Rainchief Energy Inc. |
(Exact name of Registrant as specified in its charter) |
Large accelerated filer | o | Accelerated filer | o | Non-accelerated filer | x |
PART I | |||||
Item 1. |
Identity of Directors, Senior Management and Advisors
|
3 | |||
Item 2. |
Offer Statistics and Expected Timetable
|
3 | |||
Item 3. |
Key Information
|
3 | |||
Item 4. |
Information on the Company
|
9 | |||
Item 5. |
Operating and Financial Review
|
9 | |||
Item 6. |
Directors, Senior Management and Employees
|
12 | |||
Item 7. |
Major Shareholders and Related Party Transactions.
|
14 | |||
Item 8. |
Financial Information
|
15 | |||
Item 9. |
The Offer and Listing
|
15 | |||
Item 10. |
Additional Information
|
16 | |||
Item 11. |
Quantitative and Qualitative Disclosures about Market Risk
|
25 | |||
Item 12. |
Description of Securities Other Than Equity Securities
|
25 | |||
PART II | |||||
Item 13. |
Defaults, Dividend Arrearages and Delinquencies
|
26 | |||
Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds
|
26 | |||
Item 15T. |
Controls and Procedures
|
26 | |||
Item 15. |
Controls and Procedures
|
27 | |||
Item 16A. |
Audit Committee Financial Experts
|
28 | |||
Item 16B. |
Code of Ethics
|
28 | |||
Item 16C. |
Principal Accountant Fees and Services
|
28 | |||
Item 16D. |
Exemptions from the Listing Standards for Audit Committees
|
28 | |||
Item 16E. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|
28 | |||
Item 16F. |
Change in Registrant’s Certifying Accountant
|
28 | |||
Item 16G. |
Corporate Governance
|
28 | |||
PART III | |||||
Item 17. |
Financial Statements
|
29 | |||
Item 18. |
Financial Statements
|
29 | |||
Item 19. |
Exhibits
|
29 | |||
SIGNATURES | 30 |
|
Year Ended December 31,
|
|||||||
Operating Data
|
2013
|
2012
|
||||||
|
$ | $ | ||||||
Sales
|
- | - | ||||||
Gross Profit, Net of Cost of Sales
|
- | - | ||||||
|
||||||||
Net Loss
|
(220,479 | ) | (226,261 | ) | ||||
Loss per Common Share – Basic & Diluted*
|
(0.008 | ) | (0.301 | ) | ||||
|
||||||||
Number of Shares Outstanding*
|
52,417,179 | 751,051 | ||||||
Balance Sheet Data
|
2013 | 2012 | ||||||
|
$ | $ | ||||||
|
||||||||
Current Assets
|
13,054 | 40,765 | ||||||
Current Liabilities
|
480,493 | 473,071 | ||||||
Total Assets
|
121,957 | 150,014 | ||||||
|
||||||||
Share Capital
|
3,178,514 | 2,922,923 | ||||||
Accumulated Deficit
|
(3,813,360 | ) | (3,366,620 | ) | ||||
Dividends per Common Share
|
0.00 | 0.00 |
Year Ended
|
Average
per US$1
|
|||
December 31, 2009
|
$
|
1.07
|
||
December 31, 2010
|
$
|
1.03
|
||
December 31, 2011
|
$
|
0.99
|
||
December 31, 2012
|
$
|
0.99
|
||
December 31, 2013
|
$
|
1.03
|
Month ended
|
per US$1
|
|||||||
|
High
|
Low
|
||||||
January 31, 2013
|
$
|
1.01
|
$
|
0.98
|
||||
February 28, 2013
|
$
|
1.03
|
$
|
1.00
|
||||
March 31, 2013
|
$
|
1.03
|
$
|
1.01
|
||||
April 30, 2013
|
$
|
1.03
|
$
|
1.01
|
||||
May 31, 2013
|
$
|
1.04
|
$
|
1.00
|
||||
June 30, 2013
|
$
|
1.06
|
$
|
1.01
|
||||
July 31, 2013
|
$
|
1.06
|
$
|
1.02
|
||||
August 31, 2013
|
$
|
1.06
|
$
|
1.03
|
||||
September 30, 2013
|
$
|
1.05
|
$
|
1.02
|
||||
October 31, 2013
|
$
|
1.05
|
$
|
1.03
|
||||
November 30, 2013
|
$
|
1.06
|
$
|
1.04
|
||||
December 31, 2013
|
$
|
1.07
|
$
|
1.06
|
·
|
52,417,179 shares outstanding on an actual basis;
|
|
As Adjusted
|
|||||||
December 31,
|
April 28,
|
|||||||
2013 |
2014
|
|||||||
|
(audited)
|
(unaudited)
|
||||||
|
$ | $ | ||||||
Cash and cash equivalents
|
6,754 | 104 | ||||||
Long-term obligations, less current portion
|
- | - | ||||||
|
||||||||
Shareholders’ (deficiency) equity
|
||||||||
Share capital
|
3,178,514 | 3,178,514 | ||||||
Share purchase warrants reserve
|
276,310 | 276,310 | ||||||
Accumulated deficit
|
(3,813,360 | ) | (3,866,100 | ) | ||||
Shareholders’ (deficiency) equity
|
(358,536 | ) | (411,276 | ) |
Name and Positions Held
|
Experience and Principal Business Activities
|
|
|
|
|
Paul Heney (52) Chairman, Chief Executive Officer and Director
|
Director of the Company since November 18, 2010.
|
|
|
|
|
Bradley J. Moynes (43) President, and Director
|
President and Director of the Company since December 2000.
|
|
|
Annual Compensation
|
Long Term Compensation
|
|||||||||||||||||||||||||||
|
|
Awards
|
Payouts
|
|||||||||||||||||||||||||||
(a)
Name and
Current
Principal Position
|
(b)
Year |
(c)
Salary |
(d)
Bonus |
(e)
Other |
(f)
RestrictedStock
Awards
|
(g)
Optionsor SAR’s
|
(h)
LPITPayouts
|
(i)
AllOther
Compensation
|
||||||||||||||||||||||
|
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(# | ) |
(US$)
|
(US$)
|
|||||||||||||||||||||
Paul Heney
|
2013
|
$ | - | $ | - | $ | - | $ | - | - | $ | - | $ | - | ||||||||||||||||
Chairman and |
2012
|
$ | - | $ | - | $ | - | $ | - | - | $ | - | $ | - | ||||||||||||||||
CEO
|
2011
|
$
|
- | $ | - | $ | - | $ | - | 7,503 | $ | - | $ | - | ||||||||||||||||
Bradley J. Moynes,
|
2013
|
$ | 58,258 | $ | - | $ | - | $ | - | - | $ | - | $ | - | ||||||||||||||||
President
|
2012
|
$ | 60,024 | $ | - | $ | - | $ | - | 7,503 | $ | - | $ | - | ||||||||||||||||
2011
|
$ | 60,661 | $ | - | $ | - | $ | - | - | $ | - | $ | - |
Name
|
No. of Shares
|
Percentage of
outstanding at
April 28,
2014
|
||||||
Paul Heney
|
25,000
|
0.05
|
%
|
|||||
Brad Moynes
|
50,208,303
|
95.8
|
%
|
|
2013
|
2012
|
2011
|
|||||||||
$ | $ | $ | ||||||||||
Management Fees
|
60,000 | 60,000 | 60,000 | |||||||||
Share-Based Payments
|
- | 7,500 | - | |||||||||
|
||||||||||||
|
60,000 | 67,500 | 60,000 |
High Sales Price
|
Low Sales Price
|
|||||||
By Quarters in 2013, 2012 & 2011
|
US$
|
US$
|
||||||
Fourth Quarter 2013
|
$ | 0.30 | $ | 0.02 | ||||
Third Quarter 2013
|
$ | 0.10 | $ | 0.01 | ||||
Second Quarter 2013
|
$ | 0.13 | $ | 0.06 | ||||
First Quarter 2013
|
$ | 0.30 | $ | 0.02 | ||||
Fourth Quarter 2012
|
$ | 17.50 | $ | 5.00 | ||||
Third Quarter 2012
|
$ | 8.00 | $ | 1.00 | ||||
Second Quarter 2012
|
$ | 2.10 | $ | 0.75 | ||||
First Quarter 2012
|
$ | 1.15 | $ | 0.25 | ||||
Fourth Quarter 2011
|
$ | 15.00 | $ | 5.00 | ||||
Third Quarter 2011
|
$ | 11.00 | $ | 6.50 | ||||
Second Quarter 2011
|
$ | 10.00 | $ | 5.50 | ||||
First Quarter 2011
|
$ | 20.00 | $ | 5.00 | ||||
Fourth Quarter 2010
|
$ | 50.00 | $ | 10.00 | ||||
Third Quarter 2010
|
$ | 50.00 | $ | 25.00 | ||||
Second Quarter 2010
|
$ | 60.00 | $ | 25.00 | ||||
First Quarter 2010
|
$ | 60.00 | $ | 15.00 |
Number of Common Shares
|
Amount
$
|
|||||||
Balance, December 31, 2008 (Pre-Share Consolidation)
|
23,818,852 | 2,031,174 | ||||||
|
||||||||
Shares Issued for Cash, Net of Share Issue Costs
|
4,020,000 | 210,271 | ||||||
|
||||||||
Balance, December 31, 2009 (Pre-Share Consolidation)
|
27,838,852 | 2,241,445 | ||||||
|
||||||||
Share Consolidation
|
(25,054,944 | ) | - | |||||
|
||||||||
Balance, March 22, 2010 (Post-Share Consolidation)
|
2,783,908 | 2,241,445 | ||||||
|
||||||||
Shares Issued for Cash, Net of Share Issue Costs
|
10,660,000 | 198,215 | ||||||
Shares Issued for Debt
|
15,130,000 | 152,600 | ||||||
Shares Issued for Exercise of Share Rights
|
5,000,000 | 101,386 | ||||||
Fair Value of Share Rights Exercised
|
- | 13,286 | ||||||
Shares Issued for Acquisition of Subsidiary
|
4,000,000 | 80,000 | ||||||
|
||||||||
Balance, December 31, 2010 (Post-Share Consolidation)
|
37,573,908 | 2,786,932 | ||||||
|
||||||||
Shares Issued for Cash, Net of Issuance Costs
|
1,703,334 | 233,327 | ||||||
Shares Surrendered and Cancelled
|
(4,500,000 | ) | (97,336 | ) | ||||
|
||||||||
Balance, December 31, 2011 (Post-Share Consolidation)
|
34,777,242 | 2,922,923 | ||||||
Shares issued for cash
|
1,330,000 | 26,051 | ||||||
Shares repurchased
|
(1,100,000 | ) | (22,097 | ) | ||||
Shares issued pursuant to the exercise of warrants
|
2,200,000 | 44,137 | ||||||
Shares issued pursuant to a directors resolution
|
200,000 | - | ||||||
Shares issued as compensation to directors
|
750,000 | 22,500 | ||||||
Balance, December 31, 2012 (Post-Share Consolidation)
|
38,157,242 | 2,993,514 | ||||||
Share consolidation in the ratio of 1 new share for 50 old shares
|
(47,190,898 | ) | - | |||||
Shares issued for post-consolidation rounding
|
835 | - | ||||||
Pre-consolidation shares issued in settlement of debt
|
10,000,000 | 10,000 | ||||||
Post-consolidation shares issued in settlement of debt
|
50,250,000 | 65,000 | ||||||
Share issued for cash
|
1,200,000 | 60,000 | ||||||
Balance, December 31, 2013 (Post-Share Consolidation)
|
52,417,179 | 3,128,514 |
Expiry Date
|
Exercise Price
|
December 31,
2012
|
Issued
|
Exercised
|
Expired/
Cancelled
|
December 31,
2013
|
||||||||||||||||||
December 31, 2013
|
$ | US1.50 | 26,600 | - | - | (26,600 | ) | - | ||||||||||||||||
June 30, 2014
|
$ | US40.00 | 6,400 | - | - | - | 6,400 | |||||||||||||||||
March 30, 2015
|
$ | US1.00 | 116,200 | - | - | - | 116,200 | |||||||||||||||||
October 15, 2015
|
$ | US2.00 | 10,000 | - | - | - | 10,000 | |||||||||||||||||
October 28, 2015
|
$ | US1.00 | 20,000 | - | - | - | 20,000 | |||||||||||||||||
Total
|
179,200 | - | - | (26,600 | ) | 152,600 | ||||||||||||||||||
Weighted Average Exercise Price
|
$ | US2.49 | - | - | $ | US1.50 | $ | US2.70 |
●
|
deal at arm’s length and are not affiliated with us;
|
●
|
hold such shares as capital property;
|
●
|
do not use or hold (and will not use or hold) and are not deemed to use or hold our common shares, in or in the course of carrying on business in Canada;
|
●
|
have not been at any time residents of Canada; and
|
●
|
are, at all relevant times, residents of the United States, or U.S. Residents, under the Canada-United States Income Tax Convention (1980), or the Convention.
|
●
|
5% of the gross amount of dividends if the beneficial owner is a company that is resident in the U.S. and that owns at least 10% of our voting shares; or
|
●
|
15% of the gross amount of dividends if the beneficial owner is some other resident of the U.S.
|
●
|
tax-exempt organizations and pension plans;
|
●
|
persons subject to alternative minimum tax;
|
●
|
banks and other financial institutions;
|
●
|
insurance companies;
|
●
|
partnerships and other pass-through entities (as determined for United States federal income tax purposes);
|
●
|
broker-dealers;
|
●
|
persons who hold their common shares as a hedge or as part of a straddle, constructive sale, conversion transaction, and other risk management transaction; and
|
●
|
persons who acquired their common shares through the exercise of employee stock options or otherwise as compensation.
|
●
|
an individual citizen or resident of the United States;
|
●
|
a corporation, a partnership or entity treated as a corporation or partnership for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States or any political subdivision thereof;
|
●
|
an estate the income of which is subject to U.S. federal income taxation regardless of its source; and
|
●
|
a trust if both:
|
●
|
a United States court is able to exercise primary supervision over the administration of the trust; and
|
●
|
one or more United States persons have the authority to control all substantial decisions of the trust.
|
1.
|
Weakness: It is not possible to adequately segregate incompatible duties among the officers of the Company, because the Company has only two officers and one accounting consultant. Remediation: Appoint a new Chief Financial Officer, in addition to the current officers, to formally segregate the duties of maintaining accounting records and preparing financial statements, from the executive duties of the current officers. Brad Moynes, who has served as Chief Financial Officer from July 2009, will cease to serve in that position upon appointment of a new individual as Chief Financial Officer.
|
2.
|
Weakness: The Company is small, with only two officers, thereby creating a risk of override of existing controls by management. Remediation: Require the new Chief Financial Officer’s approval of all expenditures and other dispositions of assets.
|
3.
|
Weakness: The Company maintains limited audit evidence in documentary form which is used to test the operating effectiveness of control activities. Remediation: Improve the documentation of expenditures and receipts, under the joint supervision of the new Chief Financial Officer and the Chief Executive Officer, to ensure received goods and third-party services conform to contract terms.
|
Exhibit No.
|
Description of Exhibit
|
|
3.(i)
|
Articles of Incorporation (Notice of Articles and Transition Application)
|
|
3.(ii)
|
By-laws (Schedule “A”)
|
|
4.(1)
|
Management Agreement of January 1, 2008 (Bradley James Moynes)
|
|
4.(2)
|
Management Agreement of January 1, 2008 (James Robert Moynes)
|
|
4.(3)
|
||
4.(4)
|
||
4.(5a)
|
||
4.(5b)
|
||
4.(6)
|
Form of Warrant dated May 23, 2007
|
|
23.(1)
|
Consent of Independent
Auditors
|
|
99.(1)
|
||
99.(2) |
Management’s Discussion and Analysis of Financial Conditions for the years ended December 31, 2013 and 2012.* |
|
Rainchief Energy Inc.
|
|
|
|
|
Date: April 30, 2014
|
/s/ Paul E. Heney
|
|
|
Paul E. Heney
|
|
|
Chairman and Chief Executive Officer
|
|
|
|
|
Date: April 30, 2014
|
/s/ Bradley J. Moynes
|
|
|
Bradley J. Moynes
|
|
|
President
|
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report for Rainchief Energy Inc. (the “Company”) on
Form 20-F for the year ended December 31, 2013 as filed with the Securities and Exchange
Commission on the date hereof (the “Report), the undersigned, Paul E. Heney, Chief Executive Officer do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
Financial condition and results of operations of the Company.
By:
/s/ Paul E. Heney
Paul E. Heney
Chief Executive Officer
May 2, 2014
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report for Rainchief Energy Inc. (the “Company”) on
Form 20-F for the year ended December 31, 2013 as filed with the Securities and Exchange
Commission on the date hereof (the “Report), the undersigned, Brad J. Moynes, Chief Financial Officer do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
Financial condition and results of operations of the Company.
By:
/s/ Brad J. Moynes
Brad J. Moynes
Chief Financial Officer
May 2, 2014
CERTIFICATIONS
I, Brad J. Moynes certify that:
1) | I have reviewed this Annual Report on Form 20-F for Rainchief Energy Inc; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4) | The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting; and |
5) | The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company's board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. |
Date: May 2, 2014
/s/ Brad J. Moynes
Brad J. Moynes
President & CFO
CERTIFICATIONS
I, Paul E. Heney certify that:
1) | I have reviewed this Annual Report on Form 20-F for Rainchief Energy Inc; |
2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
4) | The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting; and |
5) | The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of Company's board of directors (or persons performing the equivalent function): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. |
Date: May 2, 2014
/s/ Paul E. Heney
Paul E. Heney
CEO & Chairman
Rainchief Energy Inc.
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
Consolidated Financial Statements
Page | |
Management’s Responsibility for Financial Reporting | 2 |
Independent Auditors’ Report | 3 |
Consolidated Statements of Financial Position | 4 |
Consolidated Statements of Changes in Shareholders’ Deficiency | 5 |
Consolidated Statements of Comprehensive Loss | 6 |
Consolidated Statements of Cash Flows | 7 |
Notes to the Consolidated Financial Statements | 8 |
Management’s Responsibility for Financial Reporting
These consolidated financial statements have been prepared by and are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, using management’s best estimates and judgments based on currently available information. When alternative accounting methods exist, management has chosen those it considers most appropriate in the circumstances.
The Company maintains an appropriate system of internal controls to provide reasonable assurance that financial information is accurate and reliable and that the Company’s assets are appropriately accounted for and adequately safeguarded.
The Company’s independent auditors, WDM Chartered Accountants, were appointed by the shareholders to conduct an audit in accordance with generally accepted auditing standards in Canada and the Public Company Accounting Oversight Board (United States) and their report follows.
“Paul Heney” | ||
Paul Heney | ||
Chief Executive Officer and Director | ||
“Bradley J. Moynes” | ||
Bradley J. Moynes | ||
President and Director |
2 |
Independent Auditors’ Report
To the Shareholders of:
Rainchief Energy Inc.
We have audited the accompanying consolidated financial statements of Rainchief Energy Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, the consolidated statements of changes in shareholders’ deficiency, comprehensive loss, and cash flows for the years ended December 31, 2013, 2012, and 2011, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Rainchief Energy Inc. and its subsidiaries as at December 31, 2013 and 2012, and their financial performance and their cash flows for the years ended December 31, 2013, 2012, and 2011, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Emphasis of Matter – Going Concern
In forming our opinion, which is not qualified, we have considered the adequacy of the disclosures made in Note 1 to the consolidated financial statements concerning the ability of Rainchief Energy Inc. and its subsidiaries to continue as a going concern. The company incurred a net loss of $220,479 during the year ended December 31, 2013, and as of that date, had accumulated losses of $3,813,360 since inception and a working capital deficiency of $467,439. These conditions, along with the other matters explained in Note 1 to the consolidated financial statements, indicate the existence of material uncertainties that raise substantial doubt about the company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if Rainchief Energy Inc. and its subsidiaries were unable to continue as a going concern.
“WDM Chartered Accountants”
Vancouver, B.C., Canada
April 30, 2014
3 |
RAINCHIEF ENERGY INC.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
Note | December 31, 2013 | December 31, 2012 | |
$ | $ | ||
ASSETS | |||
CURRENT | |||
Cash | 6,754 | - | |
GST/HST Recoverable | 6,300 | 40,765 | |
13,054 | 40,765 | ||
NON-CURRENT | |||
Property and Equipment | 6 | 850 | 1,196 |
Oil and Gas Property | 7 | 108,053 | 108,053 |
121,957 | 150,014 | ||
LIABILITIES | |||
CURRENT | |||
Bank Indebtedness | - | 16 | |
Trade and Other Payables | 8 | 207,527 | 317,691 |
Promissory Notes | 10 | 272,966 | 155,364 |
480,493 | 473,071 | ||
SHAREHOLDERS' DEFICIENCY | |||
Share Capital | 3,178,514 | 2,993,514 | |
Share Purchase Warrant Reserve | 276,310 | 276,310 | |
Deficit | (3,813,360) | (3,592,881) | |
(358,536) | (323,057) | ||
121,957 | 150,014 |
Nature and Continuance of Operations (Note 1)
Subsequent Event (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board:
“Paul Heney” | “Bradley J. Moynes” | |||
Paul Heney, Chief Executive Officer and Director | Bradley J. Moynes, President and Director |
4 |
RAINCHIEF ENERGY INC.
Consolidated Statements of Changes in Shareholders’ Deficiency
For the Years Ended December 31, 2013, 2012, and 2011
(Expressed in Canadian Dollars)
Note | Number of Common Shares |
Share Capital |
Share Subscription Advance |
Share Purchase Warrant Reserve |
Deficit | Total Shareholders’ Deficit | |
$ | $ | $ | $ | $ | |||
Balance, December 31, 2010 | 37,573,908 | 2,786,932 | 196,263 | 276,310 | (3,184,297) | 75,208 | |
Shares Issued for Cash, Net of Issuance Costs | 11(b)(i) | 1,703,334 | 233,327 | (196,263) | - | - | 37,064 |
Shares Surrendered and Cancelled | 5 | (4,500,000) | (97,336) | - | - | - | (97,336) |
Share Subscriptions Received | - | - | 41,064 | - | - | 41,064 | |
Net Comprehensive Loss | - | - | - | - | (182,323) | (182,323) | |
Balance, December 31, 2011 | 34,777,242 | 2,922,923 | 41,064 | 276,310 | (3,366,620) | (126,323) | |
Shares Issued for Cash, Net of Issuance Costs | 11(b)(ii) | 1,330,000 | 26,051 | (41,064) | - | - | (15,013) |
Shares Issued for Exercise of Warrants | 11(b)(iii) | 2,200,000 | 44,137 | - | - | - | 44,137 |
Shares Repurchased and Cancelled | 11(b)(iv) | (1,100,000) | (22,097) | - | - | - | (22,097) |
Shares Reissued | 11(b)(v) | 200,000 | - | - | - | - | - |
Shares Issued for Services | 11(d) | 750,000 | 22,500 | - | - | - | 22,500 |
Net Comprehensive Loss | - | - | - | - | (226,261) | (226,261) | |
Balance, December 31, 2012 | 38,157,242 | 2,993,514 | - | 276,310 | (3,592,881) | (323,057) | |
Shares Issued in Settlement of Debt | 11(b)(vii) | 10,000,000 | 10,000 | - | - | - | 10,000 |
Share Consolidation | 11(b)(vi) | (47,190,898) | - | - | - | - | - |
Balance, April 3, 2013 | 966,344 | 3,003,514 | - | 276,310 | (3,592,881) | (313,057) | |
Shares Issued for Post-Consolidation Rounding | 11(b)(vi) | 835 | - | - | - | - | - |
Shares Issued in Settlement of Debt | 11(b)(vii) | 50,250,000 | 115,000 | - | - | - | 115,000 |
Share Issued for Cash | 11(b)(viii) | 1,200,000 | 60,000 | - | - | - | 60,000 |
Net Comprehensive Loss | - | - | - | - | (220,479) | (220,479) | |
Balance, December 31, 2013 | 52,417,179 | 3,178,514 | - | 276,310 | (3,813,360) | (358,536) |
The accompanying notes are an integral part of these consolidated financial statements.
5 |
RAINCHIEF ENERGY INC.
Consolidated Statements of Comprehensive Loss
For the Years Ended December 31, 2013, 2012, and 2011
(Expressed in Canadian Dollars)
Note | 2013 | 2012 | 2011 | |
$ | $ | $ | ||
EXPENSES | ||||
Accounting, Audit, and Legal | 40,151 | 51,624 | 56,638 | |
Advertising, Promotion, and Website Development | 585 | - | 6,000 | |
Consulting | 80,000 | 75,000 | 80,668 | |
Depreciation | 346 | 201 | 282 | |
Development Costs | - | - | 14,046 | |
Filing and Transfer Agent Fees | 15,791 | 21,283 | 20,264 | |
Interest and Bank Charges | 516 | 459 | 484 | |
Investor Relations | 3,663 | - | - | |
Management Fees | 13(b) | 60,000 | 60,000 | 60,000 |
Office Expenses, Rent, and Telephone | (709) | 632 | 11,534 | |
Property Investigation | 13,054 | - | 9,487 | |
Share-Based Compensation | 11(d) | - | 22,500 | - |
Travel | - | 649 | 11,802 | |
213,397 | 232,348 | 271,205 | ||
LOSS BEFORE OTHER ITEMS | (213,397) | (232,348) | (271,205) | |
Foreign Exchange Loss | (6,666) | (783) | (8,454) | |
Gain on Surrender of Shares | 5 | - | - | 97,336 |
Gain on Settlement of Debts | 13(c) | 334 | 6,870 | - |
Settlement of Legal Claim | 9 | (750) | - | - |
NET LOSS FOR THE YEAR | (220,479) | (226,261) | (182,323) | |
Other Comprehensive Income | - | - | - | |
NET COMPREHENSIVE LOSS FOR THE YEAR | (220,479) | (226,261) | (182,323) | |
POST-SHARE CONSOLIDATION | 11(b)(vi) | |||
Basic and Diluted Loss per Share | (0.008) | (0.301) | (0.258) | |
Weighted Average Number of Shares Outstanding | 28,866,035 | 751,051 | 707,756 | |
The accompanying notes are an integral part of these consolidated financial statements.
6 |
RAINCHIEF ENERGY INC.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2013, 2012, and 2011
(Expressed in Canadian Dollars)
Note | 2013 | 2012 | 2011 | |
$ | $ | $ | ||
Cash Provided BY (USED IN): | ||||
OPERATING ACTIVITIES | ||||
Net Loss for the Year | (220,479) | (226,261) | (182,323) | |
Non-Cash Items | ||||
Depreciation | 346 | 201 | 282 | |
Shares-Based Payments | - | 22,500 | - | |
Gain on Surrender of Shares | - | - | (97,336) | |
Gain on Settlement of Debts | (334) | (6,870) | - | |
(220,467) | (210,430) | (279,377) | ||
Change in Non-Cash Working Capital Accounts | 12(a) | 49,635 | 121,896 | 45,164 |
(170,832) | (88,534) | (234,213) | ||
FINANCING ACTIVITIES | ||||
Shares Issued for Cash, Net of Issuance Costs | 60,000 | 26,051 | 37,064 | |
Share Subscription Receivable | - | - | 20,374 | |
Shares Subscription Advance | - | (41,064) | 41,064 | |
Shares Issued on Exercise of Warrants | - | 44,137 | - | |
Repurchase of Common Shares | - | (22,097) | - | |
Issuance of Promissory Notes | 117,602 | 155,364 | - | |
177,602 | 162,391 | 98,502 | ||
INVESTING ACTIVITIES | ||||
Acquisition of Equipment | - | - | (1,346) | |
Acquisition of Oil and Gas Property | - | (108,053) | - | |
- | (108,053) | (1,346) | ||
INCREASE (DECREASE) IN CASH | 6,770 | (34,196) | (137,057) | |
(Bank Indebtedness) Cash, Beginning of the Year | (16) | 34,180 | 171,237 | |
Cash (BANK INDEBTEDNESS), End of the yeaR |
6,754 | (16) | 34,180 |
Supplemental Cash Flow Information (Note 12)
The accompanying notes are an integral part of these consolidated financial statements.
.
7 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 1 – NATURE AND CONTINUANCE OF OPERATIONS
Rainchief Energy Inc. (the “Company”) was incorporated on December 28, 2000, under the Company Act of the Province of British Columbia, Canada. The Company is engaged in identifying, financing, and developing oil and gas energy resource properties in North America, including the development of the Gulf Jensen Oil Prospect in New Mexico, United States (Note 7). Prior to 2012, the Company was engaged in the financing and development of photovoltaic solar energy projects in Europe (Note 5).
The head office, principal address, and records office of the Company are located at Suite 1110 – 1185 West Georgia Street, Vancouver, British Columbia, V6E 4E6.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards on the basis that the Company is a going concern and will be able to meet its obligations and continue its operations for its next fiscal year. Several conditions as set out below cast uncertainties on the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon the financial support from its creditors, shareholders, and related parties, its ability to obtain financing for its development projects, and upon the attainment of future profitable operations.
The Company has not yet achieved profitable operations, has incurred significant operating losses and negative cash flows from operations, and has been reliant on external financing of equity. As at December 31, 2013, the Company has accumulated losses of $3,813,360 since inception and a working capital deficiency of $467,439. There is no assurance that the Company will be successful with generating and maintaining profitable operations, or able to secure future debt or equity financing for its working capital and development activities.
These consolidated financial statements do not reflect any adjustments to the amounts and classifications of assets and liabilities which would be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
a) | Basis of Presentation |
These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as available-for-sale that have been measured at fair value. Cost is the fair value of the consideration given in exchange for net assets.
b) | Statement of Compliance |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved and authorized for issue by the Board of Directors on April 30, 2014.
8 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
c) | Basis of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (collectively, the “Company”). Intercompany balances and transactions are eliminated in preparing the consolidated financial statements. The following companies have been consolidated within these consolidated financial statements:
Entity | Country of Incorporation | Holding | Functional Currency |
Rainchief Energy Inc. | Canada | Parent Company | Canadian Dollar |
Jaydoc Capital Corp. (Note 5) | Canada | 100% | Canadian Dollar |
Rainchief Renewable-1 S.R.L. | Italy | 100% | Canadian Dollar |
The Company through its subsidiaries, Jaydoc Capital Corp. and Rainchief Renewable-1 S.R.L., was engaged in the development of photovoltaic solar energy projects in Europe until December 31, 2011.
d) | Foreign Currency |
These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company. Each subsidiary determines its own functional currency (Note 2(c)) and items included in the financial statements of each subsidiary are measured using that functional currency.
i) | Transactions and Balances in Foreign Currencies |
Foreign currency transactions are translated into the functional currency of the respective entity using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in profit or loss.
Non-monetary items measured at historical cost are translated using the exchange rate at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rate at the date when fair value was determined.
ii) | Foreign Operations |
On consolidation, the assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the reporting date and their revenues and expenses are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognized in other comprehensive income and accumulated in the currency translation reserve in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in earnings and recognized as part of the gain or loss on disposal.
9 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) | Property and Equipment |
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognized to write off the cost of the property and equipment less their residual values over their useful lives using the declining balance method at 30% per annum for computer equipment and 20% for furniture and equipment, except in the year of acquisition when one-half of the rate is used. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
f) | Oil and Gas Property |
The Company follows the full cost method of accounting for oil and gas properties whereby all costs relating to the acquisition, exploration, and development of oil and gas reserves are capitalized on a property-by-property basis. Such costs include land acquisition costs, geological and geophysical costs, drilling and other costs related to exploration and development activities and do not necessarily reflect present or future values. Proceeds from the disposal of oil and gas properties are applied against the capitalized costs of the related property. |
Upon commencement of production, capitalized costs are depleted using the unit-of-production method, based on estimated probable and proven oil and gas reserves determined by independent engineers. |
g) | Impairment of Non-Current Assets |
The carrying amounts of non-current assets are reviewed for impairment whenever facts and circumstances suggest that the carrying amounts may not be recoverable. If there are indicators of impairment, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Individual assets are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are independent from other group assets.
The recoverable amount of an asset or cash generating unit is the higher of its fair value less costs to sell and its value in use. An impairment loss exists if the asset’s or cash generating unit’s carrying amount exceeds the recoverable amount and is recorded as an expense immediately. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount rate that reflects the current market indicators.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately.
10 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
h) | Provision for Restoration and Rehabilitation |
A provision for restoration and rehabilitation is recognized when there is a present legal or constructive obligation as a result of exploration and development activities undertaken, it is more likely than not that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can be measured reliably. The estimated future obligation includes the cost of removing facilities, abandoning sites, and restoring the affected areas.
The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date. The estimated cost is capitalized into the cost of the related asset and amortized on the same basis as the related assets. The liability is increased over time to reflect an accretion to the amount ultimately payable on the date it is paid.
As at December 31, 2013 and 2012, the Company has no material restoration and rehabilitation obligations.
i) | Share Capital |
The Company records proceeds from share issuances, net of commissions and issuance costs. Shares issued for other than cash consideration are valued at the quoted price on the Over-the-Counter Bulletin Board in the United States based on the earliest of: (i) the date the shares are issued, and (ii) the date the agreement to issue the shares is reached.
j) | Share-Based Payments |
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of stock options and other share-based payments is recorded based on the estimated fair value using the Black-Scholes option-pricing model at the grant date and charged to profit over the vesting period. The amount recognized as an expense is adjusted to reflect the number of equity instruments expected to vest.
Upon the exercise of stock options and other share-based payments, consideration received on the exercise of these equity instruments is recorded as share capital and the related share-based payment reserve is transferred to share capital. The fair value of unexercised equity instruments are transferred from reserve to retained earnings upon expiry.
k) | Loss per Share |
Basic loss per share is calculated by dividing net loss by the weighted average number of common shares issued and outstanding during the reporting period. Diluted loss per share is the same as basic loss per share, as the issuance of shares on the exercise of stock options and share purchase warrants is anti-dilutive.
l) | Income Taxes |
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.
i) | Current Income Tax |
Current income tax assets and liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the consolidated financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
11 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
l) Income Taxes (Continued)
ii) | Deferred Income Tax |
Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full.
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
m) | Financial Instruments |
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified at fair value through profit or loss) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets and financial liabilities are measured subsequently as described below. The Company does not have any derivative financial instruments.
i) | Financial Assets |
For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:
· | Financial assets at fair value through profit or loss; |
· | Loans and receivables; |
· | Held-to-maturity investments; and |
· | Available-for-sale financial assets. |
The category determines subsequent measurement and whether any resulting income and expense is recognized in profit or loss or in other comprehensive income.
All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.
12 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Financial Instruments (Continued)
i) | Financial Assets (Continued) |
· | Financial assets at fair value through profit or loss – Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The Company’s cash falls into this category of financial instruments. |
· | Loans and receivables – Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortized cost using the effective interest method less any provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company currently does not hold financial assets in this category. |
· | Held-to-maturity investments – Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity, other than loans and receivables. Investments are classified as held-to-maturity if the Company has the intention and ability to hold them until maturity. The Company currently does not hold financial assets in this category. |
Held-to-maturity investments are measured subsequently at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired as determined by reference to external credit ratings, then the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss.
· | Available-for-sale financial assets – Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Company currently does not hold financial assets in this category. |
Available-for-sale financial assets are measured at fair value. Gains and losses are recognized in other comprehensive income and reported within the available-for-sale reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognized in profit or loss. When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognized in other comprehensive income is reclassified from the equity reserve to profit or loss, and presented as a reclassification adjustment within other comprehensive income.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale financial assets, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated in the revaluation reserve.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
13 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Financial Instruments (Continued)
ii) Financial Liabilities
For the purpose of subsequent measurement, financial liabilities are classified as either financial liabilities at fair value through profit or loss, or other financial liabilities upon initial recognition.
· | Financial liabilities at fair value through profit or loss – Financial liabilities at fair value through profit or loss include financial liabilities that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. Liabilities in this category are measured at fair value with gains or losses recognized in profit or loss. The Company’s bank indebtedness falls into this category of financial instruments. |
· | Other financial liabilities – Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate method amortization process. The Company’s trade and other payables and promissory notes payable fall into this category of financial instruments. |
A financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
n) | Comparative Figures |
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year. These reclassifications have no effect on the consolidated net comprehensive loss for the years ended December 31, 2013 and 2012.
NOTE 3 – SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
In the application of the Company’s accounting policies which are described in Note 2, management is required to make judgments, estimates, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.
Significant judgments, estimates, and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are described below.
a) | Deferred Tax Assets |
Deferred tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted.
14 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 3 – SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS
(Continued)
b) | Oil and Gas Reserves and Resources |
Measurements of depletion, depreciation, impairment, and rehabilitation and restoration obligations are determined in part based on the Company’s estimate of oil and gas reserves and resources. The estimation of reserves and resources is an inherently complex process and involves the exercise of professional judgment.
Oil and gas reserves and resources estimates are based on a range of geological, technical and economic factors, including projected future rates of production, projected future commodity prices, engineering data, and the timing and amount of future expenditures, all of which are subject to uncertainty. Changes in market and regulatory conditions and assumptions can materially impact the estimation of net reserves.
c) | Provision for Restoration and Rehabilitation |
The Company recognizes a provision for future abandonment activities in the financial statements equal to the net present value of the estimated future expenditures required to settle the estimated future obligation at the statement of financial position date. The measurement of the restoration and rehabilitation obligation involves the use of estimates and assumptions including the discount rate, the expected timing of future expenditures and the amount of future abandonment costs. The estimates were made by management and external consultants considering current costs, technology and enacted legislation. As a result, there could be significant adjustments to the provisions established which would affect future financial results.
NOTE 4 – ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE
The accounting standard, amendment, and interpretation listed below is issued but not yet effective up to the date of issuance of the Company’s consolidated financial statements. The Company intends to adopt the following standard and interpretation, if applicable, when it becomes effective. The Company has not yet determined the impact of this standard on its consolidated financial statements.
IFRS 9 – Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of International Accounting Standards (“IAS”) 39 and applies to the classification and measurement of financial assets and financial liabilities, as defined in IAS 39. The standard was initially effective for annual period beginning on or after January 1, 2013, but Amendments to IFRS 9-Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to January 1, 2015.
15 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 5 – ACQUISITION OF JAYDOC CAPITAL CORP.
On December 22, 2010, the Company acquired all of the issued and outstanding common shares of Jaydoc Capital Corp. (“Jaydoc”), a company incorporated under the Business Corporations Act of the Province of British Columbia, Canada. Jaydoc was acquired to facilitate the Company’s business venture in solar energy development. The purchase price of $98,600 was satisfied by the issuance of 4,000,000 common shares with a fair value of $80,000 and 7,000,000 share purchase warrants with a fair value of $18,600. The Company incurred legal fees of $25,646 in connection with the acquisition.
On November 22, 2010, the former shareholders of Jaydoc (the “vendors”) subscribed to 5,000,000 common shares of the Company upon the exercise of warrants for gross proceeds totaling $101,386 (US$100,000) at an exercise price of US$0.02 per share. The fair value of these warrants in the amount of $13,286 was transferred from reserve to share capital accordingly. The remaining 2,000,000 warrants expired unexercised.
On December 31, 2010, the Company wrote down the intangible asset due to the lack of reliable measurement of the future cash flows of the solar energy project.
On March 4, 2011, the Company entered into a Stock Surrender, Settlement and Voluntary Pooling Agreement with the vendors who agreed to surrender 50% of the common shares received for the sale of Jaydoc and 50% of the common shares received upon the exercise of warrants. Accordingly, a total of 4,500,000 common shares were returned to the treasury of the Company as final settlement of deficiencies identified by the Company in certain representations arising out of the Jaydoc acquisition. The Company recorded the book value of the shares surrendered in the amount of $97,336 as a gain in 2011.
NOTE 6 – PROPERTY AND EQUIPMENT
Computer Equipment |
Furniture and Equipment |
Total | |
$ | $ | $ | |
COST | |||
At December 31, 2011 | 5,236 | 1,656 | 6,892 |
Additions | - | - | - |
At December 31, 2012 | 5,236 | 1,656 | 6,892 |
Additions | - | - | - |
At December 31, 2013 | 5,236 | 1,656 | 6,892 |
ACCUMULATED DEPRECIATION | |||
At December 31, 2011 | 3,999 | 1,496 | 5,495 |
Depreciation | 169 | 32 | 201 |
At December 31, 2012 | 4,168 | 1,528 | 5,696 |
Depreciation | 321 | 25 | 346 |
At December 31, 2013 | 4,489 | 1,553 | 6,042 |
NET BOOK VALUE | |||
At December 31, 2012 | 1,068 | 128 | 1,196 |
At December 31, 2013 | 747 | 103 | 850 |
16 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 7 – OIL AND GAS PROPERTY
On February 10, 2012, the Company entered into an agreement with Nueva Oil and Gas Corporation (“Nueva”) for a farm-in interest in certain oil and gas leases in Curry County, New Mexico, United States (the “Gulf Jensen Oil Prospect”). Nueva is an arm’s length private oil company based in Calgary, Canada.
Pursuant to the terms of the agreement, the Company agreed to pay US$33,400 (CDN$34,140) upon execution of the agreement and undertook to fund 100% of the cost of an initial seismic program. In addition, the Company was granted an option to acquire a 90% working interest in the Gulf Jensen Oil Prospect which the Company exercised on April 4, 2012 and paid Nueva US$75,000 (CDN$73,913). The Company’s net revenue interest is 80.0% inclusive of the lessor royalties and the over-riding royalties.
As of December 31, 2013 and 2012, capitalized acquisition costs of the Gulf Jensen Oil Prospect totalled $108,053.
NOTE 8 – TRADE AND OTHER PAYABLES
2013 | 2012 | |
$ | $ | |
Trade Payables | 44,958 | 169,123 |
Accrued Liabilities | 130,468 | 20,000 |
Legal Claim Provision (Note 9) | - | 60,750 |
Related Party Payable (Note 13(a)(i)) | 32,101 | 67,818 |
207,527 | 317,691 |
NOTE 9 – LEGAL CLAIM
In March 2009, the Company was served with a Notice of Termination citing breach of a licensing agreement by the Company as a result of its default on certain royalty payments. On December 31, 2009, the Company recorded a provision for the total amount of claim against the Company of $60,750.
In July 2013, the Supreme Court of British Columbia found in favour of the plaintiff and awarded damages, costs and interest. In December 2013, the Company paid the plaintiff $61,500 cash as final settlement of all claims.
NOTE 10 – CONVERTIBLE PROMISSORY NOTES
During 2012, the Company issued convertible promissory notes totaling $155,364. The notes are non-interest bearing, unsecured, and had a maturity date of December 31, 2013. The maturity date was extended to December 31, 2015, per agreements with the holders.
During 2013, the Company issued convertible promissory notes totaling $118,000. The notes are non-interest bearing and unsecured. The notes have a maturity date of December 31, 2015, with the exception of one note ($62,000) which has a maturity date of December 31, 2014.
The notes are convertible into common shares of the Company in whole or in part at the option of the holder upon terms to be determined by the Company either 10 days prior to repayment of the notes or the maturity date, whichever shall occur first.
The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to the maturity date and shall bear interest at 3% per annum compounded annually should the Company default on the notes.
17 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 10 – CONVERTIBLE PROMISSORY NOTES (Continued)
As at December 31, 2013, the notes included $99,702 owed to related parties of the Company (2012 - $32,102).
During 2013, the Company made note repayments totaling $6,961.
NOTE 11 – SHARE CAPITAL
a) | Authorized Capital |
Unlimited number of common shares without par value.
b) Issued and Outstanding Common Shares
i) | On January 24, 2011, the Company completed a private placement of 1,300,001 shares at US$0.15 per share, raising gross proceeds of US$195,000 ($196,263). |
On March 14, 2011, the Company completed a private placement of 403,333 shares at US$0.15 per share, raising gross proceeds of US$60,500 ($59,356).
ii) | On January 17, 2012, the Company completed a private placement of 1,330,000 units at US$0.03 per unit, raising gross proceeds of US$39,900 ($41,064). Each unit consists of one common share and one share purchase warrant exercisable into one common share at US$0.03 per share until December 31, 2013. |
iii) | During the year ended December 31, 2012, the Company issued a total of 2,200,000 common shares upon the exercise of warrants at an exercise price of US$0.02 per share for total gross proceeds of US$44,000 ($44,137). |
iv) | On March 2, 2012, the Company repurchased 1,100,000 units at US$0.02 per unit for a total cost of US$22,000 ($22,097). These units were initially issued in a private placement completed in May 2010 at a subscription price of US$0.02 per unit for total gross proceeds of US$22,000 ($22,097). Each unit consisted of one common share and one warrant exercisable into one common share at US$0.02 per share until March 30, 2015. These units were returned to treasury and cancelled. |
v) | On March 21, 2012, the Company issued 200,000 common shares to the President of the Company and a person related to the President. The related parties purchased these shares in the Company in 2002; however, the share certificates evidencing the share subscription were not recorded by the share transfer agent as a result of a clerical oversight. Accordingly, the Directors of the Company authorized the issuance of share certificates to the related parties as evidence of their ownership of the shares and to accurately reflect the number of common shares outstanding. |
vi) | Effective April 3, 2013, the common shares of the Company were consolidated at the ratio of one new common share for every 50 old common shares. The Company issued 835 shares to round up fractional entitlements resulting from the consolidation. The basic loss per share calculations disclosed in the consolidated statements of comprehensive loss for the years ended December 31, 2012 and 2011, have been adjusted to reflect the share consolidation. |
18 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 11 – SHARE CAPITAL (Continued)
b) Issued and Outstanding Common Shares (Continued)
vii) | In January 2013, the Company entered into a debt settlement agreement with a company controlled by a Director and Officer of the Company to settle outstanding accounts payable of $10,000. The Company agreed to issue 10,000,000 pre-April 3, 2013, share consolidation shares. |
In April 2013, the Company entered into a debt settlement agreement with an arm’s length party to settle outstanding accounts payable of $54,486. The Company paid $15,000 in cash and issued 250,000 post-April 3, 2013, share consolidation shares with a fair value of $15,000. The Company recorded a gain of $24,486 on the settlement of this debt.
In September 2013, the Company entered into a debt settlement agreement with a company controlled by a Director and Officer of the Company to settle outstanding accounts payable of $50,000. The Company agreed to issue 50,000,000 post-April 3, 2013, post-share consolidation shares with a fair value of $100,000. The Company recorded a loss of $50,000 on the settlement of this debt.
viii) | On August 13, 2013, the Company completed a private placement of 1,200,000 shares at US$0.05 per share, raising gross proceeds of $60,000. |
c) | Share Purchase Warrants |
The continuity of warrants for the year ended December 31, 2013, is summarized below. The quantity and exercise price of warrants have been restated to reflect the share consolidation which took effect on April 3, 2013 (Note 11(b)(vi)).
Expiry Date | Exercise Price |
December 31, 2012 |
Issued | Exercised |
Expired/ Cancelled |
December 31, 2013 |
December 31, 2013 | US$1.50 | 26,600 | - | - | (26,600) | - |
June 30, 2014 | US$40.00 | 6,400 | - | - | - | 6,400 |
March 30, 2015 | US$1.00 | 116,200 | - | - | - | 116,200 |
October 15, 2015 | US$2.00 | 10,000 | - | - | - | 10,000 |
October 28, 2015 | US$1.00 | 20,000 | - | - | - | 20,000 |
Total | 179,200 | - | - | (26,600) | 152,600 | |
Weighted Average Exercise Price |
US$2.49 |
- |
- |
US$1.50 |
US$2.70 |
19 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 11 – SHARE CAPITAL (Continued)
c) | Share Purchase Warrants (Continued) |
The continuity of warrants for the year ended December 31, 2012, is summarized below. The quantity and exercise price of warrants have been restated to reflect the share consolidation which took effect on April 3, 2013 (Note 11(b)(vi)).
Expiry Date |
Exercise Price |
December 31, 2011 |
Issued |
Exercised |
Expired/ Cancelled |
December 31, 2012 |
December 31, 2013 | US$1.50 | - | 26,600 | - | - | 26,600 |
June 30, 2014 | US$40.00 | 6,400 | - | - | - | 6,400 |
March 30, 2015 | US$1.00 | 182,200 | - | (44,000) | (22,000) | 116,200 |
October 15, 2015 | US$2.00 | 10,000 | - | - | - | 10,000 |
October 28, 2015 | US$1.00 | 20,000 | - | - | - | 20,000 |
Total | 218,600 | 26,600 | (44,000) | (22,000) | 179,200 | |
Weighted Average Exercise Price |
US$2.19 |
US$1.50 |
US$1.00 |
US$1.00 |
US$2.49 |
The continuity of warrants for the year ended December 31, 2011, is summarized below. The quantity and exercise price of warrants have been restated to reflect the share consolidation which took effect on April 3, 2013 (Note 11(b)(vi)).
Expiry Date |
Exercise Price |
December 31, 2010 |
Issued |
Exercised |
Expired/ Cancelled |
December 31, 2011 |
March 22, 2011 | US$50.00 | 1,000 | - | - | (1,000) | - |
June 30, 2014 | US$40.00 | 6,400 | - | - | - | 6,400 |
March 30, 2015 | US$1.00 | 182,200 | - | - | - | 182,200 |
October 15, 2015 | US$2.00 | 10,000 | - | - | - | 10,000 |
October 28, 2015 | US$1.00 | 20,000 | - | - | - | 20,000 |
Total | 219,600 | - | - | (1,000) | 218,600 | |
Weighted Average Exercise Price |
US$2.41 |
- |
- |
US$50.00 |
US$2.19 |
d) Share-Based Payments
During the year ended December 31, 2013, the Company did not have any share-based payments.
On April 17, 2012, the Company issued 750,000 common shares at a fair value of US$0.03 per share to the Directors of the Company as compensation for services rendered. Accordingly, share-based compensation of $22,500 was recorded.
e) Escrow Shares
As at December 31, 2013, the Company did not have any shares held in escrow (2012 – 562,500).
20 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 12 – SUPPLEMENTAL CASH FLOW INFORMATION
2013 | 2012 | 2011 | ||
$ | $ | $ | ||
a) | Change in Non-Cash Working Capital Accounts | |||
GST/HST Recoverable | 34,465 | (15,537) | (12,024) | |
Trade and Other Payables | (110,163) | 137,433 | 57,188 | |
Trade and Other Payables – Settled via Share Issuance | 125,333 | - | - | |
49,635 | 121,896 | 45,164 | ||
b) | Significant Non-Cash Financing Activity | |||
Shares Issued for Settlement of Debts | 125,000 | - | - | |
Shares Issued for Services | - | 22,500 | - | |
125,000 | 22,500 | - | ||
c) | Other Information | |||
Interest Paid | - | 40 | - | |
Income Taxes Paid | - | - | - |
NOTE 13 – RELATED PARTIES TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. Details of transactions between the Company and other related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described below.
a) Related Party Balances
(i) | Trade and other payables |
As at December 31, 2013, the Company has $32,101 (2012 - $67,818) in trade and other payables owed to key management personnel. The amounts owed to key management personnel arose from outstanding management fees and are non-interest bearing, unsecured and have no specified terms of repayment.
(ii) | Promissory Notes |
Included in promissory notes as at December 31, 2013, was $37,702 (2012 - $32,102) including US$17,000 owed to a company controlled by a Director (also an officer) of the Company.
Included in promissory notes as at December 31, 2013, was $62,000 (2012 - $Nil) owed to an individual who is a former officer of the Company.
21 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 13 – RELATED PARTIES TRANSACTIONS (Continued)
b) Compensation of Key Management Personnel
The Company incurred management fees and share-based payments for services provided by key management personnel for the years ended December 31, 2013, 2012 and 2011, as described below. All related party transactions were in the ordinary course of business and were measured at their exchange amount.
2013 | 2012 | 2011 | |
$ | $ | $ | |
Management Fees | 60,000 | 60,000 | 60,000 |
Share-Based Payments (Note 11(d)) | - | 22,500 | - |
60,000 | 82,500 | 60,000 |
c) Loss on Settlement of Debts
The Company incurred a loss on settlement of debts to a related party in the amount of $50,000 (see Note 11(b)(vii)). |
NOTE 14 – INCOME TAX
a) Deferred Tax Assets and Liabilities
The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consists of the following amounts:
December 31, | December 31, | |
2013 | 2012 | |
$ | $ | |
Non-Capital Losses | 3,549,994 | 3,299,209 |
Capital Losses | 2,718 | 2,718 |
Property and Equipment | 29,302 | 28,956 |
Share Issuance Costs | 25,789 | 45,303 |
3,607,803 | 3,376,186 |
As at December 31, 2013, the Company has non-capital losses of approximately $3,549,900 which may be applied to reduce Canadian taxable income of future years. These non-capital losses expire as follows:
2014 | 17,300 |
2015 | 86,300 |
2026 | 313,100 |
2027 | 515,300 |
2028 | 367,400 |
2029 | 1,157,900 |
2030 | 307,400 |
2031 | 301,400 |
2032 | 233,000 |
2033 | 250,800 |
3,549,900 |
NOTE 14 – INCOME TAX (Continued)
b) Income Tax Expense
The income tax expense of the Company is reconciled to the net loss for the year as reported in the consolidated statement of comprehensive loss as follows:
2013 | 2012 | 2011 | |
$ | $ | $ | |
Recovery of Income Tax Calculated at the Statutory Rate of 13.5% |
(31,268) | (30,545) | (24,614) |
Permanent Differences | - | 3,038 | - |
Deferred Tax Assets Not Recognized | 31,268 | 29,534 | 34,193 |
Effect of Change in Tax Rates | - | - | (6,570) |
Expiration of Non-Capital Losses and Other | - | (2,027) | (3,009) |
Income Tax Expense | - | - | - |
NOTE 15 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company is exposed to various risks in relation to financial instruments. The Company’s financial assets and liabilities by category are summarized in Note 2(m). The Company’s risk management is coordinated in close co-operation with the board of directors and focuses on actively securing the Company’s short to medium-term cash flows and raising finances for the Company’s capital expenditure program. The Company does not actively engage in the trading of financial assets for speculative purposes.
The most significant financial risks to which the Company is exposed are described below.
a) | Liquidity Risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is dependent upon the availability of credit from its suppliers and its ability to generate sufficient funds from equity and debt financing to meet current and future obligations. The Company has a working capital deficiency of $467,439 as at December 31, 2013. There can be no assurance that such financing will be available on terms acceptable to the Company.
b) | Interest rate risk |
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risk.
c) Credit risk
Credit risk is the risk of loss associated with a counter party’s inability to fulfill its payment obligations. The Company is in the exploration and development stage and has not yet commenced commercial production or sales. Therefore, the Company is not exposed to significant credit risk.
d) | Commodity Price Risk |
Commodity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices. The ability of the Company to develop its oil and gas properties and the future profitability of the Company are directly related to the market price of oil. The Company has not hedged any of its future sales. The Company’s input costs are also affected by the price of fuel. The Company closely monitors commodity prices to determine the appropriate course of action.
22 |
RAINCHIEF ENERGY INC.
Notes to the Consolidated Financial Statements
December 31, 2013 and 2012
(Expressed in Canadian Dollars)
NOTE 15 – FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
e) Foreign Exchange Risk
Foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to foreign exchange risk to the extent it incurs mineral exploration expenditures and operating costs in foreign currencies including the U.S. Dollar. The Company does not hedge its exposure to fluctuations in the related foreign exchange rates.
f) | Fair Values |
The Company uses the following hierarchy for determining fair value measurements:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measurement. The Company’s financial instruments were measured at fair value use Level 1 valuation technique during the years ended December 31, 2013 and 2012. The carrying values of the Company’s financial assets and liabilities approximate their fair values.
NOTE 16 – CAPITAL MANAGEMENT
The Company’s objective for managing its capital structure is to safeguard the Company’s ability to continue as a going concern and to ensure it has the financial capacity, liquidity and flexibility to fund its on-going operations and capital expenditures including investment in resource properties it has or may acquire.
The Company manages its share capital as capital, which as at December 31, 2013, amounted to $3,178,514. At this time, the Company’s access to the debt market is limited and it relies on equity issuances and the support of shareholders to fund its investments in capital assets and development of oil and gas properties. The Company monitors capital to maintain a sufficient working capital position to fund annualized administrative expenses and capital investments.
As at December 31, 2013, the Company had a working capital deficiency of $467,439. The Company will issue shares and may from time to time adjust its capital spending to maintain or adjust the capital structure. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits.
The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future. There were no changes in the Company’s approach to capital management during the year ended December 31, 2013.
NOTE 17 – SUBSEQUENT EVENT
Promissory Notes Payable
Subsequent to December 31, 2013, the Company received $18,000 from a non-arm’s length party and $4,000 from an arm’s length party. The Company issued convertible promissory notes with the same terms as the other promissory notes described in Note 10.
23 |
Years ended December 31,
|
||||||||||||
2011
|
2012
|
2013
|
||||||||||
$ | $ | $ | ||||||||||
Net loss
|
(182,323 | ) | (226,261 | ) | (220,479 | ) | ||||||
Basic and diluted loss per share (post-share consolidation)
|
(0.258 | ) | (0.301 | ) | (0.008 | ) | ||||||
Total assets
|
60,805 | 150,014 | 121,957 | |||||||||
Total liabilities
|
187,128 | 473,071 | 480,493 |
Three months ended
|
||||||||||||||||
March 31,
2013
|
June 30,
2013
|
September 30,
2013
|
December 31,
2013
|
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenues
|
- | - | - | - | ||||||||||||
Net profit (loss)
|
(42,916 | ) | (27,742 | ) | (101,714 | ) | (48,107 | ) | ||||||||
Basic and Diluted profit (loss) per share (post-share consolidation)
|
(0.046 | ) | (0.026 | ) | (0.002 | ) | (0.003 | ) | ||||||||
Three months ended
|
||||||||||||||||
March 31,
2012
|
June 30,
2012
|
September 30,
2012
|
December 31,
2012
|
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Revenues
|
- | - | - | - | ||||||||||||
Net profit (loss)
|
(44,679 | ) | (148,372 | ) | (75,147 | ) | 41,937 | |||||||||
Basic and Diluted profit (loss) per share (post-share consolidation)
|
(0.062 | ) | (0.202 | ) | (0.102 | ) | 0.065 |
2013
|
2012
|
2011
|
||||||||||
$ | $ | $ | ||||||||||
Management fees
|
60,000 | 60,000 | 60,000 | |||||||||
Share-based payments
|
- | 22,500 | - | |||||||||
60,000 | 82,500 | 60,000 |
a)
|
Financial Instruments
The financial instrument guidelines require all financial assets, except those held to maturity and derivative financial instruments, to be measured at fair market value. All financial liabilities are measured at fair value if they are held for trading. Other financial liabilities are measured at amortized cost.
The Company classifies its financial instruments into one of the following balance sheet categories:
|
·
|
Held-for-trading financial assets and liabilities that are initially measured at fair value and where subsequent changes in fair value are recognized in the statement of operations;
|
·
|
Available-for-sale financial assets that are initially measured at fair value and where subsequent changes in fair value are recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts are transferred to and recorded in net income; and
|
·
|
Held-to-maturity investments, loans and receivables, or other financial liabilities – all of which are initially measured at cost and where subsequent changes in cost are amortized using the effective interest rate method.
|
|
Accordingly, the Company has classified its financial instruments as follows:
|
·
|
Cash is classified as financial assets at fair value through profit or loss and accordingly carried at its fair value;
|
·
|
Bank indebtedness is classified as financial liabilities at fair value through profit or loss and accordingly carried at its fair value; and
|
·
|
Trade and other payables and promissory notes are classified as other financial liabilities and are currently carried at their amortized cost.
|
|
The Company undertakes certain transactions in foreign currencies denominated in U.S. dollars and as such is subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange rate risk.
|
(a)
|
Common shares
|
(b)
|
Stock Options
|
(c)
|
Share Purchase Warrants
|