NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
1.NATURE AND CONTINUANCE OF OPERATIONS
Rise Gold Corp. (the “Company”) was originally incorporated as Atlantic Resources Inc. in the State of Nevada on February 9, 2007 and is in the exploration stage. On April 11, 2012, the Company merged its wholly-owned subsidiary, Patriot Minefinders Inc., a Nevada corporation, in and to the Company to effect a name change to Patriot Minefinders Inc. On January 14, 2015, the Company completed a name change to Rise Resources Inc. in the same manner. On March 29, 2017, the Company changed its name to Rise Gold Corp. These mergers were carried out solely for the purpose of effecting these changes of names.
On September 18, 2020, the Company increased its authorized capital from 40,000,000 shares to 400,000,000 shares.
On January 29, 2016, the Company completed an initial public offering in Canada and began trading on the Canadian Securities Exchange (“CSE”) on February 1, 2016.
The Company is in the early stages of exploration and as is common with any exploration company, it raises financing for its acquisition activities. The accompanying consolidated financial statements have been prepared on the going concern basis, which presumes that the Company will continue operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has incurred a loss of $5,471,535 for the year ended July 31, 2020 and has accumulated a deficit of $17,940,599. The ability of the Company to continue as a going concern is dependent on the Company’s ability to maintain continued support from its shareholders and creditors and to raise additional capital and implement its business plan. There is no assurance that the Company will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. However, management believes that the Company has sufficient working capital to meet its projected minimum financial obligations for the next fiscal year. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Furthermore, during the year ended July 31, 2020, the novel coronavirus outbreak (“COVID-19”) was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the Company’s business are not known at this time. These impacts could include an impact on the Company’s ability to obtain debt and equity financing to fund ongoing exploration activities as well as its ability to explore and conduct business. These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
At July 31, 2020, the Company had working capital of $3,267,744 (2019 – working capital deficiency of $506,583).
2.BASIS OF PREPARATION
Generally accepted accounting principles
These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”) for financial information with the instructions to Form 10-K and Regulation S-K.
Certain of the prior year comparative figures have been reclassified to conform to the presentation adopted in the current year.
46
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
2.BASIS OF PREPARATION (continued)
Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Rise Grass Valley Inc. All significant intercompany accounts and transactions have been eliminated on consolidation.
Subsidiaries
Subsidiaries are all entities over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases.
The accounts of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intercompany transactions, balances and unrealized gains or losses on transactions are eliminated upon consolidation.
Use of Estimates
The preparation of these financial statements in conformity with US GAAP 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 from those estimates. Significant areas requiring the use of estimates include the carrying value and recoverability of mineral properties and the recognition of deferred tax assets based on the change in unrecognized deductible temporary tax differences. Actual results could differ from those estimates, and would impact future results of operations and cash flows.
47
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
3.SIGNIFICANT ACCOUNTING POLICIES
Functional and reporting currency
The Company changed its functional currency from Canadian dollars to United States dollars as at August 1, 2019. The change in functional currency from Canadian dollars to United States dollars is accounted for prospectively from August 1, 2019. Management determined that the Company’s functional currency had changed based on the assessment related to significant changes of the Company’s economic facts and circumstances. These significant changes included the fact that the Company’s equity and debt financings as well as the majority of the Company’s expenses are now primarily denominated in US dollars. Moreover, the Company’s place of business and management are now located in the United States.
In addition, beginning August 1, 2019, the Company also changed its reporting currency from Canadian dollars to United States dollar to provide greater clarity to users of the financial statements. The change in reporting currency was applied retrospectively effective beginning August 1, 2019. Financial statements for all periods presented have been recast into United States dollars.
All monetary assets and liabilities denominated in foreign currencies are translated into United States dollars using exchange rates in effect as of the date of the balance sheet date. The United States dollar translated amounts of nonmonetary assets and liabilities as of August 1, 2019 became the historical accounting basis for those assets and liabilities as of August 1, 2019. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. All resulting exchange differences were recognized within currency translation adjustment, a separate component of shareholders’ equity.
In applying the change in reporting currency, the Company applied the current rate method for presenting the comparative period presented. Under this method, all assets and liabilities of the Company’s operations were translated from their Canadian dollar functional currency into United States dollars using the exchange rates in effect on the balance sheet date, and shareholders’ equity were translated at the historical rates. Opening shareholders’ equity at August 1, 2017 has been translated at the historic rate on that date and any other movements in shareholders’ equity during the period from August 1, 2017 to July 31 2019 were translated using the appropriate historical rates at the date of the respective transaction. All other revenues, expenses and cash flows were translated at the average rates during the reporting periods presented. The resulting translation adjustments are reported under comprehensive income as a separate component of shareholders’ equity.
Derivatives
Derivatives are initially recognized at the fair value on the date the derivative contract is entered into and transaction costs are expensed. The Company’s derivatives are subsequently re-measured at their fair value at each balance sheet date with changes in fair value recognized in profit or loss. As the exercise price of the Company’s warrants are in Canadian Dollars, and the functional currency of the Company is the United States Dollar, these warrants are considered a derivative as a variable amount of cash in the Company’s functional currency will be received upon exercise.
Receivables
The Company reviews all receivables that exceed terms and establishes an allowance for doubtful accounts based on management's assessment of the collectability of trade and other receivables.
48
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
3.SIGNIFICANT ACCOUNTING POLICIES (continued)
Mineral property
The costs of acquiring mineral rights are capitalized at the date of acquisition. After acquisition, various factors can affect the recoverability of the capitalized costs. If, after review, management concludes that the carrying amount of a mineral property is impaired, it will be written down to estimated fair value. Exploration costs incurred on mineral properties are expensed as incurred. Development costs incurred on proven and probable reserves will be capitalized. Upon commencement of production, capitalized costs will be amortized using the unit-of-production method over the estimated life of the ore body based on proven and probable reserves (which exclude non-recoverable reserves and anticipated processing losses). When the Company receives an option payment related to a property, the proceeds of the payment are applied to reduce the carrying value of the exploration asset.
Long-lived assets
Long-lived assets, consisting of equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Equipment
Equipment is recorded at cost less accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis. Equipment purchased by the Company is depreciated over 15 years.
Asset retirement obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).
Loss per share
Basic loss per common share is computed using the weighted average number of common shares outstanding during the year. To calculate diluted loss per share, the Company adjusts net income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares such as stock options and warrants. As at July 31, 2020, 1,005,000 outstanding options and 12,472,000 outstanding warrants were excluded from the diluted calculation.
Financial instruments
The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, loan payable, payable to related parties and equipment loan. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from its financial instruments. The fair values of these financial instruments approximate their carrying values unless otherwise noted.
49
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
3.SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial assets and liabilities
The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor’s carrying amount or exchange amount.
Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest rate method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
The following indicates the fair value hierarchy of the valuation techniques the Company utilizes to determine the fair value of financial assets that are measured at fair value on a recurring basis.
Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
Cash is considered level 1 and classified as cash on hand and held at banks.
Financial instruments, including payable to related parties, loan payable, accounts payable and accrued liabilities and equipment loan are classified as other financial liabilities and are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments.
Concentration of credit risk
The financial instrument which potentially subjects the Company to concentration of credit risk is cash. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of July 31, 2020, and 2019, the Company has not exceeded the federally insured limit. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Stock-based compensation
The Company accounts for share-based compensation under the provisions of ASC 718, “Compensation-Stock Compensation”. Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value.
50
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
3.SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss from the current year and any adjustment to income taxes payable related to previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or subsequently enacted by the year-end date.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax asset will not be recognized.
Recently adopted and recently issued accounting standards
On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases”. This ASU applies to public companies beginning January 1, 2019 and affects the requirement that lessees account for all leases – both operating and finance – on the balance sheet while recognizing both an asset for the right to use the leased asset and an obligation to make lease payments over the lease term. The Company has assessed the impact of the adoption of this standard and determined that it has no significant impact.
Other than the above, the Company has determined that other significant newly issued accounting pronouncements are either not applicable to the Company’s business or that no material effect is expected on the financial statements as a result of future adoption.
4.PREPAID EXPENSES
51
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
5.MINERAL PROPERTY INTERESTS
The Company’s mineral properties balance consists of:
Title to mineral properties
Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain mineral titles as well as the potential for problems arising from the frequently ambiguous conveying history characteristic of many mineral properties. As at July 31, 2020, the Company holds title to the Idaho-Maryland Gold Mine Property.
As of July 31, 2020, based on management’s review of the carrying value of mineral rights, management determined that there is no evidence that the cost of these acquired mineral rights will not be fully recovered and accordingly, the Company determined that no adjustment to the carrying value of mineral rights was required. As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition and exploration costs.
Idaho-Maryland Gold Mine Property, California
On August 30, 2016, the Company entered into an option agreement with three parties to purchase a 100% interest in and to the Idaho-Maryland Gold Mine property located near Grass Valley, California, United States. Pursuant to the option agreement, in order to exercise the option, the Company was required to pay $2,000,000 by November 30, 2016. Upon execution of the option agreement, the Company paid the vendors a non-refundable cash deposit in the amount of $25,000, which would be credited against the purchase price of $2,000,000 upon exercise of the option. On November 30, 2016, the Company negotiated an extension on the closing date of the option agreement to December 26, 2016, in return for a cash payment of $25,000, which would be credited against the purchase price of $2,000,000 upon exercise of the option. On December 28, 2016, the Company negotiated a further no-cost extension of the closing date of the option agreement to April 30, 2017. On January 25, 2017, the Company exercised the option by paying $1,950,000 and acquired a 100% interest in the Idaho-Maryland Gold Mine property.
In connection with the option agreement, the Company agreed to pay a cash commission of $140,000 equal to 7% of the purchase price of $2,000,000. The commission was settled on January 25, 2017 through the issuance of 92,000 units valued at $1.16 (C$2.00) per unit. Each unit consisted of one share of common stock and one transferable share purchase warrant exercisable into one share of common stock at a price of $3.04 (C$4.00) for a period of two years from the date of issuance. The Company also incurred additional transaction costs of $109,053, which have been included in the carrying value of the Idaho-Maryland Gold Mine.
52
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
5.MINERAL PROPERTY INTERESTS (cont’d…)
On January 6, 2017, the Company entered into an option agreement with Sierra Pacific Industries Inc. (“Sierra”) to purchase a 100% interest in and to certain surface rights totalling approximately 82 acres located near Grass Valley, California, United States, contiguous to the Idaho-Maryland Gold Mine property acquired by the Company on January 25, 2017. Pursuant to the option agreement, in order to exercise the option, the Company was required to pay $1,900,000 by March 31, 2017. Upon execution of the option agreement, the Company paid the vendors a non-refundable cash deposit in the amount of $100,000, which was credited against the purchase price of $1,900,000 upon exercise of the option. On April 3, 2017, the Company negotiated an extension of the closing date of the option agreement to June 30, 2017, in return for a cash payment of $200,000, at which time a payment of $1,600,000 was due in order to exercise the option. On June 7, 2017, the Company negotiated an extension of the closing date of the option agreement to September 30, 2017, in return for a cash payment of $300,000, at which time a payment of $1,300,000 was due in order to exercise the option.
On May 14, 2018, the Company completed the purchase of the surface rights totalling approximately 82 acres by making final payments totalling $1,300,000.
On June 13, 2019, the Company received $150,000 from a third party as a prepayment to use the Company’s property for a period of six months. On December 13, 2019, the third party paid an additional $75,000 to continue using the Company’s property for another three months. As at July 31, 2020, $225,000 has been recognized as other income ($175,000 during the year ended July 31, 2020 and $50,000 during the year ended July 31, 2019) with the balance of $Nil (July 31, 2019 - $101,339) remaining as an advance.
As at July 31, 2020, the Company has incurred cumulative exploration expenditures of $6,387,402 on the Idaho-Maryland Gold Mine property as follows:
|
Year ended
July 31, 2020
|
Year ended
July 31, 2019
Recast (Note 3)
|
|
|
|
Idaho-Maryland Gold Mine expenditures:
|
|
|
Opening balance
|
$ 4,750,611
|
$ 1,901,276
|
|
|
|
Consulting
|
1,472,374
|
536,217
|
Engineering
|
32,543
|
-
|
Exploration
|
(117,792)
|
1,650,633
|
Rent
|
71,363
|
93,832
|
Supplies
|
11,007
|
151,564
|
Sampling
|
112,153
|
237,162
|
Logistics
|
32,157
|
161,198
|
Depreciation
|
22,986
|
18,729
|
Total expenditures for the year
|
1,636,791
|
2,849,335
|
|
|
|
Closing balance
|
$ 6,387,402
|
$ 4,750,611
|
53
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
6.EQUIPMENT AND EQUIPMENT LOAN
During the year ended July 31, 2018, the Company recorded an equipment loan of $495,481 in connection with two diamond core drilling rigs purchased. As at July 31, 2019, the outstanding balance on this loan was $223,574.
Pursuant to an agreement with the lender, the Company completed the purchase of the drilling equipment by making a lump sum payment which was due on or before December 1, 2019. Early settlement of the equipment loan resulted in a gain on settlement of equipment loan of $19,924.
7.CONTINGENCY
During the year ended July 31, 2014, the Company entered into a binding letter of intent (“LOI”) with Wundr Software Inc. (“Wundr”). Under the terms of the LOI, the Company would acquire 100% of the issued and outstanding common shares of Wundr. Due to unforeseen circumstances, the Company did not complete the transactions contemplated in the LOI, which the Company announced had expired on January 10, 2014.
On September 17, 2014, the Company learned that it was the subject, along with a number of additional defendants, of a notice of civil claim (the “Claim”) filed in the Supreme Court of British Columbia by Wundr, under which Wundr is seeking general damages from the Company as well as damages for conspiracy to cause economic harm. None of the allegations contained in the Claim have been proven in court. Management has determined that the probability of the Claim resulting in an unfavourable outcome and financial loss to the Company is unlikely.
54
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
8.CONVERTIBLE DEBENTURE
On February 13, 2019, the Company entered into convertible debenture whereby it received $772,917 (C$1,000,000) of principal amount (the “Debenture”) from Meridian Jerritt Canyon Corp. (“Meridian”), a wholly-owned subsidiary of Yamana Gold Inc. (“Yamana”). The Debenture has a term of six months and an annual interest rate of 12%, calculated and compounded monthly, payable in cash or units of the Company at Yamana’s option except as described below. The principal amount of the Debenture and any accrued interest thereon is convertible into units at a conversion price of C$1.00 per unit (the “Conversion Price”) at any time at the sole discretion of Meridian. In addition, the principal amount of the Debenture will automatically be converted into units at the Conversion Price if, during the term of the Debenture, Rise Gold is able to raise proceeds of C$800,000 under the Private Placement from investors other than Yamana in connection with the March 2019 private placement.
On March 1, 2019, the Company completed a non-brokered private placement for a total of $1,378,184 (C$1,827,472). In conjunction with the closing, a total of 10,049,724 units have been issued to Yamana, through its wholly-owned subsidiary, Meridian, upon conversion of the $757,897 of the debenture (C$1,000,000 principal amount and accrued interest of C$4,972). As at July 31, 2019, the Debenture was fully converted.
9.RELATED PARTY TRANSACTIONS
Key management personnel consist of the Chief Executive Officer, Chief Financial Officer, and the directors of the Company. The remuneration of the key management personnel is as follows:
a)Salaries of $135,000 (2019 - $135,000) were paid or accrued to the CEO of the Company.
b)Consulting fees of $Nil (2019 - $15,391) were paid or accrued to the former CFO of the Company and consulting fees of $Nil (2019 - $4,383) to a company in which the former CFO and a former director held a 50% interest.
c)Directors fees of $84,167 (2019 - $55,106) to directors of the Company.
d)During the year ended July 31, 2020, the Company paid $133,708 (2019 - $120,901) in professional fees to a company controlled by a director of the Company.
e)During the year ended July 31, 2019, the Company received and fully repaid $66,495 in loans from the CEO of the Company.
f)Share-based compensation of $326,393 (2019 - $126,190) for options granted during the year ended July 31, 2020.
g)As at July 31, 2020, $79,479 (2019 - $129,638) was owed to related parties.
55
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
10.LOAN PAYABLE
On September 3, 2019, the Company completed a debt financing with Eridanus Capital LLC (the “Lender”) for $1,000,000 (the “Loan”). The Loan has a term of 4 years and an annual interest rate of 10% for the first two years increasing to 20% in year 3 and to 25% in year 4. Interest will accrue and be paid along with the principal upon the maturity date. The Lender received 1,150,000 bonus share purchase warrants as additional consideration for advancing the Loan. The fair value of these warrants was calculated to be $444,942 which was netted against the loan payable balance along with $15,000 paid to the lender for a total of $459,942 in issuance costs. Each warrant entitles the holder to acquire one share of common stock at an exercise price of $0.80 (C$1.00) for a period of three years from the date of issuance. The Loan may be repaid prior to the maturity date, in whole or in part, provided that all accrued interest is paid. In addition, if total interest payments are less than $200,000, the difference will be paid to the Lender as prepayment compensation. The Loan is secured against the assets of the Company and its subsidiary and will be used for permitting, engineering and working capital at the Company’s Idaho Maryland Gold Project.
11. WARRANT DERIVATIVE
The exercise price of the Company’s share purchase warrants is fixed in Canadian dollars and the functional currency of the Company is the US dollar. These warrants are considered to be a derivative as a variable amount of cash in the Company’s functional currency that will be received on exercise of the warrants. Accordingly, the share purchase warrants issued as part of past financings, are classified and accounted for as warrant derivative. Share purchase warrants with a compensatory nature are not included in this calculation.
The following table shows a continuity of the Company’s fair value of warrant derivative:
As the initial recognition as well as the revaluation of these warrants both took place within the year ended July 31, 2020, the Company recorded a loss on fair value adjustment on warrant derivative of $2,218,107 during the year ended July 31, 2020.
56
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
11. WARRANT DERIVATIVE (continued)
The following weighted average assumptions were used for the Black-Scholes pricing model valuation of warrants as at July 31, 2020 and August 1, 2019:
|
July 31, 2020
|
August 1, 2019
|
|
|
|
Risk-free interest rate
|
1.52%
|
2.12%
|
Expected life of warrants
|
0.46 – 2.05 years
|
0.16 to 2.93 years
|
Expected annualized volatility
|
92.6% to 117%
|
115.6% to 127.5%
|
Dividend
|
Nil
|
Nil
|
Forfeiture rate
|
0%
|
0%
|
12.CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Private Placements
On August 30, 2018, the Company completed a first tranche of a non-brokered private placement, issuing an aggregate of 288,125 units at a price of $0.60 (C$0.80) per unit for gross proceeds of $177,580 (C$230,500). Each unit consists of one share of common stock and one share purchase warrant exercisable into one share of common stock at a price of $0.90 (C$1.20) for a period of three years from the date of issuance until August 30, 2021.
On September 17, 2018, the Company completed a second tranche of a non-brokered private placement, issuing an aggregate of 200,313 units at a price of $0.60 (C$0.80) per unit for gross proceeds of $123,089 (C$160,250). Each unit consists of one share of common stock and one share purchase warrant exercisable into one share of common stock at a price of $0.90 (C$1.20) for a period of three years from the date of issuance until September 17, 2021.
On October 16, 2018, the Company completed a strategic initial investment in a financing of $1,352,606 (C$1,750,000) by issuing 1,750,000 units to Meridian Jerritt Canyon Corp. (“Meridian”), a wholly-owned subsidiary of Yamana Gold Inc. (“Yamana”). Each unit consists of one share of common stock at a price of $0.80 (C$1.00) per unit and one-half of one share purchase warrant exercisable at a price of $1.00 (C$1.30) until October 16, 2020. As a result of the investment, the investor owned approximately 12.6% of the Company’s issued and outstanding shares on a non-diluted basis. In conjunction with the investment, the Company issued 87,500 share purchase warrants valued at $37,630 (discount rate – 1.65%, volatility – 139.09%, expected life – 2 years, dividend yield – 0%) as a finder’s fee to Southern Arc Minerals Inc. (“Southern Arc”), a party at arm’s length with the Company, which will be exercisable into one share of common stock at a price of $1.00 (C$1.30) until October 16, 2020.
On November 5, 2018, the Company raised $572,694 (C$750,000) through the sale of 750,000 units at $0.80 (C$1.00) per unit where each unit consists of one share of common stock and one half of one share purchase warrant exercisable into one share of common stock at a price of $1.00 (C$1.30) until November 5, 2020. All 750,000 units issued in the final tranche were acquired by Southern Arc.
57
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
12.CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued)
On March 1, 2019, the Company completed a non-brokered private placement for a total of $1,378,184 (C$1,827,472) through the sale of 1,827,472 units at a price of $0.80 (C$1.00) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant is exercisable into one share of common stock at a price of $1.00 (C$1.30) until March 1, 2021. Out of the 1,827,472 units issued as part of this private placement, 1,004,972 units were issued to Meridian to settle convertible debt balance of $757,897 (C$1,004,972). In connection with the private placement, the Company incurred finders’ fees and share issuance costs of $80,919 (C$107,299), and issued a total of 19,950 finders’ warrants valued at $8,371 (C$11,100) (discount rate – 1.65%, volatility – 139.09%, expected life – 2 years, dividend yield – 0%), exercisable into one share of common stock at a price of $0.13 for a period of two years from the date of issuance.
On July 3, 2019, the Company completed the first tranche of a non-brokered private placement. The Company raised a total of $552,000 (C$725,769) through the sale of 1,036,813 units at a price of $0.50 (C$0.70) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant entitles the holder to acquire one additional share at an exercise price of $0.80 (C$1.00) until July 3, 2022.
On August 19, 2019, the Company completed the second tranche of a non-brokered private placement for a total of $2,412,281 (C$3,207,850) through the sale of 4,582,644 units at a price of $0.53 (C$0.70) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant is exercisable into one share of common stock at a price of $0.80 (C$1.00) until August 19, 2022. The Company has paid finders’ fees and associated legal fees of $8,710 and issued a total of 11,196 finder’s warrants with a value of $4,990 entitling the holder to acquire one share at a price of $0.80 (C$1.00) until August 19, 2022. The following weighted average assumptions were used for the Black-Scholes pricing model valuation of these warrants: Risk-free interest rate – 1.52%; expected volatility – 123.27%; share price of C$0.85 and strike price – C$1.00; expected life of warrants – 3 years.
On July 31, 2020, the Company completed a non-brokered private placement for a total of $3,272,875 through the issuance of 4,363,833 units at a price of $0.75 per Unit (C$1.02 per Unit), with each Unit comprising of one share of common stock (a “Share”) and one-half of one share purchase warrant. Each whole warrant entitles the holder to acquire one Share at an exercise price of $1.00 until July 31, 2022. The Company paid a total of $40,414 in finders fees and issued a total of 43,435 finders warrants with a fair value of $15,500, where each finder’s warrant entitles the holder to acquire one Share at a price of $1.00 until July 31, 2022. The following weighted average assumptions were used for the Black-Scholes pricing model valuation of these warrants: Risk-free interest rate – 1.52%; expected volatility – 115.42%; share price of C$0.86 and strike price – C$1.02; expected life of warrants – 2 years.
To accommodate the lack of authorized capital to facilitate the closing of the private placement, the Company’s President and CEO surrendered 1,097,298 stock options priced between C$0.70 and C$2.40 per share.
58
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
12.CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued)
Stock Options
On November 30, 2018, the Company granted 290,000 stock options with a fair value of $131,300 to employees and directors of the Company. The options are exercisable at C$1.00 per share for a period of five years and expire on November 30, 2023.
During the year ended July 31, 2020, the Company granted a total of 826,284 stock options with a fair value of $357,271 to employees, officers, directors, and consultants of the Company, exercisable at a weighted average price of C$0.68 per share for a period of five years.
The following incentive stock options were outstanding at July 31, 2020:
|
Number
of Options
|
|
Weighted Average Exercise
Price ($C)
|
|
Expiry Date
|
|
|
|
|
|
|
|
110,000
|
$
|
1.50
|
|
March 22, 2021
|
|
75,000
|
|
0.50
|
|
March 17, 2023
|
|
350,000
|
|
1.20
|
|
April 19, 2023
|
|
180,000
|
|
1.00
|
|
November 30, 2023
|
|
290,000
|
|
1.00
|
|
August 21, 2024
|
|
1,005,000
|
$
|
1.03
|
|
|
Stock option transactions are summarized as follows:
59
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
12.CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued)
The following weighted average assumptions were used for the Black-Scholes pricing model valuation of stock options issued during the year ended July 31:
|
2020
|
2019
|
|
|
|
Risk-free interest rate
|
1.52%
|
2.12%
|
Expected life of stock options
|
3-5 years
|
5.0 years
|
Expected annualized volatility
|
117.21%-123.27%
|
136.38%
|
Dividend
|
Nil
|
Nil
|
Forfeiture rate
|
0%
|
0%
|
Warrants
The following warrants were outstanding at July 31, 2020:
|
Number
of Warrants
|
|
Exercise
Price (C$)
|
|
Expiry Date
|
|
3,516,100
|
|
1.50
|
|
April 18, 2021
|
|
288,125
|
|
1.20
|
|
August 31, 2021
|
|
200,313
|
|
1.20
|
|
September 17, 2021
|
|
962,500
|
|
1.30
|
|
October 16, 2020
|
|
375,000
|
|
1.30
|
|
November 5, 2020
|
|
933,686
|
|
1.30
|
|
March 1, 2021
|
|
518,407
|
|
1.00
|
|
July 3, 2022
|
|
2,302,517
|
|
1.00
|
|
August 19, 2022
|
|
1,150,000
|
|
1.00
|
|
September 3, 2022
|
|
2,225,352
|
|
1.36
|
|
July 31, 2022
|
|
12,472,000
|
|
1.27
|
|
|
|
|
|
|
|
|
60
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
12.CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued)
Warrant transactions are summarized as follows:
The following weighted average assumptions were used for the Black-Scholes pricing model valuation of finders’ warrants issued during the year ended July 31:
|
2020
|
2019
|
|
|
|
Risk-free interest rate
|
1.52%
|
1.65%
|
Expected life of warrants
|
2.0-2.05 years
|
2.0 years
|
Expected annualized volatility
|
115.42%-116.76%
|
139.09%
|
Dividend
|
Nil
|
Nil
|
Forfeiture rate
|
0%
|
0%
|
Share-Based Payments
The Company has a stock option plan under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. Under the plan the exercise price of each option equals the market price of the Company’s stock, less any applicable discount, as calculated on the date of grant. The options can be granted for a maximum term of 5 years with vesting determined by the board of directors.
61
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
13.INCOME TAXES
A reconciliation of income taxes (recovery) at statutory rates with the reported taxes is as follows:
|
2020
|
2019
|
|
|
|
Loss before income taxes
|
$(5,471,535)
|
$(4,361,900)
|
|
|
|
Expected income tax (recovery) at statutory tax rates
|
$(1,148,000)
|
$(918,948)
|
Change in statutory, foreign tax, foreign exchange rates and other
|
(158,000)
|
(184,244)
|
Permanent differences
|
253,000
|
28,054
|
|
|
|
Adjustment to prior years provision versus statutory tax return and expiry of non-capital losses
|
(7,000)
|
257,032
|
Change in unrecognized deductible temporary difference
|
1,060,000
|
818,106
|
|
|
|
Income tax recovery
|
$-
|
$-
|
Significant components of deferred tax assets (liabilities) that have not been included on the Company’s consolidated balance sheet are as follows:
|
2020
|
2019
|
|
|
|
Deferred tax assets (liabilities):
|
|
|
Mineral property interest
|
$1,381,000
|
$1,075,897
|
Non-capital losses available for future period
|
2,228,000
|
1,524,755
|
|
3,609,000
|
2,600,652
|
Unrecognized deferred tax assets
|
(3,609,000)
|
(2,600,652)
|
Net deferred tax assets
|
$ -
|
$ -
|
The Company has approximately $7,650,000 (2019 - $8,703,000) in net operating losses which may be carried forward and applied against taxable income in future years.
The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows:
Tax attributes are subject to review and potential adjustments by tax authorities.
62
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
14.SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
During the years ended July 31, 2020 and 2019, the Company had the following non-cash financing and investing activities:
For the year ended July 31, 2020:
a)The Company issued a total of 11,196 finder’s warrants entitling the holder to acquire one share at a price of C$1.00 until August 19, 2022 with a fair value of $4,990.
b)The Company issued a total of 43,435 finder’s warrants entitling the holder to acquire one share at a price of C$1.02 until August 19, 2022 with a fair value of $15,500 (C$20,777).
For the year ended July 31, 2019:
c)Issued 107,450 in finders’ warrants valued at $46,001 recorded as share issuance costs (Note 12);
d) As at July 31, 2019, accounts payable and accrued liabilities include $20,836 relating to the July 2020 instalment of the equipment loan;
e)During the year ended July 31, 2019, the Company issued 62,500 units at C$0.80 per unit to settle C$50,000 in accounts payable and 7,500 units to settle C$7,500 in accounts payable.
f)As at July 31, 2019, the Company has $37,842 of share issuance costs included in accounts payable and accrued liabilities.
15.SEGMENTED INFORMATION
A reporting segment is defined as a component of the Company that:
-Engages in business activities from which it may earn revenues and incur expenses;
-Operating results are reviewed regularly by the entity’s chief operating decision maker; and
-Discrete financial information is available
The Company has determined that it operates its business in one geographical segment located in California, United States, where all of its equipment and mineral property interests are located.
63
RISE GOLD CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JULY 31, 2020
(Expressed in United States Dollars)
16.SUBSEQUENT EVENTS
On September 22, 2020, the Company announced that it has granted a total of 1,338,500 stock options to the Corporation’s President & CEO, Benjamin Mossman. The stock options are excisable at a price of US$0.90 (C$1.20) per share until September 22, 2025.
On September 23, 2020, the Company announced that it has completed the non-brokered private placement announced previously. The Corporation raised a total of US$250,000 through the issuance of 333,333 units at a price of US$0.75 per Unit (CDN$1.02 per Unit), with each Unit comprising one share of common stock and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one Share at an exercise price of US$1.00 until September 21, 2022.
Subsequent to the year ended July 31, 2020, 962,500 warrants expired unexercised.
64
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The names, ages and titles of the members of our Board of Directors and our executive officers are as follows:
Name
|
Age
|
Position
|
Benjamin W. Mossman
|
43
|
Chief Executive Officer, President, Director
|
Vince W. Boon
|
39
|
Chief Financial Officer, Treasurer
|
Murray Flanigan
|
54
|
Director
|
John G. Proust
|
61
|
Director
|
Thomas I. Vehrs
|
73
|
Director
|
Lawrence Lepard
|
63
|
Director
|
Directors serve as such until our next annual stockholder meeting, or until their successors are elected and qualified. Officers hold their positions at the will of the Board of Directors. As of July 31, 2020, there were no arrangements, agreements or understandings between non-management security holders and management under which non-management security holders may directly or indirectly participate in or influence the management of our company’s affairs other than as disclosed in this Report.
Benjamin W. Mossman, Chief Executive Officer, President, Director
Benjamin W. Mossman, P.Eng, was appointed as our Chief Executive Officer and a director on August 1, 2016 and our President on April 20, 2017. Mr. Mossman is a mining engineer with over 15 years of experience in the mining industry including experience in capital markets, project evaluation, acquisitions, and mine operations and development. He was formerly the President, Chief Executive Officer and a director of Banks Island Gold Ltd., a dormant mining company, formerly listed on the TSX Venture Exchange and currently in receivership. See “Involvement in Certain Legal Proceedings” below.
Vince Boon, Chief Financial Officer, Treasurer
Vince Boon was appointed as our Chief Financial Officer on May 1, 2018 and Treasurer on May 16, 2018. Mr. Boon is a chartered accountant with over ten years of professional accounting experience with private and public companies focusing on financial reporting, regulatory compliance, internal control and corporate finance activities. Mr. Boon’s experience includes financial reporting for both Canadian and U.S. listed companies with international subsidiaries, strategic planning, tax planning, corporate governance, equity financings and due diligence for acquisitions. Mr. Boon is currently the CFO/Corporate Secretary of Japan Gold Corp., and the CFO of Southern Arc Minerals Inc., Canada Energy Partners Inc. and Lincoln Ventures
66
Ltd. Mr. Boon holds a Bachelor of Science degree from the University of British Columbia and is a Chartered Professional Accountant, CPA, CA.
John G. Proust, Director
John G. Proust was appointed to our Board of Directors on April 18, 2018. Mr. Proust has founded and managed a number of resource companies over the past 30 years. Mr. Proust has served on several boards and held senior operating positions and has directed and advised public and private companies regarding debt and equity financing, mergers and acquisitions and corporate restructuring since 1986. Mr. Proust is currently Chairman and CEO of Southern Arc Minerals Inc., which is one of our major stockholders; Chairman and CEO of Japan Gold Corp.; Chairman and a director of Canada Energy Partners Inc.; non-executive Chairman and director of Tethyan Resources plc; President and a director of Lincoln Ventures Ltd and a director of Pinedale Energy Limited. Mr. Proust has extensive experience in corporate governance, is a graduate of The Directors College, Michael G. De Groote School of Business at McMaster University and holds the designation of Chartered Director.
Thomas I. Vehrs, Director
Thomas I. Vehrs was appointed to our Board of Directors on April 20, 2017. Dr. Vehrs is a highly regarded and experienced exploration geologist with over 40 years of experience in the Americas. During his career, Dr. Vehrs has conducted and managed numerous exploration programs resulting in the discovery and delineation of major copper, gold and silver deposits, including the Los Pelambres porphyry copper deposit in Chile, the Northumberland sediment-hosted gold deposit in central Nevada, the Rio Blanco porphyry copper deposit in northern Peru and orogenic gold deposits in Central Guatemala. For the past ten years, Dr. Vehrs held the position of Vice President of Exploration for Fortuna Silver Mines and was responsible for the development and execution of exploration programs at the Caylloma Mine in Peru and the San Jose Mine in southern Mexico. During this period, Fortuna Silver Mines was successful in expanding the resources, reserves and production rate at the San Jose Mine resulting in a market capitalization in excess of $1 billion. Dr. Vehrs holds a Ph.D. in geology from Syracuse University and served as an officer in the U.S. Army Corps of Engineers.
Murray Flanigan, Director
Murray Flanigan was elected to our Board of Directors on June 27, 2019. Mr. Flanigan is a management consultant providing financial advisory services to a number of public and private oil and gas and technology companies in North America and abroad. Mr. Flanigan is a Chartered Professional Accountant and a Chartered Financial Analyst with expertise in corporate finance, mergers and acquisitions, international taxation, risk management, banking, treasury, corporate restructuring and accounting, and has served as Chief Financial Officer for various public and private companies. Mr. Flanigan is currently a Managing Principal and the CFO of Kepis & Pobe Financial Group Inc., where he is responsible for all aspects of the company’s accounting, financing, treasury, tax, and legal affairs including overseeing the company’s corporate development activities. Mr. Flanigan is also the Chief Financial Officer of Central African Gold Inc., a publicly traded mining and exploration company prospecting and developing gold projects in Africa. Prior to founding his own consulting company, Mr. Flanigan served as Senior Vice President, Corporate Development and CFO of Qwest Investment Management Corp., where he was responsible for regulatory reporting and corporate filings for over 15 private and publicly listed companies and limited partnerships in Qwest’s portfolio, as well as arranging and closing numerous equity and debt financings. Mr. Flanigan also served as VP Corporate Development for Adelphia Communications Corporation, overseeing the company’s financial restructuring and ultimate sale to Time Warner Inc. and Comcast Corporation for approximately US$18 billion.
67
Lawrence Lepard, Director
Lawrence Lepard was appointed to our Board of Directors on August 22, 2019. Mr. Lepard runs Equity Management Associates, LLC, an investment partnership which has focused on investing in precious metals since 2008. Prior to EMA, Mr. Lepard spent 25 years as a professional investor and venture capitalist. From 1991 to 2004 he was one of two Managing Partners at Geocapital Partners in New Jersey which managed six venture capital partnerships, the last of which was $250 million. Geocapital was very active in technology, software and computer investing and invested heavily in the internet starting in 1993. Geocapital was the lead investor in Netcom, Inc., the first internet service provider to complete an IPO in 1996. Prior to Geocapital Mr. Lepard spent 7 years as a General Partner at Summit Partners in Boston, MA. Summit is a large venture capital and private equity firm. He was employee number 4, joining 1 year after Summit was launched. Mr. Lepard holds an MBA with Academic Distinction from Harvard Business School and a BA in Economics from Colgate University.
None of our directors has been a director of any other company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of the Exchange Act, or any company registered as an investment company under the Investment Company Act of 1940, during the past five years.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Involvement in Certain Legal Proceedings
Except as disclosed below, during the past ten years none of the persons serving as our executive officers and/or directors have been the subject of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K, including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions (excluding traffic violations and other minor offenses); (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court, the SEC or the CFTC to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association, entity or other organization that has disciplinary authority over its members or persons associated with a member. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
Benjamin W. Mossman was a director and officer of Banks Island Gold Ltd. (“Banks”), a company formerly listed on the TSX Venture Exchange that traded under the symbol “BOZ”, during the time it assigned itself into bankruptcy on January 7, 2016. Banks appointed D. Manning & Associates as trustee in the bankruptcy proceedings. Subsequent to the bankruptcy, FTI Consulting of Vancouver, BC, was appointed as receiver by a major secured creditor. The trustee subsequently applied to be discharged from its role as trustee, which was granted on April 4, 2018. To the best of Mr. Mossman’s knowledge, the secured creditor has taken possession of the property as of this date. To date, Banks remains undischarged from the bankruptcy proceedings.
Benjamin W. Mossman, Banks, and two other former employees of Banks, were subject to summary conviction proceedings commenced in August 2016 for alleged violations of the British Columbia provincial Environmental Management Act (the “EMA”), the Provincial Water Act, and the federal Fisheries Act. The charges are related to the active mining operations conducted by Banks at and on Banks Island, BC during the period from 2014 to 2016. The court found Mr. Mossman not guilty and acquitted of
68
all charges specifically related to alleged pollution under the Fisheries and Water Act. He was acquitted of all but two minor offences under the EMA, for which the court imposed a $15,000 global fine against Mr. Mossman. All charges were dropped against one former employee and against Banks, and the court dismissed all charges against the other former employee.
Subsequent to the decision, the Crown and Defense Counsel for Mr. Mossman both filed appeals regarding certain of the original determinations as they relate to Mr. Mossman. The summary conviction appeal was heard by the BC Supreme Court in May 2019. In February 2020, the court issued its decision and ordered a new trial in the matter. Counsel for Mr. Mossman are currently seeking leave to appeal the BC Supreme Court decision to the BC Court of Appeal.
In a second trial, the Crown charged Mr. Mossman with obstruction of justice related to the investigation of the underlying charges laid under the EMA and the other provincial and federal environmental regulations. The court acquitted him of that charge on March 6, 2019. No appeal of the acquittal was filed by the Crown.
None of the Corporation’s directors or executive officers has been involved in any transactions with the Corporation or any of its directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Audit Committee Financial Expert
Murray Flanigan is an “audit committee financial expert” within the meaning of Item 401(h)(1) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee who (a) understands generally accepted accounting principles and financial statements, (b) is able to assess the general application of such principles in connection with the accounting for estimates, reserves and accruals, (c) has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity of issues that can reasonably be expected to be raised by a company’s financial statements, (d) understands internal controls over financial reporting, and (e) understands audit committee functions. We have determined that Mr. Flanigan is an independent director as defined in Nasdaq Listing Rule 5605(a)(2).
Nomination of Directors
The Corporation does not have a formal process or committee for proposing new nominees for election to the Board or for stockholders to make such nominations. Management is in contact with individuals involved in the mineral exploration sector, and in the event that we require any new directors, such individuals will be brought to the attention of the Board. Management will conduct reference and background checks on suitable candidates. New nominees generally must have a track record in business management, areas of strategic interest to our company, the ability to devote the time required to carry out the obligations and responsibilities of a director and a willingness to serve in that capacity.
Code of Ethics
During our fiscal year ended July 31, 2008, the Board of Directors adopted a written Code of Ethics within the meaning of Item 406(b) of Regulation S-K under the Securities Act. The Code of Ethics obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without the Board’s consent.
69
Item 11. Executive Compensation.
The following table sets forth information with respect to the compensation awarded or paid to Benjamin W. Mossman, our Chief Executive Officer, President and a director and Vince Boon, our Chief Financial Officer and Treasurer (the “Named Executive Officers”), for all services rendered in all capacities to our company during the past two fiscal years. As of July 31, 2020, we did not have any other executive officers or former executive officers who had received total compensation in excess of US$100,000 during the fiscal year ended July 31, 2019. Pursuant to Item 402(m)(4) of Regulation S-K, we have omitted certain columns from the table since there was no compensation awarded to, earned by or paid to the Named Executive Officer that was required to be reported in such columns in either year.
Summary Compensation Table
|
Name and Principal Position
|
Year Ended July 31
|
Salary
(C$)
|
Stock Awards (C$)
|
Option Awards (C$) (1)
|
Total
(C$)
|
Benjamin W. Mossman, Chief Executive Officer (2)
|
2020
|
180,000
|
-
|
270,640
|
450,640
|
2019
|
180,000
|
-
|
59,918
|
239,918
|
Vince Boon, Chief Financial Officer
|
2020
|
60,000
|
-
|
5,867
|
65,867
|
2019
|
60,000
|
-
|
-
|
60,000
|
(1)See Note 12 of the notes to our audited financial statements included in this Report for a description of the assumptions made in the valuation of option awards.
(2)Represents share-based payments related to options vesting during the years presented.
70
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information relating to the options held by the Named Executive Officers as of July 31, 2020:
Outstanding Equity Awards at Fiscal Year-End
|
Option Awards
|
Stock Awards
|
Name
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
Option Exercise Price
(C$)
|
Option Expiration Date
|
Number of Shares That Have Not Vested
(#)
|
Market Value of Shares That Have Not Vested ($)
|
Benjamin W. Mossman
|
Nil (1)
|
N/A
|
N/A
|
Nil
|
Nil
|
Vince Boon
|
30,000
10,000
|
$1.20
$0.70
|
April 18, 2023
August 21, 2024
|
Nil
|
Nil
|
(1)
|
Mr. Mossman surrendered 1,097,298 options for cancellation on July 31, 2020. See Item 13, "Certain Relationships and Related Transactions, and Director Independence.”
|
71
Employment Agreements
On April 19, 2017, we entered into an executive employment agreement with Benjamin W. Mossman, which was amended on April 16, 2018 (the “Executive Employment Agreement”). The Executive Employment Agreement, which commenced on May 1, 2017, provides for an annual salary of $180,000 per year and that Mr. Mossman will, subject to the terms of the stock option plan and exchange policies, be granted options from time to time to maintain his right to purchase 5% of our issued and outstanding common stock. To date, Mr. Mossman has been granted options from time to time pursuant to the terms of his Executive Employment Agreement. See Item 13, “Certain Relationships and Related Transactions, and Director Independence.”
The Executive Employment Agreement includes compensation provisions for Mr. Mossman if there is a change of control, he is terminated without just cause, he resigns under circumstances contemplated in the Executive Employment Agreement or he dies while in our employment. If there is a change of control and Mr. Mossman is terminated within one (1) year of the date of a change of control or if Mr. Mossman terminates his employment with us upon the occurrence of certain events, including a material adverse and fundamental change in his overall authority and responsibilities, Mr. Mossman will be entitled to a lump sum amount equal to three (3) years of Mr. Mossman’s then applicable annual salary. If Mr. Mossman is otherwise terminated without just cause, Mr. Mossman will be entitled to an amount equal to three (3) months of Mr. Mossman’s then applicable annual salary and will also be entitled to maintain in effect, until the earliest of the expiration of 18 months and the death of Mr. Mossman, participation in certain of our benefit plans and stock option plans. If Mr. Mossman dies while employed with us, Mr. Mossman’s estate, subject to compliance with stock exchange requirements, our stock option plan, and the terms of the Executive Employment Agreement, will be entitled to continue Mr. Mossman’s participation in our stock option plan.
Other than Mr. Mossman, who devotes all of his working time to our business, we expect that our executive officers will allocate approximately 40% of their working time to our business.
Benefit Plans
We do not currently have any pension plan, profit sharing plan or similar plan for the benefit of our officers, directors or employees; however, we may establish such plans in the future.
Director Compensation
Our directors are compensated for serving on the Board of Directors. Management directors are not paid fees for services as a director; however, they may receive compensation for their services as employees or consultants.
The following table sets out compensation for the year ended July 31, 2020 of those individuals who served as directors during that year but did not qualify as Named Executive Officers.
Name
|
Fees Earned or Paid in Cash (C$)
|
Option Awards (C$) (1)
|
Total
(C$)
|
Murray Flanigan (2)
|
28,922(4)
|
23,468
|
52,390
|
Thomas I. Vehrs
|
26,764 (4)
|
23,468 (5)
|
50,232
|
John G. Proust
|
26,870
|
44,003 (5)
|
70,873
|
72
Lawrence Lepard(3)
|
26,865
|
58,671
|
85,536
|
(1)
|
See Note 10 of the notes to our audited financial statements included in this Report for a description of the assumptions made in the valuation of option awards.
|
(2)
|
Mr. Flanigan was elected a director on June 27, 2019.
|
(3)
|
Mr. Lepard was appointed a director on August 22, 2019.
|
(4)
|
Represents directors’ fees.
|
(5)
|
Represents share-based payments related to options granted during the year ended July 31, 2020.
|
|
|
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the beneficial ownership of our common stock as of October 27, 2020 by (a) each person who serves as a director and/or is identified as a “Named Executive Officer” of Rise in Item 11, “Executive Compensation,” above, and by all of our current directors and executive officers as a group, and (b) each person known by us to beneficially own more than 5.0% of any class of our voting securities.
A person is considered to beneficially own any shares over which such person, directly or indirectly, exercises sole or shared voting or investment power, or over which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our officers and directors is exercised solely by the beneficial owner thereof.
For the purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of our common stock that such person or group of persons has the right to acquire within 60 days. For the purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named below, any shares that such person or group of persons has the right to acquire within 60 days of October 27, 2020 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
73
Name and Address of
Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percent of
Class(1)
|
Named Executive Officer and Directors
|
|
|
|
|
|
|
|
|
|
Benjamin W. Mossman
|
|
1,607,043 (2)
|
|
5.7%
|
|
|
|
|
|
Vince Boon
|
|
49,607 (3)
|
|
*
|
|
|
|
|
|
Murray Flanigan
|
|
40,000 (4)
|
|
*
|
|
|
|
|
|
John G. Proust
|
|
3,303,878 (5)(8)
|
|
11.2%
|
|
|
|
|
|
Thomas I. Vehrs
|
|
85,000 (6)
|
|
*
|
|
|
|
|
|
Lawrence Lepard
|
|
3,068,406(7)
|
|
11.1%
|
|
|
|
|
|
Executive Officers and Directors as a Group (6 persons)
|
|
8,153,934 (2)(3)(4)(5)(6)(7)(8)(9)
|
|
25.5%
|
|
|
|
|
|
5% Owners
|
|
|
|
|
|
|
|
|
|
Southern Arc Minerals Inc.
Suite 650, 669 Howe Street
Vancouver, BC V6C 0B4
|
|
2,390,612 (8)
|
|
8.2%
|
|
|
|
|
|
EMA GARP FUND, LLP
211 Grove Street
Wellesley, Massachusetts 02482
+
|
|
1,959,656 (9)
|
|
7.2%
|
Yamana Gold Inc.
|
|
|
|
|
Royal Bank Plaza, North Tower
200 Bay Street, Suite 2200
Toronto, Ontario M5J 2J3
|
|
4,132,459 (10)
|
|
14.68%
|
|
|
|
|
|
|
(1)
|
Based on 26,770,298 shares of common stock issued and outstanding as of October 27, 2020.
|
|
(2)
|
Benjamin W. Mossman, our Chief Executive Officer, President and a director, holds 202,829 shares of common stock, 65,714 warrants, 10,000 of which are exercisable into common stock at a price of C$1.30 per share until March 1, 2021, 35,741 of which are exercisable into common stock at a price of C$1.00 per share until July 3, 2022 and 20,000 of which are exercisable into common stock at a price of $1.00 per share until July 31, 2022, and 1,338,500 stock options, each of which is exercisable into common stock at a price of $0.90 per share until September 22, 2025.
|
|
(3)
|
Vince Boon, our Chief Financial Officer and Treasurer, holds 9,607 shares of common stock and 40,000 stock options, 30,000 of which are exercisable into common stock at a price of C$1.20 per share until April 18, 2023 and 10,000 of which are exercisable into common stock at a price of C$0.70 per share until August 21, 2024.
|
|
(4)
|
Murray Flanigan, a director, holds 40,000 stock options, each of which is exercisable into common stock at a price of C$0.70 per share until August 21, 2024.
|
|
(5)
|
John G. Proust, a director, holds 583,878 shares of common stock, 345,000 stock options, 120,000 of which are exercisable into common stock at a price of C$1.20 per share until April 18, 2023, 150,000 of which are exercisable into common stock at a price of C$0.90 per share until November 29, 2023 and 75,000 of which are exercisable into common stock at a price of C$0.70 per share until August 21, 2024. Mr. Proust is the Chairman and CEO and a director of Southern Arc Minerals Inc. See note (8).
|
74
|
(6)
|
Thomas I. Vehrs, a director, holds 85,000 stock options, 25,000 of which are exercisable into common stock at a price of C$1.20 per share until April 18, 2023, 20,000 of which are exercisable into common stock at a price of C$1.00 per share until November 29, 2023 and 40,000 of which are exercisable into common stock at a price of C$0.70 per share until August 21, 2024.
|
|
(7)
|
Lawrence Lepard, a director, holds 591,875 shares of common stock and indirectly beneficially owns an additional 135,000 shares of common stock through his children. Mr. Lepard also holds 100,000 stock options, each of which is exercisable into common stock at a price of C$0.70 per share until August 21, 2024, and 281,875 warrants, 81,875 of which are exercisable into common stock at a price of C$1.20 per share until September 17, 2021 and 200,000 of which are exercisable into common stock at a price of C$1.00 per share until August 19, 2022. Mr. Lepard is the sole member and manager of EMA GARP GP, LLC, which is the general partner of EMA GARP FUND, LP. See note (9).
|
|
(8)
|
Southern Arc Minerals Inc. holds 15,612 shares of common stock and 2,375,000 warrants, 2,000,000 of which are exercisable into common stock at a price of C$1.50 per share until April 18, 2021 and 375,000 of which are exercisable into common stock at a price of C$1.00 per share until November 5, 2020. John G. Proust, one of our directors, is also the Chairman and CEO and a director of Southern Arc Minerals Inc. See note (5).
|
|
(9)
|
EMA GARP FUND, LLP holds 1,462,989 shares of common stock and 496,667 warrants, 130,000 of which are exercisable into common stock at a price of C$1.50 per share until April 18, 2021, 50,000 of which are exercisable into common stock at a price of C$1.00 per share until July 3, 2022, 250,000 of which are exercisable into common stock at a price of C$1.00 per share until August 19, 2022 and 66,667 of which are exercisable into common stock at a price of $1.00 per share until July 31, 2022. EMA GARP GP, LLC is the general partner of the EMA GARP FUND, LLP. Lawrence Lepard, one of our directors, is the sole member and manager of EMA GARP GP, LLC. See note (7).
|
|
(10)
|
Beneficially owned through Meridian Jerritt Canyon Corp., a wholly owned subsidiary of Yamana Gold Inc. Includes 2,754,972 shares of common stock and 1,377,486 warrants, each of which is exercisable into common stock at a price of C$1.30 per share until March 1, 2021.
|
|
*
|
Less than 1%.
|
Changes in Control
We are not aware of any arrangements, including any pledge by any person of its securities, the operation of which may at a subsequent date result in a change in control of our company.
Securities Authorized for Issuance Under Equity Compensation Plans
On March 23, 2016, the Board of Directors approved the adoption of an incentive stock option plan that provides for the granting of options representing up to 10% of our common stock to its directors, officers, employees and consultants (the “Plan”). As of July 31, 2020, options to purchase 353,716 shares at prices of between C$1.00 and C$2.80 per share are outstanding to 14 persons under the Plan.
We do not have any other compensation plans under which our equity securities are authorized for issuance.
75
Equity Compensation Plan Information
As of July 31, 2020
Plan Category
|
|
Number of
securities to
be issued
upon
exercise
of
outstanding
options,
warrants
and rights
|
|
|
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
|
Number of
securities
remaining available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by shareholders
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Equity compensation plans not approved by shareholders
|
|
353,716
|
|
|
|
C$1.50
|
|
|
|
1,850,880
|
|
Total
|
|
|
353,716
|
|
|
|
C$1.50
|
|
|
|
1,850,880
|
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions
On April 17, 2018, we entered into a consulting agreement with J. Proust & Associates Inc. (“JPA”), a management services company owned by one of our directors, John Proust. JPA agreed to provide the Company with such business advisory, finance, accounting and corporate administrative services as may be requested by the Company, including a Chief Financial Officer, a Controller and Corporate Secretary, plus use of a fully furnished office, for a monthly fee of C$7,100, or C$85,200 on an annualized basis. The agreement provides that the Company may grant stock options to JPA or its employees, as determined by the Board of Directors from time to time. The agreement had a one-year term that commenced on April 17, 2018. On December 13, 2018, the parties amended the agreement to increase the compensation to C$15,000 per month, or C$180,000 on an annualized basis, and to revise the term of the agreement, with a new one-year term commencing on January 1, 2019 that continues thereafter on a month-to-month basis, unless the agreement is terminated by the parties in accordance with its terms. During the year ended July 31, 2020, the Company paid $133,708 to JPA under this agreement.
On October 16, 2018, we entered into an agreement with Meridian Jerritt Canyon Corp. (“Meridian”), a wholly-owned subsidiary of Yamana Gold Inc., pursuant to which Meridian completed a strategic initial investment in our company of C$1.75 million through the purchase of 1,750,000 units (the “Agreement”). Under the Agreement, Meridian has the right, for as long as it owns 5% or more of our outstanding shares of common stock, to participate in any of our future equity financings in order to maintain its percentage equity interest or to increase its equity ownership up to 19.9% of our issued and outstanding shares. In addition, Meridian will be permitted to nominate one individual to our Board of Directors and to appoint two members to our advisory committee. The Agreement also granted Meridian an exclusive right of first offer and first refusal for a period of six months following the closing of the financing, in respect of any proposed transfer or sale by us of any interest, including a joint venture interest, in all or any part of the I-M Mine Project, on terms and conditions to be agreed upon by the parties. The right of first offer has expired.
On July 31, 2020, Benjamin Mossman, President. Chief Executive Officer and a director of the Company, voluntarily surrendered to the Company for cancellation 1,097,298 stock options (the “Cancelled Options”). The Cancelled Options had exercise prices ranging from CDN$0.70 to CDN$2.40 per share as follows:
76
Number of
Optioned Shares
|
Exercise Price
|
Original Date
of Grant
|
Expiry Date
|
461,284
|
CDN$0.70
|
Aug. 21, 2019
|
Aug. 21, 2024
|
100,000
|
CDN$1.00
|
Nov. 29, 2018
|
Nov. 29, 2023
|
263,100
|
CDN$1.20
|
Apr. 19, 2018
|
Apr. 19, 2023
|
58,660
|
CDN$2.00
|
Aug. 8, 2016
|
Aug. 8, 2021
|
214,254
|
CDN$2.40
|
Dec. 27, 2016
|
Dec. 27, 2021
|
1,097,298 Total
|
|
|
|
Mr. Mossman offered to surrender the Cancelled Options in order to free up additional authorized capital needed to help facilitate the closing of a $3,272,875 private placement on July 31, 2020. Mr. Mossman’s offer to surrender the Cancelled Options was made subject to the condition that once the Company’s authorized capital was increased, or sufficient authorized capital otherwise became available, the Company would grant Mr. Mossman new stock options to replace the Cancelled Options at a price and upon terms to be determined in accordance with, and subject to, applicable securities and stock exchange requirements. We could not issue replacement options until additional shares of our common stock were authorized that could then be reserved for issuance upon exercise of the replacement options.
On September 18, 2020, we held a Special Meeting of Stockholders at which the stockholders of the Company approved an increase in our authorized shares of common stock from 40,000,000 to 400,000,000. On September 22, 2020, we granted 1,338,500 stock options to Mr. Mossman. The new stock options are exercisable at a price of $0.90 (~C$1.20) per share until September 22, 2025.
Director Independence
Because our common stock is not currently listed on a national securities exchange, we currently use the definition in Nasdaq Listing Rule 5605(a)(2) for determining director independence, which provides that an “independent director” is a person other than an executive officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Nasdaq listing rules provide that a director cannot be considered independent if:
·the director is, or at any time during the past three years was, an employee of the company;
·the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
·a family member of the director is, or at any time during the past three years was, an executive officer of the company;
·the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
·the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or
77
·the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.
We have determined that Murray Flanigan, Lawrence Lepard, John Proust, and Thomas Vehrs meet this definition of independence.
Item 14. Principal Accounting Fees and Services.
The following table shows the fees billed by our company’s auditor, Davidson & Company LLP Chartered Accountants, for the fiscal years ended July 31, 2020 and 2019, and a summary of the services provided under each category follows the table:
|
July 31, 2020
(C$)
|
July 31, 2019
(C$)
|
Audit Fees
|
63,140
|
30,000
|
Audit-Related Fees
|
31,378
|
29,937
|
Tax Fees
|
-
|
-
|
All Other Fees
|
-
|
-
|
Audit Fees consist of fees billed for professional services rendered for the audit of the consolidated financial statements and review of the quarterly interim consolidated financial statements.
Audit-Related fees consist of the review of SEC comment letters and management responses.
Tax Fees consist of tax compliance fees and other tax planning advisory services.
All Other Fees: There were no fees billed by Davidson & Company for professional services rendered for other compliance purposes for the years ended July 31, 2020 and 2019.
Our Board of Directors has established pre-approval policies and procedures, pursuant to which the Board approved the foregoing audit and audit-related services provided by Davidson & Company in 2018 and 2017 consistent with the Board’s responsibility for engaging our company’s independent auditors. The Board also considered whether the non-audit services rendered by our independent registered public accounting firm are compatible with an auditor maintaining independence. The Board has determined that the rendering of such services is compatible with Davidson & Company maintaining its independence.