NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
1.
NATURE AND CONTINUANCE OF OPERATIONS
Atlantic Resources Inc. (the Company) was incorporated in the State of Nevada on February 9, 2007 and is in the exploration stage. On January 14, 2015, the Company merged its wholly-owned subsidiary, Rise Resources Inc., a Nevada corporation, in and to the Company to effect a name change from Patriot Minefinders Inc. to Rise Resources Inc. Rise Resources Inc. was formed solely for the purpose of effecting the change of name.
On February 16, 2015, the Company increased its authorized capital from 21,000,000 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 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 assets and discharge liabilities in the normal course of business. The Company has incurred a loss of $489,132 for the period ended April 30, 2016 and has accumulated a deficit of $1,693,154. This raises substantial doubt about the Companys ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Companys ability to raise additional capital and implement its business plan, which is typical for a start-up company. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Management of the Company (management) is of the opinion that sufficient financing will be obtained from external financing and further share issuances to meet the Companys obligations. At April 30, 2016, the Company had working capital of $136,471.
2.
BASIS OF PREPARATION
Generally Accepted Accounting Principles
The accompanying unaudited condensed interim financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (US GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC) for financial information with the instructions to Form 10-Q and Regulation S-K. Results are not necessarily indicative of results which may be achieved in the future. The unaudited condensed interim financial statements should be read in conjunction with the Companys Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with Managements Discussion and Analysis, for the year ended July 31, 2015. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to such SEC rules and regulations.
Change in Functional and Presentation Currency
The Companys expenses and overheads are now primarily being incurred in Canadian Dollars (CAD) and it is anticipated that cash flows will continue to be primarily in CAD. Accordingly, the Company determined that effective August 1, 2015, the functional currency of the Company would change from the United States Dollar (USD) to CAD.
F-5
RISE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
2.
BASIS OF PREPARATION
(contd
)
Change in Functional and Presentation Currency
(contd
)
Effective August 1, 2015, the Company also changed its presentation currency from USD to CAD. As a result of changing the presentation currency, all the comparative assets and liabilities were translated using the closing rate at the balance sheet date, comparative equity were translated at the exchange rates at the dates of transaction and the statements of loss were translated at the average exchange rate for the period covered. All resulting change differences are recognized in the accumulated deficit in the balance sheets shareholders equity (deficiency) section. A change in presentation currency is accounted for as a change in accounting policy and is applied retrospectively, as if the new presentation currency had always been the presentation currency. Consequently, the comparatives for the year ended July 31, 2015 and as at July 31, 2015 have been restated to be presented in CAD. The exchange rates applied for translation purposes were as follows:
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Date or period
|
Exchange rate
|
|
As at July 31, 2015
|
1 CAD = 0.7703 USD
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|
For the year ended July 31, 2015
|
1 CAD = 0.8403 USD
|
|
For the six month period ended January 31, 2015
|
1 CAD = 0.8807 USD
|
Recently Adopted and Recently Issued Accounting Standards
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern. This ASU provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This ASU eliminates the current requirement to present deferred tax assets and liabilities as current and noncurrent amounts in a classified balance sheet and replaces it with a noncurrent classification of deferred tax assets and liabilities. The ASU applies to all entities and is effective for annual periods beginning after December 15, 2017, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. This ASU amendment addresses aspects of recognition, measurement, presentation and disclosure of financial instruments. It affects investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value, and simplifies the impairment assessment of equity investments without a readily determinable fair value by requiring a qualitative assessment. The ASU applies to all entities and is effective for annual periods beginning after December 15, 2017, and interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard.
Other than the above, the Company has determined that other significant newly issued accounting pronouncements and are either not applicable to the Companys business or that no material effect is expected on the financial statements as a result of future adoption.
F-6
RISE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
2.
BASIS OF PREPARATION
(contd
)
Use of Estimates
The preparation of condensed interim 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 valuation allowance applied to deferred income taxes and valuation of agent warrants. Actual results could differ from those estimates, and would impact future results of operations and cash flows.
3.
MINERAL PROPERTY OPTION
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 April 30, 2016, the Company does not hold titles to any mineral properties.
Indata, British Columbia
On May 18, 2015, the Company entered into an option agreement with Eastfield Resources Ltd., a British Columbia company with its common shares listed for trading on the TSX Venture Exchange under the symbol ETF (Eastfield), pursuant to which Eastfield granted the Company the exclusive and irrevocable right to acquire up to a 75% interest in and to certain claims in the Indata property located in the Omineca Mining Division in British Columbia, Canada. In order to earn the initial 60% interest, the Company is required to pay Eastfield an aggregate of $350,000 ($50,000 paid) in cash and incur a minimum of $2,000,000 in aggregate exploration expenditures on the property by April 3, 2019. In order to earn the additional 15% interest, the Company is required to pay Eastfield $100,000 cash within 90 days of earning the 60% interest and incur a further $500,000 in aggregate annual exploration expenditures on the property until such time as the Company is able to complete a feasibility study on the property. As at April 30, 2016, the Company has incurred cumulative exploration expenditures of $5,000 on the Indata property.
4.
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.
F-7
RISE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
5.
SHARE EXCHANGE AGREEMENT AND LOAN RECEIVABLE
On May 23, 2014, the Company entered into a share exchange agreement (the Share Exchange Agreement) with Juliet Press Inc., a private British Columbia, Canada corporation (Juliet), and the stockholders of Juliet (the Juliet stockholders), to acquire 100% of the issued and outstanding common stock of Juliet (the Juliet Stock). Pursuant to the Share Exchange Agreement, the Company was expected to issue 175,000 shares of common stock to the Juliet stockholders in consideration for Juliet Shares, resulting in Juliet becoming a wholly owned subsidiary of the Company.
During the year ended July 31, 2015, the Company advanced $6,748 (US$6,106) to Juliet as a loan, due on demand without interest. Management has assessed the collectability of the loan and recorded an allowance for doubtful accounts of $6,748 for the year ended July 31, 2015.
On September 25, 2014, the Company, Juliet and Juliet stockholders mutually agreed in writing to terminate the Share Exchange Agreement.
6.
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)
Consulting fees of $22,500 (2015 - $8,102) to the CEO of the Company.
b)
Share-based payments of $246,004 (2015 - $Nil) to the CEO, CFO, and a director of the Company.
As at April 30, 2016, the Company has recorded loans from related parties of $46,439 (US$37,009) (July 31, 2015 - $87,105 or US$67,100) representing advances made by two former directors and officers. The advances are due on demand without interest. During the period ended April 30, 2016, $51,132 (US$36,600) of these loans were assigned to a company controlled by a director of the Company and $41,500 (US$30,091) was repaid.
As at April 30, 2016, included in due to related parties is $24,613 (July 31, 2015 - $11,313) in accounts and advances payable and accrued liabilities to current and former officers and companies controlled by directors and officers of the Company. Of this amount, $nil (July 31, 2015 - $604) represents advances made by Skanderbeg Capital Partners Inc. (Skanderbeg), a company that advises the Companys management and does promotional work for the Company. Skanderbeg made payments on behalf of the Company until such time as the Company was able to complete a financing.
Included in general and administration expenses for the period ended April 30, 2016 is rent of $5,175 (2015 - $3,500) paid to Skanderbeg.
7.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
Issued Capital Stock
On February 11, 2015, the Company entered into debt conversion agreements with five investors pursuant to which such investors agreed to convert an aggregate of $400,000 in debt into 20,000,000 shares of the Companys common stock at a price of $0.02 per share.
F-8
RISE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
7.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
(contd
)
Issued Capital Stock
(contd
)
On March 31, 2015, the Company entered into debt conversion agreements with 13 investors pursuant to which such investors agreed to convert an aggregate of $206,675 in debt into 10,333,771 shares of the Companys common stock at a price of $0.02 per share. These shares were formally issued on April 9, 2015.
On April 23, 2015, the Company entered into debt conversion agreements with two investors pursuant to which such investors agreed to convert an aggregate of $40,982 in debt into 1,170,906 shares of the Companys common stock at a price of $0.035 per share.
On April 23, 2015, the Company completed a non-brokered private placement, issuing an aggregate of 6,000,002 shares of common stock to six investors at a price of $0.035 per share for gross proceeds of $210,000.
On October 28, 2015, pursuant to a share surrender and cancellation agreement, the Company cancelled 13,000,186 shares of common stock surrendered to the Company, originally issued through the debt conversion agreements on February 11, 2015 and March 31, 2015.
On January 29, 2016, the Company completed an initial public offering, issuing an aggregate of 6,050,000 shares of common stock at a price of $0.10 per share for gross proceeds of $605,000. In connection with the offering, the Company paid a cash commission of $48,400 and issued 484,000 agent warrants valued at $42,248 (discount rate 0.43%, volatility 215.3%, expected life 2 years, dividend yield 0%), exercisable at $0.10 per share for period of 24 months. The Company also paid the agent
a corporate finance fee of $25,000 and other share issuance costs of $51,004.
Stock Options
During the period ended April 30, 2016, the Company granted 2,700,000 stock options, exercisable at a price of $0.15 per share for a period of five years, to directors and consultants.
The following incentive stock options were outstanding at April 30, 2016:
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Number
of Shares
|
|
Exercise
Price
|
|
Expiry Date
|
|
|
|
|
|
|
|
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2,700,000
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$
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0.15
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|
March 22, 2021
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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 Companys stock, less 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.
During the period ended April 30, 2016, the Company granted 2,700,000 (2015 Nil) stock options with a weighted average fair value of $0.14 (2015 - $Nil). The Company recognized share-based payments expense of $369,006 (2015 - $Nil).
F-9
RISE RESOURCES INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD ENDED APRIL 30, 2016
(Expressed in Canadian Dollars)
7.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
(contd
)
Share-Based Payments
(contd
)
The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted during the period:
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2016
|
2015
|
|
|
|
|
|
Risk-free interest rate
|
0.64%
|
N/A
|
|
Expected life of options
|
5.00 years
|
N/A
|
|
Expected annualized volatility
|
151.50%
|
N/A
|
|
Dividend
|
-
|
N/A
|
|
Forfeiture rate
|
-
|
N/A
|
8.
SEGMENTED INFORMATION
The Company has one reportable segment, being the acquisition of exploration and evaluation assets located in British Columbia, Canada.
9.
SUBSEQUENT EVENTS
Subsequent to April 30, 2016, the Company:
·
Entered into an agreement with Klondike Gold Corp. (Klondike) regarding the purchase of a portfolio of seven gold and base metal properties in southeast British Columbia. Under the agreement, within 60 days of signing, the Company will pay Klondike $50,000 in cash, issue 1,500,000 shares of the Companys common stock, and issue 1,500,000 warrants. On the one year anniversary of the first closing, the Company will pay Klondike $150,000 in cash, issue 2,000,000 shares of the Companys common stock, and issue 1,000,000 warrants. Klondike will retain a 2% net smelter return royalty (NSR) and the Company will have the right to purchase 50% of the NSR for $1,000,000 at any time after the first closing. Each of the warrants is exercisable for a period of two years into one share of the Companys common stock at a price that is a 20% premium to the 10-day volume-weighted average price of the stock on the CSE immediately prior to the date of issuance.
·
Issued 19,520 common shares on exercise of agent warrants at $0.10 per share.
F-10