444,062       47,396       648,333  
Depreciation and amortization
    433       378       956  
Changes in operating assets and liabilities:
                       
Decrease in restricted cash
    59,256       -       -  
Decrease in prepaid expenses
    -       1,500       -  
Increase in inventory
    (425,058 )     -       (425,058 )
Increase in accrued interest receivable
    (1,570 )     -       (1,570 )
Decrease in due from related party
    -       49,900       -  
Increase in accounts payable
    21,668       14,231       43,015  
Increase in accrued payroll taxes
    9,424       2,577       14,479  
Decrease in customer deposits
    (59,256 )     -       -  
                         
Net cash used in operating activities
    (1,422,817 )     (182,647 )     (1,716,083 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Cash acquired upon merger
    -       78       78  
Purchase of trademark
    -       (5,775 )     (5,775 )
Payments for notes receivable
    (200,000 )     -       (200,000 )
                         
Net cash used in investing activities
    (200,000 )     (5,697 )     (205,697 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from line of credit - related party
    1,935       6,164       8,734  
Repayments for line of credit - related party
    (8,734 )     (10 )     (8,734 )
Proceeds from sale of common stock, net of offering costs
    1,467,955       200,030       1,742,985  
Proceeds from common stock payable
    219,398       27,800       247,198  
Donated capital
    40       210       262  
                         
Net cash provided by financing activities
    1,680,594       234,194       1,990,445  
                         
NET CHANGE IN CASH
    57,777       45,850       68,665  
                         
CASH AT BEGINNING OF PERIOD
    10,888       -       -  
                         
CASH AT END OF PERIOD
  $ 68,665     $ 45,850     $ 68,665  
                         
                         
SUPPLEMENTAL INFORMATION:
                       
Interest paid
  $ -     $ -     $ -  
Income taxes paid
  $ -     $ -     $ -  
                         
NON-CASH SUPPLEMENT:
                       
Acquisition of Oraco Resources and JYORK Industries;
                       
Assets acquired
  $ -     $ 50,000     $ 50,000  
Liabilities assumed
  $ -     $ (4,564 )   $ (4,564 )
Common stock payable assumed
  $ -     $ (50,700 )   $ (50,700 )
Total acquired, excluding cash
  $ -     $ 5,264     $ (5,264 )
Common stock for reverse merger
  $ -     $ 8,344     $ 8,344  

See Accompanying Notes to Consolidated Financial Statements.

 
6

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
The 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 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 nine months ended September 30, 2012 and 2011, the consolidated financial statements include the accounts of Oraco Resources, Inc. (Nevada Corporation), Oraco Resources, Inc. (Canada Corporation), JYORK Industries, Inc. Ltd, One Communications, Inc. (Nevada Corporation) and Oracom, Inc. (Nevada Corporation).   All significant intercompany balances and transactions have been eliminated.   Oraco Resources, Inc. (Nevada Corporation), Oraco Resources, Inc. (Canada Corporation), JYORK Industries, Inc. Ltd., One Communications, Inc. (Nevada Corporation) and Oracom, Inc. (Nevada Corporation) 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.

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.

Inventory
Inventory consists of raw materials and is valued at the lower of cost or market.  Cost is determined using historical cost.

Fair value of financial instruments
The carrying amounts reflected in the consolidated balance sheets for cash, accounts payable, and accrued expenses approximate the respective fair values due to the short maturities of these items.



 
7

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 
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 September 30, 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. 
 
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 and nine months ended September 30, 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 earnings 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 earnings 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.

 
8

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent pronouncements
The Company has evaluated all the recent accounting pronouncements through November 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 September 30, 2012 of ($1,996,238). 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.

NOTE 3 – TRADEMARK

Trademarks consisted of the following as of:

   
September 30,
   
December 31,
 
   
2012
   
2011
 
Trademarks
  $ 5,775     $ 5,775  
Accumulated amortization
    (956 )     (523 )
    $ 4,819     $ 5,252  

During the three months ended September 30, 2012 and 2011, the Company recorded amortization expense of $144 and $144, respectively.  During the nine months ended September 30, 2012 and 2011, the Company recorded amortization expense of $433 and $378, respectively.
 
 

 
9

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 4 – NOTES RECEIVABLE

During the quarter ended September 30, 2012, the Company entered in a note receivable agreement with the Parent Company of iAlarm, Inc. On November 19, 2012, the Company entered into a Share Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) by and among iAlarm, Inc. (Note 10)  Notes receivable consisted of the following as of:

   
September 30,
   
December 31,
 
   
2012
   
2011
 
Note receivable, unsecured, 6% interest, due August 2016
  $ 100,000     $ -  
Note receivable, unsecured, 6% interest, due August 2016
    50,000       -  
Note receivable, unsecured, 6% interest, due August 2016
    50,000       -  
                 
    $ 200,000     $ -  

During the three months ended September 30, 2012 and 2011, the Company recorded interest receivable of $1,570 and $0, respectively.  During the nine months ended September 30, 2012 and 2011, the Company recorded interest receivable of $1,570 and $0, respectively.

NOTE 5 – LINE OF CREDIT – RELATED PARTY

Line of credit consists of the following at:

   
September 30,
2012
   
December 31,
2011
 
Revolving credit line due to shareholder of the Company, unsecured, 0% interest, due upon demand
  $ -     $ 6,799  
                 
    $ -     $ 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 September 30, 2012 and 2011, interest expense was $0 and $0, respectively.  During the nine months ended September 30, 2012 and 2011, interest expense was $0 and $0, respectively.

NOTE 6 – 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 September 30, 2012, the Company had a balance of $0 in customer deposit.


 
10

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 7 – 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 September 30, 2012, the Company recorded consulting expense of $5,312.  During the nine months ended September 30, 2012, the Company recorded consulting expense of $69,062.  As of September 30, 2012, the shares were unissued and a total of $127,500 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 September 30, 2012, the Company owed 520,833 shares of restricted common stock valued at $520,833.  During the three months ended September 30, 2012, the Company recorded consulting expense of $125,000.  During the nine months ended September 30, 2012, the Company recorded consulting expense of $375,000.  As of September 30, 2012, the shares were unissued and a total of $520,833 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 April 2012, the Company issued the remaining 235,000 shares.

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.

During the three months ended June 30, 2012, the Company sold 97,900 units consisting of 97,900 shares of its common stock and 97,900 warrants at a price of $1 per unit for cash of $97,900 to several investors.  During the three months ended June 30, 2012, the Company issued a total of 52,900 shares of common stock.  As of June 30, 2012, the remaining 45,000 shares were not issued and are recorded into common stock payable.

During the three months ended June 30, 2012, the Company sold 15,000 shares of common stock for cash totaling $30,000 to several investors.  During the three months ended June 30, 2012, the Company issued a total of 7,500 shares of common stock.  As of June 30, 2012, the remaining 7,500 shares were not issued and are recorded into common stock payable.


 
11

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)

During the three months ended September 30, 2012, the Company sold 622,227 shares of common stock for cash totaling $1,244,454 to several investors.  During the three months ended June 30, 2012, the Company issued a total of 565,028 shares of common stock.  As of September 30, 2012, the remaining 109,699 shares were not issued and are recorded into common stock payable.

During the nine months ended September 30, 2012, there have been no other issuances of common stock.
 
NOTE 8 – 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 7.

During the three months ended June 30, 2012, the Company issued a total of 97,900 warrants to several investors related to the sale of units.  A unit consisted of one share of common stock and one warrant.  See Note 7.
 
During the nine months ending September 30, 2012, the Company agreed to issue a total of 63,750 warrants to an entity for a consulting agreement.
The following is a summary of the status of all of the Company’s stock warrants as of September 30, 2012 and changes during the nine months ended on that date:

 
 
Number
of Warrants
   
Weighted-Average
Exercise Price
 
Outstanding at January 1, 2012
    358,298     $ 2.00  
Granted
    481,962     $ 2.00  
Exercised
    -     $ 0.00  
Cancelled
    (405,360 )   $ 0.00  
Outstanding at September 30, 2012
    434,900     $ 2.00  
Warrants exercisable at September 30, 2012
    434,900     $ 2.00  
Warrants exercisable at September 30, 2011
    -     $ 0.00  

The following table summarizes information about stock warrants outstanding and exercisable at September 30, 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       434,900       0.43     $ 2.00  

NOTE 9 – RELATED PARTY TRANSACTIONS

During the three months ended September 30, 2012, the Company paid $157,195 to a shareholder of the Company for consulting fees.  During the nine months ended September 30, 2012, the Company paid $233,488 to a shareholder of the Company for consulting fees.  During the three months ended September 30, 2011, the Company paid $18,700 to a shareholder of the Company for consulting fees.  During the nine months ended September 30, 2011, the Company paid $21,200 to a shareholder of the Company for consulting fees.


 
12

 
ORACO RESOURCES, INC.
 (AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE 10 – SUBSEQUENT EVENTS

On November 19, 2012, the Company entered into a Share Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) by and among iAlarm, Inc. (“iAlarm”), a Utah corporation and Oracom, Inc. (“Oracom”), a Nevada corporation and wholly-owned subsidiary of the Company. Pursuant to the Exchange Agreement, Oracom shall issue and deliver to iAlarm one million (1,000,000) shares of Oraco common stock in exchange for all the issued and outstanding shares of iAlarm (the “Exchange”). Oracom will hold and retain such iAlarm shares, making iAlarm the wholly-owned subsidiary of Oracom.

Subject to the terms and conditions set for the in the Exchange Agreement, the Exchange is anticipated to become effective on December 19, 2012.

During October and November 2012, the Company raised a total of $41,500 and issued a total of 20,750 shares of the common stock.

During October and November 2012, the Company issued a total of 97,449 shares of common stock and reduced the stock payable by $194,898.




 
13

 

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.

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.

AVAILABLE INFORMATION

We file annual, quarterly and other reports and other information with the SEC. You can read these SEC filings and reports over the Internet at the SEC's website at www.sec.gov or on our website at www.oracoresourcesinc.com. You can also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, DC 20549 on official business days between the hours of 10:00 am and 3:00 pm. Please call the SEC at (800) SEC-0330 for further information on the operations of the public reference facilities. We will provide a copy of our annual report to security holders, including audited financial statements, at no charge upon receipt to of a written request to us at Oraco Resources, Inc., 189 Brookview Drive, Rochester, NY 14617.

 
14

 

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.


 
15

 

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.

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 by late 2012 or early 2013. The site is located around Gondama and Keoma, in the Kono District.

On October 8, 2012, our wholly-owned subsidiary, JYORK, obtained 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.

Recent Developments

On November 19, 2012, we entered into a Share Exchange Agreement and Plan of Reorganization (the “Exchange Agreement”) by and among iAlarm, Inc. (“iAlarm”), a Utah corporation and Oracom, Inc. (“Oracom”), a Nevada corporation and our wholly-owned subsidiary. Pursuant to the Exchange Agreement, Oracom shall issue and deliver to iAlarm one million (1,000,000) shares of Oraco’s common stock in exchange for all the issued and outstanding shares of iAlarm (the “Exchange”). Oracom will hold and retain such iAlarm shares, making iAlarm the wholly-owned subsidiary of Oracom.

Subject to the terms and conditions set for the in the Exchange Agreement, the Exchange is anticipated to become effective on December 19, 2012.

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 $1,996,238 for the period from inception (August 4, 2010) to September 30, 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

Results of Operations for the Three Months Ended September 30, 2012 and September 30, 2011

Revenues. In the three months ended September 30, 2012 and September 30, 2011 we did not generate any revenues.


 
16

 

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 September 30, 2012 and $144 during the three months ended September 30, 2011.

Executive Compensation. Executive compensation totaled $42,307 during the three months ended September 30, 2012 and $27,118 during the three months ended September 30, 2011.

General and Administrative. General and administrative totaled $134,131 during the three months ended September 30, 2012 and $1,511 during the three months ended September 30, 2011.

Professional Fees. Professional fees totaled $470,802 during the three months ended September 30, 2012 and $152,743 during the three months ended September 30, 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 $157,195 during the three months ended September 30, 2012 and $18,700 during the three months ended September 30, 2011.

Results of Operations for the Nine Months Ended September 30, 2012 and September 30, 2011

Revenues. In the nine months ended September 30, 2012, we generated $6,103 in revenue and during the nine months ended September 30, 2011 we did not generate any revenue. The increase in revenue for the period ended September 30, 2012 was attributable to 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 $433 during the nine months ended September 30, 2012 and $378 during the nine months ended September 30, 2011.

Executive Compensation. Executive compensation totaled $118,724 during the nine months ended September 30, 2012 and $27,118 during the nine months ended September 30, 2011.

General and Administrative. General and administrative totaled $166,531 during the nine months ended September 30, 2012 and $1,626 during the nine months ended September 30, 2011.

Professional Fees. Professional fees totaled $954,118 during the nine months ended September 30, 2012 and $247,882 during the nine months ended September 30, 2011.  Professional fees consisted mainly of legal fees, accounting fees, EDGAR filing fees, consulting fees and transfer agent fees.

 
17

 

Professional Fees – Related Party. Professional fees – related party totaled $233,488 during the nine months ended September 30, 2012 and $21,200 during the nine months ended September 30, 2011.

Liquidity and Capital Resources
 
As of September 30, 2012, we had $68,665 in cash, $425,058 in inventory, $200,000 in notes receivable, and $1,570 in accrued interest receivable. 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 primarily through the issuance of stock and borrowings.

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

   
Nine Months Ended
September 30,
 
   
2012
   
2011
 
Net cash used in operating activities
  $ (1,422,817 )   $ (182,647 )
Net cash used in investing activities
  $ (200,000 )   $ (5,697 )
Net cash provided by financing activities
  $ 1,680,594     $ 234,194  
Net change in cash
  $ 57,777     $ 45,850  
Cash, beginning of period
  $ 10,888     $ -  
Cash, end of period
  $ 68,665     $ 45,850  

Operating activities

Net cash used in operating activities was $1,422,817 for the nine months ended September 30, 2012, as compared to $182,647 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 $200,000 for the nine months ended September 30, 2012, as compared to $5,697 used in investing activities for the same period in 2011.

Financing activities

Net cash provided by financing activities for the nine months ended September 30, 2012 was $1,680,594, as compared to $234,194 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.

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.


 
18

 

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 now that the Exploration Licenses have been issued on October 8, 2012.

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.

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.

 
19

 

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 not designed at a reasonable assurance level and are not 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.

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.


 
20

 

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 September 30, 2012, we sold 622,227 shares of common stock for cash totaling $1,244,454 to several accredited investors, all of which was paid in cash.  Of the 622,227 shares, 565,028 shares were issued during the three months ended September 30, 2012 and the remaining 109,699 shares were issued subsequent to the period ended September 30, 2012.

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 September 30, 2012.

Item 3. Defaults on Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.


 
21

 

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.

 
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.
       
       
Date: November 21, 2012
 
By:
/S/ Bradley Rosen 
     
Bradley Rosen, Chief Executive Officer
     
(Principal Financial Officer and duly authorized signatory)


 
 
22