Aurora Cannabis Inc
AURORA CANNABIS INC.
FORM 2A
AMENDED LISTING STATEMENT
DATE: December 9, 2014
{W0264474.DOC} 1. TABLE OF CONTENTS
1. GLOSSARY OF TERMS ...... 3 2. CORPORATE STRUCTURE ...... 7 3. GENERAL DEVELOPMENT OF THE BUSINESS ...... 8 4. NARRATIVE DESCRIPTION OF THE BUSINESS ...... 11 5. SELECTED CONSOLIDATED FINANCIAL INFORMATION ...... 20 6. MANAGEMENT’S DISCUSSION AND ANALYSIS ...... 22 7. MARKET FOR SECURITIES ...... 22 8. CONSOLIDATED CAPITALIZATION ...... 22 9. OPTIONS TO PURCHASE SECURITIES ...... 22 10. DESCRIPTION OF THE SECURITIES ...... 25 11. ESCROWED SECURITIES ...... 28 12. PRINCIPAL SHAREHOLDERS ...... 29 13. DIRECTORS AND OFFICERS ...... 30 14. CAPITALIZATION ...... 35 15. EXECUTIVE COMPENSATION ...... 40 16. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS ...... 44 17. RISK FACTORS ...... 44 18. PROMOTERS ...... 50 19. LEGAL PROCEEDINGS ...... 51 20. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ...... 51 21. AUDITORS, TRANSFER AGENTS AND REGISTRARS...... 51 22. MATERIAL CONTRACTS ...... 51 23. INTEREST OF EXPERTS ...... 53 24. OTHER MATERIAL FACTS ...... 53 25. FINANCIAL STATEMENTS ...... 54
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 2 GLOSSARY OF TERMS
Aurora means Aurora Marijuana Inc., a corporation existing under the laws of the Province of Alberta, with an office at 14613-137 Avenue, Edmonton, Alberta, T5L 4S9 which operates through its two wholly-owned subsidiaries, Aurora Cannabis Enterprises Inc. (formerly “1755517 Alberta Ltd.”) and 1769474 Alberta Ltd.;
Aurora Class A Warrants means the aggregate of 15,000,000 share purchase warrants of Aurora held by certain holders as set out in the Share Exchange Agreement, that were exchanged for the Pubco Class A Warrants and Pubco Performance Class A Warrants on a pro rata basis;
Aurora Class C Warrants means the aggregate of 10,200,000 share purchase warrants of Aurora held by certain holders as set out in the Share Exchange Agreement, that were exchanged for 10,200,000 warrants of Pubco exercisable at a price of $0.50 per Pubco Share for a period of three years;
Aurora Options means the 4,000,000 outstanding stock options of Aurora granted to an employee which options are exercisable for 4,000,000 Class "D" Shares of Aurora at a price of $0.001 per Class "D" Share of Aurora, replaced with the Pubco Options;
Aurora Shareholders means the all of the shareholders of Aurora subject to the Share Exchange Agreement;
Aurora Warrantholders means the all of the holders of Aurora Class A Warrants and Aurora Class C Warrants subject to the Share Exchange Agreement;
BCBCA means the Business Corporations Act (British Columbia);
Computershare means Computershare Investor Services Inc.;
CSE means the Canadian Securities Exchange;
Finder’s Fee Shares means 3,000,000 Pubco Shares that were issued immediately upon closing of the Share Exchange to an unrelated third party as consideration for assistance in closing the Share Exchange;
Funding Milestone means when:
1. the holders the Pubco Performance Class A Warrants raising the following amount of equity or debt financing for Pubco:
a. $1,500,000 on or before November 28, 2014; and
b. $8,500,000 on or before the 60th calendar day after Aurora Cannabis Enterprises Inc. receives a licence from Health Canada to allow it to produce seed to dried marijuana, which does not include any financing prior to October 30, 2014. For clarity, the licence may be received by Aurora Cannabis Enterprises Inc. prior to receipt of an unconditional Production License;
(collectively, the “Raises” and, each, a “Raise”);
2. Aurora has been provided with access to the records of Pubco and independently verified each Raise and verified the source of such funds for each Raise; and
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 3 3. for any Raises prior to the closing of the transaction contemplated by the Share Exchange Agreement, upon the written request of Pubco, the funds from such Raises are lent from Pubco to Aurora on the same terms and conditions as previous loans between Pubco and Aurora.
For clarity:
4. the Raises may be achieved by a combination of funds raised by the holders the Pubco Performance Class A Warrants. Additionally, funds raised from parties introduced to Pubco by the holders the Pubco Performance Class A Warrants, and their respective representatives shall contribute towards the Raises;
5. when determining the amount of each Raise, Pubco shall count the gross proceeds of the Raises. Notwithstanding the foregoing, the maximum amount of the costs for finders’ fees, commissions, or warrants that may be associated with each Raise are expected to be 8% or less of the Raise. If such finders’ fees or commissions are greater than 8% of the Raise, then the amount that the costs are greater than 8% shall be deducted from the Raise; and
6. funds raised prior to October 30, 2014 shall not be counted towards the funding milestone.
Listing Statement means this CSE Form 2A;
MMPR means the Marihuana for Medical Purposes Regulations pursuant to the Controlled Drugs and Substances Act (Canada);
NEO’s means a Named Executive Officers of Pubco. The NEO’s are identified as the individual who acted as a Chief Executive Officer (“CEO”) or Chief Financial Officer (“CFO”) or each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year whose total compensation was, individually, more than $150,000, for that financial year;
Performance Milestone means the:
1. receipt by Aurora of the Production License; and
2. registration of 2,000 patients under the Production License of Aurora.
Performance Shares means an aggregate of 20,000,000 Resulting Issuer Shares to be issued to the Aurora Shareholders on a pro-rata basis upon achievement of the Performance Milestone;
Production License means the full license to be issued by Health Canada under section 25 of the MMPR permitting Aurora to undertake the following activities in connection with medicinal marijuana:
1. production;
2. sale;
3. possession;
4. transport; and
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 4 5. destruction;
Pubco means Aurora Cannabis Inc. prior to completing the Share Exchange, a corporation existing under the laws of the Province of British Columbia and halted for trading on the CSE;
Pubco Class A Warrants means 11,250,000 warrants to purchase Pubco Shares at $0.02 per Pubco Share for a term of five years exercisable on issuance;
Pubco Class C Warrants means 10,200,000 warrants to purchase Pubco Shares at $0.50 per Pubco Share for a term of three years exercisable on issuance;
Pubco Options means, pursuant to the Share Exchange Agreement, an aggregate of 4,000,000 incentive stock options of Pubco having an exercise price of $0.001 per Pubco Share for a term of five years on grant that were issued to the holder of the Aurora Options in replacement of the Aurora Options, which Pubco Options shall vest on the following schedule:
1. 1,600,000 Pubco Options on December 21, 2014;
2. 1,600,000 Pubco Options on June 21, 2015; and
3. 800,000 Pubco Options on December 21, 2015;
Pubco Performance Class A Warrants means 3,750,000 warrants to purchase Pubco Shares at $0.02 per Pubco Share for a term of five years exercisable on completion of the Funding Milestone;
Pubco Shares means the common shares of Pubco;
Pubco Warrants means the Pubco Class A Warrants, Pubco Performance Class A Warrants and the Pubco Class C Warrants;
Related Person means an insider, which has the meaning set forth in the Securities Act (British Columbia):
1. A director or senior officer of the issuer;
2. A director or senior officer of the Resulting Issuer that is an insider or subsidiary of the issuer;
3. A person who beneficially owns or controls, directly or indirectly, voting shares carrying more than 10% of the voting rights attached to all outstanding voting shares of the issuer; or
4. The issuer if it holds any of its own securities;
Resulting Issuer means Pubco having acquired Aurora on close of the Share Exchange with Aurora and Aurora Shareholders on December 9, 2014;
Resulting Issuer Shares means the common shares of Pubco following the completion of the Share Exchange with Aurora and the Aurora Shareholders;
Right of First Refusal means the right granted to Pubco pursuant to the Share Exchange Agreement that gives the right to Pubco to purchase all or any of the Pubco Shares or Resulting Issuer Shares issued pursuant to the Share Exchange, on exercise of the Pubco Warrants, at any time during the 36 months following close of the Share Exchange, if an Aurora Shareholder or
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 5 Aurora Warrantholder receives an offer from a third party to purchase all or any of the Pubco Shares or Resulting Issuer Shares issued pursuant to the Share Exchange, on exercise of the Pubco Options or Pubco Warrants;
Share Exchange means the transaction closed on December 9, 2014 pursuant to the Share Exchange Agreement among Pubco, Aurora and Aurora Shareholders by which Pubco shall acquire all of the issued and outstanding securities of Aurora from the Aurora Shareholders and Aurora Warrantholders and the Right of First Refusal in exchange for the:
(1) issuance an aggregate of:
a. 60,000,000 Pubco Shares on a pro-rata basis to the Aurora Shareholders;
b. 10,200,000 Pubco Class C Warrants on a pro-rata basis to the holders of the Aurora Class C Warrants;
c. 4,000,000 Pubco Options to the holder of the Aurora Options; and
d. 11,250,000 Pubco Class A Warrants on a pro-rata basis to the holders of the Aurora Class A Warrants;
(2) reservation of the Pubco Performance Class A Warrants and issuance on a pro-rata basis to holders of Aurora Class A Warrants upon completion of the Funding Milestone;
(3) assumption debt of $1,500,000 outstanding with no interest and convertible into common shares of Pubco for a price of $0.125 owed by Aurora to two creditors;
(4) reservation of the Performance Shares and issuance of the Performance Shares on completion of the Performance Milestone; and
(5) issuance of the Finder’s Fee Shares; and
Share Exchange Agreement means the agreement dated September 9, 2014, as amended by agreements on September 10, 2014 and October 30, 2014, regarding the Share Exchange among Pubco, Aurora and all of the Aurora Shareholders.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 6 2. CORPORATE STRUCTURE
Head and Registered Office
The Resulting Issuer has a head office located at 507 – 700 West Pender Street, Vancouver, BC V6C 1G8 and its registered office is located at Suite 700 – 1199 West Hastings Street, Vancouver, BC V6E 3T5.
Incorporation
The Resulting Issuer was incorporated under the BCBCA on December 21, 2006 under the name “Milk Capital Corp.”. On September 3, 2010, the Resulting Issuer changed its name to “Prescient Mining Corp.”. On October 2, 2014, the Resulting Issuer changed its name to “Aurora Cannabis Inc.”.
Subsidiaries
Upon close of the Share Exchange on December 9, 2014 (as described below), Aurora is a subsidiary of the Resulting Issuer. Aurora has two wholly-owned subsidiaries:
(1) Aurora Cannabis Enterprises Inc. (formerly “1755517 Alberta Ltd.”), incorporated under the Business Corporations Act (Alberta); and
(2) 1769474 Alberta Ltd., incorporated under the Business Corporations Act (Alberta).
Requalifying – Fundamental Change Description
On September 9, 2014, Pubco entered into the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, the parties completed the Share Exchange on December 9, 2014, whereby Pubco acquired all of the issued and outstanding securities of Aurora from the Aurora Shareholders and Aurora Warrantholders and the Right of First Refusal in exchange for the:
(1) issuance an aggregate of:
a. 60,000,000 Pubco Shares on a pro-rata basis to the Aurora Shareholders;
b. 10,200,000 Pubco Class C Warrants on a pro-rata basis to the holders of the Aurora Class C Warrants;
c. 4,000,000 Pubco Options to the holder of the Aurora Options; and
d. 11,250,000 Pubco Class A Warrants on a pro-rata basis to the holders of the Aurora Class A Warrants;
(2) reservation of the Pubco Performance Class A Warrants and issuance on a pro-rata basis to holders of Aurora Class A Warrants upon completion of the Funding Milestone;
(3) assumption debt of $1,500,000 outstanding with no interest and convertible into common shares of Pubco for a price of $0.125 owed by Aurora to two creditors;
(4) reservation of the Performance Shares and issuance of the Performance Shares on completion of the Performance Milestone; and
(5) issuance of the Finder’s Fee Shares.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 7 Aurora has two wholly-owned subsidiaries:
(1) Aurora Cannabis Enterprises Inc. (formerly “1755517 Alberta Ltd.”), incorporated under the Business Corporations Act (Alberta); and
(2) 1769474 Alberta Ltd., incorporated under the Business Corporations Act (Alberta).
On the closing of the Share Exchange, Aurora is the wholly-owned subsidiary of the Resulting Issuer.
Pre-Share Exchange Structure: Shareholders of Aurora Aurora Shareholders Cannabis Inc.
100% 100%
Aurora Marijuana Inc. Aurora Cannabis Inc.
100% 100%
Aurora Cannabis 1769474 Alberta Ltd. Enterprises Inc.
Post-Share Exchange Structure(1)
Shareholders of Aurora
Aurora Shareholders Cannabis Inc.
59.5% 40.5%
Aurora Cannabis Inc.
100%
Aurora Marijuana Inc.
100% 100%
Aurora Cannabis 1769474 Alberta Ltd. Enterprises Inc.
(1) On an undiluted basis and prior to the completion of the Performance Milestone.
3. GENERAL DEVELOPMENT OF THE BUSINESS
History and Development of the Business since Inception
During the three most recently completed financial years, the Resulting Issuer was in the business of acquiring and exploring mineral properties.
On November 16, 2009, the Resulting Issuer entered into a letter agreement with Full Metal Minerals Ltd. (“Full Metal”) whereby the Resulting Issuer had the option to earn a 60% interest in
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 8 Full Metal’s Angie Property. During the year ended June 30, 2011, The Resulting Issuer decided not to pursue its option agreement with Full Metal and the Resulting Issuer was no longer obligated to make any further cash payments, share issuances nor incur further exploration costs on the Angie Property.
On April 12, 2012, the Resulting Issuer entered into an option agreement with Geomode Mineral Exploration Ltd. (“Geomode”) for the exclusive right and option to acquire a 100% interest in the Hook Lake property (the “Property”), a prospective uranium project located in Saskatchewan. During the quarter ended May 31, 2014, the Resulting Issuer decided not to pursue its option agreement with Geomode and the Resulting Issuer was no longer obligated to make further cash payments, share issuances nor incur further exploration costs on the Angie Property pursuant to the terms of the option agreement.
The Resulting Issuer is now in the process of becoming a licensed producer of medical marijuana in Canada (a “Licensed Producer”) having closed the Share Exchange with Aurora and Aurora Shareholders. On the close of the Share Exchange, Aurora is the wholly-owned subsidiary of the Resulting Issuer. Currently, Aurora is in the process of applying to Health Canada for a medical marijuana production and distribution license (a “Production License”) under the recently enacted MMPR, which came into full effect on April 1, 2014.
The business of the Resulting Issuer is based on the acquisition of Aurora, an established company in Edmonton, Alberta, that holds a pre-license approval granted by Health Canada and is in the final stages of obtaining a Licensed Producer designation from Health Canada under the MMPR. The licensed producer inspection of Aurora was completed on August 26, 2014.
Significant Acquisitions and Dispositions
Pursuant to the Share Exchange Agreement entered into with Pubco, Aurora and Aurora Shareholders on September 9, 2014, Pubco acquired all of the issued and outstanding securities of Aurora from the Aurora Shareholders and Aurora Warrantholders and the Right of First Refusal in exchange for the:
(1) issuance an aggregate of:
a. 60,000,000 Pubco Shares on a pro-rata basis to the Aurora Shareholders;
b. 10,200,000 Pubco Class C Warrants on a pro-rata basis to the holders of the Aurora Class C Warrants;
c. 4,000,000 Pubco Options to the holder of the Aurora Options; and
d. 11,250,000 Pubco Class A Warrants on a pro-rata basis to the holders of the Aurora Class A Warrants;
(2) reservation of the Pubco Performance Class A Warrants and issuance on a pro-rata basis to holders of Aurora Class A Warrants upon completion of the Funding Milestone;
(3) assumption debt of $1,500,000 outstanding with no interest and convertible into common shares of Pubco for a price of $0.125 owed by Aurora to two creditors;
(4) reservation of the Performance Shares and issuance of the Performance Shares on completion of the Performance Milestone; and
(5) issuance of the Finder’s Fee Shares.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 9 Pursuant to the Share Exchange Agreement, Steve Dobler, a director and President of Aurora, and Terry Booth, a director of Aurora, were appointed to the following positions and offices with the Resulting Issuer on close of the Share Exchange:
(1) Steve Dobler – Director and President; and
(2) Terry Booth – Director and Chief Executive Officer.
Immediately after close of the Share Exchange, the Aurora Shareholders hold approximately 57.1% of all issued and outstanding the Resulting Issuer Shares.
As of November 20, 2013, Aurora has leased 160 acres of property at northwest of Cremona, Alberta for a term of 12 months. The lease is automatically renewed after 12 months for two successive terms of five years unless prior notice is given by Aurora. In the same month, Aurora began construction on a custom 54,000 square foot indoor growing, production and distribution facility (the “Facility”). Construction of the growing facility will be completed in approximately two months from the date of this Listing Statement. The Facility will be 100% compliant with the MMPR.
The Resulting Issuer wishes to apply Aurora’s management’s extensive and highly successful history of growing and producing agricultural products with the Resulting Issuer’s management’s venture capital experience, and administration, engineering and marketing expertise to producing medical marijuana under a Production License.
To date, Aurora has filed its application for approval to take the first step in gaining a Production License application, which is the Health Canada building license application to build a growing facility. Aurora believes that the application answers and addresses all of the criteria imposed on applicants and hopes to receive approval. Following building approval and completion of the growing facility, Aurora will apply for approval to begin step two of the process to obtain a Production License. Given Aurora’s experience in the industry and anticipating that at this point Aurora will have completed construction of the Facility, Aurora hopes to receive approval for a Production License in November, 2014. In the event that Aurora is granted a Production License, Aurora plans to be cultivating and harvesting dried marijuana by the first half of 2015.
On close of the Share Exchange, the Resulting Issuer’s next immediate step in development is to raise the capital required in order to go into production to finance the final stages of construction of the Facility, initiate marketing campaigns and pay initial employee salaries. The construction of the Facility is almost complete and will run in conjunction with this listing.
Material Trends, Commitments, Events and Uncertainties
As a developing company without revenues, the Resulting Issuer will typically need more capital than it has available to it or can expect to generate through the sale of its products. In the past, the Resulting Issuer had raised, by way of equity financing, considerable funds to meet its capital needs. There is no guarantee that the Resulting Issuer will be able to continue to raise funds needed for its business. Failure to raise the necessary funds in a timely fashion will limit the Resulting Issuer’s growth.
Although the Resulting Issuer believes that the Aurora is a good candidate for a Production License, it is uncertain and not foreseeable whether Aurora will be granted such a license. Denial of Aurora’s application for a Production License is reasonably expected to materially affect the Resulting Issuer’s business, financial condition and operations.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 10 4. NARRATIVE DESCRIPTION OF THE BUSINESS
Description of the Business
On close of the Share Exchange, the Resulting Issuer is in the business of becoming a Licensed Producer.
Once the Facility is completed in December, 2014 pursuant to the specifications detailed in the Production License application of the Resulting Issuer, the Resulting Issuer will be producing and selling medicinal marijuana in Canada.
Although the Production License limits production to 5,500 kilograms of marijuana per year, the Facility can produce up to 7,000 kilograms per year. The Resulting Issuer then can produce enough marijuana to supply between 3,000 and 6,000 patients per year, or approximately 4% to 10% of the 2012 market.
The Resulting Issuer believes that there is plenty of room for expansion as marijuana continues to gain a proper foothold in society as a legal, proven, dependable alternative to other medicinal products. Marijuana has been tested and provides a number of benefits to patients with neuropathic pain, diabetes, Crohn’s disease, ALS, Alzheimer’s and more.
The MMPR aims to treat marijuana as much as possible like any other narcotic used for medical purposes by creating conditions for a new, commercial industry that is responsible for its production and distribution. The regulations will provide access to quality-controlled marijuana for medical purposes, produced under secure and sanitary conditions, to those patients who need it, while strengthening the safety of Canadian communities. In addition, the MMPR will also enable more options to patients for different strains of marijuana.
Medicinal marijuana is presently legal in 23 U.S states with many more proposed, plus Colorado and Washington State have actually legalized the recreational use of marijuana. The Resulting Issuer will look forward to being at the forefront as Canada changes the medicinal marijuana laws and regulations.
The Canadian government, through Health Canada, dramatically revised the regulation that governs the production, sale and distribution of medicinal marijuana. A number of reasons precipitated this change including the fact that only a single strain of marijuana was available for purchase from Health Canada. Other stakeholders such as law enforcement and fire departments have expressed health, safety, and security concerns relating to the production of marijuana by individuals in homes and communities. Their specific concerns relate to the diversion of marijuana to the illicit market due to limited security requirements, the risk of violent home invasion, fire hazards due to faulty or overloaded electrical installations, and humidity that causes dangerous molds. Individual producers who are ill may be more vulnerable to health risks associated with such molds.
Rapid growth in the number of authorized users also had significant implication for the administration of the program leading sometimes to long application processing times and higher program administration costs for Health Canada. Subsequently, over the years Canadian courts have determined various parts of the old regulation to be invalid, resulting in changes that impact program delivery.
Under the MMPR, a small number of select companies will be vetted and licensed to grow and sell medicinal marijuana. Aurora is at the forefront of this new system.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 11 Aurora is already ahead of most of the competition by having been granted a pre-license by Health Canada (ie. a ready to build license). Aurora already has land secured, zoned, permitted, contracted and construction on the Facility is 95% complete.
Additionally, Aurora has ordered and installed most of the hydroponics, security, electrical, mechanical and grow equipment. Aurora also has an experienced management team in place, experienced marijuana growers, an experienced pharmaceutical quality assurance manager and team, a solid construction schedule, firm budget plan and a marketing plan.
Aurora is using automated proven equipment wherever possible, including the irrigation and nutrient supply system, the security cameras, and production lighting grids. Lastly, Aurora has determined a database that will handle inventory, POS and patient data in accordance with Health Canada’s requirements.
Principal Product or Services
Aurora is nearing the completion of the construction of the Facility that can efficiently grow marijuana under the MMPR. Aurora has and the Resulting Issuer will have specific strains of marijuana that are able to treat various ailments in a variety of patients, as well as strains that will appeal to the more discerning patients with high tolerances and large daily consumption amounts. Aurora already has made contacts throughout the industry, including other growers, compassion clubs and a marketing plan for the Resulting Issuer, under the brand of Aurora.
Significant Events or Milestones
In order to achieve the foregoing business objectives, the milestones that the Resulting Issuer must achieve and expected timelines to achieve them are as follows:
Milestone Timing Estimated Cost to Complete ($) Obtain a Production License and all other permits. December 2014 Nil Obtain approval from the CSE for listing December 2014 Nil Add expertise to management and staff December 2014 100,000 Increase advertising and implement new marketing January 2014 200,000 strategies Complete construction of the Facility December 2014 2,000,000 Begin production of marijuana at the Facility January 2014 500,000
Total Funds Available, Breakdown of Funds and Principal Purposes of Use
As at September 30, 2014, Pubco had a working deficit of approximately $4,637,530 and Aurora had a working capital of approximately $4,543,839.
At September 30, 2014, Pubco’s cash balance was approximately $1,725,717 and Aurora’s cash balance was approximately $477,820.
The Resulting Issuer estimates that it will have total funds available as described in the following table:
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 12 Available Funds
Estimated working capital (or deficiency) at September 30, 2014 (the most recent month-end prior to the date of this Listing Statement) is $4,637,530.
Principal Purposes
Following are estimates of cash usage for a 12-month period
Description: ($) Professional, regulatory, transfer agent and shareholder information 59,000 fees Office, rent and administration, travel and promotional expenses 137,050 Consulting and management fees 68,000 Construction of the Facility 1,000,000 Start-up salaries of employees 600,000 Raw grow product costs 800,000 Marketing and search engine optimization costs 400,000 Legal, accounting (audit), transfer agent 60,000 CSE Maintenance Fees 6,000 Lease of the property for the Facility 5,000 Operation of the Facility (eg. utilities, maintenance, security, insurance, 600,000 labour). Total $3,735,050
The Resulting Issuer plans to raise up to an additional $2,500,000 through the sale of new common shares subject to the filing of this this Listing Statement. There cannot be any assurances that we will be able to raise such additional capital at all, or on terms that are satisfactory to our management.
Marketing Plan
The Resulting Issuer intends to sell directly to patients who are experiencing a variety of ailments, which involves education of the medical community. The doctor or nurse practitioner will write a medical document for a patient, who then goes online to the Health Canada website which lists all Licensed Producers and provides links to the producers’ websites the patient will then submit the medical document along with a patient registration form to a Licensed Producer that the patient chooses.
In connection with the closing of the Share Exchange, Pubco changed its name to “Aurora Cannabis Inc.”. When patients click on the company name, they get directed to the website of the Resulting Issuer. The website of the Resulting Issuer will offer the patients a variety of products for a variety of ailments. The ordering and re-ordering process is made as easy as possible. The Resulting Issuer will provide a clean, healthy product at a fair price and consistent customer service throughout the process.
The Resulting Issuer will also look at selling to other Licensed Producers if there is extra product. This will be at a wholesale price, but the Resulting Issuer will have less time spent on the order. The margins will be lower on wholesales, but it is a method to move large quantities of product at once. {W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 13
The main barriers are:
• Accessing land that can be zoned for growing this product – completed by Aurora.
• Gaining a pre-license - completed by Aurora. Construction of the Facility will result in the grant of the full Production License.
• Access to capital - there are huge rewards, but there is also large capital that is required to build these facilities, which we are in the process of sourcing.
Health Canada expects pricing to be around $7.60/gram in 2014 and increasing to $8.80/gram as the new system becomes more stable.
The first Licensed Producer is currently selling marijuana for between $10.00/gram and $12.00/gram. Additionally, current prices for compassion clubs range between $5.00/gram and $25.00/gram, with the average being around $8.00/gram.
The Resulting Issuer can sell our product at below $5.00/gram and still be profitable. So the target of the Resulting Issuer is to sell its products around the price of $8.00 to $10.00/gram. The Resulting Issuer will also have deluxe strains of marijuana to be sold at $20.00/gram.
Licensed Producers cannot advertise directly to patients, but can educate people and get their story out through social media, open houses, seminars, trade shows, seminars for physicians and public news stories.
According to government statistics, one average year-round patient buys 0.67 kg of marijuana at a value of approximately $5,000.
Based on this and 60,000 current customers at approximately $5,000 per year per customer, this equals a $300 million market. If this market were to be split evenly between 20 to 50 growers, that would be amount to sales of $6 million to $15 million per grower per year. The Facility is expected to be able to produce up to $50 million of marijuana per year. In discussions with Health Canada, the Facility is one of the largest facilities that have been proposed.
As there are a limited number of growers that are allowed, most growers will be able to turn a strong profit. Additionally, Aurora and the Resulting Issuer intend on providing “premium” strains of marijuana and providing strong customer service at fair prices.
Distribution Plan
Health Canada will only allow Licensed Producers to sell to the patients by the mail. The Resulting Issuer will endeavour to be first at the front of doctors’ minds when choosing their supplier.
The Resulting Issuer will also consider selling directly to other Licensed Producers that may need product.
With the mail delivery style of service becoming the norm under the MMPR, Aurora and Pubco see an opportunity to create a nationally recognized brand. Like other companies, Aurora and the Resulting Issuer will actively recruit doctors as referral partners. Medical professionals such as doctors and nurses are the primary source of patient referrals and, as such, are the starting point of the marketing strategy. Additionally, Aurora and the Resulting Issuer will also solicit interest groups for endorsements and seek alliances from the likes of medical associations, treatment centres, mental health groups, and health and wellness professionals and their respective clinics.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 14 Aurora and the Resulting Issuer also plan to use online technology to stimulate business. This will be accomplished by using its website and telecommunications services to provide customer service and support.
Licenses and Permits
Under the MMPR, a business that wishes to commercially produce and/or distribute medical marijuana must obtain a Production License to operate as a Licensed Producer. In order to obtain such a license, the applicant must:
1. show that they are an adult who ordinarily resides in Canada, or a corporation that has its head office in Canada or operates a branch office in Canada and whose officers and directors are all adults;
2. designate one senior person in charge of overall management of the activities carried out by the Licensed Producer;
3. designate one responsible person in charge to work at the Licensed Producer’s site and have responsibility for supervising regulatory compliance of the Licensed Producer’s activities;
4. submit:
a. details around the identity of the person or company applying for the license as well as the location and contact information for each proposed production site and each building within the site if applicable;
b. the proposed activities to be conducted at each site, the purpose of the proposed activities, and the substance(s) in respect of which the activities are to be conducted;
c. a detailed description of the security measures at the proposed site;
d. a detailed description of the proposed record-keeping method;
e. the maximum quantity of dried marijuana to be produced under the license and the production period;
f. the maximum quantity of dried marijuana to be sold or provided by the applicant under the license;
g. a report written by a quality assurance person establishing that the buildings, equipment and sanitation program to be used in the license activities complies with the MMPR’s Good Production Practices requirements; and
5. gain security clearance for the senior person in charge, the responsible person in charge, the individual licensee if the Production License is issued to an individual, and each officer and director of the corporation licensee if the Production License is issued to a corporation.
Prior to submitting an application for a Production License under the MMPR, the applicant must provide written notice to the local government, the local fire authority, and the local police force or the Royal Canadian Mounted Police in the area in which the production site is located.
A Production License is valid for the period indicated on that particular license, which is determined by the issuing Minister at the time of issuance, and must not be later than three years
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 15 after the effective date of the license. Prior to the expiry date of a Production License, the licensee who wishes to renew their Production License must submit an application for renewal to Health Canada that contains the original of the Production License, and a declaration that all of the information shown on the Production License is correct and complete, subsequent to which the Minister must issue a renewed Production License subject to any of the grounds for refusal in section 26.
A Licensed Producer may engage in the following activities:
1. possessing, producing, selling, providing, shipping, delivering, transporting and destroying marijuana;
2. possessing and producing cannabis, other than marijuana, solely for the purpose of conducting in vitro testing that is necessary to determine the percentages of cannabinoids in dried marijuana;
3. selling, providing, shipping, delivering, transporting and destroying cannabis, other than marijuana, that was obtained or produced solely for the purpose of conducting the aforementioned in vitro testing;
4. shipping dried marijuana to a health care practitioner in the case referred to in subparagraph 108(1)(f)(iii) of the MMPR;
5. importing marijuana in accordance with an import permit issued under s. 75 of the MMPR; and
6. possessing and exporting marijuana in accordance with an export permit issued under s. 83 of the MMPR.
A Licensed Producer may sell or provide marijuana and cannabis that was obtained or produced solely for the purpose of conducting the aforementioned in vitro testing to:
1. another Licensed Producer;
2. a Licensed Dealer;
3. the Minister; or
4. a person to whom an exemption relating to the substance has been granted under s. 56 of the Controlled Drugs and Substances Act (the “CDSA”).
A Production License may sell or provide dried marijuana to:
1. a client of that Production License or an individual who is responsible for the client;
2. a hospital employee, if the purpose of their possession of the dried marijuana is in connection with their employment; or
3. a person to whom an exemption relating to the dried marijuana has been granted under s. 56 of the CDSA.
The MMPR allows doctors or nurse practitioners to write a one-page prescription for up to a year’s supply of dried medical marijuana with a maximum shipment size of 150 grams per month. All approved Licensed Producers are listed on a Health Canada website for doctor referral.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 16 Patients send the original prescription to their preferred supplier, who then ships product directly to them or their doctor for pick-up; however, no retail sales are permitted.
Division 3 of the MMPR, “Security Measures” sets out physical security requirements that are necessary to secure sites where Licensed Producers conduct activities with marijuana other than storage, and Health Canada’s Directive on Physical Security Requirements for Controlled Substances provides technical detail as to how to meet these security requirements. The government of Canada outlines the following measures to meet MMPR requirements:
• signage and physical barriers (eg. a fence) indicating unauthorized access is prohibited;
• minimized entrances to reduce security threats, and reinforced doors where cannabis is present;
• glazing panel security and sensory monitoring systems of the same;
• video surveillance systems of site perimeter and cannabis storage areas;
• backup systems for all security measures;
• key-coded, electronic access control systems to perimeter and any areas cannabis is located;
• intrusion detection system with personal or remotely accessible monitoring;
• records of security monitoring;
• contingency plans for security breaches;
• power supply to maintain continuous operation of all security programs; and
• air filtration systems that control release of pollen, odours and all other particles from facility.
Aurora and the Resulting Issuer will implement security measures to ensure the physical security of the premises and staff that is compliant with the above requirements.
Legislative Changes
Health Canada is the department of the federal government of Canada responsible for helping Canadians maintain and improve their health, while respecting individual choices and circumstances. Health Canada has committed to providing reasonable access to marijuana for medicinal purposes, while protecting public safety.
In 2001, the first government regulations were introduced under the Marihuana Medical Access Regulations (“MMAR”). In the first year that MMAR came into effect, the number of people authorized to possess marijuana for medical purposes stood at less than 100. In time that number has grown to approximately 40,000. As a result, the federal government found that the MMAR was not equipped to handle rapid growth of the industry.
The MMAR allowed registered persons to grow marijuana in private homes, which has resulted in increased risks to health, safety and security. For example, the high value of marijuana on the illicit market increases the risks of home invasion and diversion. As a result, Health Canada’s newer MMPR model attempts to change the regulation of marijuana to treat it like other narcotic
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 17 drugs used for medical purposes by only allowing prescribed dosages from medical professionals.
The change in regulation structure has resulted in litigation against the government from people registered under the MMAR who grow their own marijuana. On March 21, 2014, the decision in Allard v Canada 2014 FC 280 was released and the federal court granted an interim injunction against the federal government's plans to end the practice of “grow-your-own medical marijuana” under the MMAP. As a result of the injunction, current growers of their own medicinal marijuana under the MMAR are exempted from the MMPR until a final order is made. The trial is expected to be heard sometime in 2015. Even with the pending litigation and uncertainty arising from what the Federal Court will decide, Health Canada is continuing to implement the MMPR and has been accepting new licensing applications.
Target Market
In 2012, the total number of persons who held an authorization to possess dried marijuana in Canada was 28,115.
• 18,063 patients who grew their own supply;
• 3,405 patients who used a designated grower;
• 5,283 patients who used Health Canada (from Prairie Plant Systems Incorporated);
• 1,364 patients were unaccounted for as to their supply source
In addition, there were over 30,000 patients who were buying from compassion clubs.
Health Canada forecasts these numbers to rise dramatically over the next few years to 450,000 patients.
The Resulting Issuer will sell to patients across Canada. The aim of the Resulting Issuer is to appeal to all patients with solid products and the variety of strains of marijuana that the Resulting Issuer will produce that appeals to a wide range of patients. Some patients need pain relief but want to remain alert; other patients need pain relief and want to sleep, while others want to gain an appetite and reduce nausea etc.
There are over 70 different cannabinoids that have been identified so far in marijuana. The best known one is tetrahydrocannabinol (“THC”), but it is becoming increasingly clear that lesser known cannabinoids may have therapeutic use for certain medical conditions. The most important example of this is cannabidiol (“CBD”), which has shown potent anti-cancer and anti-psychotic effects. Other cannabinoids which are under investigation include cannabigerol and tetrahydrocannabivarin.
Different strains of marijuana have different levels of THC and CBD, and have different effects on patients and can therefore provide different medicinal relief for a variety of ailments.
Number of Employees
On close of the Share Exchange, the Resulting Issuer has 10 employees and 15 consultants. Further, the Resulting Issuer plans on hiring additional consultants and employees in the areas of agriculture, marketing, distribution, security and technology, legal, accounting, and communications. The Resulting Issuer also intends to hire additional employees in the areas of technology support, customer service, and accounting to facilitate the growth of our business.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 18 Foreign Operations Risks
N/A
Competitors
Currently there are numerous growers in Canada. There are legal growers like Designated Growers and Licensed Home Growers under the old MMAR. Additionally, there are illegal growers that grow for compassion clubs, organized crime, unregistered home users and others. Together, the growers number in the several thousands. In British Columbia alone, the estimates of illegal grow ops range from 12,000 to 15,000.
One of the main goals of the new regulation is to minimize the number of growers so that they can be managed, audited and controlled much more effectively. Also, the police will know who the legal growers are and, thus, they will know that everyone else is illegal.
Based on the feedback received from Health Canada, the Resulting Issuer expects approximately 20 to 50 growers will be Licensed Producers in Canada under the MMPR. With only such a number of growers legally licensed, Licensed Producers should be able to enter the market.
The biggest competitors that we see now, are the previous Health Canada provider (ie. Prairie Plant Systems) and the provider for Netherlands (ie. Bedrocan). Prairie Plant Systems has a poor reputation under the old MMAR, and in fact now operate under a new name to try and shake their old image. They will have a head start in the new system, but they have done nothing but lose market share under the MMAR and we expect that to continue. Both Aurora and the Resulting Issuer expect some resistance to a foreign player coming into the Canadian market. In either case, there is such a large market in Canada that neither company will be able to handle more than 10% to start, and if Aurora or the Resulting Issuer gains entry into the market as a Licensed Producer, Aurora and the Resulting Issuer expect to be a strong competitor.
Many of our competitors may have greater resources, more established reputations, a broader range of content and products and services, longer operating histories and more established relationships with their patients than we do. Those other companies can use their experience and resources against Aurora or the Resulting Issuer in a variety of competitive ways, including developing ways to attract and maintain users. These factors may allow the competitors of Aurora or the Resulting Issuer to respond more effectively than Aurora or the Resulting Issuer to new or emerging products and changes in market requirements. Our competitors may develop products or services that are similar to Aurora or the Resulting Issuer or that achieve greater market acceptance, undertake more far-reaching and successful efforts at marketing campaigns, or may adopt more aggressive pricing policies.
As Aurora or the Resulting Issuer introduce new products, and as other companies introduce new products and services, Aurora or the Resulting Issuer expect to become subject to additional competition.
Competitive Advantages
The Resulting Issuer intends to largely rely on the experience that its management team brings in agriculture, engineering, permitting, finance, distribution and marketing. This experience has already enabled Aurora and the Resulting Issuer to identify some of the shortcomings of competitors in the medical marijuana industry.
The Aurora and Resulting Issuer’s strengths include:
• A management team that brings a depth of technical, marketing, strategic and financial experience that sets it apart from many competitors;
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 19 • Financial wherewithal (assuming completion of the planned financing) to stay the strategic course and not force monetization of production of marijuana too soon; and
• The Resulting Issuer is not materially dependent upon licenses and other agreements with third parties relating to product development.
• There are a limited number of competitors.
• Health Canada expects the market to grow by 25% each year for the next 10 years.
• The opportunity to expand the operations, productions and the Facility as the Facility is built on a quarter section of land.
• Focused and knowledgeable key personnel: Master Grower, Q.A. Manager, management team.
• Already have land use approval.
• Already have the ‘pre-license’, so as long as the Resulting Issuer builds as the Resulting Issuer has told the government, the Resulting Issuer will be one of the few selected growers in Canada that can participate in this new industry.
The main barriers are to the industry are:
• Access to land that can be zoned for growing this product - which we have. Gaining a pre-license - which we have.
• Access to capital - there is a large capital cost that is required to build these facilities for the Licensed Producers;
• Unproven industry and business format.
• Direct government oversight and greater regulation, which may result in bureaucracy and time inefficiencies; and
• Caution of investors due to the inherent risks due to changes in government regulation;
• Larger competitors.
5. SELECTED CONSOLIDATED FINANCIAL INFORMATION
Annual Information
Pubco was incorporated on December 21, 2006. The following tables set out certain financial information for Pubco from June 30, 2012 to June 30, 2014. The following financial information is derived from Pubco’s audited financial statements for the years indicated. This summary is qualified by, and should be read in conjunction with, the financial statements Pubco, including the notes thereto and the accompanying management’s discussion and analysis, included elsewhere in this Listing Statement. The audited financial statements for Pubco for the period ended June 30, 2014 are included in this Listing Statement as Schedule “B” hereto. Pubco has established June 30 as its fiscal year-end.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 20
Financial Financial Financial Year from Year from Year from July 1, 2013 July 1, 2012 July 1, 2011 to June 30, to June 30, to June 30, 2014 2013 2012 $ $ $ (Audited) (Audited) (Audited) Total Revenues (Interest Income) 7,855 9,389 15,025 Total Profit (Loss) (399,705) (393,489) (315,760) Basic and Diluted Profit (Loss) per share (0.02) (0.02) (0.02) Total Assets 1,887,349 718,545 1,121,220 Total Long-Term Financial Liabilities Nil Nil Nil Cash Dividends per Share Nil Nil Nil
The increase in loss of $6,216 during the financial year ended June 30, 2014 compared to the financial year ended June 30, 2013 was mostly due to increases in management fees, office administration, professional fees, regulatory fees and share based payments. Share based payments increased by $82,519.
During the fiscal year ended June 30, 2014, Pubco generated no revenue and incurred total expenses of $306,485 compared to generating no revenue and incurring total expenses of $402,902 during the year ended June 30, 2013. Expenses in the fiscal year ended June 30, 2014 consisted of among other things, consulting fees of $10,000, professional fees of $31,263, transfer agent and filing fees of $8,725, office and miscellaneous expenses of $122,252, travel expenses of $4,245 and regulatory fees of $24,232.
Quarterly Information
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, March Dec 31, Sep 30, 2014 2014 2013 2013 2013 31, 2013 2012 2012 Total Revenue 3,006 $1,577 $1,676 $1,596 $1,833 $2,152 $2,369 $3,035 (Interest Income) Total Profit (237,897) ($92,963) ($29,100) ($39,745) ($105,414) ($73,054) ($68,105) ($146,916) (Loss) Basic and ($0.01) - - - ($0.01) - - ($0.01) Diluted Profit (Loss) per Share
Dividends
There are no restrictions that could prevent Pubco or the Resulting Issuer from paying dividends.
Pubco has not paid dividends in the past and does not anticipate paying dividends in the near future. Pubco expects to retain any earnings to finance future growth and, when appropriate, retire debt.
Foreign GAAP
N/A.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 21 6. MANAGEMENT’S DISCUSSION AND ANALYSIS
Annual MD&A
Management’s discussion and analysis of the financial statements of Pubco for June 30, 2014 is included in this Listing Statement as Schedule “A”.
Management’s discussion and analysis of the financial statements of Aurora for June 30, 2014 is included in this Listing Statement as Schedule “C”.
7. MARKET FOR SECURITIES
The Resulting Issuer’s securities were previously listed and posted for trading on the TSX Venture Exchange. The Resulting Issuer delisted its securities from the TSX Venture Exchange and currently has its securities halted on the CSE under the trading symbol “PMC”. When the Resulting Issuer resumes listing on the CSE, the trading symbol will be “ACB” to better reflect the change of the Resulting Issuer’s name to “Aurora Cannabis Inc.”.
8. CONSOLIDATED CAPITALIZATION The following table details material changes to the share and loan capital of the Resulting Issuer from the date of the financial statements for the Resulting Issuer’s most recently completed financial year-end to the date of this Listing Statement.
Designation of Number Outstanding as at date of Security Authorized this Listing Statement
Number Unlimited, no par Common Shares 105,000,471 value
For further details about the Resulting Issuer’s issued securities, see Section 10 – Prior Sales.
9. OPTIONS TO PURCHASE SECURITIES
Stock Option Plan
Pubco adopted a stock option plan (the “Plan”) under which it may grant incentive stock options (“Options”) to its directors, officers, employees and consultants or any affiliate thereof.
The purpose of the Plan is to provide Pubco with a share-related mechanism to attract, retain and motivate qualified executives, employees and consultants, to incent such individuals to contribute toward the long-term goals of Pubco, and to encourage such individuals to acquire shares of Pubco as long-term investments. Pubco was halted on the CSE (which has been halted in connection with the Share Exchange Agreement) and has adopted a “rolling” stock option plan reserving a maximum of 10% of the issued shares of Pubco at the time of the stock option grant. As a “rolling” stock option plan, the Plan is required to be approved by the shareholders each year at Pubco’s annual general meeting.
Policy 6 of the CSE and the terms of the Plan authorize the Board of Directors of the Resulting Issuer to grant stock options to optionees on the following terms:
1. With no options granted with an exercise price lower than the greater of the closing market prices of the underlying securities on:
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 22 a. the trading day prior to the date of grant of the stock options; and
b. the date of grant of the stock options;
2. The Resulting Issuer must comply with the provisions of Multilateral Instrument 45-503 Trades to Employees, Senior Officers, Directors and Consultants (“MI 45-105”) and any successor instrument. For clarity, the Resulting Issuer is or is deemed to be a “non-listed issuer” for purposes of MI 45-105;
3. The Resulting Issuer must post the notice of stock option grant or amendment (Form 11 of the CSE) immediately following each grant of stock options;
4. Upon the first grant of options under a plan, the Resulting Issuer must provide the CSE with an opinion of counsel that all the securities issuable under the plan will be duly issued and be outstanding as fully paid and non-assessable shares. For options granted outside of a plan, the opinion must be provided with each grant of options; and
5. The terms of an option may not be amended once issued. If an option is cancelled prior to its expiry date, the Resulting Issuer must post notice of the cancellation and shall not grant new options to the same person until 30 days have elapsed from the date of cancellation.
Options to Purchase Securities
As at the date of this Listing Statement, a total of 2,778,000 incentive stock options were outstanding as follows:
Number of Options Exercise Price Expiry Date 473,333 $0.05 March 22, 2015 503,334 $0.05 October 29, 2017 144,000 $0.15 October 29, 2017 84,000 $0.05 April 1, 2020 140,000 $0.05 May 31, 2021 183,333 $0.05 March 19, 2024 250,000 $0.70 September 2, 2019(1) 1,000,000 $1.01 September 18, 2019(2) 2,778,000 (1) Vesting 25%of the aggregate amount of options every three months over a period of one year. (2) Vesting as to 25% on the date of grant and 12.5% every three months thereafter over a period of 18 months.
The 2,778,000 incentive stock options were held by optionees as follows:
Type of Optionee Number of Aggregate Number Optionees of Options Executive officers and past executive 2 125,000 officers of the Resulting Issuer Directors and past directors of the Resulting (1) (2) 5 1,411,667 Issuer Employees and past employees of the 3 48,333 Resulting Issuer Consultants of the Resulting Issuer 13 799,000 Any other person 2 144,000 Total 2,778,000 (1) Marc Levy who is a director of Pubco is also the CEO and President of Pubco.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 23
On close of the Share Exchange, an aggregate of 4,000,000 Pubco Options will be exchanged for the Aurora Options. The Pubco Options will have an exercise price of $0.001 per Pubco Share for a term of five years on grant to be issued to the holder of the Aurora Options in replacement of the Aurora Options, which Pubco Options shall vest on the following schedule:
1. 1,600,000 Pubco Options on December 21, 2014;
2. 1,600,000 Pubco Options on June 21, 2015; and
3. 800,000 Pubco Options on December 21, 2015.
Warrants
On June 27, 2014, Pubco closed its first tranche of the non-brokered private placement for 9,500,000 Pubco Shares at a price of $0.10 for gross proceeds of $950,000.
Pubco paid an aggregate of $76,000 and issued an aggregate of 760,000 share purchase warrants of Pubco as finders' fees in connection with the financing. Each warrant entitles the holder, on exercise, to purchase an additional Pubco Share at a price of $0.10 per Pubco Share for a period of two years.
On July 11, 2014, Pubco closed the final tranche of its non-brokered private placement announced on June 30, 2014. Under this tranche, Pubco raised gross proceeds of $650,000 through the issuance of 6,500,000 Pubco Shares at a price of $0.10 per Pubco Share.
Pubco paid $52,000 and issue 520,000 share purchase warrants of Pubco as finders' fees in connection with this portion of the financing. Each warrant entitles the finder, on exercise, to purchase one Pubco Share at a price of $0.10 per Pubco Share for a period of two years following closing of the private placement.
All securities to be issued under this tranche of the private placement will be subject to a four- month hold period from the date of closing pursuant to applicable Canadian securities laws.
On September 18, 2014, Pubco entered into a consulting fee agreement (the “Consulting Agreement”) with Canaccord Genuity Ltd. for prior consulting services rendered to Pubco. Pursuant to the consulting agreement, in exchange for the prior consulting services, Pubco issued 250,000 Pubco Share purchase warrants that are exercisable at $1.01 per Pubco Share and for a period of 12 months from issue.
Warrants to Purchase Common Shares
As at the date of this Listing Statement, a total of 1,530,000 warrants were outstanding as follows:
Number of Warrants Exercise Price Expiry Date 760,000(1) $0.10 June 27, 2016 520,000(2) $0.10 July 15, 2016 250,000 $1.01 September 18, 2015 (1) In connection with a private placement that closed on June 27, 2014, Pubco paid total finder’s fees of $76,000 and issued 760,000 share purchase warrants of Pubco. Each Warrant entitles the finder to purchase a Pubco Share at a price of $0.10 per share for two years after the closing. (2) In connection with a private placement that closed on July 11, 2014, Pubco paid total finder’s fees of $52,000 and issued 520,000 share purchase warrants of Pubco. Each Warrant entitles the finder to purchase a Pubco Share at a price of $0.10 per share for two years after the closing.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 24 The aggregate of 1,530,000 warrants were held by warrantholders as follows:
Type of Warrantholder Number of Aggregate Number Warrantholders of Warrants Executive officers and past executive officers of 0 0 Pubco Directors and past directors of Pubco 0 0 Employees and past employees of Pubco 0 0 Consultants of Pubco 0 0 Any other person 2 1,530,000 Total 1,530,000
Convertible Debenture
Pubco entered into a subscription agreement with a purchaser dated November 24, 2014 pursuant to which Pubco agreed to sell and the purchaser agreed to purchase a secured convertible debenture (the “November Debenture”) in the aggregate amount of $1,000,000 that may be converted into Pubco Shares at a price of $1.01 per Pubco Share during the term of the November Debenture and bearing 8% interest per annum due November 24, 2015 secured against all present and after acquired property of Pubco. On a fully converted basis, the November Debenture is convertible into 990,099 Pubco Shares.
Pubco entered into a subscription agreement with a purchaser dated December 1, 2014 pursuant to which Pubco agreed to sell and the purchaser agreed to purchase a secured convertible debenture (the “December Debenture”) in the aggregate amount of $250,000 that may be converted into Pubco Shares at a price of $1.01 per Pubco Share during the term of the December Debenture and bearing 8% interest per annum due December 1, 2015 secured against all present and after acquired property of Pubco. On a fully converted basis, the December Debenture is convertible into 247,525 Pubco Shares.
10. DESCRIPTION OF THE SECURITIES
Common Shares
The Resulting Issuer has one class of shares outstanding: common shares. The Resulting Issuer is authorized to issue an unlimited number of common shares without par value. As at the date of this Listing Statement, a total of 105,000,471 common shares were issued and outstanding.
All of the common shares of the Resulting Issuer rank equally as to voting rights, participation in a distribution of the assets of the Resulting Issuer on a liquidation, dissolution or winding-up of the Resulting Issuer and the entitlement to dividends. The holders of the common shares are entitled to receive notice of all meetings of shareholders and to attend and vote the shares at the meetings. Each common share carries with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of the Resulting Issuer or other distribution of its assets, the holders of the common shares will be entitled to receive, on a pro rata basis, all of the assets remaining after the Resulting Issuer has paid out its liabilities. Distribution in the form of dividends, if any, will be set by the board of directors.
Class “A” Shares
The Resulting Issuer is authorized to issue an unlimited number of Class “A” Shares with a par value of $1.00 per share. The Board of Directors may issue such Class “A” Shares in one or more series, determine the maximum number of shares of that series that the Resulting Issuer is
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 25 authorized to issue, create an identifying name for the shares of that series and attach special rights or restrictions to the shares of that series. Except for such rights relating to the election of directors on a default in payment of dividends as may be attached to any series of Class “A” Shares, holders of Class “A” Shares shall not be entitled, as such, to receive notice of, or to attend or vote at, any general meeting of shareholders of the Resulting Issuer. No Class “A” Shares have been issued by the Resulting Issuer.
Class “B” Shares
The Resulting Issuer is authorized to issue an unlimited number of Class “B” Shares with a par value of $5.00 per share. The Board of Directors may issue such Class “B” Shares in one or more series, determine the maximum number of shares of that series that the Resulting Issuer is authorized to issue, create an identifying name for the shares of that series and attach special rights or restrictions to the shares of that series. Except for such rights relating to the election of directors on a default in payment of dividends as may be attached to any series of Class “B” Shares, holders of Class “B”
Shares shall not be entitled, as such, to receive notice of, or to attend or vote at, any general meeting of shareholders of the Resulting Issuer. No Class “B” Shares have been issued by the Resulting Issuer.
Right of First Refusal
Pursuant to the Share Exchange Agreement, at any time during the 36 months following close of the Share Exchange, if an Aurora Shareholder or Aurora Warrantholder (an "Offeror") receives an offer to acquire all or any of the Resulting Issuer Shares issued pursuant to the Share Exchange, on exercise of the Pubco Warrants (the “Right of First Refusal Shares”), the Resulting Issuer or its nominees or assignees (the “Offeree”) shall have a first right to acquire such Resulting Issuer Shares (the "Right of First Refusal").
An Offeror intending to transfer all or any portion of the Right of First Refusal Shares shall promptly notify the Offeree of its intentions (the “Notice”). The Offeree shall have 60 days from the date of the Notice is delivered to notify the Offeror whether the Offeree elects to acquire the Right of First Refusal Shares at the same price and on the same terms and conditions (or their monetary equivalent) as set forth in the Notice. If the Offeree does so elect, the transaction shall be consummated promptly and within 30 days after the notice of such election is delivered to the Offeror.
If the Offeree fails to elect to exercise its first right within the period specified, the Offeror shall have 60 days following the expiration of such period to consummate the transfer of the Right of First Refusal Shares to the third party at a price and on terms no less favourable than those offered by the Offeror to the Offeree in the Notice.
If the Offeror fails to consummate the transfer the Right of First Refusal Shares to the third party within the period specified, the Right of First Refusal of the Offeree regarding such Right of First Refusal Shares shall be deemed to be revived. Any subsequent proposal to transfer such Right of First Refusal Shares shall be conducted in accordance with the procedures set forth pursuant to the Right of First Refusal.
Modification of Terms
Subject to the BCBCA, the directors of the Resulting Issuer may by ordinary resolution create special rights or restrictions for and attach those special rights or restrictions to, or vary or delete any special rights or restrictions attached to, the shares of any class or series of shares, whether or not any or all of those shares have been issued, and alter its Notice of Articles and Articles accordingly. {W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 26
Other Attributes
Subject to the special rights and restrictions attached to the shares of any class or series and the BCBCA, and provided the Resulting Issuer is not insolvent or making the payment or providing the consideration would not render the Resulting Issuer insolvent, the Resulting Issuer may, if authorized by the directors, purchase or otherwise acquire any of its shares at the price and upon the terms determined by the directors.
Prior Sales
During the 12 months preceding and including the date of this Listing Statement, the Resulting Issuer issued the following Pubco Shares and the Resulting Issuer Shares:
Date of Type of Number of Price per Total Cash Issuance Security Securities Security Consideration Issued(1) Issued October 15, 2014 Common Shares 1,176,471 $0.85 $1,000,000 September 10, Common Shares 60,000 $0.05 $3,000 2014 August 22, 2014 Common Shares 8,000,000 $0.25 $2,000,000(1) July 11, 2014 Common Shares 6,500,000 $0.10 $650,000(2) June 27, 2014 Common Shares 9,500,000 $0.10 $950,000(3) July 7, 2014 Common Shares 714,000 $0.14 $99,960(4) April 24, 2014 Common Shares 10,000 $0.05 $500 Total 24,784,000 (1) Pubco paid total finder’s fees of $98,920, representing 8% of the gross proceeds received from certain subscribers. (2) Pubco paid total finder’s fees of $52,000 and issued 520,000 share purchase warrants of Pubco. Each Warrant entitles the finder to purchase a common share of Pubco at a price of $0.10 per share for two years after the closing. (3) Pubco paid total finder’s fees of $76,000 and issued 760,000 share purchase warrants of Pubco. Each Warrant entitles the finder to purchase a common share of Pubco at a price of $0.10 per share for two years after the closing. (4) Unsecured loan agreement with a lender dated June 27, 2014 for a loan of $500,000 to Pubco at 8% interest per annum compounded monthly due December 27, 2014. As consideration for this loan, Pubco issued 714,000 Pubco Shares at a deemed price of $0.14 to the lender.
Stock Exchange Price
The following table provides information with respect to Pubco’s trading history on the TSX Venture Exchange from January 1, 2012 to May 21, 2014 and on the CSE on May 22, 2014 to the date of this Listing Statement:
Price Range ($) Period Low High Volume Traded November 2014 n/a n/a n/a October 2014 n/a n/a n/a September 2014 0.66 1.07 2,602,687 August 2014 0.47 0.69 2,642,378 July 2014 0.14 0.75 11,255,612 June 2014 0.03 0.15 2,745,667 May 2014 0.03 0.07 167,000 April 2014 0.03 0.04 60,000 January - March 2014 0.03 0.05 299,500
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 27 October– December 2013 0.025 0.025 65,000 July – September 2013 0.03 0.035 167,500 April - June 2013 0.035 0.05 125,000 January – March 2013 0.05 0.07 233,333 October – December 2012 0.055 0.15 462,500 July - September 2012 0.06 0.075 148,500
11. ESCROWED SECURITIES
On close of the Share Exchange, an escrow agreement dated September 18, 2014 with Computershare Trust Company of Canada (“Computershare”), the Resulting Issuer and principal holders of all of the Pubco Shares or Resulting Issuer Shares issued pursuant to the Share Exchange, on exercise of the Pubco Options or Pubco Warrants (the “Escrowed Shares”) became effective as described in the table below (the “Escrow Agreement”):
Stockholder Name Number of % of Number of Resulting % of Resulting Resulting Resulting Issuer Shares in Issuer Shares Issuer Issuer Escrow on in Escrow on Shares in Shares in completion of the completion of Escrow on Escrow on Performance the close of the close of the Milestone (diluted)(2) Performance Share Share Milestone Exchange Exchange(1) (diluted)(3) 1771472 Alberta Ltd. 19,350,000 18.43% 25,800,000 16.15% Lola Ventures Inc. 16,350,000 15.57% 21,800,000 13.65% Nicholas Booth 1,800,000 1.71% 2,400,000 1.50% Brittany Aker 600,000 0.57%(6) 800,000 0.50% Janette Booth 600,000 0.57%(6) 800,000 0.50% Dale Lesack 3,000,000 2.86% 4,000,000 2.50% Chris Mayerson 3,000,000 2.86% 4,000,000 2.50% 1694818 Alberta Ltd. 3,000,000 2.86% 6,000,000 3.76% Westmar Investments Ltd. 3,000,000 2.86% 6,000,000 3.76% Kelly Moroz 300,000 0.29%(6) 600,000 0.38% Ed Moroz 6,600,000 6.29% 13,200,000 8.26% 1275414 Alberta Ltd. 600,000 0.57%(6) 1,200,000 0.75% Brad Liptak 600,000 0.57%(6) 1,200,000 0.75% David Farion 300,000 0.29%(6) 600,000 0.38% Thomas Colquhoun 300,000 0.29%(6) 600,000 0.38% Chinuke Investments Ltd. 240,000 0.23%(6) 480,000 0.30% Finley Mah 360,000 0.34%(6) 720,000 0.45% Cannavest Capital Corp. Nil Nil 12,000,000 7.51% Open Market Investments Ltd. Nil Nil 3,000,000 1.88%
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 28 Daniel Petrov Nil Nil 4,000,000 2.50% Total: 60,000,000 57.14% 109,200,000 68.36% (1) The percentage is based on the issued and outstanding common shares being 105,000,471. (2) Number of shares only includes the Resulting Issuer Shares issued pursuant to the close of the Share Exchange. (3) The percentage is based on the diluted issued and outstanding common shares being 159, 746,095assuming: (a) exercise of all 2,778,000 outstanding stock options of the Resulting Issuer; (b) exercise of all 1,530,000 outstanding warrants of the Resulting Issuer; (c) issuance of the Performance Shares; (d) conversion of the November Debenture and December Debenture; and (e) exercise of all outstanding Pubco Options and Pubco Warrants. (4) 1771472 Alberta Ltd. is a private company that is wholly owned and controlled by Steve Dobler. (5) Lola Ventures Inc. is a private company that is wholly owned and controlled by Terry Booth. (6) Pursuant to the terms of the Share Exchange Agreement, although these persons will hold less than 1% of the issued and outstanding Resulting Issuer Shares, these persons have voluntarily agreed to escrow their respective Resulting Issuer Shares in accordance with the Escrow Agreement.
The Escrowed Shares will be held by Computershare and will be released on a schedule that is expected to be in accordance with the conditions and release schedule provided by Form 46- 201F1 as provided for in National instrument 46-201 Escrow for Initial Public Offerings – being:
1. 10% of the Escrowed Shares on the date that the Resulting Issuer Shares are issued on close of the Share Exchange;
2. 1/6 of the remaining Escrowed Shares in six months thereafter;
3. 1/6 of the remaining Escrowed Shares in 12 months thereafter;
4. 1/6 of the remaining Escrowed Shares in 18 months thereafter;
5. 1/6 of the remaining Escrowed Shares in 24 months thereafter;
6. 1/6 of the remaining Escrowed Shares in 30 months thereafter; and
7. 1/6 of the remaining Escrowed Shares in 36 months thereafter.
12. PRINCIPAL SHAREHOLDERS The following table lists 10% or more shareholders as of the date of this Listing Statement and immediately after close of the Share Exchange:
Name Number and percentage of Resulting Issuer Shares immediately after close of the Share Exchange(1) 1771472 Alberta Ltd.(3) 19,350,000 / 18.43% Lola Ventures Inc.(4) 16,350,000 / 15.57% (1) The percentage is based on the issued and outstanding Resulting Issuer Shares being 105,000,471. (2) 1771472 Alberta Ltd. is a private company that is wholly owned and controlled by Steve Dobler. Upon completion of the Performance Milestone by the Resulting Issuer, 1771472 Alberta Ltd. will be issued an additional 6,450,000 Resulting Issuer Shares resulting in a holding of an aggregate of
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 29 25,800,000 Resulting Issuer Shares pursuant to the Share Exchange Agreement, which will represent 16.28% of the issued and outstanding Resulting Issuer Shares. (3) Lola Ventures Inc. is a private company that is wholly owned and controlled by Terry Booth. Upon completion of the Performance Milestone by the Resulting Issuer, Lola Ventures Inc. will be issued an additional 5,450,000 Resulting Issuer Shares resulting in a holding of an aggregate of 21,800,000 Resulting Issuer Shares pursuant to the Share Exchange Agreement, which will represent 13.75% of the issued and outstanding Resulting Issuer Shares.
13. DIRECTORS AND OFFICERS Management Experience
To the knowledge of the Resulting Issuer, the following table sets out information regarding each of the Resulting Issuer’s directors and executive officers, including the names, municipality of residence, the position and office held and the period of time served in this position, their principal occupation for the preceding five years, and the number and percentage of voting securities beneficially owned, directly or indirectly, or over which control or direction is exercised, as of the date of this Listing Statement:
Name of Nominee, Shares Age, Municipality and Principal Occupation, Business of Beneficially Country of Residence Employment of the last Five Years and Owned or and Current Position Educational Background Director Since Controlled with the Resulting Issuer
Terry Booth Owns and is the President of safety December 9, 16,350,000 Edmonton, Alberta codes permitting companies in Alberta, 2014 to Present Director and CEO Superior Safety Codes Inc. and Trans True Vehicle Safety Inc. A partner in Chinuke Investments Ltd., a bridge finance company. The former president and owner of Alberta Permit Pro. Marc E. Levy President of Mosam Ventures Inc., December 21, 1,449,223(1) Vancouver, BC, October 2004 to present; President 2006 to Present Canada and Chief Executive Officer of Pubco, Director December 2006 to December 2014; President and Chief Executive Officer of Avarone Metals Inc. (formerly Remstar Resources Ltd.), August 2006 to present; President and Chief Executive Officer of Lornex Capital Inc. from May 2008 to August 2013; President and Chief Executive Officer of Metropolitan Energy Corp. from September 2011 to May 2013. Isaac Moss Director and Chief Financial Officer of March 17, 2014 400,000(2) Vancouver, BC, Syntaris Power Corporation, 2008 to to Present Canada 2012; Chief Financial Officer, director & Director Secretary of Virdis Energy Inc., December 2009 to August 2011; CFO of Cheetah Oil and Gas Ltd., July 2006 to July 2008; Director of Kariana Resources Inc., June 2013 to December 2013. John M. Bean Chartered Accountant. Chief Financial March 17, 2014 Nil(3) Blaine, Washington, Officer of Western Canadian Properties to Present USA Group, February 2014 to present; Chief Chief Financial Financial Officer of Underground Officer Energy Corporation, January 2013 to
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 30 August 2013; Vice President of Finance of Underground Energy Corporation, March 2011 to January 2013; President of InSpire Consulting Services Ltd., April 1997 to April 2012; Chief Financial Officer of Monexa Technologies Corp. from August 2009 to March 2010; Chief Financial Officer of Argon Security Technologies Inc. from December 2004 to August 2009. Steve Dobler A Professional Engineer with previous December 9, 19,350,000 Edmonton, Alberta public company experience. He has 2014 to Present Director and been involved in numerous private President company acquisitions, integrations, and operations. William Macdonald Lawyer, February 1999 to present; September 18, Nil(4) Vancouver, BC, Blackbird Energy Inc., May 2008 to 2014 to Present Canada present; First Americas Gold Corp., Corporate Secretary April 2008 to present; Benz Capital Corp., April 2013 to present; Viscount Mining Corp., October 2011 to present; and Black Springs Capital Corp., October 2011 to present. (1) Mr. Levy holds an additional 403,334 options exercisable into Pubco Shares at $0.05 per Pubco Share expiring on October 29, 2017 and 60,000 options exercisable at $0.05 expiring on May 31, 2021. (2) Mr. Moss holds an additional 90,000 options exercisable into Pubco Shares at $1.01 per Pubco Share expiring on September 18, 2019 and 85,000 options exercisable into Pubco Shares at $0.05 per Pubco Share expiring on March 19, 2024. (3) Mr. Bean holds an additional 90,000 options exercisable into Pubco Shares at $1.01 per Pubco Share expiring on September 18, 2019 and 85,000 options exercisable into Pubco Shares at $0.05 per Pubco Share expiring on March 19, 2024. (4) Mr. Macdonald holds an additional 50,000 options exercisable into Pubco Shares at $1.01 per Pubco Share expiring on September 18, 2019.
As a group, the directors and executive officers own directly, or indirectly, or exercise control or direction over an aggregate of 37,549,223 shares, or approximately 35.8%, of the Resulting Issuer’s issued and issued and outstanding shares as of the date of this Listing Statement. Directors hold their offices until the next annual meeting of shareholders or until their successors are appointed.
Pursuant to the Share Exchange Agreement, Steve Dobler, a director and President of Aurora, and Terry Booth, a director of Aurora, were appointed to the following positions and offices with the Resulting Issuer on close of the Share Exchange:
(1) Steve Dobler – Director and President; and
(2) Terry Booth – Director and Chief Executive Officer.
Board Committees
The Resulting Issuer has one board committee, the Audit Committee, comprised of Marc Levy, Isaac Moss and John Bean.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 31 Penalties, Sanctions and Bankruptcy
Except for as disclosed herein, to the knowledge of the Resulting Issuer, none of the Resulting Issuer’s directors, officers or principal shareholders are, or have been within the last 10 years, directors or officers of any other issuer that, while that person was acting in that capacity, was the subject of a cease trade or similar order or an order that denied the issuer access to any statutory exemptions for a period of more than 30 consecutive days or became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of that issuer.
Mr. Bean was an officer of Underground Energy Corporation (“UGE”) when he became the subject of a cease trade order issued by the British Columbia Securities Commission dated May 2, 2013 for UGE’s failure to file a comparative financial statement for the financial year ended December 31, 2012 and a management’s discussion and analysis for the period ended December 31, 2012. As at the date hereof, the cease trade order remains in effect.
Mr. Bean was an officer of UGE when on March 4, 2013, Underground Energy, Inc. (the “Operating Subsidiary”), the wholly-owned subsidiary of UGE, voluntarily filed for Chapter 11 creditor protection in the U.S. Federal Court. The filing was made in response to liens filed by creditors against the Operating Subsidiary’s principal properties. UGE decided to seek Chapter 11 protection in order to give UGE time to structure a court approved plan which, if approved and implemented, would potentially permit UGE to emerge from Chapter 11 protection and develop its principal properties. At this time, the Operating Subsidiary is in the process of structuring a plan for presentation to the U.S. Bankruptcy Court.
To the knowledge of the Resulting Issuer, none of the Resulting Issuer’s directors, officers or principal shareholders are, or have been within the last 10 years, the subject of any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority or been subject to any other penalties or sanctions imposed by a court or regulatory body that would be likely to be considered important to a reasonable investor making an investment decision.
To the knowledge of the Resulting Issuer, none of the Resulting Issuer’s directors, officers or principal shareholders, or any personal holding company of such persons, has, within the last 10 years, become bankrupt or made a proposal under any legislation relating to bankruptcy or insolvency or been subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold his, her or its assets.
Potential Conflicts
The directors of the Resulting Issuer are required by law to act honestly and in good faith with a view to the best interests of the Resulting Issuer and to disclose any interests, which they may have in any project or opportunity of the Resulting Issuer. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter.
To the best of the Resulting Issuer's knowledge, and other than disclosed herein, there are no known existing or potential conflicts of interest between the Resulting Issuer and its directors and officers except that certain of the directors and officers may serve as directors and/or officers of other companies, and therefore it is possible that a conflict may arise between their duties to the Resulting Issuer and their duties as a director or officer of such other companies.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 32 Management
Marc Levy, age 45, has been a director of the Resulting Issuer since December 2006 and its chief executive officer and president since August 2008 to December 2014. Mr. Levy has been President of Mosam Ventures Inc., a private venture capital firm specialized in providing early- stage financial resources, investment expertise, marketing, administration and IR services, since October 2004.
Mr. Levy has been President and CEO of Avarone Metals Inc., a public natural resource exploration company since April 2008. Mr. Levy was President and CEO of Lornex Capital Inc., a public mineral exploration company, from May 2008 to September 2013. Mr. Levy has over 20 years of management and leadership experience in business. He has held numerous management and senior management positions with both private and public companies.
Mr. Levy will be devoting about 30% of his business time to the affairs of the Resulting Issuer. Mr. Levy has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer.
Isaac Moss, age 61, has been a director of the Resulting Issuer since March 2014. Mr. Moss has 30 years of experience in international corporate finance, public markets and business. As an independent financial advisor, Mr. Moss currently specializes in multi-jurisdictional corporate finance transactions, mergers and acquisitions as well as management advisory services. Mr. Moss was a director and Chief Financial Officer of Syntaris Power Corporation, a private green energy company, from 2008 - 2012. He was also a director, and briefly Chief Financial Officer and Secretary of Viridis Energy Inc., a public alternative energy company specializing in the agricultural and wood waste biomass, from December 2009 to August 2011. Mr. Moss was CFO of Cheetah Oil and Gas Ltd., a public oil and gas company, from July 2006 to July 2008. Mr. Moss holds a Master of Public Administration (M.P.A.) and a Bachelor of Social Sciences from the University of Cape Town.
Mr. Moss will be devoting about 30% of his business time to the affairs of the Resulting Issuer. Mr. Moss has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer.
John Bean, age 62, is the Chief Financial Officer of the Resulting Issuer and was a director of the Resulting Issuer since March 2014 to December 9, 2014. Mr. Bean is a Canadian chartered accountant and holds a Bachelor of Commerce degree in finance and accounting from the University of British Columbia. Mr. Bean has held executive positions with various public companies for more than 20 years. Mr. Bean is currently the Chief Financial Officer of Western Canadian Properties Group. Mr. Bean was Chief Financial Officer of Underground Energy Corporation, an oil and gas exploration and production company, from January 2013 to August 2013 and prior to that VP Finance of the same company from March 2011 to January 2013. Mr. Bean was President of InSpire Consulting Services Ltd., a private company providing bridge management services and senior executive counsel to CEOs in areas of business strategy, sales & marketing, business development, financial management and general management, from April 1997 to April 2012. Mr. Bean was Chief Financial Officer of Monexa Technologies Corp., a public company providing internet application services, from August 2009 to March 2010. Prior thereto Mr. Bean was Chief Financial Officer of Argon Security Technologies, Inc., a private company developing and selling a wireless video surveillance system to law enforcement and to the US government, from December 2004 to August 2009.
Mr. Bean will be devoting about 10% of his business time to the affairs of the Resulting Issuer. Mr. Bean has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer. {W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 33
William Macdonald, age 47, is a founder and principal of Macdonald Tuskey, Corporate and Securities Lawyers, a boutique securities and corporate finance firm located in Vancouver, British Columbia, which was established in April 2008. From February 1998 to April 2008, Mr. Macdonald was a partner with Clark Wilson LLP and a member of the firm's Corporate Finance / Securities Practice Group. Mr. Macdonald has been the President and a director of Blackbird Energy Inc., an oil and gas company listed on the TSX Venture Exchange, since May 2008.
Additionally, he has been a member of the Law Society of British Columbia since February 1999 and a member of the New York State Bar since February 2002. Mr. Macdonald obtained his Bachelor of Law degree from the University of Western Ontario in 1997 and his Bachelor of Arts degree from Simon Fraser University in 1993.
Mr. Macdonald will be devoting about 5% of his business time to the affairs of the Resulting Issuer. Mr. Macdonald has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer.
Steve Dobler, age 50, became a Director and President of the Resulting Issuer on close of the Share Exchange. Mr. Dobler obtained his Professional Engineering designation in 1988 and is a Professional Engineer with previous public company experience. He has been involved in numerous private company acquisitions, integrations, operations and successful exits.
Mr. Dobler will be devoting about 95% of his business time to the affairs of the Resulting Issuer. Mr. Dobler has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer.
Terry Booth, age 50, became a Director and Chief Executive Officer of the Resulting Issuer on close of the Share Exchange.
Mr. Booth has been in the industrial permitting and governmental regulatory sector - for over 20 years. He owns and is the President of safety codes permitting companies in Alberta, Superior Safety Codes Inc. and Trans True Vehicle Safety Inc., which holds contracts with Municipal, Provincial and Federal governments. Additionally, he is a partner in Chinuke Investments Ltd., a bridge finance company. Mr. Booth is a career professional with 20 years of experience in the privatized safety codes industry. He is the former president and owner of Alberta Permit Pro that was responsible for growing the company to 100 employees and 80% market share in the Province of Alberta.
Mr. Booth will be devoting about 95% of his business time to the affairs of the Resulting Issuer. Mr. Booth has not entered into a non-competition or a non-disclosure agreement with the Resulting Issuer.
Conflict of Interest
The directors of the Resulting Issuer are required by law to act honestly and in good faith with a view to the best interest of the Resulting Issuer and to disclose any interests which they may have in any project or opportunity of the Resulting Issuer. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter. In determining whether or not the Resulting Issuer will participate in any project or opportunity, that director will primarily consider the degree of risk to which the Resulting Issuer may be exposed and its financial position at that time.
To the best of our knowledge, there are no known existing or potential conflicts of interest among
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 34 the Resulting Issuer and its promoters, directors, officers or other members of management as a result of their outside business interests except that certain of the directors, officers, promoters and other members of management serve as directors, officers, promoters and members of management of other public companies, and therefore it is possible that a conflict may arise between their duties as a director, officer, promoter or member of management of such other companies.
14. CAPITALIZATION
14.1 The following chart indicates each class of securities to be listed:
Issued Capital Number of Number of % of % of Securities Securities Issued Issued (non- (fully (non- (fully diluted)(1) diluted)(2) diluted)(1) diluted) (2) Public Float
Total outstanding (A) 105,000,471 159, 746,095 100% 100%
Held by Related Persons or employees of the Resulting Issuer or Related Person of the Resulting Issuer, or by persons or companies who beneficially own or control, directly or indirectly, more than a 5% voting position in the Resulting Issuer (or who would beneficially own or control, directly or indirectly, more than a 5% voting position in the Resulting Issuer upon exercise or conversion of other securities held) (B) 44,379,223 84,449,890 42.3% 52.9%
Total Public Float (A-B) 60,621,248 75,296,205 47.7% 47.1%
(1) The number is based on the Resulting Issuer Shares issued and outstanding as of immediately after the close of the Share Exchange but prior to the completion of the Performance Milestone. (2) The number of shares assumes the: (a) exercise of all 2,778,000 outstanding stock options of the Resulting Issuer; (b) exercise of all 1,530,000 outstanding warrants of the Resulting Issuer; (c) issuance of the Performance Shares; (d) conversion of the November Debenture and December Debenture; and (e) exercise of all of the Pubco Options and Pubco Warrants.
Freely-Tradeable Float
Number of outstanding securities subject to resale restrictions, including restrictions imposed by pooling or other arrangements or in a shareholder agreement and securities held by control block 88,950,471(1) 143,696,095(2) 84.7% 90.0%
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 35 holders (C)
Total Tradeable Float (A-C) 16,050,000 16,050,000 15.3% 10.0% (1) The number is based on the Resulting Issuer Shares issued and outstanding as of immediately after the close of the Share Exchange but prior to the completion of the Performance Milestone. (2) Includes the exercise of: a. 1,530,000 warrants to purchase Pubco Shares (see: section 9 - “Options to Purchase Securities”); b. issuance of the Performance Shares; c. exercise of all of the Pubco Options and Pubco Warrants; d. conversion of the November Debenture and December Debenture; and e. 2,778,000 options (see: section 9 - “Options to Purchase Securities”).
Public Securityholders (Registered)
For the purposes of this report, "public security holders" are persons other than persons enumerated in section (B) of the previous chart. Registered holders listed only. The table below is also as of immediately after the close of the Share Exchange (but prior to the completion of the Performance Milestone or exercise of any convertible securities).
Class of Security: Common Shares
Size of Holding Number of Holders Total number of securities
1 – 499 securities Nil Nil
500 – 999 securities Nil Nil
1,000 – 1,999 securities 6 6,000
2,000 – 2,999 securities 1 2,650
3,000 – 3,999 securities Nil Nil
4,000 – 4,999 securities 1 4,000
5,000 or more securities 54 60,608,598(1)
Total 62 60,621,248 (1) Includes aggregates of 19,700,000 and 15,667,334 common shares of the Resulting Issuer that are held by Canaccord Genuity Corp. and CDS & Co., respectively.
Public Securityholders (Beneficial)
Included: 1. beneficial holders holding securities in their own name as registered shareholders; and 2. beneficial holders holding securities through an intermediary where the Resulting Issuer has been given written confirmation of shareholdings.
For the purposes of this section, it is sufficient if the intermediary provides a breakdown by number of beneficial holders for each line item below; names and holdings of specific beneficial holders do not have to be disclosed. If an intermediary or intermediaries will not provide details of beneficial holders, give the aggregate position of all such intermediaries in the last line. The table
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 36 below is also as of immediately after the close of the Share Exchange (but prior to the completion of the Performance Milestone or exercise of any convertible securities).
Class of Security: Common Shares
Size of Holding Number of holders Total number of securities
1 – 499 securities 1 277
500 – 999 securities 1 850
1,000 – 1,999 securities 8 8,000
2,000 – 2,999 securities 1 2,650
3,000 – 3,999 securities 1 3,000
4,000 – 4,999 securities 1 4,000
5,000 or more securities 103 76,048,764(1)
Unable to confirm 1 9,153,707(2)
Total 85,221,248 (1) Includes an aggregate of 19,700,000 common shares of the Resulting Issuer that are held by Canaccord Genuity Corp. (2) Includes an aggregate of 9,153,707 common shares of the Resulting Issuer that are held by CDS & Co. that no details of beneficial holders were available.
Non-Public Securityholders (Registered)
Instruction: For the purposes of this report, "non-public securityholders" are persons enumerated in section (B) of the issued capital chart. The table below is also as of immediately after the close of the Share Exchange (but prior to the completion of the Performance Milestone or exercise of any convertible securities).
Class of Security
Size of Holding Number of holders Total number of securities 1 – 499 securities Nil Nil 500 – 999 securities Nil Nil 1,000 – 1,999 securities Nil Nil 2,000 – 2,999 securities Nil Nil 3,000 – 3,999 securities Nil Nil 4,000 – 4,999 securities Nil Nil 5,000 or more securities 6 44,379,233
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 37 14.2 Securities convertible or exchangeable into any class of listed securities
Number of Number of Listed Description of Security Convertible Securities Securities Issuable Upon Outstanding Exercise Incentive stock options. Each option 473,333 473,333 is exercisable to purchase one Resulting Issuer Share at a price of $0.05 per Resulting Issuer Share at any time on or before March 22, 2014. Incentive stock options. Each option 503,334 503,334 is exercisable to purchase one Resulting Issuer Share at a price of $0.05 per Resulting Issuer Share at any time on or before October 29, 2017. Incentive stock options. Each option 144,000 144,000 is exercisable to purchase one Resulting Issuer Share at a price of $0.15 per Resulting Issuer Share at any time on or before October 29, 2017. Incentive stock options. Each option 250,000 250,000 is exercisable to purchase one Resulting Issuer Share at a price of $0.70 per Resulting Issuer Share at any time on or before September 2, 2019 vesting 25% of the aggregate amount of options every three months over a period of one year. Incentive stock options. Each option 84,000 84,000 is exercisable to purchase one Resulting Issuer Share at a price of $0.05 per Resulting Issuer Share at any time on or before April 1, 2020. Incentive stock options. Each option 140,000 140,000 is exercisable to purchase one Resulting Issuer Share at a price of $0.05 per Resulting Issuer Share at any time on or before May 31, 2021. Incentive stock options. Each option 183,333 183,333 is exercisable to purchase one Resulting Issuer Share at a price of $0.05 per Resulting Issuer Share at any time on or before March 19, 2024. Incentive stock options. Each option 1,000,000 1,000,000 is exercisable to purchase one Resulting Issuer Share at a price of $1.01 per Resulting Issuer Share at any time on or before September 18, 2019 and vesting as to 25% on the date of grant and 12.5% every three
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 38 months thereafter over a period of 18 months. Warrants. Each Warrant entitles the 520,000 520,000 finder to purchase a Resulting Issuer Share at a price of $0.10 per Resulting Issuer Share for two years Warrants. Each Warrant entitles the 760,000 760,000 finder to purchase a Resulting Issuer Share at a price of $0.10 per Resulting Issuer Share for two years Incentive stock options.(1) Each 4,000,000 4,000,000 option is exercisable to purchase one Resulting Issuer Share at a price of $0.001 per Resulting Issuer Share at any time for a period of five years and are to vest on the following schedule:
1. 1,600,000 Pubco Options on December 21, 2014;
2. 1,600,000 Pubco Options on June 21, 2015; and
3. 800,000 Pubco Options on December 21, 2015. Warrants. Each Warrant entitles the 250,000 250,000 holder to purchase a Resulting Issuer Share at a price of $1.01 per Resulting Issuer Share for 12 months. Secured convertible debenture. The 990,099 990,099 Secured convertible debenture dated November 24, 2014 in the aggregate amount of $1,000,000 may be converted into Resulting Issuer Shares at a price of $1.01 per Resulting Issuer Share within the term of the debenture and bears 8% interest per annum due November 24, 2015 is secured against all present and after acquired property of the Resulting Issuer.
Secured convertible debenture. The 247,525 247,525 Secured convertible debenture dated December 1, 2014 in the aggregate amount of $250,000 may be converted into Resulting Issuer Shares at a price of $1.01 per Resulting Issuer Share within the term of the debenture and bears 8% interest per annum due December 1, 2015 is secured against all present and after acquired property of the
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 39 Resulting Issuer.
Total 8,555,525 8,555,525 (1) To be issued on close of the Share Exchange.
14.3 Listed securities reserved for issuance that are not included in section 14.2.
N/A.
15. EXECUTIVE COMPENSATION
Compensation to be paid to the officers and directors of the Resulting Issuer is determined by the board of directors of the Resulting Issuer.
Compensation Discussion and Analysis
During the fiscal year ended June 30, 2014, Pubco had two NEOs, namely Marc Levy, who was appointed president and CEO on August 1, 2008, and Nilda Rivera, who was appointed CFO on January 21, 2010 and resigned on December 9, 2014.
Pubco’s NEOs were compensated for their contributions to Pubco during the fiscal year, which included cash compensation pursuant to certain agreements with Pubco.
Pubco had an arrangement with Mosam Ventures Inc., a private company controlled by Mr. Levy, pursuant to which Mr. Levy, in his capacity as CEO of Pubco, provided general management services to Pubco for a fee of $1,500 per month. During the year ended June 30, 2014, Pubco paid or accrued a total of $28,500 to Mosam Ventures Inc. in management fees (see: “Management’s Discussion and Analysis ‘Related Party Transactions’”).
Subsequent to the year ended June 30, 2013, effective April 1, 2014, the monthly fee payable to Mosam Ventures Inc. was increased to $5,000 per month. Cash compensation amounts to executive officers are determined solely by board discussion without any formal objectives, criteria or analysis. Option based awards to executive officers are determined by the board which considers both the past and future expected contributions of the individual officers, previous grants of stock options, and the number of available stock options.
Summary Compensation Table
The following table sets out all compensation awarded to, earned by or paid to the Named Executive Officers for each of the last three fiscal years. No other executive officer’s total salary and bonus during such periods exceeded $150,000. The Resulting Issuer relies on the board of directors in determining compensation to executive officers.
Non-equity incentive plan compensation ($) Name Year Salary Share Option- Annual Long- Pension All other Total and ($) based based incentive term value compensation compensation Position awards awards plans incentive ($) ($) ($) ($) ($) plans Marc 2014 28,500(1) Nil 29,059 Nil Nil Nil Nil 57,559 Levy 2013 17,500(1) Nil Nil Nil Nil Nil Nil 17,500 President 2012 17,000(1) Nil Nil Nil Nil Nil Nil 17,000 & CEO {W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 40
Nilda 2014 Nil Nil 4,680 Nil Nil Nil 28,800(3) 33,480 Rivera(2) 2013 Nil Nil Nil Nil Nil Nil 21,600(3) 21,600 CFO 2012 Nil Nil Nil Nil Nil Nil 14,000(3) 14,000
(1) Fees for management services provided by Mr. Levy through Mosam Ventures Inc. (see: “Management’s Discussion and Analysis ‘Related Party Transactions’”). (2) Ms. Rivera ceased to be the CFO of the Resulting Issuer on December 9, 2014. (3) Fees for services provided by Ms. Rivera through Avarone Metals Inc. (formerly Remstar Resources Ltd.) (see: “Management’s Discussion and Analysis ‘Related Party Transactions’”).
Incentive Plan Awards
Management of the Resulting Issuer believes that awards of equity in the Resulting Issuer serve an important function in furnishing directors, officers, employees and consultants of the Resulting Issuer (collectively, the “Eligible Parties”) an opportunity to invest in the Resulting Issuer in a simple and effective manner and better aligning the interests of the Eligible Parties with those of the Resulting Issuer and its shareholders through ownership of the Resulting Issuer Shares.
The following table provides for each NEO for all awards outstanding at the end of the most recently completed financial year (of June 30, 2014) and includes awards granted before the most recently completed financial year (of June 30, 2014).
Option-based Awards Share-based Awards Name Number of Option Option Value of Number Market Market / securities exercise expiration unexercised of or payout underlying price ($) date in-the- shares payout value of unexercised money or units value of vested options (#) options of share – share- ($) shares based based that awards awards have not that not paid vested have not out or (#) vested distributed ($) ($) Marc Levy 403,334 $0.05(1) Oct. 29/17 Nil(2) N/A N/A N/A President & 60,000 $0.05(1) May 31/21 Nil(2) N/A N/A N/A CEO Nilda 50,000 $0.05(1) Apr. 1/20 Nil(2) N/A N/A N/A Rivera(3) 25,000 $0.05(1) May 31/21 Nil(2) N/A N/A N/A CFO (1) Subsequent to the financial year ended June 30, 2013 the exercise price of the options was reduced to $0.10 per share, following which all outstanding options were cancelled and re-granted with an exercise price of $0.05 per share. (2) The closing market price of the Resulting Issuer Shares on June 30, 2014 was $0.14. None of the unexercised options were “in-the-money” as at June 30, 2014. (3) Ms. Rivera ceased to be the CFO of the Resulting Issuer on December 9, 2014.
Incentive Plan Awards – Value Vested or Earned During the Year
The following table sets out the value of option or stock based awards that vested during the most recently completed financial year and the value of non-equity incentive plan compensation earned during the most recently completed financial year for each NEO.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 41 Name Option-based Share-based awards Non-equity incentive awards – Value – Value vested plan compensation – vested during the during the year ($) Value earned during year ($) the year ($) (a) (b) (c) (d) Marc Levy 29,059 N/A N/A President & CEO Nilda Rivera(1) 4,680 N/A N/A CFO (1) Ms. Rivera ceased to be the CFO of the Resulting Issuer on December 9, 2014.
Termination and Change of Control Benefits
The Resulting Issuer does not have any contract, agreement, plan or arrangement that provides for payments to an NEO at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement, a change in control of the company or a change in an NEO’s responsibilities.
Director Compensation Table
The following table sets out details of compensation provided to the directors who are not NEOs for the Resulting Issuer’s most recently completed financial year.
Name Fees Share- Option- Non-equity Pension All other Total earned based based incentive plan value compensation ($) ($) awards Awards(1) compensation ($) ($) ($) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) Isaac Nil Nil 2,000 Nil Nil Nil 2,000 Moss John Nil Nil 2,000 Nil Nil Nil 2,000 Bean Edward Nil Nil Nil Nil Nil Nil Nil Kelly(2) Gordon Nil Nil 28,632 Nil Nil Nil 28,632 Addie(3) (1) Value of option-based awards calculated using Black-Scholes model. (2) Mr. Kelly ceased to be a director of Pubco effective March 17, 2014. (3) Mr. Addie ceased to be a director of Pubco effective March 24, 2014.
Narrative Discussion
During the most recently completed fiscal year, there were no arrangements, standard or otherwise, for cash or non-cash compensation pursuant to which directors were compensated by the Resulting Issuer for their attendance at board meetings or in their capacity as directors. The directors may be reimbursed for actual expenses reasonably incurred in connection with the performance of their duties as directors.
Share-based awards, option-based awards and non-equity incentive plan compensation
Outstanding share-based awards and option-based awards
The following table sets out all stock options and share based awards granted or awarded to,
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 42 earned by or paid to the Resulting Issuer’s directors who are not NEOs that are outstanding at the end of the most recently completed financial year.
Option-based Awards Share-based Awards Name Number of Option Option Value of Number Market Market / securities exercise expiration unexercised of or payout underlying price date in-the- shares payout value of unexercised ($) money or units value of vested options options of share – share- (#) ($) shares based based that awards awards have that not paid not have out or vested not distributed (#) vested ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) Isaac 85,000 0.05 Mar. 19/24 Nil(3) Nil Nil Nil Moss John Bean 85,000 0.05 Mar. 19/24 Nil(3) Nil Nil Nil Gordon 473,333 $0.05(1) Mar. Nil(3) Nil Nil Nil Addie 22/15(2) (1) Subsequent to the financial year ended June 30, 2013, the exercise price of the options was reduced to $0.10 per share. (2) Subsequent to the financial year ended June 30, 2013, Mr. Addie ceased to be a director of Pubco effective March 24, 2014 and consequently Mr. Addie’s options will expire on March 22, 2015. (3) The closing market price of Pubco Shares on June 30, 2014 was $0.14. None of the unexercised options were “in-the-money” as at June 30, 2014.
Incentive plan awards – value vested or earned during the year
The following table sets out the value of option or stock based awards that vested during the most recently completed financial year and the value of non-equity incentive plan compensation earned during the most recently completed financial year for each director.
Name Option-based Share-based Non-equity Awards – awards – Value incentive plan Value vested vested during the compensation – during the year Value earned during year(1) ($) the year ($) ($) (a) (b) (c) (d) Isaac Moss 2,000 Nil Nil John Bean 2,000 Nil Nil Edward Kelly(1) Nil Nil Nil Gordon Addie(2) 28,632 Nil Nil (1) Mr. Kelly ceased to be a director of Pubco effective March 17, 2014 and consequently Mr. Kelly’s options were cancelled as of June 15, 2014. (2) Mr. Addie ceased to be a director of Pubco effective March 24, 2014 and consequently Mr. Addie’s options will expire on March 22, 2015.
Intended Material Changes to Executive Compensation
N/A.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 43 Pension Plan Benefits
Neither Pubco nor the Resulting Issuer does not currently provide any pension plan benefits to its executive officers, directors, or employees.
16. INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No director or executive officer of the Resulting Issuer, or associate or affiliate of any such director or officer, is or has been indebted to the Resulting Issuer since the date of incorporation. No director or executive officer of the Resulting Issuer, or associate or affiliate of any such director or officer, or has been indebted to the Resulting Issuer since the beginning of the last completed financial year of the Resulting Issuer.
17. RISK FACTORS
This section discusses factors relating to the Resulting Issuer’s business that should be considered by both existing and potential investors. The information in this section is intended to serve as an overview and should not be considered comprehensive and the Resulting Issuer may face risks and uncertainties not discussed in this section, or not currently known to the management of the Resulting Issuer, or that we deem to be immaterial. All risks to the Resulting Issuer’s business have the potential to influence its operations in a materially adverse manner.
Forward Looking Information
Certain information set out in this Listing Statement includes or is based upon expectations, estimates, projections or other “forward looking information”. Such forward looking information includes projections or estimates made by the Resulting Issuer about its future business operations. While such forward looking statements and the assumptions underlying them are made in good faith and reflect the Resulting Issuer’s current judgment regarding the direction of their business, actual results will almost certainly vary (sometimes materially) from any estimates, predictions, projections, assumptions or other type of performance suggested here.
Market Risk for Securities
Aurora is a private company whose common shares are not listed for trading on a stock exchange. There can be no assurance that an active trading market for the Resulting Issuer Shares will be established and sustained after the Share Exchange. Upon the close of the Share Exchange and/or listing, the market price for the Resulting Issuer Shares could be subject to wide fluctuations. Factors such as commodity prices, government regulation, interest rates, share price movements of peer companies and competitors, as well as overall market movements, may have a significant impact on the market price of the Resulting Issuer Shares. The stock market has from time to time experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of particular companies.
Reliance on Licensing
The ability of the Resulting Issuer to successfully grow, store and distribute medical marijuana in Canada will depend on success of the Resulting Issuer in acquiring a Production License. Health Canada has received over 800 Production License applications to date, the number of submissions continues to grow, and there are indications that the approval process is becoming elongated. Once a license is obtained, any failure to comply with the terms of the Production License, or any failure to renew the Production License after its expiry date, would have a material adverse impact on the financial condition and operations of our business.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 44 No Operating History Risk
As the Resulting Issuer will be start-up companies, there are limited operating histories. Aurora has not entered the production, sales and distribution stage. The Resulting Issuer will be subject to all of the business risks and uncertainties associated with any new business enterprise, including the risks that it will be unable to acquire the necessary Production License, successfully produce commercial marijuana, or establish a market for our product. The Resulting Issuer anticipates positive cash flow from operations by the earliest of January 2015. There can be no assurance that consumer demand for the products will be as anticipated, or that the Resulting Issuer will become profitable.
Change in Law, Regulations and Guidelines
The Resulting Issuer’s business will be subject to particular laws, regulations, and guidelines. The production and distribution of medical marijuana is a highly regulated field, and although the Resulting Issuer intends to comply with all laws and regulations, there is no guarantee that the governing laws and regulations will not change which will be outside of the Resulting Issuer’s control. On March 21, 2014, the Federal Court of Canada issued an order allowing certain individuals to continue under their MMAR licenses, thereby affecting the repeal of the MMAR. As of the date of this Listing Statement the Government of Canada has decided to appeal the order; however, it is unclear what a final ruling on this issue may be, and how it may affect the Resulting Issuer’s business. It is possible that a ruling in favour of the original order could allow persons who had a license under the MMAR to opt out of the new MMPR regime, thereby decreasing the size of the market for the Resulting Issuer’s business, and potentially materially and adversely affecting the Resulting Issuer’s business, its financial condition and operations. A detailed description of this order can be found under Section 4 - “Narrative Description of the Business”.
Availability of Seed Supply and Skilled Labour
The Resulting Issuer’s ability to commence and continue operations will be dependent on its ability to acquire starting materials. There are four legal sources of starting materials under the MMPR:
1. Health Canada; 2. Personal-Use Production License holders under the MMAR regime; 3. Designated-Person Production License holders under the MMAR regime; and 4. Importation.
There is no guarantee that Resulting Issuer will be able to acquire seeds from such sources. Further, the Resulting Issuer’s ability to maintain operations will be dependent on access to skilled labour. There is no guarantee that the Resulting Issuer will be successful in maintaining its supply of skilled labour, and a failure to do so would limit the Resulting Issuer’s ability to produce the predicted amounts of product. This would have an adverse effect on the Resulting Issuer’s operations and financial results.
Negative Publicity or Consumer Perception
The success of the medical marijuana industry may be significantly influenced by the public’s perception of marijuana’s medicinal applications. Medical marijuana is a controversial topic, and there is no guarantee that future scientific research, publicity, regulations, medical opinion and public opinion relating to medical marijuana will be favourable. The medical marijuana industry is an early-stage business that is constantly evolving with no guarantee of viability. The market for medical marijuana is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion relating to the consumption of medical marijuana may have a material adverse effect on our operational results, consumer base and financial results.
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Competitive Risk
Although the market for the Resulting Issuer’s product does appear to be sizeable, the Resulting Issuer expects significant competition from other companies due to the recent nature of the MMPR regime. A large number of companies, possibly more than 800, appear to be applying for Production Licenses, some of which may have significantly greater financial, technical, marketing and other resources, may be able to devote greater resources to the development, promotion, sale and support of their products and services, and may have more extensive customer bases and broader customer relationships.
Should the size of the medical marijuana market increase as projected, the demand for product will increase as well, and if the Resulting Issuer hopes to be competitive it will need to invest significantly in research and development, marketing, production expansion, new client identification, and client support. If the Resulting Issuer is not successful in achieving sufficient resources to invest in these areas, the Resulting Issuer’s ability to compete in the market may be adversely affected, which could materially and adversely affect the Resulting Issuer’s business, its financial condition and operations.
Advertising and Promotional Risk
The Resulting Issuer’s future growth and profitability will depend on the effectiveness and efficiency of advertising and promotional costs, including the Resulting Issuer’s ability to (i) create brand recognition for its products; (ii) determine appropriate advertising strategies, messages and media; and (iii) maintain acceptable operating margins on such costs. There can be no assurance that advertising and promotional costs will result in revenues for the Resulting Issuer’s business in the future, or will generate awareness of the Resulting Issuer’s Product. In addition, no assurance can be given that the Resulting Issuer will be able to manage the Resulting Issuer’s advertising and promotional costs on a cost-effective basis.
Uninsured or Uninsurable Risk
The Resulting Issuer may become subject to liability for risks against which it cannot insure or against which the Resulting Issuer may elect not to insure due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for the Resulting Issuer’s usual business activities. Payment of liabilities for which the Resulting Issuer does not carry insurance may have a material adverse effect on the Resulting Issuer’s financial position and operations.
Conflicts of Interest Risk
Certain of the Resulting Issuer’s directors and officers are also directors and operators in other companies. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Resulting Issuer’s interests. In accordance with the BCBCA, directors who have a material interest in any person who is a party to a material contract or a proposed material contract are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract.
In addition, the directors and the officers are required to act honestly and in good faith with a view to our best interests. However, in conflict of interest situations, the Resulting Issuer’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Resulting Issuer. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavourable to the Resulting Issuer.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 46 Key Personnel Risk
The Resulting Issuer’s success will depend on its directors’ and officers’ ability to develop the Resulting Issuer’s business and manage its operations, and on the Resulting Issuer’s ability to attract and retain key quality assurance, scientific, sales, public relations and marketing staff or consultants once operations begin. The loss of any key person or the inability to find and retain new key persons could have a material adverse effect on the Resulting Issuer’s business. Competition for qualified technical, sales and marketing staff, as well as officers and directors can be intense and no assurance can be provided that the Resulting Issuer will be able to attract or retain key personnel in the future, which may adversely impact the Resulting Issuer’s operations.
Speculative Nature of Investment Risk
An investment in the Resulting Issuer’s common shares carries a high degree of risk and should be considered as a speculative investment by purchasers. The Resulting Issuer has no history of earnings, limited cash reserves, a limited operating history, has not paid dividends, and is unlikely to pay dividends in the immediate or near future. The Resulting Issuer is in the development and planning phases of its business and has not started commercialization of its products and services. The Resulting Issuer’s operations are not yet sufficiently established such that the Resulting Issuer can mitigate the risks associated with the Resulting Issuer’s planned activities.
No Established Market for Shares Risk
There is currently no established consistent trading market through which common shares in the Resulting Issuer’s authorized capital may be sold. Even if a trading market develops, there can be no assurance that such market will continue in the future. Any investor of Pubco or the Resulting Issuer may lose their entire investment.
Agricultural Operations Risk
Since the Resulting Issuer’s business will revolve mainly around the growth of medical marijuana, an agricultural product, the risks inherent with agricultural businesses will apply. Such risks may include disease and insect pests, among others. Although the Resulting Issuer expects to grow the its product in a climate controlled, monitored, indoor location, there is not guarantee that changes in outside weather and climate will not adversely affect production. Further, any rise in energy costs may have a material adverse effect on the Resulting Issuer’s ability to produce medical marijuana.
Building Construction Risk
Since Aurora has yet to complete the construction of its production facility, there may be unforeseeable events which cause an increase in the projected buildings or maintenance costs. Such an increase in costs may require the Resulting Issuer to re-allocate funds from other areas of its business; may require the Resulting Issuer to raise more funding than originally anticipated; and may delay the Resulting Issuer’s ability to go into production. Such delay may have a material adverse effect on our business and its financial results.
Transportation Risk
As a business revolving mainly around the growth of an agricultural product, the ability to obtain speedy, cost-effective and efficient transport services will be essential to the prolonged operations of the Resulting Issuer’s business. Should such transportation become unavailable for prolonged periods of time, there may be a material adverse effect on the Resulting Issuer’s business, financial situation, and operations.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 47 Liquidity and Future Financing Risk
Aurora is and the Resulting Issuer will be in the development stage, having not started operating and has not generated any revenue. The Resulting Issuer will likely operate at a loss until its business becomes established and therefore may require additional financing in order to fund future operations and expansion plans. The Resulting Issuer’s ability to secure any required financing to sustain its operations will depend in part upon prevailing capital market conditions, as well as the Resulting Issuer’s business success. There can be no assurance that the Resulting Issuer will be successful in its efforts to secure any additional financing or additional financing on terms satisfactory to the Resulting Issuer’s management. If additional financing is raised by issuing Resulting Issuer Shares, control may change and shareholders may suffer additional dilution. If adequate funds are not available, or are not available on acceptable terms, the Resulting Issuer may be required to scale back its business plan or cease operating.
Going-Concern Risk
The financial statements of Pubco and Aurora have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Resulting Issuer’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Resulting Issuer will be successful in completing equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should the Resulting Issuer be unable to continue as a going concern.
Global Economy Risk
An economic downturn of global capital markets has been shown to make the raising of capital by equity or debt financing more difficult. The the Resulting Issuer will be dependent upon the capital markets to raise additional financing in the future, while it establishes a user base for its products. As such, the Resulting Issuer is subject to liquidity risks in meeting its development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the Resulting Issuer’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to the Resulting Issuer and its management. If uncertain market conditions persist, the Resulting Issuer’s ability to raise capital could be jeopardized, which could have an adverse impact on the Resulting Issuer’s operations and the trading price of the Resulting Issuer Shares on the CSE.
Dividend Risk
Aurora and Pubco have not paid dividends in the past and the Resulting Issuer does not anticipate paying dividends in the near future. The Resulting Issuer expects to retain its earnings to finance further growth and, when appropriate, retire debt.
Share Price Volatility Risk
It is anticipated that the Resulting Issuer Shares will be re-listed for trading on the CSE. As such, external factors outside of the Resulting Issuer’s control such as announcements of quarterly variations in operating results, revenues and costs, and sentiments toward the medical marijuana sector stocks may have a significant impact on the market price of the Resulting Issuer Shares. Global stock markets, including the CSE, have from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operations of particular companies. There can be no assurance that an active or liquid market will develop or be sustained for the common shares.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 48 Increased Costs of Being a Publicly Traded Company
As the Resulting Issuer will have publicly-traded securities, the Resulting Issuer will incur significant legal, accounting and filing fees not presently incurred by Aurora. Securities legislation and the rules and policies of the CSE requires listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material compliance costs.
Value of Aurora, Pubco and the Resulting Issuer.
Aurora, Pubco and the Resulting Issuer’s assets are of indeterminate value. For further particulars see the financial statements scheduled hereto.
Negative Cash Flow
Aurora and Pubco had negative cash flows from operating activities in their respective most recent financial years being the year ended June 30, 2014.
Fluctuating Prices of Raw Materials May Adversely Affect the Resulting Issuer.
The Resulting Issuer’s revenues, if any, are expected to be in large part derived from the production, sale and distribution of marijuana. The price of those commodities has fluctuated widely, particularly in recent years, and is affected by numerous factors beyond the Resulting Issuer’s control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new production and distribution developments and improved production and distribution methods. The effect of these factors on the price of product produced by the Resulting Issuer and, therefore the economic viability of any of the Resulting Issuer’s business, cannot accurately be predicted.
Changing Environmental Regulations May Adversely Affect the Resulting Issuer.
All phases of the Resulting Issuer’s operations are subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Resulting Issuer’s operations.
Political and Economic Instability May Adversely Affect the Resulting Issuer
The Resulting Issuer may be affected by possible political or economic instability. The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates and high rates of inflation. Changes in medicine and agriculture development or investment policies or shifts in political attitude in certain countries may adversely affect the Resulting Issuer’s business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, distribution, price controls, export controls, income taxes, expropriation of property, maintenance of assets, environmental legislation, land use, land claims of local people and water use. The effect of these factors cannot be accurately predicted.
Lack of Share Liquidity.
Pubco Shares and the Resulting Issuer Shares are subject to certain trade restrictions, which may include a hold period restricting the trading of the securities.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 49
Limited Operating History and No Assurance of Profitability
Prior to the close of the Share Exchange, Aurora operated as a private company since its inception on September 5, 2013. The brand is young, while growing, is still comparatively modest, owing in part to the industry, inability to aggressively execute our business plan because of a lack of working capital. The listing on the CSE and, if any, capital raise is designed to provide the Resulting Issuer with the working capital we need to more fully implement the business objectives of the Resulting Issuer.
We are subject to all of the risks and uncertainties associated with any new business, including the risk that we will be unable to establish a market for our products and services, achieve our growth objectives, and/or ultimately become profitable.
Intellectual Property
The success of the Resulting Issuer’s business depends in part on its ability to protect its ideas and technology. Aurora and the Resulting Issuer have no patented technology or trademarked business methods at this time nor have Pubco, Aurora or the Resulting Issuer registered any patents, trademarks or copyrights.
Even if the Resulting Issuer moves to protect its technology with trademarks, patents, copyrights or by other means, the Resulting Issuer is not assured that competitors will not develop similar technology, business methods or that the Resulting Issuer will be able to exercise its legal rights. Other countries may not protect intellectual property rights to the same standards as does Canada. Actions taken to protect or preserve intellectual property rights may require significant financial and other resources such that said actions have a meaningfully impact our ability to successfully grow our business.
Significant Ownership Interest of Management and Directors
As of the date of this Listing Statement and on close of the Share Exchange, officers and directors of the Resulting Issuer owned an aggregate of 37,549,223 shares or approximately 35.8% of the issued and outstanding Resulting Issuer Shares. As a group, these individuals could exercise substantial control over matters requiring shareholder approval, such as election of directors, approval of transactions, and changes to share structure. Until further rounds of financing are completed, other shareholders may be limited in their ability to exercise control over important corporate decisions.
Marketing Effectiveness
The Resulting Issuer’s ability to grow its business and achieve positive earnings will depend in part on the effectiveness of advertising and other forms of promotion that, among other objectives, would seek to build brand awareness and meaningfully increase our user base. There can be no assurance that advertising and promotional expenditures will achieve these objectives.
18. PROMOTERS
Pubco entered into an investor relations agreement dated August 31, 2014 with Momentum Premium Services Inc. (“Momemtum”). Pursuant to the agreement, Momentum will provide Pubco with investor relation and strategic business development services in exchange for a fee of $15,000 (plus tax) beginning on September 1, 2014 and 250,000 options to purchase Pubco Shares at $0.70 per Pubco share for a period of five years and vesting 25% of the aggregate amount of options every three months over a period of one year. The term of the agreement is for three months.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 50 19. LEGAL PROCEEDINGS
As of the date of this Listing Statement, the Resulting Issuer is not a party to any material legal proceedings or any regulatory actions. The Resulting Issuer does not contemplate any material legal proceedings and is not aware of any material legal proceedings to be contemplated against it.
20. INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Except as set out above in section 6.10 above, the directors, senior officers and principal shareholders of the Resulting Issuer or any associate or affiliate of the foregoing have had no material interest, direct or indirect, in any transactions in which the Resulting Issuer has participated within the three year period prior to the date of this Listing Statement, or will have any material interest in any proposed transaction, which has materially affected or will materially affect the Resulting Issuer.
21. AUDITORS, TRANSFER AGENTS AND REGISTRARS
Auditors
Pubco’s auditor was WDM Chartered Accountants, located at Suite 420, 1501 West Broadway, Vancouver, British Columbia, V6J 4Z6. On June 6, 2014, the Resulting Issuer changed its auditor to Morgan & Company, LLP, Chartered Accountants, located at 1488 - 700 West Georgia Street, Vancouver, British Columbia, V7Y 1A1.
Transfer Agent and Registrar
The transfer agent and registrar of the Resulting Issuer’s common shares is Computershare Trust Company of Canada, located at 510 Burrard Street, 2nd Floor, Vancouver, British Columbia, V6C 3B9.
22. MATERIAL CONTRACTS
The following are the contracts within the last two years of the date of this Listing Agreement which are material to the Resulting Issuer:
1. A lease between Aurora and David and Veronica Ramsay dated November 20, 2013. This lease is for 160 acres of property at northwest of Cremona, Alberta for a term of 12 months. The lease is automatically renewed after 12 months for two successive terms of five years unless prior notice is given by Aurora. Pursuant to this lease, Aurora was also granted an option to purchase the property. The monthly gross rent under this lease is $5,000 per month plus all assessed taxes on the property.
2. A finder’s fee agreement dated June 10, 2014 between Pubco and an unrelated third party pursuant to which the finder is to be paid 5% of the total share consideration under the Share Exchange with respect to the acquisition of Aurora.
3. A letter agreement dated June 20, 2014 between Pubco and Aurora granting Pubco the exclusive right to acquire Aurora.
4. Pubco entered into a secured loan agreement with Aurora dated November 27, 2014 pursuant to which Pubco loaned Aurora an aggregate of $6,010,000, which was transferred in several installments as of June 19, 2014, bearing 8% interest per annum due April 30, 2015 secured against all present and after acquired property of Aurora.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 51 5. Unsecured loan agreement with Riva Dubrofsky (the “Lender”) dated June 27, 2014 for a loan of $500,000 to Pubco at 8% interest per annum compounded monthly due December 27, 2014. As consideration for this loan, Pubco issued 714,000 Pubco Shares at a deemed price of $0.14 to the Lender.
6. Pubco entered into an investor relations agreement dated August 31, 2014 with Momentum. Pursuant to the agreement, Momentum will provide Pubco with investor relation and strategic business development services in exchange for a fee of $15,000 (plus tax) beginning on September 1, 2014 and 250,000 options to purchase Pubco Shares at $0.70 per Pubco share for a period of five years and vesting 25% of the aggregate amount of options every three months over a period of one year. The term of the agreement is for three months.
7. The Share Exchange Agreement dated September 9, 2014 among Pubco, Aurora and all of the Aurora Shareholders. Pursuant to the Share Exchange Agreement, Pubco shall acquire all of the issued and outstanding securities of Aurora from the Aurora Shareholders and Aurora Warrantholders and the Right of First Refusal in exchange for the:
a. issuance an aggregate of:
i. 60,000,000 Pubco Shares on a pro-rata basis to the Aurora Shareholders;
ii. 10,200,000 Pubco Class C Warrants on a pro-rata basis to the holders of the Aurora Class C Warrants;
iii. 4,000,000 Pubco Options to the holder of the Aurora Options; and
iv. 11,250,000 Pubco Class A Warrants on a pro-rata basis to the holders of the Aurora Class A Warrants;
b. reservation of the Pubco Performance Class A Warrants and issuance on a pro- rata basis to holders of Aurora Class A Warrants upon completion of the Funding Milestone;
c. assumption debt of $1,500,000 outstanding with no interest and convertible into common shares of Pubco for a price of $0.125 owed by Aurora to creditors;
d. reservation of the Performance Shares and issuance of the Performance Shares on completion of the Performance Milestone; and
e. issuance of the Finder’s Fee Shares.
8. The Escrow Agreement dated September 18, 2014 where 10% of the escrowed shares will be released from escrow on the date that the common shares of Pubco are re-listed on the CSE, and 15% every six months thereafter, subject to acceleration provisions provided for in National Policy 46-201 – Escrow for Initial Public Offerings, and subject to the approval of the CSE.
9. Pubco entered into a subscription agreement with a purchaser dated November 24, 2014 pursuant to which Pubco agreed to sell and the purchaser agreed to purchase a secured convertible debenture in the aggregate amount of $1,000,000 that may be converted into Pubco Shares at a price of $1.01 per Pubco Share during the term of the debenture and bearing 8% interest per annum due November 24, 2015 secured against all present and
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 52 after acquired property of Pubco.
10. Pubco entered into a subscription agreement with a purchaser dated December 1, 2014 pursuant to which Pubco agreed to sell and the purchaser agreed to purchase a secured convertible debenture in the aggregate amount of $250,000 that may be converted into Pubco Shares at a price of $1.01 per Pubco Share during the term of the debenture and bearing 8% interest per annum due December 1, 2015 secured against all present and after acquired property of Pubco.
23. INTEREST OF EXPERTS
The persons or companies whose profession or business gives authority to a statement made by such person or company and who is named in this Listing Statement as having prepared or certified a part of this Listing Statement or a report or valuation described or included in this Listing Statement, are as follows:
(a) The audited financial statements of Pubco included in this Listing Statement have been included in reliance upon the report of Morgan & Company, LLP, Chartered Accountants, and upon the authority of such firm as experts in accounting and auditing and their audit report is included herein. Morgan & Company, LLP have advised that they are independent with respect to Pubco within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia; and
(b) The audited financial statements of Aurora included in this Listing Statement have been included in reliance upon the report of MNP, LLP, Chartered Accountants, and upon the authority of such firm as experts in accounting and auditing and their audit report is included herein. MNP, LLP have advised that they are independent with respect to Aurora within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia.
Based on information provided by the relevant persons, none of those persons or companies or any director, officer, employee or partner thereof has received or will receive any direct or indirect interest in our property or the property of any associate or affiliate of us, nor has any beneficial ownership, direct or indirect, in any securities issued by us. None of those persons is or is expected to be elected, appointed, or employed as a director or employee of us.
24. OTHER MATERIAL FACTS
There are no other material facts other than as disclosed therein.
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 53 25. FINANCIAL STATEMENTS
The audited financial years ended June 30, 2014, 2013, and 2012 are attached hereto as Schedule “B”.
Additionally, the following is attached hereto:
(1) audited financial statement for the fiscal year end of June 30, 2014 for Aurora prepared in accordance with the requirements of National Instrument 41-101 General Prospectus Requirements (attached as Schedule “D”); and
(2) pro-forma consolidated financial statements of the Resulting Issuer giving effect to the Share Exchange (attached as Schedule “E”).
CERTIFICATE OF THE ISSUER
Pursuant to a resolution duly passed by its Board of Directors, Aurora Cannabis Inc. hereby applies for the listing of the above mentioned securities on the CSE. The foregoing contains full, true, and plain disclosure of all material information relating to Aurora Cannabis Inc. It contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in light of the circumstances in which it was made.
Dated at the City of Vancouver, British Columbia, this 9th day of December, 2014.
“Steve Dobler” “Terry Booth” Steve Dobler Terry Booth President and Director CEO and Director
“Marc Levy” “Isaac Moss” Marc Levy Isaac Moss Director Director
“John Bean” John Bean CFO
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 54 CERTIFICATE OF THE TARGET
The foregoing contains full, true and plain disclosure of all material information relating to Aurora Marijuana Inc. It contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in light of the circumstances in which it was made.
Dated at the City of Vancouver, British Columbia, this 9th day of December, 2014.
“Steve Dobler” “Terry Booth” Steve Dobler Terry Booth President and Director CEO and Director
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 55 SCHEDULE “A”
Management’s Discussion and Analysis of Pubco for the Fiscal Year End of June 30, 2014
{W0264474.DOC}FORM 2A – LISTING STATEMENT December 9, 2014 Page 56 PRESCIENT MINING CORP. Management’s Discussion and Analysis For the fiscal year ended June 30, 2014
GENERAL
Prescient Mining Corp. (the “Company”) was incorporated under the Business Corporations Act (British Columbia) on December 21, 2006 and is engaged in the acquisition, exploration and development of mineral properties. The Company is listed for trading on the Canadian Securities Exchange (the “CSE”) under the symbol “PMC”.
This management’s discussion and analysis (“MD&A”) reports on the operating results and financial condition of the Company for the year ended June 30, 2014 and is prepared as October 9, 2014. The MD&A should be read in conjunction with the Company’s audited financial statements for the years ended June 30, 2014 and 2013 the notes thereto which were prepared in accordance with the International Financial Reporting Standards (the “IFRS”).
All dollar amounts referred to in this MD&A are expressed in Canadian dollars except where indicated otherwise.
FORWARD LOOKING STATEMENTS
This document may contain “forward-looking information” within the meaning of Canadian securities legislation (“forward-looking statements”). These forward-looking statements are made as of the date of this document and Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities legislation.
Forward-looking statements relate to future events or future performance and reflect Company management’s expectations or beliefs regarding future events and include, but are not limited to, the Company and its operations, its planned exploration activities, the adequacy of its financial resources and statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology. In this document, certain forward-looking statements are identified by words including “may”, “future”, “expected”, “intends” and “estimates”. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forwardlooking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Company’s interim and annual financial statements and management’s discussion and analysis of those statements, all of which are filed and available for review under the Company’s profile on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company provides no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
OVERVIEW
In fiscal year 2011, the Company entered into an option agreement with Geomode Mineral Exploration Ltd. for the exclusive right and option to acquire a 100% undivided interest in the Hook Lake Project, a prospective uranium project, located in the Athabasca Basin, Saskatchewan. The project consists of a 5,052-hectare mineral disposition on the outer eastern edge of the Athabasca basin, adjacent to JNR Resources' Way Lake uranium project.
In consideration of the grant of option, the Company paid $15,000 and issued 150,000 common shares of the Company on July 30, 2012. The Company may exercise the option by incurring a total of $871,248 in exploration and development expenditures on the project over a period of three years and paying an additional sum of $1-million to the vendor on the third anniversary of the TSX Venture Exchange approval date.
On August 12, 2014, the Company terminated the option agreement.
The Company is now in the process of becoming a licensed producer of medical marijuana in Canada (a “Licensed Producer”) by closing a share exchange (the “Share Exchange”) with Aurora Marijuana Inc. (“Aurora”), a company incorporated under the Business Corporations Act (Alberta), and the shareholders of Aurora (the “Shareholders”). On close of the Share Exchange, Aurora will be the wholly-owned subsidiary of the Company. Currently, Aurora is in the process of applying to Health Canada for a medical marijuana production and distribution license (a “Production License”) under the recently enacted MMPR, which came into full effect on April 1, 2014.
The business of the Company is now based on the acquisition of Aurora, an established company in Edmonton, Alberta, that holds a pre-license approval granted by Health Canada and is in the final stages of obtaining a Licensed Producer designation from Health Canada under the MMPR. The licensed producer inspection of Aurora was completed on August 26, 2014.
RISK FACTORS
This section discusses factors relating to the business of Company or the Company after the Share Exchange (the “Resulting Issuer”) that should be considered by both existing and potential investors. The information in this section is intended to serve as an overview and should not be considered comprehensive and the Company or the Resulting Issuer may face risks and uncertainties not discussed in this section, or not currently known to us, or that we deem to be immaterial. All risks to the Company or the Resulting Issuer’s business have the potential to influence its operations in a materially adverse manner.
2 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Forward Looking Information
Certain information set out in this MD&A includes or is based upon expectations, estimates, projections or other “forward looking information”. Such forward looking information includes projections or estimates made by the Company or the Resulting Issuer about its future business operations. While such forward looking statements and the assumptions underlying them are made in good faith and reflect the Company or the Resulting Issuer’s current judgment regarding the direction of their business, actual results will almost certainly vary (sometimes materially) from any estimates, predictions, projections, assumptions or other type of performance suggested here.
Market Risk for Securities
Aurora is a private company whose common shares are not listed for trading on a stock exchange. There can be no assurance that an active trading market for the Resulting Issuer Shares will be established and sustained after the Share Exchange. Upon the close of the Share Exchange and/or listing, the market price for the common shares of the Resulting Issuer (the “Resulting Issuer Shares”) could be subject to wide fluctuations. Factors such as commodity prices, government regulation, interest rates, share price movements of peer companies and competitors, as well as overall market movements, may have a significant impact on the market price of the Resulting Issuer Shares. The stock market has from time to time experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of particular companies.
Reliance on Licensing
The ability of the Resulting Issuer to successfully grow, store and distribute medical marijuana in Canada will depend on success of the Resulting Issuer in acquiring a Production License. Health Canada has received over 800 applications for Production Licenses to date, the number of submissions continues to grow, and there are indications that the approval process is becoming elongated. Once a license is obtained, any failure to comply with the terms of the Production License, or any failure to renew the Production License after its expiry date, would have a material adverse impact on the financial condition and operations of our business.
No Operating History Risk
As Aurora and the Company and the Resulting Issuer will be start-up companies, there are limited operating histories. Aurora has not entered the production, sales and distribution stage. The Company and the Resulting Issuer will be subject to all of the business risks and uncertainties associated with any new business enterprise, including the risks that it will be unable to acquire the necessary Production License, successfully produce commercial marijuana, or establish a market for our product. The Company and Aurora anticipate positive cash flow from operations by the earliest of January 2015. There can be no assurance that consumer demand for the products will be as anticipated, or that the Resulting Issuer will become profitable.
Change in Law, Regulations and Guidelines
The Resulting Issuer’s business will be subject to particular laws, regulations, and guidelines. The production and distribution of medical marijuana is a highly regulated field, and although the Resulting
3 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Issuer intends to comply with all laws and regulations, there is no guarantee that the governing laws and regulations will not change which will be outside of the Resulting Issuer’s control. On March 21, 2014, the Federal Court of Canada issued an order allowing certain individuals to continue under their MMAR licenses, thereby affecting the repeal of the MMAR. As of the date of this MD&A the Government of Canada has decided to appeal the order; however, it is unclear what a final ruling on this issue may be, and how it may affect the Resulting Issuer’s business. It is possible that a ruling in favour of the original order could allow persons who had a license under the MMAR to opt out of the new MMPR regime, thereby decreasing the size of the market for the Resulting Issuer’s business, and potentially materially and adversely affecting the Resulting Issuer’s business, its financial condition and operations.
Availability of Seed Supply and Skilled Labour
The Resulting Issuer’s ability to commence and continue operations will be dependent on its ability to acquire starting materials. There are four legal sources of starting materials under the MMPR:
1. Health Canada; 2. Personal-Use Production License holders under the MMAR regime; 3. Designated-Person Production License holders under the MMAR regime; and 4. Importation.
There is no guarantee that Resulting Issuer will be able to acquire seeds from such sources. Further, the Resulting Issuer’s ability to maintain operations will be dependent on access to skilled labour. There is no guarantee that the Resulting Issuer will be successful in maintaining its supply of skilled labour, and a failure to do so would limit the Resulting Issuer’s ability to produce the predicted amounts of product. This would have an adverse effect on the Resulting Issuer’s operations and financial results.
Negative Publicity or Consumer Perception
The success of the medical marijuana industry may be significantly influenced by the public’s perception of marijuana’s medicinal applications. Medical marijuana is a controversial topic, and there is no guarantee that future scientific research, publicity, regulations, medical opinion and public opinion relating to medical marijuana will be favourable. The medical marijuana industry is an early-stage business that is constantly evolving with no guarantee of viability. The market for medical marijuana is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion relating to the consumption of medical marijuana may have a material adverse effect on our operational results, consumer base and financial results.
Competitive Risk
Although the market for the Resulting Issuer’s product does appear to be sizeable, the Resulting Issuer expects significant competition from other companies due to the recent nature of the MMPR regime. A large number of companies, possibly more than 800, appear to be applying for Production Licenses, some of which may have significantly greater financial, technical, marketing and other resources, may be able to devote greater resources to the development, promotion, sale and support of their products and services, and may have more extensive customer bases and broader customer relationships.
Should the size of the medical marijuana market increase as projected, the demand for product will
4 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
increase as well, and if the Resulting Issuer hopes to be competitive it will need to invest significantly in research and development, marketing, production expansion, new client identification, and client support. If the Resulting Issuer is not successful in achieving sufficient resources to invest in these areas, the Resulting Issuer’s ability to compete in the market may be adversely affected, which could materially and adversely affect the Resulting Issuer’s business, its financial condition and operations.
Advertising and Promotional Risk
The Resulting Issuer’s future growth and profitability will depend on the effectiveness and efficiency of advertising and promotional costs, including the Resulting Issuer’s ability to (i) create brand recognition for its products; (ii) determine appropriate advertising strategies, messages and media; and (iii) maintain acceptable operating margins on such costs. There can be no assurance that advertising and promotional costs will result in revenues for the Resulting Issuer’s business in the future, or will generate awareness of the Resulting Issuer’s Product. In addition, no assurance can be given that the Resulting Issuer will be able to manage the Resulting Issuer’s advertising and promotional costs on a cost-effective basis.
Uninsured or Uninsurable Risk
The Resulting Issuer may become subject to liability for risks against which it cannot insure or against which the Resulting Issuer may elect not to insure due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for the Resulting Issuer’s usual business activities. Payment of liabilities for which the Resulting Issuer does not carry insurance may have a material adverse effect on the Resulting Issuer’s financial position and operations.
Conflicts of Interest Risk
Certain of the Company and the Resulting Issuer’s directors and officers are also directors and operators in other companies. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Company and the Resulting Issuer’s interests. In accordance with the BCBCA, directors who have a material interest in any person who is a party to a material contract or a proposed material contract are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract.
In addition, the directors and the officers are required to act honestly and in good faith with a view to our best interests. However, in conflict of interest situations, the Company and the Resulting Issuer’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company and the Resulting Issuer. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavourable to the Company and the Resulting Issuer.
Key Personnel Risk
The Company and the Resulting Issuer’s success will depend on its directors’ and officers’ ability to develop the Company and the Resulting Issuer’s business and manage its operations, and on the Company and the Resulting Issuer’s ability to attract and retain key quality assurance, scientific, sales, public relations and marketing staff or consultants once operations begin. The loss of any key person or the
5 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
inability to find and retain new key persons could have a material adverse effect on the Company and the Resulting Issuer’s business. Competition for qualified technical, sales and marketing staff, as well as officers and directors can be intense and no assurance can be provided that the Company and the Resulting Issuer will be able to attract or retain key personnel in the future, which may adversely impact the Company and the Resulting Issuer’s operations.
Speculative Nature of Investment Risk
An investment in the Company or the Resulting Issuer’s common shares carries a high degree of risk and should be considered as a speculative investment by purchasers. The Company or the Resulting Issuer has no history of earnings, limited cash reserves, a limited operating history, has not paid dividends, and is unlikely to pay dividends in the immediate or near future. The Company or the Resulting Issuer is in the development and planning phases of its business and has not started commercialization of its products and services. The Company or the Resulting Issuer’s operations are not yet sufficiently established such that the Company or the Resulting Issuer can mitigate the risks associated with the Company or the Resulting Issuer’s planned activities.
No Established Market for Shares Risk
There is currently no established consistent trading market through which common shares in the Company or the Resulting Issuer’s authorized capital may be sold. Even if a trading market develops, there can be no assurance that such market will continue in the future. Any investor of the Company or the Resulting Issuer may lose their entire investment.
Agricultural Operations Risk
Since the Resulting Issuer’s business will revolve mainly around the growth of medical marijuana, an agricultural product, the risks inherent with agricultural businesses will apply. Such risks may include disease and insect pests, among others. Although the Resulting Issuer expects to grow the its product in a climate controlled, monitored, indoor location, there is not guarantee that changes in outside weather and climate will not adversely affect production. Further, any rise in energy costs may have a material adverse effect on the Resulting Issuer’s ability to produce medical marijuana.
Building Construction Risk
Since Aurora has yet to complete the construction of its production facility, there may be unforeseeable events which cause an increase in the projected buildings or maintenance costs. Such an increase in costs may require the Resulting Issuer to re-allocate funds from other areas of its business; may require the Resulting Issuer to raise more funding than originally anticipated; and may delay the Resulting Issuer’s ability to go into production. Such delay may have a material adverse effect on our business and its financial results.
Transportation Risk
As a business revolving mainly around the growth of an agricultural product, the ability to obtain speedy, cost-effective and efficient transport services will be essential to the prolonged operations of the Resulting Issuer’s business. Should such transportation become unavailable for prolonged periods of time, there
6 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
may be a material adverse effect on the Resulting Issuer’s business, financial situation, and operations.
Liquidity and Future Financing Risk
Aurora and the Company are and the Resulting Issuer will be in the development stage, having not started operating and has not generated any revenue. The Resulting Issuer will likely operate at a loss until its business becomes established and therefore may require additional financing in order to fund future operations and expansion plans. The Resulting Issuer’s ability to secure any required financing to sustain its operations will depend in part upon prevailing capital market conditions, as well as the Resulting Issuer’s business success. There can be no assurance that the Resulting Issuer will be successful in its efforts to secure any additional financing or additional financing on terms satisfactory to the Resulting Issuer’s management. If additional financing is raised by issuing Resulting Issuer Shares, control may change and shareholders may suffer additional dilution. If adequate funds are not available, or are not available on acceptable terms, the Resulting Issuer may be required to scale back its business plan or cease operating.
Going-Concern Risk
The financial statements of the Company have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Resulting Issuer’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company or Resulting Issuer will be successful in completing equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should the Company or Resulting Issuer be unable to continue as a going concern.
Global Economy Risk
An economic downturn of global capital markets has been shown to make the raising of capital by equity or debt financing more difficult. The Company and the Resulting Issuer will be dependent upon the capital markets to raise additional financing in the future, while it establishes a user base for its products. As such, the Company and the Resulting Issuer is subject to liquidity risks in meeting its development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the Resulting Issuer’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to the Company and the Resulting Issuer and its management. If uncertain market conditions persist, the Company and the Resulting Issuer’s ability to raise capital could be jeopardized, which could have an adverse impact on the Company or the Resulting Issuer’s operations and the trading price of the Company or Resulting Issuer Shares on the CSE.
Dividend Risk
Aurora and the Company have not paid dividends in the past and does not anticipate paying dividends in the near future. The Company and the Resulting Issuer expects to retain its earnings to finance further growth and, when appropriate, retire debt.
7 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Share Price Volatility Risk
It is anticipated that the Company and the Resulting Issuer Shares will be re-listed for trading on the CSE. As such, external factors outside of the Company and the Resulting Issuer’s control such as announcements of quarterly variations in operating results, revenues and costs, and sentiments toward the medical marijuana sector stocks may have a significant impact on the market price of the Company and the Resulting Issuer Shares. Global stock markets, including the CSE, have from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operations of particular companies. There can be no assurance that an active or liquid market will develop or be sustained for the common shares.
Increased Costs of Being a Publicly-Traded Company
As the Company and the Resulting Issuer will have publicly-traded securities, the Company and the Resulting Issuer will incur significant legal, accounting and filing fees not presently incurred by Aurora. Securities legislation and the rules and policies of the CSE requires listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material compliance costs.
Value of Aurora, the Company and the Resulting Issuer.
Aurora, the Company and the Resulting Issuer’s assets are of indeterminate value. For further particulars see the financial statements scheduled hereto.
Negative Cash Flow
Aurora and the Company had negative cash flows from operating activities in their respective most recent financial years being the year ended June 30, 2014.
Fluctuating Prices of Raw Materials May Adversely Affect the Resulting Issuer.
The Company and the Resulting Issuer’s revenues, if any, are expected to be in large part derived from the production, sale and distribution of marijuana. The price of production, sale and distribution of marijuana will fluctuate widely due to the how young the marijuana industry is and is affected by numerous factors beyond the Company or Resulting Issuer’s control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new production and distribution developments and improved production and distribution methods. The effect of these factors on the price of product produced by the Company or Resulting Issuer and, therefore the economic viability of any of the Resulting Issuer’s business, cannot accurately be predicted.
Changing Environmental Regulations May Adversely Affect the Resulting Issuer.
All phases of the Resulting Issuer’s operations will be subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies
8 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect Aurora, the Company or the Resulting Issuer’s operations.
Political and Economic Instability May Adversely Affect the Resulting Issuer
The Resulting Issuer may be affected by possible political or economic instability. The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates and high rates of inflation. Changes in medicine and agriculture development or investment policies or shifts in political attitude in certain countries may adversely affect the Resulting Issuer’s business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, distribution, price controls, export controls, income taxes, expropriation of property, maintenance of assets, environmental legislation, land use, land claims of local people and water use. The effect of these factors cannot be accurately predicted.
Lack of Share Liquidity
Common shares of the Company and the Resulting Issuer Shares are subject to certain trade restrictions, which may include a hold period restricting the trading of the securities.
Limited Operating History and No Assurance of Profitability
Prior to the close of the Share Exchange, Aurora operated as a private company since its inception on September 5, 2013. The brand is young, while growing, is still comparatively modest, owing in part to the industry, inability to aggressively execute our business plan because of a lack of working capital. The listing on the CSE and, if any, capital raise is designed to provide the Resulting Issuer with the working capital we need to more fully implement the business objectives of the Resulting Issuer.
We are subject to all of the risks and uncertainties associated with any new business, including the risk that we will be unable to establish a market for our products and services, achieve our growth objectives, and/or ultimately become profitable.
Intellectual Property
The success of the Company and Resulting Issuer’s business depends in part on its ability to protect its ideas and technology. Aurora and the Company have no patented technology or trademarked business methods at this time nor have the Company, Aurora or the Resulting Issuer applied to register any patents, trademarks or copyrights or applied to register the trademark “Aurora”.
Even if the Company, Aurora and the Resulting Issuer moves to protect its technology with trademarks, patents, copyrights or by other means, Aurora and the Resulting Issuer are not assured that competitors will not develop similar technology, business methods or that Aurora and the Resulting Issuer will be able to exercise their respective legal rights. Other countries may not protect intellectual property rights to the same standards as does Canada. Actions taken to protect or preserve intellectual property rights may require significant financial and other resources such that said actions have a meaningfully impact our ability to successfully grow our business.
Significant Ownership Interest of Management and Directors
9 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
As of the date of this MD&A, officers and directors of the Company own an aggregate of 2,079,223 shares, or approximately 5.1%, of all issued and outstanding share of the Company. As a group, these individuals could exercise substantial control over matters requiring shareholder approval, such as election of directors, approval of transactions, and changes to share structure. Until further rounds of financing are completed, other shareholders may be limited in their ability to exercise control over important corporate decisions.
On close of the Share Exchange, officers and directors of the Resulting Issuer will own an aggregate of 37,549,223 shares or approximately 37.5% of the issued and outstanding Resulting Issuer Shares. As a group, these individuals could exercise substantial control over matters requiring shareholder approval, such as election of directors, approval of transactions, and changes to share structure. Until further rounds of financing are completed, other shareholders may be limited in their ability to exercise control over important corporate decisions.
Marketing Effectiveness
The Resulting Issuer’s ability to grow its business and achieve positive earnings will depend in part on the effectiveness of advertising and other forms of promotion that, among other objectives, would seek to build brand awareness and meaningfully increase our user base. There can be no assurance that advertising and promotional expenditures will achieve these objectives.
SELECTED ANNUAL INFORMATION
The following selected financial data with respect to the Company’s financial condition and results of operations has been derived from the audited financial statements of the Company for the years ended June 30, 2014, 2013 and 2012 prepared in accordance with IFRS. The selected financial data should be read in conjunction with those financial statements and the notes thereto.
2014 2013 2012 Interest income $7,855 $9,389 $15,025 Net loss and comprehensive loss $399,705 $393,489 $315,760 Loss per share $0.02 $0.02 $0.02 Total assets $1,887,349 $718,545 $1,121,220 Total long term liabilities Nil Nil Nil Cash dividends declared per share Nil Nil Nil for each class of share
RESULTS OF OPERATIONS
At June 30, 2014, the Company had not yet achieved profitable operations and had a net loss of $399,705 resulting in a basic and diluted loss per share of $0.02. The increase in loss of $6,216 resulted primarily from increases in professional fees , office, rent and administration, financing fees, regulatory fees and share-based payments.
During the year ended June 30, 2014, the Company recorded a financing fee of $99,960 from the issuance of 714,000 bonus shares for the $500,000 loan received during the year. No such cost was incurred in the prior year.
10 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
The increases in professional fees of $13,027, office, rent and administration of $41,293 and regulatory fees of $13,437 during the year ended June 30, 2014 resulted from increased corporate activity related to the listing on the CSE and due diligence and other costs related to the Share Exchange.
During the year ended June 30, 2014, the Company recorded $45,615 for the grant of 183,333 options at $0.05 per share to directors and employee expiring March 19, 2024, 1,260,667 options at $0.05 per share to directors and employee expiring from March 22, 2015 to May 31, 2021 and $38,791 for the amendment in the terms of 1,420,667 previously granted options whereby the exercise price of the options has been reduced to $0.05.
Project evaluation costs decreased by $151,327 as during the prior year, the Company incurred legal and travel expenditures related to a project evaluation of a potential resource asset acquisition. The proposed transaction did not complete and no such expenditures were incurred during the year ended June 30, 2014.
The exploration and evaluation expenditures of $88,250 incurred during the year ended June 30, 2013 consisted of option payments made for the Hook Lake property. No exploration expenditures were incurred during the current year and the option agreement related to this property has been terminated subsequent to June 30, 2014.
At June 30, 2014 and 2013, the Company had no continuing source of operating revenues and related expenditures. The Company has not paid any dividends on its common shares nor does it have any present intention of paying dividends on its common shares, as it anticipates that all available funds obtained in the foreseeable future will be invested to finance its business activities.
Summary of Quarterly Results
The following table presents selected financial information from continuing operations for the most recent eight quarters:
Quarter ended Finance Income Income (Loss) Earnings (Loss) per share June 30, 2014 $3,006 ($237,897) $(0.01) March 31, 2014 $1,577 ($92,963) Nil December 31, 2013 $1,676 ($29,100) Nil September 30, 2013 $1,596 ($39,745) Nil June 30, 2013 $1,833 ($105,414) ($0.01) March 31, 2013 $2,152 ($73,054) NIl December 31, 2012 $2,369 ($68,105) Nil September 30, 2012 $3,035 ($146,916) ($0.01)
The variation seen over such previous quarters was primarily dependent upon the success of the Company’s ongoing property evaluation program and the timing and results of the Company’s exploration activities on its then current property, none of which are possible to predict with any accuracy.
There are no general trends regarding the Company’s quarterly results and the Company’s business of resource exploration is not seasonal, as it can work on its property on a year-round basis (funding permitting). Past quarterly results may vary significantly depending mainly on the Company’s exploration
11 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
activities or whether the Company has incurred evaluation costs on potential projects or granted any stock options, and these are the factors that account for material variations in the Company’s quarterly net income (losses), none of which are predictable.
One of the major factors which may cause a material variation in net loss on a quarterly basis is the grant of stock options due to the resulting share-based payments which may be significant when they arise. Quarterly results can also vary significantly depending on whether the Company has incurred acquisition and exploration expenditures on its properties as may be seen during the quarters ended June 30, 2012 and September 30, 2012. Project evaluation costs and other related costs can have a material effect on quarterly results as and when they occur, as for example, in the quarters ended June 30, 2012, September 30, 2012, December 31, 2012, March 31, 2013 and June 30, 2013.
General and administrative costs tend to be quite similar from period to period except in certain cases when there is an increase in corporate activities. The variation in income is related solely to the interest earned on funds held by the Company.
LIQUIDITY, FINANCIAL POSITION, AND CAPITAL RESOURCES
The Company has no revenue generating operations from which it can internally generate funds. The Company has financed its operations and met its capital requirements primarily through the issuance of capital stock by way of private placements.
The Company reported working capital of $1,352,655 at June 30, 2014 as compared to working capital of $693,191 at June 30, 2013, representing an increase in working capital by $659,464. Net cash and cash equivalents on hand increased by $234,706 from $644,713 as at June 30, 2013 to $879,419 as at June 30, 2014. The increase in cash was mainly attributable to cash provided by common shares of the Company issued for net cash of $874,000 and cash provided by a third party loan of $500,000. As at June 30, 2014, the Company had a balance of Nil in guaranteed investments certificates (“GICs”) compared to $647,800 in GICs at June 30, 2013.
During the year ended June 30, 2014, the Company completed the first tranche of a non-brokered private placement of 9,500,000 common shares at a price of $0.10 per share for gross proceeds of $950,000. The Company paid finder’s fees of $76,000 and 760,000 share purchase warrants at a fair value of $83,645. Each finder’s warrant entitles the finder to purchase a common share of the Company at a price of $0.10 per share expiring June 27, 2016.
Subsequent to June 30, 2014, the Company closed the following non-brokered private placement financings:
1. The second and final tranche consisting of 6,500,000 common shares at a price of $0.10 per share for gross proceeds of $650,000. The Company paid finders’ fees of $52,000 and 520,000 share purchase warrants. Each finder’s warrant entitles the finder to purchase a common share of the Company at a price of $0.10 per share expiring July 15, 2016; and
2. 8,000,000 common shares at a price of $0.25 per share for gross proceeds of $2,000,000. The Company paid aggregate finders’ fees of $98,920 on a portion of the private placement.
12 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Subsequent to June 30, 2014, the Company has arranged for a non-brokered private placement of 2,353,000 common shares at a price of $0.85 per share for gross proceeds of $2,000,050. The Company received shares subscriptions of $997,750 pursuant to this financing.
Pursuant to the Share Exchange, the Company entered into loan agreements with Aurora and advanced an aggregate of $3,860,000 as of the date of this MD&A. The loans have a term of six months from the dates of advances, bear interest at 8% per annum and are secured by a general security agreement dated June 19, 2014, granting the Company security over all present and after acquired property of Aurora.
As of the date of this MD&A, financing for the Company’s operations is also potentially available through the exercise of vested stock options (See below “Summary of Outstanding Share Data”). However, there can be no assurance that any of these outstanding convertible securities will be exercised, particularly if the trading price of the common shares on the CSE does not exceed, by an material amount and for a reasonable period, the exercise price of such convertible securities at some time prior to their expiry dates.
The Company has not entered into any long-term lease commitments.
The Company presently has sufficient available funds to meet its operating cash requirements for the next twelve months. However, if the Company’s plans change (as, for example, the Share Exchange) or its current assumptions change or prove inaccurate, the Company may be required to seek additional financing through the issuance of shares. Although the Company has previously been successful in raising the funds required for its operations, there can be no assurance that the Company will have sufficient financing to meet its future capital requirements or that additional financing will be available on terms acceptable to the Company in the future.
The Company’s overall success will be affected by its current or future business activities. The Company is in the process of closing the Share Exchange.
OFF BALANCE SHEET ARRANGEMENTS
The Company did not have any off-balance sheet arrangements as at June 30, 2014 or as of the date of this report.
RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with related parties during the year ended June 30, 2014. A description of the related party transactions is as follows:
Name and Relationship Three months to Company Transaction ended June 30, Years ended June 30,
2014 2014 2013
$ $ $
13 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Mosam Ventures Inc., a company controlled by a director and an officer Management of the Company fees 15,000 28,500 17,500
Max Pinsky Personal Law Corporation,
a company with a common officer Legal fees 377 1,151 43,272
Avarone Metals Inc. Office, rent and (formerly Remstar administration(1) Resources Ltd.), a company with a common director and a common officer 27,050 99,100 58,750
Ultra Lithium Inc., a company with common directors and officers Rent (2) - - 11,000
ProspectOre Capital Corp., a company with a common director Consulting - - 3,000
(1) The Company entered into a month-to-month arrangement for the rental of office premises and the provision of accounting, financial reporting and administrative services with Avarone Metals Inc., a public company related by a common director and a common officer. Of the fees paid to Avarone Metals Inc., $28,800 (2013 – $21,600) was allocated to the services of Nilda Rivera, CFO of the Company.
(2) The Company entered into a month-to-month arrangement for the rental of office premises with Ultra Lithium Inc., a public company related by a common director and a common officer.
Included in prepaid expenses is a rent deposit and prepaid rent of $1,500 (2013 - $1,500) paid to companies having a director and an officer in common.
Included in accounts payable and accrued liabilities was the amount of $5,250 (2013 - $12,327) paid to companies controlled by directors and an officer of the Company.
These transactions are in the normal course of business operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
14 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Fourth Quarter
During the fourth quarter of June 30, 2014, the Company reported a net loss of $237,897 as compared to a net loss of $105,414 during the fourth quarter in the prior fiscal year, representing an increase in loss by $132,483. The increase in loss was primarily attributable to an increase in operating expenses of $132,718.
The Company recorded a financing fee of $99,960 from the issuance of 714,000 bonus shares for a $500,000 loan received from a third party during the fourth quarter of the year. No such cost was incurred in the fourth quarter last year.
The increases in professional fees of $19,311, office, rent and administration of $10,538 and regulatory fees of $13,407 during the fourth quarter resulted from increased corporate activity related to the Company’s listing on the CSE and due diligence and other costs related to the Share Exchange. No such costs were incurred in the fourth quarter last year.
During the fourth quarter in last year, the Company paid for cost of geophysics of $62,000 on the Hook Lake property. No work was done on this property and no costs were incurred during the fourth quarter of the current year. The option agreement on this property was terminated subsequent to June 30, 2014.
During the three months ended June 30, 2014, the Company recorded share-based payments of $41,301 for stock options granted to the directors, consultants and employee of the Company. No options were granted and no share-based payment was recorded in the fourth quarter last year.
As a developing stage company, there is no source of operating income and losses are expected to continue.
CRITICAL ACCOUNTING ESTIMATES
In the application of the Company’s accounting policies which are described in Note 2 to the Company’s audited financial statements for the year ended June 30, 2014, 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 financial statements are described below.
(a) Share-Based Payments
The Company grants stock options to directors, officers, employees, and consultants of the Company under its incentive stock option plan. The fair value of stock options is estimated using the Black- Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management is required to make certain assumptions and estimates such as the life of options, volatility, and forfeiture rates.
15 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
Changes in assumptions used to estimate fair value could result in materially different results.
(b) Deferred Tax Assets
Deferred tax assets, including those arising from tax loss carry-forwards, 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.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, interest receivable, loans receivable, accounts payable and accrued liabilities and loans payable. The carrying values of these financial instruments approximate their fair values because of their short term nature and/or the existence of market related interest rates on the instruments.
IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and Level 3 – Inputs for the asset or liability that are not based on observable market data.
The Company has no financial instrument assets or liabilities recorded in the statements of financial position at fair value as at June 30, 2014 and 2013.
(b) Financial Instruments Risk
The Company is exposed in varying degrees to a variety of financial instrument related to risks. The Board approves and monitors the risk management processes:
(i) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank GICs and interest receivable. Cash and cash equivalents consisting of GICs have been invested with Schedule 1 banks or equivalents, with its cash held in Canadian based banking institutions, authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation. Management considers that risks related to credit are minimal.
16 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
(ii) Liquidity Risk
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. As at June 30, 2014, the Company had cash and cash equivalents of $879,419 to settle current liabilities of $533,988 which mainly consisted of accounts payable of $33,550 and loans payable of $500,438 that were considered short term and settled within 30 days.
The Company is dependent on 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. There can be no assurance that such financing will be available on terms acceptable to the Company. See note 1 to the Company’s audited financial statements for the year ended June 30, 2014.
(iii) 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’s short-term investments are invested in GICs with greater than 90 day terms but not greater than one year. These GICs have a fixed interest rate for the term of the deposit. The interest on cash and GICs is typical of Canadian banking rates, which are low at present and the conservative investment strategy mitigates the risk of deterioration to the investment. A change of 100 basis points in the interest rates would not be material to the financial statements.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
The following IFRS standard has been recently issued by the IASB or the IFRIC. The Company is assessing the impact of this new standard, but does not expect it to have a significant effect on the financial statements. Pronouncements that are not applicable or do not have a significant impact to the Company have been excluded herein.
IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, “Financial Instruments” (“IFRS 9”), which will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 will replace the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortized cost and fair value. The new standard also requires a single impairment method to be used, provides additional guidance on the classification and measurement of financial liabilities, and provides a new general hedge accounting standard.
The mandatory effective date has tentatively been set for January 1, 2018; however, early adoption of the new standard is permitted. The Company currently does not intend to early adopt IFRS 9. The adoption of IFRS 9 is currently not expected to have a material impact on the financial statements as the classification and measurement of the Company’s financial instruments is not expected to change given the nature of the Company’s operations and the types of financial instruments that it currently holds.
17 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
DISCLOSURE OF DATA FOR OUTSTANDING COMMON SHARES, OPTIONS AND WARRANTS
Common Shares
The Company is authorized to issue an unlimited number of voting common shares without par value.
As at June 30, 2014, the Company had 25,550,000 common shares issued and outstanding (2013 – 16,040,000). As at the date of this MD&A, there are 40,824,000 common shares issued and outstanding.
Stock Options
Number of Options Exercise Price Expiry Date Number exercisable
473,333 $0.05 March 22, 2015 473,333 503,334 $0.05 October 29, 2017 503,334 144,000(1) $0.15 October 29, 2017 144,000 84,000 $0.05 April 1, 2020 84,000 140,000 $0.05 May 31, 2021 140,000 183,333 $0.05 March 19, 2024 183,333 250,000 $0.70 September 2, 2019 62,500 1,000,000 $1.01 September 18, 2019 250,000 (1) Of these options, 144,000 were granted to two charitable organizations.
Share Purchase Warrants
Number of Warrants Exercise Price Expiry Date
760,000 $0.10 June 27, 2016 520,000 $0.10 July 15, 2016
SUBSEQUENT EVENTS
The following events occurred subsequent to June 30, 2014:
1. The Company closed the second and final tranche of a non-brokered private placement of 6,500,000 common shares at a price of $0.10 per share for gross proceeds of $650,000. The Company paid finders’ fees of $52,000 and 520,000 share purchase warrants. Each finder’s warrant entitles the finder to purchase a common share of the Company at a price of $0.10 per share expiring July 15, 2016.
18 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
2. The Company closed a non-brokered private placement of 8,000,000 common shares at a price of $0.25 per share for gross proceeds of $2,000,000. The Company paid aggregate finders’ fees of $98,920 on a portion of the private placement.
3. The Company granted stock options to purchase 1,000,000 common shares of the Company at a price of $1.01 per share for a period of 5 years.
4. The Company has arranged for a non-brokered private placement of 2,353,000 common shares at a price of $0.85 per share for gross proceeds of $2,000,050. The Company received shares subscriptions of $997,750 pursuant to this private placement.
5. 60,000 common shares were issued at $0.05 per share for gross proceeds of $3,000 on exercise of stock options.
6. On August 31, 2014, the Company entered into an Investor Relations Consulting Agreement (the “Agreement”) for investor and financial relations services. The term of the Agreement is for a period of 3 months commencing September 1, 2014. Pursuant to the Agreement, the Company agreed to pay a monthly fee of $15,000 and grant stock options to purchase 250,000 common shares of the Company at a price of $0.70 per share for a period of 5 years. The stock options will vest as to 25% every 3 months up to a period of 12 months. The Agreement is subject to the approval of the Exchange.
7. On September 9, 2014, the Company entered into a Share Exchange Agreement with Aurora. See “Proposed Transaction” below.
8. On September 18, 2014, the Company entered into a consulting agreement pursuant to which the Company shall issue 250,000 broker warrants to the consultant. Each broker warrant entitles the consultant to acquire a common share of the Company at $1.01 per share for a period of 1 year.
9. The Company changed its name to Aurora Cannabis Inc.
PROPOSED TRANSACTION
On September 9, 2014, the Company entered into a Share Exchange Agreement with Aurora and the shareholders of Aurora (the “Agreement”). Pursuant to the terms of the Agreement, the Company will acquire all of the issued and outstanding shares of Aurora in exchange for an aggregate of 60,000,000 common shares of the Company (the "Transaction Shares").
In addition, the Company will also issue to former respective warrant and option holders of Aurora on a pro-rata basis the following:
1. An aggregate of 21,450,000 replacement warrants comprised of:
a. 10,200,000 warrants exercisable at a price of $0.50 per share for a period of 3 years; and b. 11,250,000 warrants exercisable at a price of $0.02 per share for a period of 5 years.
19 PRESCIENT MINING CORP. MANAGEMENT’S DISCUSSION AND ANALYSIS For the years ended June 30, 2014 and 2013
2. 4,000,000 replacement stock options exercisable at a price of $0.001 per share for a period of 5 years.
(collectively, the "Replacement Securities").
The Company will also assume Aurora's currently outstanding 5 year, non-interest bearing convertible debt in the principal amount of $1,500,000 that is convertible at $0.125 per common share.
Upon the achievement of the key milestone of Aurora achieving the registration of a minimum of 2,000 patients under the Health Canada MMPR program, the Company shall issue:
1. an aggregate of 20,000,000 common shares of the Company (the “Pubco Shares”) on a pro-rata basis to former shareholders of Aurora; and
2. an aggregate of 3,750,000 warrants exercisable at $0.02 per share to certain former warrant holders of Aurora.
All Transaction Shares and Replacement Securities to be issued above are subject to strict escrow provisions and a right of first refusal (the "ROFR") pursuant to the terms of the Share Exchange Agreement for a period of 36 months. The replacement stock options are also subject to an 18 month vesting period and ROFR. The replacement stock options are also subject to an 18 month vesting period and ROFR. The transaction is contingent on the Company resuming listing on the CSE.
In connection with the proposed transaction, the Company entered into a finder’s fee agreement and will issue 3,000,000 common shares to the finder, being 5% of the total shares to be issued under the Agreement.
As of the most current date, the Company advanced an aggregate of $3,860,000 to Aurora pursuant to loan and security agreements.
The transaction is subject to the approval of the CSE.
Additional disclosures pertaining to the Company are available on the SEDAR website at www.sedar.com.
20 SCHEDULE “B”
Audited Financial Statement of Pubco from Inception to June 30, 2014, 2013 and 2012
{W0251953.DOC}FORM 2A – LISTING STATEMENT October 10, 2014 Page 53
AUDITOR’S CONSENT
To: Prescient Mining Corp.
We have read the Form 2A – listing statement of Prescient Mining Corp. (the “Company”) dated October 10, 2014 relating to the Share Exchange Agreement between the Company and Aurora Marijuana Inc. We have complied with Canadian generally accepted standards for an auditors’ involvement with offering documents.
We consent to being named and to the use, in the above-mentioned Form 2A, of our report to the shareholders of the Company on the statement of financial position as at June 30, 2014, and the statements of changes in equity, comprehensive loss and cash flows for the year then ended. Our report is dated October 9, 2014.
Vancouver, Canada
October 10, 2014 Chartered Accountants
PO Box 10007, 1488 – 700 West Georgia Street, Vancouver, British Columbia, Canada V7Y 1A1 Tel: (604) 687 – 5841 Fax: (604) 687 – 0075 Email: [email protected]
PRESCIENT MINING CORP.
For the years ended June 30, 2014 and 2013
(Expressed in Canadian Dollars)
• Independent Auditor’s Report
• Statements of Financial Position
• Statements of Changes in Equity
• Statements of Comprehensive Loss
• Statements of Cash Flows
• Notes to the Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Prescient Mining Corp.
Report on the financial statements
We have audited the accompanying financial statements of Prescient Mining Corp., which comprise the statement of financial position as at June 30, 2014, and the statements of changes in equity, comprehensive loss and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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 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, these financial statements present fairly, in all material respects, the financial position of Prescient Mining Corp. as at June 30, 2014, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 1 in the financial statements which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.
Other matters
The financial statements of Prescient Mining Corp. for the year ended June 30, 2013, were audited by another auditor who expressed an unmodified opinion on those statements on October 15, 2013.
Vancouver, Canada “Morgan & Company LLP”
October 9, 2014 Chartered Accountants
PO Box 10007, 1488 – 700 West Georgia Street, Vancouver, British Columbia, Canada V7Y 1A1 Tel: (604) 687 – 5841 Fax: (604) 687 – 0075 Email: [email protected]
2
PRESCIENT MINING CORP. Statements of Financial Position (Expressed in Canadian Dollars)
Note June 30, June 30, 2014 2013 $ $
ASSETS
CURRENT Cash and cash equivalents 879,419 644,713 GST recoverable 4,080 5,835 Interest receivable 1,644 4,748 Loans receivable 6 1,000,000 - Prepaid expenses and deposits 5 & 9(c) 1,500 62,240
1,886,643 717,536
Equipment 706 1,009
1,887,349 718,545
LIABILITIES
CURRENT Accounts payable and accrued liabilities 9(c) 33,550 24,345 Loan payable 7 500,438 -
533,988 24,345
SHAREHOLDERS’ EQUITY
Share capital 8 2,640,575 1,848,395 Reserves 246,727 175,358 Deficit (1,533,941) (1,329,553)
1,353,361 694,200
1,887,349 718,545
Nature of operations and going concern (Note 1) Exploration and evaluation assets (Note 5) Subsequent events (Notes 5, 6, 7 & 13)
The accompanying notes are an integral part of these financial statements.
Approved on behalf of the Board of Directors:
“Marc Levy” “Isaac Moss” Marc Levy, Director Isaac Moss, Director
3
PRESCIENT MINING CORP. Statements of Changes in Equity For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
Share Capital Reserves Obligation Share-Based Common to Issue Payment Warrant Note Shares Amount Shares Reserve Reserve Total Deficit Total # $ $ $ $ $ $ $
Balance, June 30, 2012 15,890,000 1,837,145 - 174,226 - 174,226 (936,819) 1,074,552
Net loss for the year ------(393,489) (393,489) Shares issued for exploration and evaluation assets 5 150,000 11,250 - - - - - 11,250 Forfeited options 8(d) - - - (755) - (755) 755 - Share-based payments 8(d) - - - 1,887 - 1,887 - 1,887 Balance, June 30, 2013 16,040,000 1,848,395 - 175,358 - 175,358 (1,329,553) 694,200
Net loss for the year ------(399,705) (399,705) Private placements 8 9,500,000 950,000 - - - - - 950,000 Share issuance costs 8 - (159,645) - - 83,645 83,645 - (76,000) Shares issuable for loan 7 - - 99,960 - - 99,960 - 99,960 Forfeited options 8(d) - - - (195,317) - (195,317) 195,317 - Exercise of stock options 8 10,000 1,825 - (1,325) - (1,325) - 500 Share-based payments 8(d) - - - 84,406 - 84,406 - 84,406
Balance, June 30, 2014 25,550,000 2,640,575 99,960 63,122 83,645 246,727 (1,533,941) 1,353,361
The accompanying notes are an integral part of these financial statements.
4
PRESCIENT MINING CORP. Statements of Comprehensive Loss For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
Note 2014 2013 $ $
EXPENSES
Depreciation 303 432 Consulting fees 10,000 29,600 Exploration and evaluation 5 942 88,250 Management fees 9(b) 28,500 17,500 Office, rent and administration 9(a),9(b) 122,252 80,959 Professional fees 9(a) 31,263 18,236 Project evaluation costs 9(a) (8,383) 142,944 Regulatory fees 24,232 10,795 Share-based payments 8(d),9(b) 84,406 1,887 Transfer agent and shareholder information 8,725 7,815 Travel and promotion 4,245 3,674
LOSS BEFORE OTHER INCOME (EXPENSES) (306,485) (402,092)
Finance and other costs 10 (101,075) (786) Interest income 7,855 9,389
(93,220) 8,603
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (399,705) (393,489)
BASIC AND DILUTED LOSS PER SHARE (0.02) (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 16,145,973 16,028,082
The accompanying notes are an integral part of these financial statements.
5
PRESCIENT MINING CORP. Statements of Cash Flows For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
2014 2013 $ $ CASH WAS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year (399,705) (393,489)
Adjustments for non-cash items Depreciation 303 432 Shares issued for exploration and evaluation assets - 11,250 Shares issuable for loan 99,960 - Share-based payments 84,406 1,887
Changes in non-cash working capital accounts Interest receivable 3,542 4,614 GST recoverable 1,755 4,390 Prepaid expenses and deposits 60,740 (54,605) Accounts payable and accrued liabilities 9,205 (22,323)
(139,794) (447,844) INVESTING ACTIVITY
Loans receivable (1,000,000) -
FINANCING ACTIVITIES
Shares issued for cash 950,500 - Share issuance costs (76,000) - Proceeds from loan 500,000 - 1,374,500 -
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 234,706 (447,844)
Cash and cash equivalents, beginning of year 644,713 1,092,557
CASH AND CASH EQUIVALENTS, END OF YEAR 879,419 644,713
CASH AND CASH EQUIVALENTS CONSISTS OF:
Cash on hand (cheques written in excess of cash on hand) 879,419 (3,087) Guaranteed Investment Certificates - 647,800
879,419 644,713
SUPPLEMENTARY INFORMATION:
Interest paid - - Income taxes paid - -
The accompanying notes are an integral part of these financial statements.
6 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN
Prescient Mining Corp. (the “Company”) was incorporated on December 21, 2006, under the laws of the Business Corporations Act (British Columbia). The Company’s shares are traded on the Canadian Securities Exchange (the “Exchange”) under the symbol “PMC.”
The head office, principal address, and records office of the Company are located at Suite 507 – 700 West Pender Street, Vancouver, BC, Canada, V6C 1G8. The Company’s registered office address is located at Suite 1780 – 400 Burrard Street, Vancouver, British Columbia, Canada, V6C 3A6.
The Company was engaged in the acquisition, exploration, and development of resource properties. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to raise additional financing in order to complete the acquisition and development of a medical marijuana production and sales business, and the attainment of future operations. The outcome of these matters cannot be predicted at this time.
These 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 at least the next 12 months. There is no assurance that it will be able to obtain additional financing, if any, on reasonable terms. These factors may cast significant doubt on the applicability of the use of the going concern assumption. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Any such adjustments could be material.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The financial statements were authorized for issue on October 9, 2014, by the Directors of the Company. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
(a) Statement of Compliance and Basis of Presentation
The financial statements of the Company have been prepared on a historical basis in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”).
(b) Functional and Presentation of Foreign Currency
The financial statements are presented in Canadian dollars unless otherwise noted. The functional currency and presentation currency of the Company is the Canadian dollar.
7 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and short-term highly liquid investments which are readily convertible into cash and that are subject to an insignificant risk of changes in value.
For the purpose of the statements of cash flows, total cash and cash equivalents include cash and Guaranteed Investment Certificates (“GIC”) with maturities of less than one year and redeemable anytime at the option of the holder.
(d) Equipment and Depreciation
Equipment is carried at acquisition cost less accumulated depreciation.
Depreciation is calculated on a declining-balance basis to write off the cost of the assets to their residual values over their estimated useful lives, except in the year of acquisition, when half of the rate is used. The annual rate used to compute depreciation is as follows:
Computer hardware 30%
(e) Exploration and Evaluation Assets and Expenditures
Exploration and evaluation activity begins when the Company obtains legal rights to explore a specific area and involves the search for mineral reserves, the determination of technical feasibility and the assessment of commercial viability of an identified mineral resource. Expenditures incurred in the exploration and evaluation phase include the cost of acquiring interests in mineral rights, licenses and properties, and the costs of the Company’s exploration activities, such as researching and analyzing existing exploration data, gathering data through geological studies, exploratory drilling, trenching, sampling, and certain feasibility studies.
Exploration and evaluation expenditures incurred prior to the determination of commercially viable mineral resources, the feasibility of mining operations, and a positive development decision, are expensed as incurred. Mineral property acquisition costs and development expenditures incurred subsequent to such a determination are capitalized and amortized over the estimated life of the property following the commencement of commercial production or are written off if the property is sold, allowed to lapse, abandoned, or when an impairment is determined to have occurred.
(f) Decommissioning Obligations
A liability for a decommissioning obligation, such as site reclamation costs, is recorded when a legal or constructive obligation exists and is recognized in the period in which it is incurred. The Company records the estimated present value of future cash flows associated with site reclamation as a liability when the liability is incurred and increases the carrying value of the related assets for that amount. Subsequently, these capitalized decommissioning costs will be amortized to expense over the life of the related assets using the units-of- production method. The liability is accreted to reflect the passage of time and adjusted to reflect changes in the timing and amount of estimated future cash flows.
As at June 30, 2014 and 2013, the Company has determined that it does not have any material decommissioning obligations.
8 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Impairment of Financial Assets
A financial asset not carried at fair value through profit or loss is reviewed at each reporting date to determine whether there is any indication of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets' original effective interest rate. Losses are recognized in profit or loss with a corresponding reduction in the financial asset, or in the case of amounts receivable are reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(h) Share Capital
Transaction costs directly attributable to the issuance of common shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the vesting periods are recorded as share capital. Share capital issued for non-monetary consideration is recorded at an amount based on fair market value of the shares on the date of issue.
(i) Share-Based Payments
The Company has an employee stock option plan. Share-based payments to employees are measured at the fair value of the stock options at the grant date and amortized to expense over the vesting periods.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share-based payment reserve.
The fair value of options is determined using the Black–Scholes option pricing model which incorporates all market vesting conditions. The number of options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Amounts recorded for forfeited or expired unexercised options are transferred to deficit in the year of forfeiture or expiry.
Upon the exercise of stock options, 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.
9 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(j) Loss per Share
The Company calculates basic loss per share using the weighted average number of common shares outstanding during the year. 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.
(k) Income Taxes
Tax expense recognized in profit or loss comprises the sum of current and deferred taxes not recognized in other comprehensive income or directly in equity.
(i) Current Income Tax
Current income tax assets and/or 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 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.
(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.
(l) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Financial assets and financial liabilities are recognized on the statements of financial position at the time the Company becomes a party to the contractual provisions of the financial instrument.
Financial instruments are initially measured at fair value. Measurement in subsequent periods is dependent on the classification of the financial instrument. The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity, available-for-sale, and other financial liabilities.
10 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) Financial Instruments (Continued)
(i) Financial Assets and Liabilities at Fair Value Through Profit or Loss
Financial assets and liabilities at fair value through profit or loss are either ‘held-for-trading’ or classified at fair value through profit or loss. They are initially and subsequently recorded at fair value and changes in fair value are recognized in profit or loss for the period.
The Company does not have any financial assets and liabilities at fair value through profit or loss.
(ii) Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value and subsequently on an amortized cost basis using the effective interest method, less any impairment losses. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets.
The Company has designated its cash and cash equivalents, interest receivable and loans receivable as loans and receivables.
(iii) Held-to-Maturity
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are initially recorded at fair value and subsequently measured at amortized cost.
The Company does not have any held-to-maturity financial assets.
(iv) Available-For-Sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for- sale or are not classified in any other financial asset categories. They are initially and subsequently measured at fair value and the changes in fair value, other than impairment losses are recognized in other comprehensive income (loss) and presented in the fair value reserve in shareholders’ equity. When the financial assets are sold or an impairment write-down is required, losses accumulated in the fair value reserve recognized in shareholders’ equity are included in profit or loss.
The Company does not have any available-for-sale financial assets.
(v) Other Financial Liabilities
Other financial liabilities are recognized initially at fair value plus any directly attributable transaction costs on the date at which the Company becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition, the Company’s financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.
The Company’s non-derivative financial liabilities are its accounts payable and accrued liabilities and loan payable, which are designated as other liabilities.
11 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
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 financial statements are described below.
(a) Share-Based Payments
The Company grants stock options to directors, officers, employees, and consultants of the Company under its incentive stock option plan. The fair value of stock options is estimated using the Black-Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management is required to make certain assumptions and estimates such as the life of options, volatility, and forfeiture rates.
Changes in assumptions used to estimate fair value could result in materially different results.
(b) Deferred Tax Assets
Deferred tax assets, including those arising from tax loss carry-forwards, 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.
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS
The following IFRS standard has been recently issued by the IASB or the IFRIC. The Company is assessing the impact of this new standard, but does not expect it to have a significant effect on the financial statements. Pronouncements that are not applicable or do not have a significant impact to the Company have been excluded herein.
IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, “Financial Instruments” (“IFRS 9”), which will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 will replace the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortized cost and fair value. The new standard also requires a single impairment method to be used, provides additional guidance on the classification and measurement of financial liabilities, and provides a new general hedge accounting standard.
12 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
IFRS 9, Financial Instruments (Continued)
The mandatory effective date has tentatively been set for January 1, 2018; however, early adoption of the new standard is permitted. The Company currently does not intend to early adopt IFRS 9. The adoption of IFRS 9 is currently not expected to have a material impact on the financial statements as the classification and measurement of the Company’s financial instruments is not expected to change given the nature of the Company’s operations and the types of financial instruments that it currently holds.
NOTE 5 – EXPLORATION AND EVALUATION ASSETS
Cumulative expenditures incurred by the Company on its properties are summarized as follows:
Hook Lake property Saskatchewan, Canada $ Balance, June 30, 2012 19,075 Acquisition costs: Option Payment – Cash 15,000 Option Payment – Common Shares Issued 11,250 Exploration costs: Geophysics 62,000
88,250 Balance, June 30, 2013 107,325 Exploration costs: Geophysics 942 Balance, June 30, 2014 108,267
On April 12, 2012, the Company entered into an option agreement with Geomode Mineral Exploration Ltd. (“Geomode”) for the exclusive right and option to acquire a 100% interest in the Hook Lake property, a prospective uranium project located in Saskatchewan. As consideration, the Company agreed to pay an aggregate of $1,015,000, issue 150,000 common shares and incur in exploration and development expenditures a total of $871,248 or pay to Geomode a further $871,248 over a period of 3 years as follows:
13 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 5 – EXPLORATION AND EVALUATION ASSETS (Continued)
Work Commitment or cash payments to Common Geomode Cash shares $ # $ Within 5 days of Exchange approval (July 27, 2012) 15,000 (paid) 150,000 (issued) - On or before July 27, 2013 - - 60,624 (incurred) On or before July 27, 2014 - - 75,780 (1) On or before July 27, 2015 1,000,000 - 750,000
1,015,000 150,000 886,404
(1) Effective December 1, 2013, the Ministry increased the work requirement for the claims from $60,624 to $75,780. The Company currently has total work assessment credits of $61,905 and was required to submit work assessment of not less than $13,875 or to pay a deficiency deposit in same amount to the Saskatchewan Ministry of Energy and Resources (the “Ministry”) before June 2, 2015.
A 1% net smelter return (“NSR”) shall be reserved to Geomode which may be purchased at any time by the Company for $1,000,000 less all amounts previously received by Geomode as NSR payments.
Subsequent to June 30, 2014, the Company terminated the option agreement.
NOTE 6 – LOANS RECEIVABLE
On May 9, 2014, the Company entered into a letter agreement and subsequently, on September 9, 2014, into a Share Exchange Agreement (the “Agreement”) with Aurora Marijuana Inc. (“Aurora”) pursuant to which the Company will acquire all of the issued and outstanding securities of Aurora in consideration for securities of the Company (Note 13). Pursuant to the letter agreement, the Company entered into the following loan agreements with Aurora:
(a) Loan agreement dated June 19, 2014, in the aggregate principal amount of $1,500,000. The Company advanced an aggregate of $1,000,000 to Aurora during June 2014 and another $500,000 on July 14, 2014. The Company accrued $1,644 in interest on the advances during the year ended June 30, 2014.
(b) Loan agreements subsequent to June 30, 2014:
(i) dated July 29, 2014, in the aggregate principal amount of $1,000,000;
(ii) dated August 29, 2014, in the principal amount of $500,000;
(iii) dated September 25, 2014, in the principal amount of $360,000; and
(iv) dated October 2, 2014 in the principal amount of $500,000.
The loans have a term of six months from the dates of advances, bear interest at 8% per annum and are secured by a general security agreement dated June 19, 2014, granting the Company security over all present and after acquired property of Aurora.
14 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 7 – LOAN PAYABLE
The Company entered into a loan agreement dated June 27, 2014 with an arm’s length party (the “Lender”) in the principal amount of $500,000. The loan is unsecured, bears interest at 8% per annum and matures on December 27, 2014. In consideration for the loan, the Company issued 714,000 common shares to the Lender subsequent to June 30, 2014 at a fair value of $99,960. During the year ended June 30, 2014, the Company paid or accrued $438 in interest on this loan.
NOTE 8 – SHARE CAPITAL
(a) Authorized
The Company is authorized to issue an unlimited number of voting common shares without par value, an unlimited number of Class “A” shares with a par value of $1.00, and an unlimited number of Class “B” shares with a par value of $5.00.
(b) Issued Share Capital
At June 30, 2014, there were 25,550,000 issued and fully paid common shares (2013 – 16,040,000).
(c) Share Issuance
During the year ended June 30, 2014, the Company closed a non-brokered private placement of 9,500,000 common shares at a price of $0.10 per share for gross proceeds of $950,000. The Company paid finder’s fees of $76,000 and 760,000 share purchase warrants at a fair value of $83,645. Each finder’s warrant entitles the finder to purchase a common share of the Company at a price of $0.10 per share expiring June 27, 2016. The fair value of the finder’s warrants of $83,645 has been charged to share issue costs with a corresponding increase to warrant reserve. The fair value of the finder’s warrants was determined using the Black-Scholes option pricing model using the following weighted average assumptions: expected dividend yield - 0.00%; expected stock price volatility - 160.08%; risk-free interest rate - 1.10%; expected life - 2 years. The weighted average fair value of the finder’s warrants issued during the year ended June 30, 2014 was $0.11 per warrant.
During the year ended June 30, 2014, 10,000 stock options at a price of $0.05 per share were exercised for gross proceeds of $500. Non-cash compensation charges of $1,325 were reclassified from reserves to share capital on the exercise of these options.
During the year ended June 30, 2013, 150,000 common shares valued at $11,250 were issued for exploration and evaluation assets (Note 5).
(d) Stock Options
The Company has an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, at its discretion, and in accordance with the Exchange requirements, grant to directors, officers, employees, and consultants of the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares of the Company.
15 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 8 – SHARE CAPITAL (Continued)
(d) Stock Options (Continued)
A summary of the status of the options outstanding follows:
Weighted Number of Average Options Exercise Price $
Balance, June 30, 2012 1,733,000 0.06
Forfeited (10,000) (i) 0.05
Balance, June 30, 2013 1,723,000 0.06 Granted 1,444,000 0.05 Exercised (10,000) 0.05 Expired unexercised (138,333) (ii) 0.05 Forfeited (1,430,667) (ii ) 0.05
Balance, June 30, 2014 1,588,000 0.06
(i) During the year ended June 30, 2013, the fair value of 10,000 forfeited options of $755 was reclassified from reserves to deficit.
(ii) During the year ended June 30, 2014, the fair values of 138,333 expired unexercised options of $24,371 and 1,430,667 forfeited options of $170,946 were reclassified from reserves to deficit.
The following table summarizes the stock options outstanding as at June 30, 2014:
Exercise Number of Options Number of Options Price Outstanding Expiry Date Exercisable $ 0.05 473,333 March 22, 2015 473,333 0.05 503,334 October 29, 2017 503,334 0.15 144,000 (i) October 29, 2017 144,000 0.05 104,000 April 1, 2020 104,000 0.05 180,000 May 31, 2021 180,000 0.05 183,333 March 19, 2024 183,333
1,588,000 1,588,000
(i) These stock options are held by two charitable organizations.
As at June 30, 2014, stock options outstanding have a weighted average remaining contractual life of 3.86 years.
16 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 8 – SHARE CAPITAL (Continued)
(d) Stock Options (Continued)
During the year ended June 30, 2014, the Company amended the terms of an aggregate of 1,420,667 stock options previously granted to employees, directors and consultants of the Company. These options with original exercise prices between $0.10 and $0.15 per share and expiry dates between 2017 and 2021 were amended to have an exercise price of $0.05 per share. The repricing of these options resulted in the recognition of additional share-based payments of $38,791 during the year ended June 30, 2014.
During the year ended June 30, 2014, the Company recognized share-based payments of $45,615 (2013 – $1,887) for stock options granted and vested during the year.
The fair value of stock options used to calculate share-based payments has been estimated using the Black- Scholes option pricing model using the following weighted average assumptions:
2014 2013
Risk-Free Annual Interest Rate 1.16% - Expected Annual Dividend Yield 0% - Expected Stock Price Volatility 159% - Expected Life of Options and Warrants 2.28 years -
The weighted average fair value of stock options granted during the year ended June 30, 2014 was $0.03 (2013 - $Nil) per option.
(e) Share Purchase Warrants
Each whole warrant entitles the holder to purchase one common share of the Company. A summary of the status of the warrants outstanding follows:
Weighted Number of Average Warrants Exercise Price $
Balance, June 30, 2013 and 2012 - -
Granted 760,000 0.10
Balance, June 30, 2014 760,000 0.10
The following table summarizes the warrants outstanding as at June 30, 2014:
Exercise Price Warrants $ # Expiry Date 0.10 760,000 June 27, 2016
As at June 30, 2014, share purchase warrants outstanding have a weighted average remaining contractual life of 2.00 years.
17 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 9 – RELATED PARTY TRANSACTIONS
(a) Related Party Transactions
The Company incurred the following transactions with companies having directors and officers in common:
2014 2013 $ $
Office, rent and administration costs paid or accrued to companies having directors and officers in common (i) 99,100 69,750 Legal fees and share issuance costs paid or accrued to a company controlled by an officer of the Company 1,151 8,005 Project evaluation costs paid or accrued to a companies controlled by a director and an officer of the Company - 38,267
100,251 116,022
(i) Of these fees, $28,800 was paid to the CFO of the Company (2013 - $21,600) (Note 9(b)(i)).
(b) Compensation of Key Management Personnel
The Company’s key management personnel have authority and responsibility for planning, directing, and controlling the activities of the Company and consist of its Directors, Chief Executive Officer, and Chief Financial Officer.
2014 2013 $ $
Short-term benefits – Management fees (i ) 57,300 39,100 Share-based payments (ii ) 61,083 1,661
118,383 40,761
(i) Short-term benefits include consulting and management fees. (ii) Share-based payments is the fair value of options granted and vested to key management personnel under the Company’s stock option plan (Note 8(d)). (c) Related Party Balances
The following related party amounts are included in (i) accounts payable and accrued liabilities and (ii) prepaid expenses and deposits:
June 30, June 30, 2014 2013 $ $
(i) Companies controlled by directors and an officer of the Company 5,250 12,327 (ii) Companies having a director and officers in common 1,500 1,500
Any amounts due to related parties are unsecured, non-interest bearing, and have no specific repayment terms.
18 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 10 – FINANCE AND OTHER COSTS
2014 2013 $ $
Financing fees (Note 7) 99,960 - Interest expense (Note 7) 438 - Bank charges 677 786
101,075 786
NOTE 11 – INCOME TAXES
(a) Reconciliation of Effective Tax Rate
Income tax recovery differs from the amounts computed by applying the combined federal and provincial income tax rate of 26% (2013 – 25%) to pre-tax loss as a result of the following:
2014 2013 $ $
Loss before income taxes (399,705) (393,489)
Expected income tax recovery (104,000) (99,000) Change in tax assets not recognized 102,000 110,000 Change in tax rates - (12,000) Permanent differences and other 2,000 1,000
Deferred income tax recovery - -
(b) Deferred Income Tax Assets
Deferred tax assets have not been recognized in respect of the following items:
2014 2013 $ $
Non-capital losses carry-forward 375,000 305,000 Share issuance cost 16,000 - Exploration and evaluation assets 42,000 26,000 Equipment 1,000 1,000
434,000 332,000
Less: Tax benefits not recognized (434,000) (332,000)
Net deferred tax assets - -
19 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 11 – INCOME TAXES (Continued)
(c) Non-Capital Losses
As at June 30, 2014, the Company has non-capital losses of approximately $1,440,000 (2013 - $1,111,000), which may be applied to reduce taxable income of future years. These non-capital losses expire as follows:
Year $
2026 2,000 2027 46,000 2028 19,000 2029 109,000 2030 80,000 2031 215,000 2032 337,000 2033 303,000 2034 329,000
1,440,000
The Company has not recognized deferred income tax assets as it is not probable that there will be sufficient taxable income to realize the benefits.
In addition, the Company has Canadian resource pools of approximately $163,000 (2013 - $162,000), which can be carried forward indefinitely to offset future taxable income.
NOTE 12 – FINANCIAL RISK MANAGEMENT
(a) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, interest receivable, loans receivable, accounts payable and accrued liabilities and loan payable. The carrying values of these financial instruments approximate their fair values because of their short term nature and/or the existence of market related interest rates on the instruments.
IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of hierarchy are:
• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and • Level 3 – Inputs for the asset or liability that are not based on observable market data.
The Company has no financial instrument assets or liabilities recorded in the statements of financial position at fair value as at June 30, 2014 and 2013.
20 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 12 – FINANCIAL RISK MANAGEMENT (Continued)
(b) Financial Instruments Risk
The Company is exposed in varying degrees to a variety of financial instrument related to risks. The Board approves and monitors the risk management processes:
(i) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank Guaranteed Investment Certificates (“GICs”), and interest receivable. Cash and cash equivalents consisting of GICs have been invested with Schedule 1 banks or equivalents, with its cash held in Canadian based banking institutions, authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation. Management considers that risks related to credit are minimal.
(ii) Liquidity Risk
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. As at June 30, 2014, the Company had cash and cash equivalents of $879,419 to settle current liabilities of $533,988 which mainly consisted of accounts payable of $33,550 and loan payable of $500,438 that were considered short term and settled within 30 days.
The Company is dependent on 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. There can be no assurance that such financing will be available on terms acceptable to the Company (Note 1).
(iii) 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’s short-term investments are invested in GICs with greater than 90 day terms but not greater than one year. These GICs have a fixed interest rate for the term of the deposit. The interest on cash and GICs is typical of Canadian banking rates, which are low at present and the conservative investment strategy mitigates the risk of deterioration to the investment. A change of 100 basis points in the interest rates would not be material to the financial statements.
(c) Capital Management
The Company manages its share capital as capital, which as at June 30, 2014, totaled $2,640,575 (2013 – $1,848,395).
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern such that it can continue to provide returns for shareholders and benefits for other stakeholders. The management of the capital structure is based on the funds available to the Company in order to support the acquisition, exploration, and development of mineral properties and to maintain the Company in good standing with the various regulatory authorities. In order to maintain or adjust its capital structure, the Company may issue new shares or debt, or dispose of assets.
21 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 12 – FINANCIAL RISK MANAGEMENT (Continued)
(c) Capital Management (Continued)
The Company’s historical sources of capital have consisted of the sale of equity securities and interest income. In order for the Company to carry out planned exploration and development and pay for administrative costs, the Company will spend its working capital and expects to raise additional amounts externally as needed.
The Company is not subject to externally imposed capital requirements.
There were no changes in the Company’s management of capital during the year ended June 30, 2014.
NOTE 13 – SUBSEQUENT EVENTS
The following events occurred subsequent to June 30, 2014:
(a) The Company closed the second and final tranche of a non-brokered private placement of 6,500,000 common shares at a price of $0.10 per share for gross proceeds of $650,000. The Company paid finders’ fees of $52,000 and 520,000 share purchase warrants. Each finder’s warrant entitles the finder to purchase a common share of the Company at a price of $0.10 per share expiring July 15, 2016.
(b) The Company closed a non-brokered private placement of 8,000,000 common shares at a price of $0.25 per share for gross proceeds of $2,000,000. The Company paid aggregate finders’ fees of $98,920 on a portion of the private placement.
(c) The Company granted stock options to purchase 1,000,000 common shares of the Company at a price of $1.01 per share for a period of 5 years.
(d) The Company has arranged for a non-brokered private placement of 2,353,000 common shares at a price of $0.85 per share for gross proceeds of $2,000,050. The Company received shares subscriptions of $997,750 pursuant to this private placement.
(e) 60,000 common shares were issued at $0.05 per share for gross proceeds of $3,000 on exercise of stock options.
(f) On August 31, 2014, the Company entered into an Investor Relations Consulting Agreement (the “Agreement”) for investor and financial relations services. The term of the Agreement is for a period of 3 months commencing September 1, 2014. Pursuant to the Agreement, the Company agreed to pay a monthly fee of $15,000 and grant stock options to purchase 250,000 common shares of the Company at a price of $0.70 per share for a period of 5 years. The stock options will vest as to 25% every 3 months up to a period of 12 months. The Agreement is subject to the approval of the Exchange.
(g) On September 9, 2014, the Company entered into a Share Exchange Agreement with Aurora pursuant to which the Company will acquire all of the issued and outstanding securities of Aurora in consideration for securities of the Company (the “Agreement”), which will constitute a reverse takeover of the Company by the shareholders of Aurora, as follows:
(i) Issuance of the following securities of the Company to Aurora shareholders: • 60,00,000 common shares; • An aggregate of 21,450,000 warrants, being 10,200,000 warrants exercisable at a price of $0.50 per share for a period of 3 years and 11,250,000 warrants exercisable at a price of $0.02 per share for a period of 5 years; and • 4,000,000 options exercisable at a price of $0.001 per share for a period of 5 years.
22 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2014 and 2013 (Expressed in Canadian Dollars)
NOTE 13 – SUBSEQUENT EVENTS (Continued)
(ii) Assumption of Aurora’s convertible shareholder loan of $1,500,000. The loan has a term of 5 years, is unsecured and convertible into common shares of the Company at a price of $0.125 per share at any time during the term.
(iii) Issuance of 20,000,000 performance shares and 3,750,000 performance warrants on completion of a performance milestone.
The Company entered into a finder’s fee agreement and will issue 3,000,000 common shares to the finder, being 5% of the total shares to be issued under the Agreement.
As of the most current date, the Company advanced an aggregate of $3,860,000 to Aurora pursuant to loan and security agreements (Note 6).
In connection with the transaction, the Company changed its name to Aurora Cannabis Inc. The transaction and the name change are subject to the approval of the Exchange.
(h) On September 18, 2014, the Company entered into a consulting agreement pursuant to which the Company will issue 250,000 broker’s warrants to the consultant. Each broker’s warrant entitles the consultant to acquire a common share of the Company at $1.01 per share for a period of 1 year.
23
AUDITORS’ CONSENT
We have read the Listing Statement of Aurora Cannabis Inc. (“Aurora”), formerly Prescient Mining Corp., dated October 10, 2014. We have complied with Canadian Generally Accepted Standards for an auditors’ involvement with offering documents.
We consent to the use, through incorporation by reference, in the above mentioned Listing Statement of our report to the shareholders of Aurora on the statements of financial position of Aurora as at June 30, 2013 and 2012, and the statements of changes in shareholders’ equity, comprehensive loss, and cash flows for the years then ended. Our report is dated October 15, 2013.
Vancouver, British Columbia October 15, 2014
PRESCIENT MINING CORP.
June 30, 2013 and 2012
(Expressed in Canadian Dollars)
• Independent Auditors’ Report
• Statements of Financial Position
• Statements of Changes in Equity
• Statements of Comprehensive Loss
• Statements of Cash Flows
• Notes to the Financial Statements
Independent Auditors’ Report
To the Shareholders of: PRESCIENT MINING CORP.
We have audited the accompanying financial statements of Prescient Mining Corp. which comprise the statements of financial position as at June 30, 2013 and 2012, the statements of changes in equity, comprehensive loss, and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of 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 financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 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 financial statements present fairly, in all material respects, the financial position of Prescient Mining Corp. as at June 30, 2013 and 2012, and its financial performance and its cash flows for the years then ended, in accordance with International Financial Reporting Standards.
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 financial statements concerning the ability of Prescient Mining Corp. to continue as a going concern. The company incurred a net loss of $393,489 during the year ended June 30, 2013, and as of that date, had accumulated losses since inception of $1,329,553. These conditions, along with other matters explained in Note 1 of the 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 Prescient Mining Corp. was unable to continue as a going concern.
“WDM Chartered Accountants”
Vancouver, B.C., Canada October 15, 2013
2
PRESCIENT MINING CORP. Statements of Financial Position (Expressed in Canadian Dollars)
Note June 30, June 30, 2013 2012 $ $
ASSETS
CURRENT Cash and cash equivalents 644,713 1,092,557 Interest receivable 4,748 9,362 GST/HST recoverable 5,835 10,225 Prepaid expenses and deposits 6 & 8(c) 62,240 7,635
717,536 1,119,779
Equipment 5 1,009 1,441
718,545 1,121,220
LIABILITY
CURRENT Accounts payable and accrued liabilities 8(c) 24,345 46,668
SHAREHOLDERS’ EQUITY
Share capital 7 1,848,395 1,837,145 Share-based payment reserve 175,358 174,226 Deficit (1,329,553) (936,819)
694,200 1,074,552
718,545 1,121,220
Nature of operations (Note 1) Exploration and evaluation assets (Note 6)
The accompanying notes are an integral part of these financial statements.
Approved on Behalf of the Board:
“Marc Levy” “Gordon Addie” Marc Levy, Director Gordon Addie, Director
3
PRESCIENT MINING CORP. Statements of Changes in Equity For the Years Ended June 30, 2013 and 2012 (Expressed in Canadian Dollars)
Number of Share-Based Common Share Payment Note Shares Capital Reserve Deficit Total $ $ $ $
Balance, June 30, 2011 15,890,000 1,837,145 156,540 (621,059) 1,372,626
Comprehensive loss for the year - - - (315,760) (315,760) Share-based payments 7(d) - - 17,686 - 17,686 Balance, June 30, 2012 15,890,000 1,837,145 174,226 (936,819) 1,074,552
Comprehensive loss for the year - - - (393,489) (393,489) Shares issued for exploration and evaluation asset 6 150,000 11,250 - - 11,250 Forfeited options - - (755) 755 - Share-based payments 7(d) - - 1,887 - 1,887
Balance, June 30, 2013 16,040,000 1,848,395 175,358 (1,329,553) 694,200
The accompanying notes are an integral part of these financial statements.
4
PRESCIENT MINING CORP. Statements of Comprehensive Loss For the Years Ended June 30, 2013 and 2012 (Expressed in Canadian Dollars)
Note 2013 2012 $ $
EXPENSES
Depreciation 432 422 Consulting fees 29,600 34,050 Exploration and evaluation 6 88,250 19,075 Management fees 8(b) 17,500 17,000 Office, rent and administration 8(a),8(b) 81,745 58,751 Professional fees 8(a) 18,236 28,670 Project evaluation costs 8(a) 142,944 74,822 Regulatory fees 10,795 12,204 Share-based payments 7(d),8(b) 1,887 17,686 Transfer agent and shareholder information 7,815 6,839 Travel and promotion 3,674 61,266
LOSS BEFORE OTHER ITEM (402,878) (330,785)
Interest income 9,389 15,025
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (393,489) (315,760)
BASIC AND DILUTED LOSS PER SHARE (0.02) (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 16,028,082 15,890,000
The accompanying notes are an integral part of these financial statements.
5
PRESCIENT MINING CORP. Statements of Cash Flows For the Years Ended June 30, 2013 and 2012 (Expressed in Canadian Dollars)
2013 2012 $ $
CASH WAS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year (393,489) (315,760)
Adjustments for non-cash items Depreciation 432 422 Shares issued for exploration and evaluation asset 11,250 - Share-based payments 1,887 17,686
Changes in non-cash working capital accounts Interest receivable 4,614 1,336 HST/GST recoverable 4,390 (6,753) Prepaid expenses and deposits (54,605) (6,135) Accounts payable and accrued liabilities (22,323) 31,225
(447,844) (277,979)
INVESTING ACTIVITY
Purchase of equipment - (910)
DECREASE IN CASH AND CASH EQUIVALENTS (447,844) (278,889)
Cash and cash equivalents, beginning of year 1,092,557 1,371,446
CASH AND CASH EQUIVALENTS, END OF YEAR 644,713 1,092,557
CASH AND CASH EQUIVALENTS CONSISTS OF:
Cheques written in excess of cash on hand (3,087) (30,743) Guaranteed Investment Certificates 647,800 1,123,300
644,713 1,092,557
SUPPLEMENTARY INFORMATION:
Interest paid - - Income taxes paid - -
The accompanying notes are an integral part of these financial statements.
6 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 1 – NATURE OF OPERATIONS
Prescient Mining Corp. (the “Company”) was incorporated on December 21, 2006, under the laws of the Business Corporations Act (British Columbia). The Company’s shares are traded on the TSX Venture Exchange (the “Exchange”) under the symbol “PMC.”
The head office, principal address, and records office of the Company are located at Suite 507 – 700 West Pender Street, Vancouver, BC, Canada, V6C 1G8. The Company’s registered office address is located at Suite 1780 – 400 Burrard Street, Vancouver, British Columbia, Canada, V6C 3A6.
The Company is engaged in the acquisition, exploration, and development of resource properties. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to raise additional financing in order to complete the acquisition, exploration, and development of its resource properties, the discovery of economically recoverable reserves, and the attainment of future profitable production or proceeds from disposition of the Company’s resource properties. The outcome of these matters cannot be predicted at this time.
These 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.
The Company will require additional financing as it acquires mineral properties or interests therein. There is no assurance that it will be able to obtain such financing, if any, on reasonable terms. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The financial statements were authorized for issue on October 15, 2013, by the Directors of the Company. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
(a) 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 October 15, 2013.
(b) Basis of Presentation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
The financial statements of the Company have been prepared on a historical cost basis.
(c) Functional and Presentation of Foreign Currency
The financial statements are presented in Canadian dollars unless otherwise noted. The functional currency and presentation currency of the Company is the Canadian dollar.
7 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Cash and Cash Equivalents
Cash and cash equivalents consists of cash balances and short-term highly liquid investments which are readily convertible into cash and that are subject to an insignificant risk of changes in value.
For the purpose of the statements of cash flows, total cash and cash equivalents include cash and guaranteed investment certificates (“GIC”) with maturities of less than one year and redeemable anytime at the option of the holder.
(e) Equipment and Depreciation
Equipment is carried at acquisition cost less accumulated depreciation.
Depreciation is calculated on a declining-balance basis to write off the cost of the assets to their residual values over their estimated useful lives, except in the year of acquisition, when half of the rate is used. The annual rate used to compute depreciation is as follows:
Computer hardware 30%
(f) Exploration and Evaluation Assets and Expenditures
Exploration and evaluation activity begins when the Company obtains legal rights to explore a specific area and involves the search for mineral reserves, the determination of technical feasibility and the assessment of commercial viability of an identified mineral resource. Expenditures incurred in the exploration and evaluation phase include the cost of acquiring interests in mineral rights, licenses and properties, and the costs of the Company’s exploration activities, such as researching and analyzing existing exploration data, gathering data through geological studies, exploratory drilling, trenching, sampling, and certain feasibility studies.
Exploration and evaluation expenditures incurred prior to the determination of commercially viable mineral resources, the feasibility of mining operations, and a positive development decision, are expensed as incurred. Mineral property acquisition costs and development expenditures incurred subsequent to such a determination are capitalized and amortized over the estimated life of the property following the commencement of commercial production or are written off if the property is sold, allowed to lapse, abandoned, or when an impairment is determined to have occurred.
(g) Decommissioning Obligations
A liability for a decommissioning obligation, such as site reclamation costs, is recorded when a legal or constructive obligation exists and is recognized in the period in which it is incurred. The Company records the estimated present value of future cash flows associated with site reclamation as a liability when the liability is incurred and increases the carrying value of the related assets for that amount. Subsequently, these capitalized decommissioning costs will be amortized to expense over the life of the related assets using the units-of-production method. The liability is accreted to reflect the passage of time and adjusted to reflect changes in the timing and amount of estimated future cash flows.
As at June 30, 2013 and June 30, 2012, the Company has determined that it does not have material decommissioning obligations.
8 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h) Impairment of Financial Assets
A financial asset not carried at fair value through profit or loss is reviewed at each reporting date to determine whether there is any indication of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets' original effective interest rate. Losses are recognized in profit or loss with a corresponding reduction in the financial asset, or in the case of amounts receivable are reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(i) Share Capital
Transaction costs directly attributable to the issuance of common shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the vesting periods are recorded as share capital. Share capital issued for non-monetary consideration is recorded at an amount based on fair market value of the shares on the date of issue.
(j) Share-Based Payments
The Company has an employee stock option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized to expense over the vesting periods.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share-based payment reserve.
The fair value of options is determined using the Black–Scholes option pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Amounts recorded for forfeited or expired unexercised options are transferred to deficit in the year of forfeiture or expiry.
Upon the exercise of stock options, 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.
9 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Income Taxes
Tax expense recognized in profit or loss comprises the sum of current and deferred taxes not recognized in other comprehensive income or directly in equity.
(i) Current Income Tax
Current income tax assets and/or 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 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.
(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.
(l) Loss per Share
The Company calculates basic loss per share using the weighted average number of common shares outstanding during the year. 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.
(m) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Financial assets and financial liabilities are recognized on the statements of financial position at the time the Company becomes a party to the contractual provisions of the financial instrument.
Financial instruments are initially measured at fair value. Measurement in subsequent periods is dependent on the classification of the financial instrument. The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to- maturity, available-for-sale, and other financial liabilities.
10 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Financial Instruments (Continued)
(i) Financial Assets and Liabilities at Fair Value Through Profit or Loss
Financial assets and liabilities at fair value through profit or loss are either ‘held-for-trading’ or classified at fair value through profit or loss. They are initially and subsequently recorded at fair value and changes in fair value are recognized in profit or loss for the period.
The Company does not have any financial assets and liabilities at fair value through profit or loss.
(ii) Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value and subsequently on an amortized cost basis using the effective interest method, less any impairment losses. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets.
The Company has designated its cash and cash equivalents and interest receivable as loans and receivables.
(iii) Held-to-Maturity
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are initially recorded at fair value and subsequently measured at amortized cost.
The Company does not have any held-to-maturity financial assets.
(iv) Available-For-Sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any other financial asset categories. They are initially and subsequently measured at fair value and the changes in fair value, other than impairment losses are recognized in other comprehensive income (loss) and presented in the fair value reserve in shareholders’ equity. When the financial assets are sold or an impairment write-down is required, losses accumulated in the fair value reserve recognized in shareholders’ equity are included in profit or loss.
The Company does not have any available-for-sale financial assets.
(v) Other Financial Liabilities
Other financial liabilities are recognized initially at fair value plus any directly attributable transaction costs on the date at which the Company becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition, the Company’s financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.
The Company’s non-derivative financial liabilities are its accounts payable and accrued liabilities, which are designated as other liabilities.
11 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(o) Flow-Through Shares
The Company finances a portion of its exploration activities through the issuance of flow-through shares.
Canadian tax legislation permits a company to issue flow-through instruments whereby the deduction for tax purposes relating to qualified resource expenditures is claimed by the investors rather than the Company. Common shares issued on a flow-through basis typically include a premium because of the tax benefits provided to the investor. At the time of issue, the Company estimates the proportion of the proceeds attributable to the premium and the common shares. The premium is estimated as the excess of the subscription price over the value of common shares on the date of the transaction and is recorded as a deferred liability. The Company recognizes a pro rata amount of the premium through the statement of comprehensive loss as other income with a corresponding reduction to the flow through premium liability as the flow-through expenditures are incurred and renounced.
When the flow-through expenditures are incurred and renounced, the Company records the tax effect as a change to profit or loss and an increase to deferred income tax liabilities. To the extent that the Company has deferred income tax assets that were not recognized in previous periods, a deferred income tax recovery is recorded to offset the liability resulting from the renunciation.
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 financial statements are described below.
(a) Share-Based Payments
The Company grants stock options to directors, officers, employees, and consultants of the Company under its incentive stock option plan. The fair value of stock options is estimated using the Black- Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management is required to make certain assumptions and estimates such as the life of options, volatility, and forfeiture rates.
Changes in assumptions used to estimate fair value could result in materially different results.
12 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 3 – SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
(b) Decommissioning and Restoration Provision
The decommissioning and restoration provision is based on future cost estimates using information available at the reporting date. The decommissioning and restoration provision is adjusted at each reporting period for changes to factors such as the expected amount of cash flows required to discharge the liability, the timing of such cash flows, and the discount rate. The decommissioning and restoration provision requires other significant estimates and assumptions such as requirements of the relevant legal and regulatory framework, and the timing, extent and costs of required decommissioning and restoration activities. Actual costs may differ from these estimates.
As at June 30, 2013 and 2012, the Company has no material decommissioning and restoration provision.
(c) Deferred Tax Assets
Deferred tax assets, including those arising from tax loss carry-forwards, 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.
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS
The following IFRS standards have been recently issued by the IASB or the IFRIC. The Company is assessing the impact of these new standards, but does not expect them to have a significant effect on the financial statements. Pronouncements that are not applicable or do not have a significant impact to the Company have been excluded herein.
(a) IFRS 7, Financial Instruments: Disclosures, and IAS 32, Financial Instruments: Presentation
The IASB has issued amendment to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”) and IAS 32, Financial Instruments: Presentation (“IAS 32”), requiring incremental disclosures regarding transfers of financial assets and clarity of an entity’s ability to offset financial assets and financial liabilities. The amendments to IFRS 7 are effective for annual periods beginning on or after July 1, 2013, and the amendments to IAS 32 are effective for annual periods beginning on or after July 1, 2014. The Company will apply the amendment at the beginning of its 2013 financial year. The Company does not expect the implementation to have a significant impact on the Company’s disclosures.
(b) IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, “Financial Instruments” (“IFRS 9”), which will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase of this project. IFRS 9 uses a single approach to determine whether a financial asset or liability is measured at amortized cost or fair value, replacing the multiple rules in IAS 39.
13 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
(b) IFRS 9, Financial Instruments (Continued)
For financial assets, the approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. IFRS 9 requires a single impairment method to be used, replacing multiple impairment methods in IAS 39. For financial liabilities measured at fair value, fair value changes due to changes in an entity’s credit risk are presented in other comprehensive income. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company does not expect the implementation to have a significant impact on the Company’s results of operations, financial position, and disclosures.
(c) IFRS 13, Fair Value Measurement
IFRS 13, Fair Value Measurement (“IFRS 13”) is effective for annual periods beginning on or after January 1, 2013. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. The Company does not expect the implementation to have a significant impact on the Company’s results of operations, financial position, and disclosures.
(d) IAS 32, Financial Instruments
Presentation was amended to address inconsistencies in current practice when applying the offsetting criteria in IAS 32. Under this amendment, the meaning of “currently has a legally enforceable right of set- off” was clarified as well as providing clarification that some gross settlement systems may be considered equivalent to net settlement. This amendment is effective for annual periods beginning on or after January 1, 2014 and is not expected to have a significant impact on the Company.
NOTE 5 – EQUIPMENT $ COST Balance, June 30, 2011 3,269 Additions 910
Balance, June 30, 2012 4,179 Additions - None - Balance, June 30, 2013 4,179 ACCUMULATED DEPRECIATION Balance, June 30, 2011 2,316 Depreciation 422
Balance, June 30, 2012 2,738 Depreciation 432
Balance, June 30, 2013 3,170 NET BOOK VALUE June 30, 2012 1,441
June 30, 2013 1,009
14 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 6 – EXPLORATION AND EVALUATION ASSETS
Cumulative expenditures incurred by the Company on its properties are summarized as follows:
Hook Lake property Saskatchewan, Canada $ Balance, June 30, 2011 - Acquisition costs: Professional and regulatory fees 9,318 Geology 9,757
Balance, June 30, 2012 19,075 Acquisition costs: Option Payment – Cash 15,000 Option Payment – Common Shares Issued 11,250 Exploration costs: Geophysics 62,000
88,250 Balance, June 30, 2013 107,325
On April 12, 2012, the Company entered into an option agreement with Geomode Mineral Exploration Ltd. (“Geomode”) for the exclusive right and option to acquire a 100% interest in the Hook Lake property, a prospective uranium project located in Saskatchewan. As consideration, the Company agreed to pay an aggregate of $1,015,000, issue 150,000 common shares, and incur in exploration and development expenditures a total of $871,248 or pay to Geomode a further $871,248 over a period of 3 years as follows:
Work Commitment or cash payments to Common Geomode Cash shares $ # $ Within 5 days of Exchange approval (July 27, 2012) 15,000 (paid) 150,000 (issued) - On or before July 27, 2013 - - 60,624 (incurred) On or before July 27, 2014 - - 60,624 On or before July 27, 2015 1,000,000 - 750,000
1,015,000 150,000 871,248
Included in prepaid expenses and deposits is a deficiency cash deposit of $60,624 paid to the Saskatchewan Ministry of Energy and Resources (“Ministry”) towards a 6 month extension on the work requirement for the claims. The amount is refundable upon the Company’s filing of assessment work with the Ministry on or before March 3, 2014.
A 1% net smelter return (“NSR”) shall be reserved to Geomode which may be purchased at any time by the Company for $1,000,000 less all amounts previously received by Geomode as NSR payments.
15 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 7 – SHARE CAPITAL
(a) Authorized
The Company is authorized to issue an unlimited number of voting common shares without par value.
(b) Issued Share Capital
At June 30, 2013, there were 16,040,000 issued and fully paid common shares (2012 - 15,890,000).
(c) Escrow Shares
As of June 30, 2013, the Company has Nil common shares held in escrow (2012 – 920,000).
(d) Share-Based Payments
The Company has an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, at its discretion, and in accordance with the Exchange requirements, grant to directors, officers, employees, and consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares of the Company.
A summary of the status of the options outstanding follows: Weighted Number of Average Options Exercise Price $
Balance, June 30, 2012 and June 30, 2011 1,733,000 0.14
Forfeited (10,000) (i) 0.11
Balance, June 30, 2013 1,723,000 0.14
(i) During the year ended June 30, 2013, the fair value of 10,000 forfeited options of $755 was reclassified from reserves to deficit.
The following table summarizes the stock options outstanding as at June 30, 2013:
Exercise Number of Options Number of Options Price Outstanding Expiry Date Exercisable $ 0.21 138,333 August 1, 2013 138,333 0.15 926,667 October 29, 2017 926,667 0.15 144,000 (i) October 29, 2017 144,000 0.10 139,000 April 1, 2020 139,000 0.11 375,000 May 31, 2021 375,000
1,723,000 1,723,000
(i) These stock options were granted to two charitable organizations.
During the year ended June 30, 2013, the Company recognized share-based payments of $1,887 (2012 – $17,686) for stock options vested during the year. The weighted average contractual life remaining for the outstanding stock options as at June 30, 2013, is 4.95 years.
16 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 7 – SHARE CAPITAL (Continued)
(e) Share Purchase Warrants
Each whole warrant entitles the holder to purchase one common share of the Company. A summary of the status of the warrants outstanding follows:
Weighted Number of Average Warrants Exercise Price $
Balance, June 30, 2011 1,389,999 0.12
Expired (1,389,999) 0.12
Balance, June 30, 2013 and June 30, 2012 - -
NOTE 8 – RELATED PARTY TRANSACTIONS
(a) Related Party Transactions
The Company incurred the following transactions with companies having directors and officers in common:
2013 2012 $ $
Office, rent and administration costs paid or accrued to companies having directors and officers in common (i) 69,750 45,000 Legal fees and share issuance costs paid or accrued to a company controlled by an officer of the Company 8,005 14,018 Project evaluation costs paid or accrued to a companies controlled by a director and an officer of the Company 38,267 30,220
116,022 89,238
(i) Of these fees, $21,600 was paid to the CFO of the Company (2012 - $14,400) (Note 8(b)(i)).
(b) Compensation of Key Management Personnel
The Company’s key management personnel have authority and responsibility for planning, directing, and controlling the activities of the Company and consist of its Directors, Chief Executive Officer, and Chief Financial Officer.
$ $
Short-term benefits – Management Fees (i ) 39,100 31,400 Share-based payments (ii ) 1,661 12,791
40,761 44,191
(i) Short-term benefits include consulting and management fees.
17 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 8 – RELATED PARTY TRANSACTIONS (Continued)
(b) Compensation of Key Management Personnel (Continued)
(ii) Share-based payments is the fair value of options granted and vested to key management personnel under the Company’s stock option plan (Note 7(d)).
(c) Related Party Balances
The following related party amounts are included in (i) accounts payable and accrued liabilities and (ii) prepaid expenses and deposits:
June 30, June 30, 2013 2012 $ $
(i) Companies controlled by directors and an officer of the Company 12,327 24,441
(ii) Companies having a director and officers in common 1,500 6,500
These transactions are in the normal course of operations and are measured at the fair value amount of consideration established and agreed to by the related parties. Any amounts due to related parties are unsecured, non-interest bearing, and have no specific repayment terms.
NOTE 9 – INCOME TAXES
(a) Reconciliation of Effective Tax Rate
Income tax expense (recovery) differs from the amounts computed by applying the combined federal and provincial income tax rate of 25.25% (2012 – 25.75%) to pre-tax loss as a result of the following:
2013 2012 $ $
Loss before income taxes (393,489) (315,760)
Computed expected income tax recovery (99,356) (81,308) Deferred tax assets not recognized 110,412 98,929 Effect of change in tax rates (11,804) 2,968 Permanent difference 638 5,973 Other 110 (26,562)
Income tax expense (recovery) - -
18 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 9 – INCOME TAXES (Continued)
(b) Deferred Income Tax Assets and Liabilities
Deferred tax assets have not been recognized in respect of the following items:
2013 2012 $ $
Non-capital losses carry-forward 305,334 202,284 Share issuance cost 246 473 Exploration and evaluation assets 25,985 18,423 Equipment 712 684
Unrecognized deferred tax assets 332,277 221,864
(c) Non-Capital Losses
As at June 30, 2013, the Company has non-capital losses of $1,174,363 which may be applied to reduce taxable income of future years. These non-capital losses expire as follows:
Year $
2026 1,933 2027 46,286 2028 19,493 2029 109,260 2030 80,088 2031 215,212 2032 336,865 2033 365,226
1,174,363
Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements and have been offset by a valuation allowance due to the uncertainty of their realization.
In addition, the Company has cumulative resource pools of $99,941 which can be carried forward indefinitely to offset future resource profits.
19 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 10 – FINANCIAL RISK MANAGEMENT
(a) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, interest receivable, and accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair values because of their short term nature and/or the existence of market related interest rates on the instruments.
IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and Level 3 – Inputs for the asset or liability that are not based on observable market data.
The Company has no financial instrument assets or liabilities recorded in the statements of financial position at fair value as at June 30, 2013 and 2012.
(b) Financial Instruments Risk
The Company is exposed in varying degrees to a variety of financial instrument related to risks. The Board approves and monitors the risk management processes:
(i) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank Guaranteed Investment Certificates (“GICs”), and interest receivable. Cash and cash equivalents consisting of GICs have been invested with Schedule 1 banks or equivalents, with its cash held in Canadian based banking institutions, authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation. Management considers that risks related to credit are minimal.
(ii) Liquidity Risk
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. As at June 30, 2013, the Company had cash and cash equivalents of $644,713 to settle current liabilities of $24,345 which mainly consisted of accounts payable that were considered short term and settled within 30 days.
The Company is dependent on 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. There can be no assurance that such financing will be available on terms acceptable to the Company (Note 1).
20 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2013 and 2012
NOTE 10 – FINANCIAL RISK MANAGEMENT (Continued)
(b) Financial Instruments Risk (Continued)
(iii) 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’s short-term investments are invested in GICs with greater than 90 day terms but not greater than one year. These GICs have a fixed interest rate for the term of the deposit. The interest on cash and GICs is typical of Canadian banking rates, which are low at present and the conservative investment strategy mitigates the risk of deterioration to the investment. A change of 100 basis points in the interest rates would not be material to the financial statements.
(c) Capital Management
The Company manages its share capital as capital, which as at June 30, 2013, totaled $1,848,395 (2012 – $1,837,145).
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern such that it can continue to provide returns for shareholders and benefits for other stakeholders. The management of the capital structure is based on the funds available to the Company in order to support the acquisition, exploration, and development of mineral properties and to maintain the Company in good standing with the various regulatory authorities. In order to maintain or adjust its capital structure, the Company may issue new shares or debt, or dispose of assets.
The Company’s historical sources of capital have consisted of the sale of equity securities and interest income. In order for the Company to carry out planned exploration and development and pay for administrative costs, the Company will spend its working capital and expects to raise additional amounts externally as needed.
The Company has no debt and is not subject to externally imposed capital requirements.
There were no changes in the Company’s management of capital during the years ended June 30, 2013.
21
PRESCIENT MINING CORP.
June 30, 2012 and 2011
• Independent Auditors’ Report
• Statements of Financial Position
• Statements of Changes in Equity
• Statements of Comprehensive Loss
• Statements of Cash Flows
• Notes to the Financial Statements
Independent Auditors’ Report
To the Shareholders of: PRESCIENT MINING CORP.
We have audited the accompanying financial statements of Prescient Mining Corp. which comprise the statements of financial position as at June 30, 2012, June 30, 2011, and July 1, 2010, the statements of changes in equity, comprehensive loss, and cash flows for the years ended June 30, 2012 and 2011, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of 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 financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the 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 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 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 financial statements present fairly, in all material respects, the financial position of Prescient Mining Corp. as at June 30, 2012, June 30 2011, and July 1, 2010, and its financial performance and cash flows for the years ended June 30, 2012 and 2011, in accordance with International Financial Reporting Standards.
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 financial statements concerning the ability of Prescient Mining Corp. to continue as a going concern. The company incurred a net loss of $315,760 during the year ended June 30, 2012, and as of that date, had accumulated losses since inception of $936,819. The financial statements do not include the adjustments that would result if Prescient Mining Corp. was unable to continue as a going concern.
“Watson Dauphinee & Masuch” Chartered Accountants
Vancouver, B.C., Canada October 26, 2012
2
PRESCIENT MINING CORP. Statements of Financial Position
June 30, June 30, July 1, 2012 2011 2010 Notes (Note 11) (Note 11) $ $ $
ASSETS
CURRENT Cash and cash equivalents 1,092,557 1,371,446 1,646,924 Interest receivable 9,362 10,698 5,521 HST/GST recoverable 10,225 3,472 1,539 Prepaid expenses and deposits 8(c) 7,635 1,500 1,500
1,119,779 1,387,116 1,655,484
Equipment 5 1,441 953 1,362
1,121,220 1,388,069 1,656,846
LIABILITY
CURRENT Accounts payable and accrued liabilities 8(c) 46,668 15,443 15,322
SHAREHOLDERS’ EQUITY
Share capital 7 1,837,145 1,837,145 1,837,145 Share-based payment reserve 174,226 156,540 203,039 Deficit (936,819) (621,059) (398,660)
1,074,552 1,372,626 1,641,524
1,121,220 1,388,069 1,656,846
Nature of operations (Note 1) Exploration and evaluation assets (Note 6)
The accompanying notes are an integral part of these financial statements.
Approved on Behalf of the Board:
“Marc Levy” “Gordon Addie” Marc Levy, Director Gordon Addie, Director
3
PRESCIENT MINING CORP. Statements of Changes in Equity For the Years Ended June 30, 2012 and 2011
Number of Share-Based Common Share Payment Notes Shares Capital Reserve Deficit Total $ $ $ $
Balance, July 1, 2010 11 15,890,000 1,837,145 203,039 (398,660) 1,641,524
Comprehensive loss for the year - - - (281,084) (281,084) Expired options - - (58,685) 58,685 - Share-based payments 7(d) - - 12,186 - 12,186 Balance, June 30, 2011 15,890,000 1,837,145 156,540 (621,059) 1,372,626
Comprehensive loss for the year - - - (315,760) (315,760) Share-based payments 7(d) - - 17,686 - 17,686
Balance, June 30, 2012 15,890,000 1,837,145 174,226 (936,819) 1,074,552
The accompanying notes are an integral part of these financial statements.
4
PRESCIENT MINING CORP. Statements of Comprehensive Loss For the Years Ended June 30, 2012 and 2011
2012 2011 Notes (Note 11) $ $
EXPENSES
Depreciation 422 409 Consulting fees 34,050 38,700 Exploration and evaluation 6 19,075 94,568 Management fees 8(b) 17,000 - Office, rent and administration 8(a) 58,751 72,775 Professional fees 8(a) 28,670 18,587 Project investigation costs 8(a) 74,822 - Regulatory fees 12,204 11,197 Share-based payments 7(d),8(b) 17,686 12,186 Transfer agent and shareholder information 8(a) 6,839 29,255 Travel and promotion 61,266 18,970
LOSS BEFORE OTHER ITEM (330,785) (296,647)
Interest income 15,025 15,563
NET LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (315,760) (281,084)
BASIC AND DILUTED LOSS PER SHARE (0.02) (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 15,890,000 15,890,000
The accompanying notes are an integral part of these financial statements.
5
PRESCIENT MINING CORP. Statements of Cash Flows For the Years Ended June 30, 2012 and 2011
2012 2011 $ $
CASH WAS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year (315,760) (281,084)
Adjustments for non-cash items Depreciation 422 409 Share-based payments 17,686 12,186
Changes in non-cash working capital accounts Interest receivable 1,336 (5,177) HST/GST recoverable (6,753) (1,933) Prepaid expenses and deposits (6,135) - Accounts payable and accrued liabilities 31,225 121
(277,979) (275,478)
INVESTING ACTIVITY
Purchase of equipment (910) -
DECREASE IN CASH AND CASH EQUIVALENTS (278,889) (275,478)
Cash and cash equivalents, beginning of year 1,371,446 1,646,924
CASH AND CASH EQUIVALENTS, END OF YEAR 1,092,557 1,371,446
CASH AND CASH EQUIVALENTS CONSISTS OF:
(Cheques written in excess of cash on hand) Cash (30,743) 21,446 Guaranteed Investment Certificates 1,123,300 1,350,000
1,092,557 1,371,446
SUPPLEMENTARY INFORMATION:
Interest paid - - Income taxes paid - -
The accompanying notes are an integral part of these financial statements.
6 PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 1 – NATURE OF OPERATIONS
Prescient Mining Corp. (the “Company”) was incorporated on December 21, 2006, under the laws of the Business Corporations Act (British Columbia) under the name Milk Capital Corp. On September 3, 2010, the Company changed its name to Prescient Mining Corp. The Company’s shares are traded on the TSX Venture Exchange (the “Exchange”) under the symbol “PMC.”
The head office, principal address, and records office of the Company are located at Suite 507 – 700 West Pender Street, Vancouver, BC, Canada, V6C 1G8. The Company’s registered office address is located at Suite 1780 – 400 Burrard Street, Vancouver, British Columbia, Canada, V6C 3A6.
The Company is engaged in the acquisition, exploration, and development of resource properties. The Company’s ability to continue as a going concern is dependent upon the ability of the Company to raise additional financing in order to complete the acquisition, exploration, and development of its resource properties, the discovery of economically recoverable reserves, and the attainment of future profitable production or proceeds from disposition of the Company’s resource properties. The outcome of these matters cannot be predicted at this time.
These 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.
The Company will require additional financing as it acquires mineral properties or interests therein. There is no assurance that it will be able to obtain such financing, if any, on reasonable terms. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The financial statements were authorized for issue on October 26, 2012, by the Directors of the Company. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
(a) Statement of Compliance
The financial statements represent the first annual financial statements of the Company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards (“IASB”) and the interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
The disclosures related to the transition from Canadian Generally Accepted Accounting Principles (“GAAP”) to IFRS are included in Note 11 to these financial statements. Note 11 contains reconciliations and descriptions of the effect of the transition from GAAP to IFRS on previously reported statements of financial position as at June 30, 2011 and July 1, 2010 and statements of comprehensive loss and cash flows for the year ended June 30, 2011. The first date at which IFRS was applied was July 1, 2010.
(b) Basis of Presentation
The financial statements of the Company have been prepared on a historical cost basis.
7
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Functional and Presentation of Foreign Currency
The financial statements are presented in Canadian dollars unless otherwise noted. The functional currency and presentation currency of the Company is the Canadian dollar.
(d) Cash and Cash Equivalents
Cash and cash equivalents consists of cash balances and short-term highly liquid investments which are readily convertible into cash and that are subject to an insignificant risk of changes in value.
For the purpose of the statements of cash flows, total cash and cash equivalents include cash and guaranteed investment certificates (“GIC”) with maturities of less than one year and redeemable anytime at the option of the holder.
(e) Equipment and Depreciation
Equipment is carried at acquisition cost less accumulated depreciation.
Depreciation is calculated on a declining-balance basis to write off the cost of the assets to their residual values over their estimated useful lives, except in the year of acquisition, when half of the rate is used. The annual rate used to compute depreciation is as follows:
Computer hardware 30%
(f) Exploration and Evaluation Assets
Exploration and evaluation activity begins when the Company obtains legal rights to explore a specific area and involves the search for mineral reserves, the determination of technical feasibility and the assessment of commercial viability of an identified mineral resource. Expenditures incurred in the exploration and evaluation phase include the cost of acquiring interests in mineral rights, licenses and properties, and the costs of the Company’s exploration activities, such as researching and analyzing existing exploration data, gathering data through geological studies, exploratory drilling, trenching, sampling, and certain feasibility studies.
Exploration and evaluation expenditures incurred prior to the determination of commercially viable mineral resources, the feasibility of mining operations, and a positive development decision, are expensed as incurred. Mineral property acquisition costs and development expenditures incurred subsequent to such a determination are capitalized and amortized over the estimated life of the property following the commencement of commercial production or are written off if the property is sold, allowed to lapse, abandoned, or when an impairment is determined to have occurred.
(g) Decommissioning Obligations
A liability for a decommissioning obligation, such as site reclamation costs, is recorded when a legal or constructive obligation exists and is recognized in the period in which it is incurred. The Company records the estimated present value of future cash flows associated with site reclamation as a liability when the liability is incurred and increases the carrying value of the related assets for that amount. Subsequently, these capitalized decommissioning costs will be amortized to expense over the life of the related assets using the units-of-production method. The liability is accreted to reflect the passage of time and adjusted to reflect changes in the timing and amount of estimated future cash flows.
8
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Decommissioning Obligations (Continued)
As at June 30, 2012, June 30, 2011, and July 1, 2010, the Company has determined that it does not have material decommissioning obligations.
(h) Impairment of Financial Assets
A financial asset not carried at fair value through profit or loss is reviewed at each reporting date to determine whether there is any indication of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets' original effective interest rate. Losses are recognized in profit or loss with a corresponding reduction in the financial asset, or in the case of amounts receivable are reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(i) Share Capital
Transaction costs directly attributable to the issuance of common shares are recognized as a deduction from equity. The proceeds from the exercise of stock options or warrants together with amounts previously recorded in reserves over the vesting periods are recorded as share capital. Share capital issued for non-monetary consideration is recorded at an amount based on fair market value of the shares on the date of issue.
(j) Share-Based Payments
The Company has an employee stock option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized to expense over the vesting periods.
Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the share-based payment reserve.
The fair value of options is determined using the Black–Scholes option pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Amounts recorded for forfeited or expired unexercised options are transferred to deficit in the year of forfeiture or expiry.
Upon the exercise of stock options, 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.
9
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Income Taxes
Tax expense recognized in profit or loss comprises the sum of current and deferred taxes not recognized in other comprehensive income or directly in equity.
(i) Current Income Tax
Current income tax assets and/or 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 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.
(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.
(l) Loss per Share
The Company calculates basic loss per share using the weighted average number of common shares outstanding during the year. 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.
(m) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Financial assets and financial liabilities are recognized on the statements of financial position at the time the Company becomes a party to the contractual provisions of the financial instrument.
Financial instruments are initially measured at fair value. Measurement in subsequent periods is dependent on the classification of the financial instrument. The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to- maturity, available-for-sale, and other financial liabilities.
10
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(m) Financial Instruments (Continued)
(i) Financial Assets and Liabilities at Fair Value Through Profit or Loss
Financial assets and liabilities at fair value through profit or loss are either ‘held-for-trading’ or classified at fair value through profit or loss. They are initially and subsequently recorded at fair value and changes in fair value are recognized in profit or loss for the period.
The Company does not have any financial assets and liabilities at fair value through profit or loss.
(ii) Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value and subsequently on an amortized cost basis using the effective interest method, less any impairment losses. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period, which are classified as non-current assets.
The Company has designated its cash and cash equivalents and interest receivable as loans and receivables.
(iii) Held-to-Maturity
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company’s intention to hold these investments to maturity. They are initially recorded at fair value and subsequently measured at amortized cost.
The Company does not have any held-to-maturity financial assets.
(iv) Available-For-Sale
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any other financial asset categories. They are initially and subsequently measured at fair value and the changes in fair value, other than impairment losses are recognized in other comprehensive income (loss) and presented in the fair value reserve in shareholders’ equity. When the financial assets are sold or an impairment write-down is required, losses accumulated in the fair value reserve recognized in shareholders’ equity are included in profit or loss.
The Company does not have any available-for-sale financial assets.
(v) Other Financial Liabilities
Other financial liabilities are recognized initially at fair value plus any directly attributable transaction costs on the date at which the Company becomes a party to the contractual provisions of the instrument. Subsequent to initial recognition, the Company’s financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expired.
The Company’s non-derivative financial liabilities are its accounts payable and accrued liabilities, which are designated as other liabilities.
11
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
(n) Flow-Through Shares
The Company finances a portion of its exploration activities through the issuance of flow-through shares.
Canadian tax legislation permits a company to issue flow-through instruments whereby the deduction for tax purposes relating to qualified resource expenditures is claimed by the investors rather than the Company. Common shares issued on a flow-through basis typically include a premium because of the tax benefits provided to the investor. At the time of issue, the Company estimates the proportion of the proceeds attributable to the premium and the common shares. The premium is estimated as the excess of the subscription price over the value of common shares on the date of the transaction and is recorded as a deferred liability. The Company recognizes a pro rata amount of the premium through the statement of comprehensive loss as other income with a corresponding reduction to the flow through premium liability as the flow-through expenditures are incurred and renounced.
When the flow-through expenditures are incurred and renounced, the Company records the tax effect as a change to profit or loss and an increase to deferred income tax liabilities. To the extent that the Company has deferred income tax assets that were not recognized in previous periods, a deferred income tax recovery is recorded to offset the liability resulting from the renunciation.
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 financial statements are described below.
(a) Share-Based Payments
The Company grants stock options to directors, officers, employees, and consultants of the Company under its incentive stock option plan. The fair value of stock options is estimated using the Black- Scholes option pricing model and are expensed over their vesting periods. In estimating fair value, management is required to make certain assumptions and estimates such as the life of options, volatility, and forfeiture rates.
Changes in assumptions used to estimate fair value could result in materially different results.
12
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 3 – SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS (Continued)
(b) Decommissioning and Restoration Provision
The decommissioning and restoration provision is based on future cost estimates using information available at the reporting date. The decommissioning and restoration provision is adjusted at each reporting period for changes to factors such as the expected amount of cash flows required to discharge the liability, the timing of such cash flows, and the discount rate. The decommissioning and restoration provision requires other significant estimates and assumptions such as requirements of the relevant legal and regulatory framework, and the timing, extent and costs of required decommissioning and restoration activities. Actual costs may differ from these estimates.
As at June 30, 2012 and 2011, the Company has no material decommissioning and restoration provision.
(c) Deferred Tax Assets
Deferred tax assets, including those arising from tax loss carry-forwards, 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.
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS
The following IFRS standards have been recently issued by the IASB or the IFRIC. The Company is assessing the impact of these new standards, but does not expect them to have a significant effect on the financial statements. Pronouncements that are not applicable or do not have a significant impact to the Company have been excluded herein.
(a) IFRS 7, Financial Instruments: Disclosures, and IAS 32, Financial Instruments: Presentation
The IASB has issued amendment to IFRS 7, Financial Instruments: Disclosures (“IFRS 7”) and IAS 32, Financial Instruments: Presentation (“IAS 32”), requiring incremental disclosures regarding transfers of financial assets and clarity of an entity’s ability to offset financial assets and financial liabilities. The amendments to IFRS 7 are effective for annual periods beginning on or after July 1, 2013, and the amendments to IAS 32 are effective for annual periods beginning on or after July 1, 2014. The Company will apply the amendment at the beginning of its 2013 financial year. The Company does not expect the implementation to have a significant impact on the Company’s disclosures.
(b) IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, “Financial Instruments” (“IFRS 9”), which will replace IAS 39, “Financial Instruments: Recognition and Measurement” (“IAS 39”). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is part of the first phase of this project. IFRS 9 uses a single approach to determine whether a financial asset or liability is measured at amortized cost or fair value, replacing the multiple rules in IAS 39.
13
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
(b) IFRS 9, Financial Instruments (Continued)
For financial assets, the approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. IFRS 9 requires a single impairment method to be used, replacing multiple impairment methods in IAS 39. For financial liabilities measured at fair value, fair value changes due to changes in an entity’s credit risk are presented in other comprehensive income. IFRS 9 is effective for annual periods beginning on or after January 1, 2015. The Company does not expect the implementation to have a significant impact on the Company’s results of operations, financial position, and disclosures.
(c) IFRS 13, Fair Value Measurement
IFRS 13, Fair Value Measurement (“IFRS 13”) is effective for annual periods beginning on or after January 1, 2013. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. The Company does not expect the implementation to have a significant impact on the Company’s results of operations, financial position, and disclosures.
(d) IAS 1, Presentation of Items of Other Comprehensive Income
The IASB has issued an amendment to IAS 1, Presentation of Financial Statements (“IAS 1”), which requires entities to group items presented in other comprehensive income (OCI) on the basis of whether they might at some point be reclassified from OCI to profit or loss at a later date when specified conditions are met. By requiring items of OCI to be grouped on this basis, their potential effect on profit or loss in future periods will be clearer. This amendment is effective for annual periods beginning on or after January 1, 2012 and requires full retrospective application. The Company does not expect the amendment to have a material impact on the financial statements.
NOTE 5 – EQUIPMENT Computer $ COSTS: Balance, June 30, 2010, and June 30, 2011 3,269 Additions 910
Balance, June 30, 2012 4,179
ACCUMULATED DEPRECIATION: Balance, June 30, 2010 1,907 Depreciation 409 Balance, June 30, 2011 2,316 Depreciation 422
Balance, June 30, 2012 2,738
14
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 5 – EQUIPMENT (Continued)
$ NET BOOK VALUE: June 30, 2010 1,362 June 30, 2011 953 June 30, 2012 1,441
NOTE 6 – EXPLORATION AND EVALUATION ASSETS
Cumulative expenditures incurred by the Company on its properties are summarized as follows:
Hook Lake Project Angie Property Saskatchewan, Yukon, Canada Canada (a) (b)
$ $
Balance, June 30, 2010 - 72,688
Exploration Costs Consulting and geological fees - 10,157 Equipment and related costs - 54,278 Field costs - 3,705 Travel and accommodation - 4,801 Wages and contract work - 21,627
- 94,568
Balance, June 30, 2011 - 167,256
Acquisition costs Consulting and geological fees 9,757 - Professional and regulatory fees 9,318 -
19,075 -
Balance, June 30, 2012 19,075 167,256
(a) Hook Lake Project, Saskatchewan, Canada
On April 12, 2012, the Company entered into an option agreement with Geomode Mineral Exploration Ltd. (“Geomode”) for the exclusive right and option to acquire a 100% interest in the Hook Lake property, a prospective uranium project located in Saskatchewan. As consideration, the Company agreed to pay an aggregate of $1,015,000, issue 150,000 common shares, and incur in exploration and development expenditures a total of $871,248 or pay to Geomode a further $871,248 over a period of 3 years as follows:
15
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 6 – EXPLORATION AND EVALUATION ASSETS (Continued)
(a) Hook Lake Project, Saskatchewan, Canada (Continued)
Work commitment Number of or cash Common payments to Cash shares Geomode $ $ Within 5 days of Exchange approval 15,000 (1) 150,000 (1) - On or before April 12, 2013 - - 60,624 On or before April 12, 2014 - - 60,624 On or before April 12, 2015 1,000,000 - 750,000
1,015,000 150,000 871,248
(1) Paid and issued subsequent to June 30, 2012, upon approval of the Exchange on July 27, 2012.
A 1% net smelter return (“NSR”) shall be reserved to Geomode which may be purchased at any time by the Company for $1,000,000 less all amounts previously received by Geomode as NSR payments.
(b) Angie Property, Yukon, Canada
On November 16, 2009, the Company entered into a Letter Agreement with Full Metal Minerals Ltd. (“Full Metal”) whereby the Company may earn a 60% interest in Full Metal’s Angie Property comprising of 200 mining claims located in the Yukon Territory. As consideration, the Company agreed to pay $150,000, issue 400,000 common shares and incur aggregate exploration expenditures of $3,000,000 over a period of four years. During the year ended June 30, 2010, the Company paid $25,000 and issued 100,000 common shares to Full Metal valued at $11,000. In addition, the Company incurred $36,688 of professional and regulatory expenses related to this transaction.
During the year ended June 30, 2011, the Company decided not to pursue its option agreement with Full Metal. The Company is no longer obligated to make further cash payments, share issuances nor incur further exploration costs on the Angie Property pursuant to the terms of the option agreement.
NOTE 7 – SHARE CAPITAL
(a) Authorized
The Company is authorized to issue an unlimited number of voting common shares without par value.
(b) Issued Share Capital
At June 30, 2012, there were 15,890,000 issued and fully paid common shares (June 30, 2011 – 15,890,000; July 1, 2010 – 15,890,000).
(c) Escrow Shares
As of June 30, 2012, the Company has 920,000 common shares held in escrow (June 30, 2011 – 1,851,000; July 1, 2010 – 2,771,000).
16
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 7 – SHARE CAPITAL (Continued)
(d) Share-Based Payments
The Company has an incentive stock option plan, which provides that the Board of Directors of the Company may from time to time, at its discretion, and in accordance with the Exchange requirements, grant to directors, officers, employees, and consultants to the Company, non-transferable options to purchase common shares, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares of the Company.
A summary of the status of the options outstanding follows:
Weighted Number of Average Options Exercise Price $
Balance, June 30, 2010 1,733,000 0.16
Granted 385,000 0.11 Expired (385,000) 0.19
Balance, June 30, 2012 and 2011 1,733,000 0.14
The following table summarizes the stock options outstanding as at June 30, 2012:
Number of Number of Exercise Options Options Price Outstanding Expiry Date Exercisable $
0.15 926,667 October 29, 2017 926,667 0.15 (i) 144,000 October 29, 2017 144,000 0.21 138,333 August 1, 2013 138,333 0.10 139,000 April 1, 2020 139,000 0.11 385,000 May 31, 2021 288,750
1,733,000 1,636,750
(i) These stock options were granted to two charitable organizations.
During the year ended June 30, 2012, the Company recognized share-based payments of $17,686 (2011 – $12,186) for stock options vested during the year.
The weighted average contractual life remaining for the outstanding stock options as at June 30, 2012, is 5.95 years.
17
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 7 – SHARE CAPITAL (Continued)
(d) Share-Based Payments (Continued)
The fair values of the stock options granted were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
2012 2011
Risk free interest rate - 2.18% Expected dividend yield - 0% Expected stock price volatility - 94.85% Expected life - 5.38 years
Option pricing models require the input of highly subjective assumptions. The volatility assumption is based on an analysis of historical volatility over a period equivalent to the expected life of the equity instruments. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models may not necessarily provide a single reliable measure of the fair value of stock options.
(e) Share Purchase Warrants
Each whole warrant entitles the holder to purchase one common share of the Company. A summary of the status of the warrants outstanding follows:
Weighted Number of Average Warrants Exercise Price $
Balance, June 30, 2011 and 2010 1,389,999 0.12
Expired (1,389,999) 0.12
Balance, June 30, 2012 - -
18
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 8 – RELATED PARTY TRANSACTIONS
(a) Related Party Transactions
The Company incurred the following transactions with companies having directors and officers in common:
2012 2011 $ $
Office, rent and administration costs paid or accrued to companies having directors and officers in common (i) 45,000 56,800 Legal fees and share issuance costs paid or accrued to a company controlled by an officer of the Company 14,018 6,485 Shareholder communications paid to a company having a director and officers in common - 20,602 Project evaluation costs paid or accrued to a company controlled by a director of the Company 30,220 -
89,238 83,887
(i) Of these fees, $14,400 was paid to the CFO of the Company (Note 8(b)(i)).
(b) Compensation of Key Management Personnel
The Company’s key management personnel have authority and responsibility for planning, directing, and controlling the activities of the Company and consist of its Directors, Chief Executive Officer, and Chief Financial Officer.
Short-term benefits – Management Fees (i) 31,400 - Share-based payments (ii) 12,791 5,931
44,191 5,931
(i) Short-term benefits include consulting and management fees.
(ii) Share-based payments is the fair value of options granted and vested to key management personnel under the Company’s stock option plan (Note 7(d)).
19
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 8 – RELATED PARTY TRANSACTIONS (Continued)
(c) Related Party Balances
The following related party amounts are included in (i) accounts payable and accrued liabilities and (ii) prepaid expenses and deposits:
June 30, June 30, 2012 2011 $ $
(i) Companies controlled by directors and an officer of the Company 24,441 -
(ii) Companies having a director and officers in common 6,500 1,500
These transactions are in the normal course of operations and are measured at the fair value amount of consideration established and agreed to by the related parties. Any amounts due to related parties are unsecured, non-interest bearing, and have no specific repayment terms.
NOTE 9 – INCOME TAXES
(a) Reconciliation of Effective Tax Rate
Income tax expense (recovery) differs from the amounts computed by applying the combined federal and provincial income tax rate of 25.75% (2011 – 27.50%) to pre-tax loss as a result of the following:
2012 2011 $ $
Loss before income taxes (315,760) (281,084)
Computed expected income tax recovery (81,308) (77,298) Deferred tax assets not recognized 98,929 34,825 Effect of Change in Tax Rates 2,968 3,482 Permanent difference 5,973 4,588 Other (26,562) 34,403
Income tax expense (recovery) - -
20
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 9 – INCOME TAXES (Continued)
(b) Deferred Income Tax Assets and Liabilities
Deferred tax assets have not been recognized in respect of the following items:
2012 2011 $ $
Non-capital losses carry-forward 202,284 99,896 Share issuance cost 473 11,920 Exploration and evaluation assets 18,423 10,539 Equipment 684 579
Unrecognized deferred tax assets 221,864 122,934
(c) Non-Capital Losses
As at June 30, 2012, the Company has non-capital losses of $809,137 which may be applied to reduce taxable income of future years. These non-capital losses expire as follows:
Year $
2026 1,933 2027 46,286 2028 19,493 2029 109,260 2030 80,088 2031 215,212 2032 336,865
809,137
Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements and have been offset by a valuation allowance due to the uncertainty of their realization.
In addition, the Company has cumulative resource pools of $73,691 which can be carried forward indefinitely to offset future resource profits.
21
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 10 – FINANCIAL RISK MANAGEMENT
(a) Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, interest receivable, and accounts payable and accrued liabilities. The carrying values of these financial instruments approximate their fair values because of their short term nature and/or the existence of market related interest rates on the instruments.
IFRS requires disclosures about the inputs to fair value measurements, including their classification within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and Level 3 – Inputs for the asset or liability that are not based on observable market data.
The Company has no financial instrument assets or liabilities recorded in the statements of financial position at fair value.
The following table summarizes the classification, carrying values and fair value hierarchy of the Company’s financial instruments:
Fair value June 30, June 30, July 1, Carrying value hierarchy 2012 2011 2010 $ $ $ Financial assets
Loans and receivables Cash and cash equivalents Amortized cost N/A 1,092,557 1,371,446 1,646,924 Interest receivable Amortized cost N/A 9,362 10,698 5,521 1,101,919 1,382,144 1,652,445
Financial liabilities
Other financial liabilities Accounts payable and accrued liabilities Amortized cost N/A 46,668 15,443 15,322
(b) Financial Instruments Risk
The Company is exposed in varying degrees to a variety of financial instrument related to risks. The Board approves and monitors the risk management processes:
(i) Credit Risk
Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company is subject to credit risk on the cash balances at the bank, its short-term bank Guaranteed Investment Certificates (“GICs”), and interest receivable. Cash and cash equivalents consisting of GICs have been invested with Schedule 1 banks or equivalents, with its cash held in Canadian based banking institutions, authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation. Management considers that risks related to credit are minimal.
22
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 10 – FINANCIAL RISK MANAGEMENT (Continued)
(b) Financial Instruments Risk (Continued)
(ii) Liquidity Risk
The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due. As at June 30, 2012, the Company had cash and cash equivalents of $1,092,557 to settle current liabilities of $46,668 which mainly consisted of accounts payable that were considered short term and settled within 30 days.
The Company is dependent on 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. There can be no assurance that such financing will be available on terms acceptable to the Company (Note 1).
(iii) 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’s short-term investments are invested in GICs with greater than 90 day terms but not greater than one year. These GICs have a fixed interest rate for the term of the deposit. The interest on cash and GICs is typical of Canadian banking rates, which are low at present and the conservative investment strategy mitigates the risk of deterioration to the investment. A change of 100 basis points in the interest rates would not be material to the financial statements.
(c) Capital Management
The Company manages its share capital as capital, which as at June 30, 2012, totaled $1,837,145 (2011 – $1,837,145).
The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern such that it can continue to provide returns for shareholders and benefits for other stakeholders. The management of the capital structure is based on the funds available to the Company in order to support the acquisition, exploration, and development of mineral properties and to maintain the Company in good standing with the various regulatory authorities. In order to maintain or adjust its capital structure, the Company may issue new shares or debt, or dispose of assets.
The Company’s historical sources of capital have consisted of the sale of equity securities and interest income. In order for the Company to carry out planned exploration and development and pay for administrative costs, the Company will spend its working capital and expects to raise additional amounts externally as needed.
The Company has no debt and is not subject to externally imposed capital requirements.
There were no changes in the Company’s management of capital during the years ended June 30, 2012 and 2011.
23
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS
The Company adopted IFRS on July 1, 2011, with the transition date of July 1, 2010, representing the Company’s opening IFRS balance sheet. Prior to the adoption of IFRS, the Company prepared its financial statements in accordance with Canadian GAAP. The accounting policies set out in Note 2 have been applied in preparing the financial statements for the years ended June 30, 2012 and 2011, and in the preparation of the opening IFRS balance sheet as at July 1, 2010.
The Company applied IFRS 1, First-time Adoption of IFRS, in preparing these first IFRS financial statements. In preparing the opening IFRS statement of financial position, the Company adjusted amounts previously reported in the financial statements prepared in accordance with GAAP. This note explains the principal adjustments made by the Company in restating its GAAP balance sheet as at July 1, 2010, and its previously published GAAP financial statements for the year ended June 30, 2011.
Elected exemption from full retrospective application :
IFRS generally requires first-time adopters to retrospectively apply all IFRS standards and interpretations currently in effect; however, IFRS 1 provides certain exceptions and exemptions to this general principle. On adoption of IFRS 1, the Company elected to apply the following transition exemption to full retrospective application of IFRS:
IFRS 2 – Share-Based Payment
IFRS 1 provides an exemption that allows first-time adopters to not apply standards for share-based payments under IFRS for equity instruments that were granted prior to November 7, 2002 and to equity instruments that were granted after November 7, 2002 that have vested prior to transition to IFRS. The Company has elected to utilize this exemption and did not apply IFRS 2 to awards that vested prior to July 1, 2010, which have been accounted for in accordance with GAAP.
Mandatory exception to retrospective application:
IFRS 1 also outlines specific guidelines that a first-time adopter must adhere to under certain circumstances. The Company has applied the following guidelines to its opening statement of financial position as at July 1, 2010:
Estimates
In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under previous GAAP applied, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as at July 1, 2010, are consistent with its previous estimates under GAAP for the same date.
Reconciliation between GAAP and IFRS:
IFRS 1 requires reconciliation disclosures that explain how the transition from GAAP to IFRS has affected the Company’s previously reported financial statements prepared in accordance with previous GAAP for the year ended June 30, 2011. An explanation of how the transition from previous GAAP to IFRS has affected the Company’s financial position is set out in the following notes and accompanying tables:
(a) Reserves
Under GAAP, amounts recorded in relation to the fair value of stock options granted and warrants issued were recorded to contributed surplus. Under IFRS, these amounts have been reclassified within equity as reserves.
24
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS (Continued)
(b) Flow-Through Shares
Under GAAP, the full proceeds received from the issuance of the flow-through shares was recorded to share capital and a share issuance expense related to the deferred tax liability was recorded at the time the eligible expenditures were renounced to investors.
Under IFRS, the premium paid for flow-through shares in excess of the value of common shares with no flow-through feature is credited to a deferred liability account. As eligible expenditures are incurred, the deferred gain is amortized into earnings for the period.
Additionally, a deferred tax liability and expense are recorded as the eligible expenditures are incurred and renounced to the flow-through shareholders. At the same time as the deferred tax liability is recorded, the Company releases a corresponding amount of its deferred income tax asset valuation allowance resulting in an equal and offsetting reduction to the deferred tax liability and expense.
The effect of the change to June 30, 2011, was to increase share capital and deficit by $31,275.
The Company has sufficient deferred tax assets, primarily loss carry-forwards, to reduce the tax effect of the renunciations to $Nil at June 30, 2011.
There was no impact at July 1, 2010.
(c) Share-Based Payments
Under GAAP, the Company recognized an expense related to share-based payments on a straight-line basis through the date of full vesting and did not incorporate a forfeiture multiple on the grant date.
Under IFRS, the Company is required to recognize the expense over the individual vesting periods for the graded vesting awards and estimate a forfeiture rate. The Company elected to use the IFRS exemption whereby the liabilities for share-based payments that had vested or settled prior to July 1, 2010, were not required to be retrospectively restated. As at July 1, 2010, the impact of share-based payments for unvested stock options was assessed as insignificant and accordingly, no fair value adjustment was made. Subsequent to transition, the Company has assessed the impact of share-based payments being insignificant at June 30, 2011 and no adjustments were made.
(d) Forfeited or Expired Options and Warrants
Under GAAP, the Company’s policy was to leave the value recorded for forfeited or expired unexercised stock options and warrants in contributed surplus.
On transition to IFRS, the Company elected to change its accounting policy for the treatment of forfeited or expired unexercised options and warrants whereby amounts recorded for forfeited or expired unexercised stock options and warrants are transferred to deficit or share capital.
Accordingly, upon conversion to IFRS at July 1, 2010, the value assigned to forfeited options of $39,612 and expired agents’ options of $64,300 had been reclassified from reserves to deficit and share capital, respective. Subsequent to transition, the value assigned to forfeited options of $58,685 had been reclassified from reserves to deficit as at June 30, 2011.
25
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS (Continued)
(e) Exploration and Evaluation of Mineral Resources
Under GAAP, the Company capitalized the costs of acquiring interests in mineral rights and exploration and evaluation expenditures in respect of projects that are in the exploration or pre-development stage.
On transition to IFRS, the Company elected to change its accounting policy to expense exploration and evaluation expenditures, the costs of acquiring interests in mineral rights and administrative and land use costs incurred prior to commercial feasibility of mining operations being established. As a result of this change, capitalized exploration and evaluation assets decreased and deficit increased by $72,688 as at July 1, 2010, as compared to amounts previously reported.
26
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS (Continued)
IFRS Reconciliation of the Statements of Financial Position
As at July 1, 2010 As at June 30, 2011
Effect of Effect of Canadian Transition Canadian Transition Note GAAP to IFRS IFRS GAAP to IFRS IFRS $ $ $ $ $ $
ASSETS CURRENT Cash and cash equivalents 1,646,924 - 1,646,924 1,371,446 - 1,371,446 Interest receivable 5,521 - 5,521 10,698 - 10,698 HST/GST recoverable 1,539 - 1,539 3,472 - 3,472 Prepaid expenses and deposits 1,500 - 1,500 1,500 - 1,500
1,655,484 - 1,655,484 1,387,116 - 1,387,116
Equipment 1,362 - 1,362 953 - 953 Exploration and evaluation asset (e) 72,688 (72,688) - - - -
74,050 (72,688) 1,362 953 - 953
1,729,534 (72,688) 1,656,846 1,388,069 - 1,388,069
LIABILITY CURRENT Accounts payable and accrued liabilities 15,322 - 15,322 15,443 - 15,433
SHAREHOLDERS’ EQUITY Share capital (b),(d) 1,772,845 64,300 1,837,145 1,741,570 95,575 1,837,145 Reserves (a),(d) - 203,039 203,039 - 156,540 156,540
Contributed surplus (a) 306,951 (306,951) - 319,137 (319,137) - Deficit (b),(d),(e) (365,584) (33,076) (398,660) (688,081) 67,022 (621,059)
1,714,212 (72,688) 1,641,524 1,372,626 - 1,372,626
1,729,534 (72,688) 1,656,846 1,388,069 - 1,388,069
27
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS (Continued)
IFRS Reconciliation of the Statement of Comprehensive Loss
Year ended June 30, 2011
Effect of Transition Note GAAP to IFRS IFRS $ $ $
EXPENSES Depreciation 409 - 409 Consulting fees 38,700 - 38,700 Exploration and evaluation (e) - 94,568 94,568 Office, rent and administration 72,775 - 72,775 Professional fees 18,587 - 18,587 Regulatory fees 11,197 - 11,197 Share-based payments 12,186 - 12,186 Transfer agent and shareholder information 29,255 - 29,255 Travel and promotion 18,970 - 18,970
LOSS BEFORE OTHER ITEM (202,079) (94,568) (296,647)
Interest income 15,563 - 15,563 Impairment of exploration and evaluation asset (e) (167,256) 167,256 -
LOSS BEFORE INCOME TAXES (353,772) 72,688 (281,084)
Future income tax recovery (b) 31,275 (31,275) -
NET LOSS AND COMPREHENSIVE LOSS (322,497) 41,431 (281,084)
BASIC AND DILUTED LOSS PER SHARE (0.02) - (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 15,890,000 - 15,890,000
28
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 11 – TRANSITION TO IFRS (Continued)
IFRS Reconciliation of the Statement of Cash Flow
Year ended June 30, 2011
Effect of Transition Note GAAP to IFRS IFRS $ $ $
CASH WAS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year (322,497) 41,413 (281,084)
Adjustments for non-cash items Depreciation 409 - 409 Share-based payments 12,186 - 12,186 Future income tax recovery (b) (31,275) 31,275 - Impairment of exploration and evaluation asset (e) 167,256 (167,256) -
Changes in non-cash working capital accounts Interest receivable (5,177) - (5,177) HST/GST recoverable (1,933) - (1,933) Accounts payable and accrued liabilities 121 - 121
(180,910) (94,568) (275,478)
INVESTING ACTIVITIES
Exploration and evaluation assets (94,568) 94,568 -
DECREASE IN CASH AND CASH EQUIVALENTS (275,478) - (275,478)
Cash and cash equivalents, beginning of year 1,646,924 - 1,646,924
CASH AND CASH EQUIVALENTS, END OF YEAR 1,371,446 - 1,371,446
29
PRESCIENT MINING CORP. Notes to the Financial Statements For the Years Ended June 30, 2012 and 2011
NOTE 12 – COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the presentation adopted in the current year. Short-term investments of $1,123,300 (June 30, 2011 – $1,350,000) were reclassified to cash and cash equivalents as the nature of these investments comply with the accounting policy.
30
SCHEDULE “C”
Management’s Discussion and Analysis of Aurora for the Fiscal Year End of June 30, 2014
{W0251953.DOC}FORM 2A – LISTING STATEMENT October 10, 2014 Page 54 AURORA MARIJUANA INC. Management Discussion and Analysis for the Period from Inception (September 5, 2013) to June 30, 2014 as of October 8, 2014
This Management’s Discussion and Analysis (“MD&A”) relates to the financial condition and results of operations of Aurora Marijuana Inc. (the “Company”) as of June 30, 2014, and is intended to supplement and complement the Company’s audited consolidated financial statements for the period from inception (September 5, 2013) to June 30, 2014. Readers are cautioned that this MD&A contains forward-looking statements and that actual events may vary from management’s expectations. The consolidated audited financial statements and MD&A are presented in Canadian dollars (“CAD”), except where noted, and have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This discussion addresses matters that the Company considers important for an understanding of the financial condition of the Company and results of operations as of and for the period from inception (September 5, 2013) to June 30, 2014.
The MD&A contains forward-looking statements and should be read in conjunction with the risks discussed herein and those set out under the heading “Risk and Uncertainties”. Please also refer to the “Cautionary Statement on Forward-Looking Information” at the end of this MD&A.
Description of Business
The Company was incorporated in under the Business Corporations Act (Alberta) on September 5, 2013. The Company’s registered and records office and head office are located at 2200, 10155 - 102 Street, Commerce Place, Edmonton, Alberta T5J 4G8.
The Company has two subsidiaries:
(1) 1755517 Alberta Ltd., incorporated under the Business Corporations Act (Alberta); and
(2) 1769474 Alberta Ltd, incorporated under the Business Corporations Act (Alberta).
The Company holds a pre-license approval granted by Health Canada and is in the final stages of obtaining a Licensed Producer designation from Health Canada under the Marihuana for Medical Purposes Regulations pursuant to the Controlled Drugs and Substances Act (Canada).
To date, the Company has filed its application for approval to take the first step in gaining a Production License application, which is the Health Canada building license application to build a growing facility. As of November 20, 2013, the Company has leased 160 acres of property at northwest of Cremona, Alberta for a term of 12 months. The lease is automatically renewed after 12 months for two successive terms of five years unless prior notice is given by the Company. In the same month, the Company began construction on a custom 54,000 square foot indoor growing, production and distribution facility (the “Facility”). Construction of the growing facility will be completed in approximately two months from the date of this MD&A. The Facility will be 100% compliant with the MMPR.
{W0253761.DOCX}1
The Company believes that the application answers and addresses all of the criteria imposed on applicants and hopes to receive approval. Following building approval and completion of the growing facility, the Company will apply for approval to begin step two of the process to obtain a full license to be issued by Health Canada under section 25 of the MMPR (the “Production License”). Given the management’s experience in the industry and anticipating that at this point the Company will have completed construction of the Facility, the Company hopes to receive approval for a Production License in October, 2014. In the event that the Company is granted a Production License, the Company plans to be cultivating and harvesting dried marijuana by the first half of 2015.
On September 9, 2014 the Company entered into a definitive share exchange agreement with Aurora Cannabis Inc. (“Pubco”), a publicly listed corporation under the law of British Columbia, and the shareholders of the Company (the “Share Exchange Agreement”). Pursuant to the terms of the agreement, Pubco will acquire all of the issued and outstanding shares of the Company from the shareholders of the Company in exchange for an aggregate of 60,000,000 common shares of Pubco (the "Transaction Shares") at the time of closing of the transaction (the “Share Exchange”).
Upon the achievement of the key milestone of the Company achieving the registration of a minimum of 2,000 patients under the Health Canada MMPR program, Pubco shall issue:
1. an aggregate of 20,000,000 common shares of Pubco (the “Pubco Shares”) on a pro- rata basis to the former shareholders of the Company; and
2. an aggregate of 3,750,000 warrants exercisable at $0.02 per Pubco Share to certain former warrant holders of the Company.
As such this transaction will constitute a reverse take-over, a key result of the transaction will be the shareholders of the Company owning publicly listed shares.
In addition, Pubco will also issue to former respective warrant and option holders of the Company on a pro-rata basis the following:
1. an aggregate of 21,450,000 replacement warrants comprised of:
a. 10,200,000 warrants exercisable into Pubco Shares at a price of $0.50 per Pubco Share; and
b. 11,250,000 warrants exercisable into Pubco Shares at a price of $0.02 per Pubco Share; and
2. 4,000,000 replacement stock options exercisable into Pubco Shares at a price of $0.001 per Pubco Share
(collectively, the "Replacement Securities").
Pubco will also assume the Company's currently outstanding non-interest bearing convertible debt in the principal amount of $1,500,000 that is convertible at $0.125 per common share.
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All Transaction Shares and Replacement Securities to be issued above are subject to strict escrow provisions and a right of first refusal (the "ROFR") pursuant to the terms of the Share Exchange Agreement for a period of 36 months. The replacement stock options are also subject to the ROFR and vesting on the following schedule:
1. 1,600,000 Pubco Options on December 21, 2014;
2. 1,600,000 Pubco Options on June 21, 2015; and
3. 800,000 Pubco Options on December 21, 2015.
Overall Performance and Outlook
Outlook
The Company’s immediate objective is to raise adequate capital and to strengthen its operational capabilities by adding technical staff and allocating a marketing budget in order to grow and produce marijuana under the Production License and gain clientele. The primary near-term objective is the completion of the Facility. At present, the Facility is approximately 95% complete.
While the Company seeks to manage the level of risk associated with its business, many of the factors affecting these risks are beyond the Company’s control. There can be no assurance that additional capital or other types of financing will be available to the Company if needed or that, if available, the terms of such financing will be on terms favourable to the Company.
Going Concern
The Company’s ability to continue as a going concern is dependent upon its ability to commence profitable operations and generate funds there from, and to continue to obtain borrowings or raise equity from third parties sufficient to meet current and future obligations and/or restructure the existing debt and payables. These conditions, combined with the loss incurred for the period from inception (September 5, 2013) to June 30, 2014, indicate the existence of a material uncertainty that may cast doubt about the Company's ability to continue as a going concern. The audited consolidated financial statements do not reflect the adjustments or reclassification of assets and liabilities which would be necessary if the Company were unable to continue its operations. The Company has financial uncertainties that cast significant doubt on its ability to continue as a going concern.
Developments
Subsequent to June 30, 2014, the Company issued 4,000,000 Class D stock options to a key member of management of the Company. The options are exercisable for one Class D share each at a price of $0.001 per share for a period of three years. The options vest in three tranches, 1,600,000 vest on December 21, 2014, 1,600,000 on June 21, 2015 and the remaining 800,000 vest December 21, 2015.
On August 29 2014, the Company issued a non-interest bearing, unsecured, $1,500,000 convertible debenture to companies controlled by ultimate shareholders of the Company as
{W0253761.DOCX}3 settlement of the advances from related party that are unsecured, non-interest bearing, and have no fixed terms. The debenture matures August 29, 2019 and is convertible at that time at the option of the holder into Class A shares of the Company at a price of $0.125 per share.
Additionally, on September 9, 2014 the Company entered into the Share Exchange Agreement. Pursuant to the terms of the agreement, Pubco will acquire all of the issued and outstanding shares of the Company from the shareholders of the Company in exchange for the Transaction Shares at the time of closing of the transaction.
Upon the achievement of the key milestone of the Company achieving the registration of a minimum of 2,000 patients under the Health Canada MMPR program, Pubco shall issue:
1. an aggregate of 20,000,000 Pubco Shares on a pro-rata basis to the former shareholders of the Company; and
2. an aggregate of 3,750,000 warrants exercisable at $0.02 per Pubco Share to certain former warrant holders of the Company.
In addition, Pubco will also issue to former respective warrant and option holders of the Company on a pro-rata basis the Replacement Securities.
Pubco will also assume the Company's currently outstanding non-interest bearing convertible debt in the principal amount of $1,500,000 that is convertible at $0.125 per common share.
All Transaction Shares and Replacement Securities to be issued above are subject to strict escrow provisions and the ROFR pursuant to the terms of the Share Exchange Agreement for a period of 36 months. The replacement stock options are also subject to an 18 month vesting period and ROFR.
Selected Annual Information
Overall Performance
During the period from inception (September 5, 2013) to June 30, 2014, the Company incurred a net loss of $1,823,535. At June 30, 2014, the Company had cash and cash equivalents of $916,767 and a working capital of $2,471,362.
Summary of Results from inception (September 5, 2013) to June 30, 2014
Operations: Total revenue Nil Net income (loss) ($1,823,535) Comprehensive income (loss) ($1,823,535) Net income (loss) per share-diluted n/a Dividends per share Nil
Balance Sheet: Working capital (deficit) $2,471,362 Total assets $5,491,867 Total liabilities $3,722,652
{W0253761.DOCX}4
(Audited) Inception (September 5, 2013) to June 30, 2014 Administrative expenses: Consulting fees $326,154 Salaries, wages and benefits $109,900 Advertising and promotion $81,561 Professional fees $59,646 Travel and entertainment $51,628 Utilities $43,651 Rental $40,000 Meals and entertainment $15,166 Insurance $11,599 Donations $5,650 Telephone, fax and internet $5,360 Courier and delivery $4,620 Vehicle expenses $4,106 Miscellaneous $788 Compensation expense $1,063,706 Comprehensive loss for the period $1,823,535
Discussions of Operations – for the period from inception (September 5, 2013) to June 30, 2014
• The Company recorded a loss of $1,823,535 for the period from inception (September 5, 2013) to June 30, 2014. The loss from the period was mainly due to start-up costs that included consulting fees and salaries of employees. • Consulting expenses of the Company were $326,154 for the period from inception (September 5, 2013) to June 30, 2014. The consulting expenses include an aggregate of $217,187 that was paid to Delcon Industries and Evolve Concrete, which are controlled by Dale Lesack and Chris Mayerson, respectively. Mr. Lesack and Mr. Mayerson each hold 4,000,000 Class D common shares in the Company through the acquisition of 1755517 Alberta Ltd. The aggregate of $217,187 of these consulting fees were paid to these two companies (for Delcon Industries and Evolve Concrete’s time working on the construction of the Facility). The remainder of the consulting expenses were to various other unrelated consultants. • Advertising and promotion expenses were $81,561 for the period from inception (September 5, 2013) to June 30, 2014. • Professional fees were $59,646 for the period from inception (September 5, 2013) to June 30, 2014 for legal and tax matters for corporate setup, and equity structure.
Summary of Quarterly Results
Not applicable as the company had not prepared financial statements for those quarters prior to the date of this MD&A.
{W0253761.DOCX}5
Liquidity and Capital Resources
As at June 30, 2014, the Company had total assets of $5,491,867 comprising of: 1. Cash of $916,767; 2. Goods and services tax receivable of $244,523; 3. Share subscriptions receivable of $90,000; 4. Property and equipment of $4,238,047; and 5. Receivable from a shareholder of $2,530.
The Company had a working capital of $2,471,362 at June 30, 2014.
The Company will require significant cash funding to complete construction of the Facility and begin the production and distribution programs, meet its administrative overhead costs, and maintain its production license. This will require the Company to obtain additional financing.
During the period from inception to June 30, 2014, the Company received cash of $2,550,000 by issuing 20,400,000 shares and 10,200,000 warrants. The Company also issued 59,600,000 shares for non-cash consideration of 1,000,200 through roll-over transactions (see below “Disclosure of Outstanding Share Data”). In addition, related parties provided $845,725.
The Company’s main source of funding has been through equity issuances. The Company will continue to consider all sources of financing reasonably available to it, including, equity, debt, and the sale of assets or parts of assets, including the Facility and equipment related to the facility. There can be no assurance of continued access to finance in the future and an inability to secure financing may require the Company to reduce or defer marijuana production activities.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Transactions between Related Parties
Key management compensation
During the current period, the Company paid consulting fees to companies owned by management personnel who are also ultimate shareholders. Of the $217,187 of consulting fees incurred in the current period, $37,601 is included in trade and other payables at period-end.
On May 1, 2014, the Company acquired 100% of the issued and outstanding shares of 1755517 Alberta Ltd., a private company (the "Transaction") in exchange for 8,000,000 Class D common shares of the Company. The consideration of 8,000,000 Class D common shares was valued at $1,000,000 and paid to the same parties as above. At May 1, 2014, 175517 Alberta Ltd. had a net deficit of $21,156, creating a net compensation expense of $1,021,156 as a result of this transaction.
{W0253761.DOCX}6
Transactions with ultimate shareholders
During the current period, the Company incurred various expenses totaling $267,804 from a company owned by ultimate shareholders.
During the current period, the Company capitalized $330,742 of building costs, $5,616 of computer software and $4,941 of computer equipment for property, plant and equipment purchased from companies owned by ultimate shareholders.
Advances from related party are owing to a company controlled by ultimate shareholders of the Company. Advances are unsecured, non-interest bearing, and have no fixed terms of repayment.
Proposed Transactions
On August 29 2014, the Company issued a non-interest bearing, unsecured, $1,500,000 convertible debenture to companies controlled by ultimate shareholders of the Company as settlement of the advances from related party that are unsecured, non-interest bearing, and have no fixed terms. The debenture matures August 29, 2019 and is convertible at that time at the option of the holder into Class A shares of the Company at a price of $0.125 per share.
Additionally, on September 9, 2014 the Company entered into the Share Exchange Agreement. Pursuant to the terms of the agreement, Pubco will acquire all of the issued and outstanding shares of the Company from the shareholders of the Company in exchange for the Transaction Shares at the time of closing of the transaction.
Upon the achievement of the key milestone of the Company achieving the registration of a minimum of 2,000 patients under the Health Canada MMPR program, Pubco shall issue:
1. an aggregate of 20,000,000 Pubco Shares on a pro-rata basis to the former shareholders of the Company; and
2. an aggregate of 3,750,000 warrants exercisable at $0.02 per Pubco Share to certain former warrant holders of the Company.
In addition, Pubco will also issue to former respective warrant and option holders of the Company on a pro-rata basis the Replacement Securities.
Pubco will also assume the Company's currently outstanding non-interest bearing convertible debt in the principal amount of $1,500,000 that is convertible at $0.125 per common share.
All Transaction Shares and Replacement Securities to be issued above are subject to strict escrow provisions and the ROFR pursuant to the terms of the Share Exchange Agreement for a period of 36 months. The replacement stock options are also subject to an 18 month vesting period and ROFR. The transaction is contingent on Pubco resuming listing on the Canadian Securities Exchange (the “CSE”).
{W0253761.DOCX}7
Critical Accounting Estimates
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that would require a material adjustment to the carrying amount of the asset or liability affected in the future.
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 revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are as follows:
Share purchase warrants
The fair value of share purchase warrants are estimated using the Black-Scholes option pricing model. This valuation model requires the input of highly subjective assumptions including the expected stock price volatility, expected lives of the options, expected dividends to be paid by the Company and risk-free interest rates. The assumptions used are described in Note 11 of the Company’s consolidated financial statements. As the Company’s warrants have characteristics significantly different from those of traded instruments and because changes in the input assumptions can materially affect the fair value estimate, such value is subject to measurement uncertainty.
Acquisition of 1755517 Alberta Ltd.
Note 6 of the Company’s consolidated financial statements details the Company's transaction with 1755517 Alberta Ltd. Management's significant judgements in relation to this transaction include the determination of whether 1755517 Alberta Ltd. constitutes a business in accordance with IFRS 3; whether the transaction was with employees or those providing similar services in accordance with IFRS 2; and whether the transaction resulted in the acquisition of intangible assets in accordance with IAS 38.
Future income taxes
The calculation of future income tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Future income tax recorded is also subject to uncertainty regarding the magnitude on non- capital losses available for carry forward and of the balances in various tax pools as the corporate tax returns have not been prepared as of the date of financial statement preparation. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future periods could be material. The value of tax losses at June 30, 2014 has not been recognized in these
{W0253761.DOCX}8 consolidated financial statements due to uncertainty of future utilization. Further details are contained in Note 13 of the Company’s consolidated financial statements.
Property, plant and equipment
Capitalization of development cost of property, plant and equipment is based on management’s judgment of eligibility of expenditures made relating to the construction of the building in relation to IAS 16. In determining the amounts to be capitalized, management estimates the amount of certain expenditures incurred to be capitalized as opposed to recognized as a period cost.
Changes in Accounting Policies
Refer to the audited consolidated financial statements for the period from inception (September 5, 2013) to June 30, 2014 for a summary of significant accounting policies.
Standards issued but not yet effective
The Company has not yet applied the following new standards, interpretations and amendments that have been issued as at June 30, 2014 but were not yet effective. Unless otherwise stated, the Company does not plan to early adopt any of these new or amended standards and interpretations.
IFRS 9 Financial instruments
IFRS 9 was issued in November 2009 and subsequently amended as part of an ongoing project to replace IAS 39 Financial instruments: Recognition and measurement. The standard requires classification of financial assets into two measurement categories based on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. The categories are those measured at fair value and those measured at amortized cost.
The classification and measurement of financial liabilities is primarily unchanged from IAS 39. However, for financial liabilities measured at fair value, changes in the fair value attributable to changes in an entity’s “own credit risk” is now recognized in other comprehensive income instead of loss. This new standard will also impact disclosures provided under IFRS 7 Financial instruments: disclosures. The Company has not yet determined the impact of this amendment on its consolidated financial statements.
In November 2013, the IASB amended IFRS 9. The amendments result in significant changes to hedge accounting. In addition, an entity can now apply the “own credit requirement” in isolation without the need to change any other accounting for financial instruments. The mandatory effective date of January 1, 2015 has been removed to provide sufficient time for preparers of financial statements to make the transition to the new requirements. The Company has not yet determined the impact of this amendment on its consolidated financial statements.
IFRS 2 Share-based payment
The amendment to IFRS 2, issued in December 2013, clarifies the definition of “vesting conditions”, and separately defines a “performance condition” and a “service condition”. A
{W0253761.DOCX}9 performance condition requires the counterparty to complete a specified period of service and to meet a specified performance target during the service period. A service condition solely requires the counterparty to complete a specified period of service. The amendments are effective for share-based payment transactions for which the grant date is on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements.
IFRS 3 Business combinations
The amendment to IFRS 3, issued in December 2013 clarify the accounting for contingent consideration in a business combination. At each reporting period, an entity measures contingent consideration classified as an asset or a financial liability at fair value, with changes in fair value recognized in loss. The amendments are effective for business combinations for which the acquisition date is on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements.
IAS 16 Property, plant and equipment and IAS 38 Intangible assets
The amendments to IAS 16 and IAS 38, issued in December 2013, clarify how an entity calculates the gross carrying amount and accumulated depreciation when a revaluation is performed. The amendments are effective for annual periods beginning on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements.
IAS 24 Related party disclosures
The amendments to IAS 24, issued in December 2013, clarify that a management entity, or any member of a group of which it is a part, that provides key management services to a reporting entity, or its parent, is a related party of the reporting entity. The amendments also require an entity to disclose amounts incurred for key management personnel services provided by a separate management entity. This replaces the more detailed disclosure by category required for other key management personnel compensation. The amendments will only affect disclosure and are effective for annual periods beginning on or after July 1, 2014.
IAS 36 Impairment of assets
The amendments to IAS 36, issued in May 2013, require: • Disclosure of the recoverable amount of impaired assets; and • Additional disclosures about the measurement of the recoverable amount when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount.
The amendments will only affect disclosure and are effective for annual periods beginning on or after January 1, 2014.
Financial Instruments and Other Instruments
The Company as part of its operations carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed.
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Credit risk
Credit risk is the risk of financial loss because a counter party to a financial instrument fails to discharge its contractual obligations.
The carrying amount of the Company’s financial instruments best represents the maximum exposure to credit risk.
Fair value of financial instruments
Cash and cash equivalents are stated at fair value and classified within Level 1 of the fair value hierarchy. The fair value of share subscriptions receivable, receivable from shareholders, accounts payable and accrued liabilities and advances from related party is approximated by their carrying amount due to their short term nature.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivery of cash or another financial asset. The Company enters into transactions to purchase goods and services on credit and borrow funds from related party creditors for which repayment is required at various maturity dates.
Liquidity risk is measured by reviewing the Company’s future net cash flows for the possibility of negative net cash flow.
The Company manages its liquidity risk monitoring cash flows and ensuring adequate resources are available from creditors to meet current needs.
Basis of Presentation
Basis of measurement
The consolidated financial statements have been prepared in the historical basis except for certain financial instruments measured at fair value.
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest dollar.
Significant accounting judgments, estimates and assumptions
The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that
{W0253761.DOCX}11 would require a material adjustment to the carrying amount of the asset or liability affected in the future.
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 revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are as follows:
Share purchase warrants
The fair value of share purchase warrants are estimated using the Black-Scholes option pricing model. This valuation model requires the input of highly subjective assumptions including the expected stock price volatility, expected lives of the options, expected dividends to be paid by the Company and risk-free interest rates. The assumptions used are described in Note 11. As the Company’s warrants have characteristics significantly different from those of traded instruments and because changes in the input assumptions can materially affect the fair value estimate, such value is subject to measurement uncertainty.
Acquisition of 1755517 Alberta Ltd.
The management's significant judgments in relation to this transaction include the determination of whether 1755517 Alberta Ltd. constitutes a business in accordance with IFRS 3; whether the transaction was with employees or those providing similar services in accordance with IFRS 2; and whether the transaction resulted in the acquisition of intangible assets in accordance with IAS 38.
Future income taxes
The calculation of future income tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Future income tax recorded is also subject to uncertainty regarding the magnitude on non- capital losses available for carry forward and of the balances in various tax pools as the corporate tax returns have not been prepared as of the date of financial statement preparation. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future periods could be material. The value of tax losses at June 30, 2014 have not been recognized in these consolidated financial statements due to uncertainty of future utilization. Further details are contained in Note 13.
Property, plant and equipment
Capitalization of development cost of property, plant and equipment is based on management’s judgment of eligibility of expenditures made relating to the construction of the building in relation to IAS 16. In determining the amounts to be capitalized, management estimates the amount of certain expenditures incurred to be capitalized as opposed to recognized as a period cost.
{W0253761.DOCX}12
Other MD&A Requirements
Additional Information
Additional information relating to the Company will be available on the Company’s website at www.auroramj.com.
Directors and Officers (as at June 30, 2014): • Stephen Dobler, President and Director. • Terry Booth, Chief Executive Officer and Director.
Company Contact:
Terry Booth at telephone: 1 (844) 928-7672 or by email at [email protected]
Approval
The Board of Directors of the Company has approved the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it from the Company.
Disclosure of Outstanding Share Data
The Company has authorized an unlimited number of the following classes of shares: 1. Class A, B, C, D, E, F and G voting common shares; 2. Class H, I, J, K, L and M non-voting common shares; and 3. Class N, O, P, Q, R and S non-voting preferred shares.
As at June 30, 2014, there were 80,000,000 common shares issued and outstanding comprising of:
1. Class E shares = 25,800,000; 2. Class F shares = 25,800,000; 3. Class D shares = 8,000,000; and 4. Class C shares = 20,400,000.
Balance at June 30, 2014 is an aggregate of 80,000,000 common shares of Class E, F D, and C.
As of June 30, 2014, the Company has granted 15,000,000 Class A warrants for consulting services provided and 10,200,000 warrants to Class C shareholders.
The Class A warrants are exercisable for a period of five years from issuance to purchase one Class A share of the Company at a price of $0.02 per share. The Class A warrants vest at the time at which the Company achieves certain performance milestones, estimated to be one year from the date of issuance.
{W0253761.DOCX}13
The Class C warrants are exercisable for a period of three years from issuance to purchase one Class C share of the Company at a price of $0.50 per share.
As at June 30, 2014, all the issued warrants remain outstanding, though only the 10,200,000 Class C warrants were exercisable.
Investors Relations
The Company is committed to adhering to best investor relations corporate practices. The Company continues to communicate with current and prospective investors. Currently, the Company is not utilizing any North American-based investor relations external consultants. Additionally, the Company has minimized North American public relations and advertising initiatives.
Risks and Uncertainties
The activities of the Company are subject to risks normally encountered in a start-up business, including: negative cash flow; lack of adequate capital; liquidity concerns and future financing requirements to sustain operations; dilution; no history of operations and revenues, and no history of earnings or dividends; competition; economic changes; and uninsured risks.
An investment in the securities of the Company should be considered speculative due, generally, to the nature of the business in which the Company is engaged, the limited extent of the Company’s assets, the Company’s state of development and the degree of its reliance upon the expertise of management.
Prior to making an investment decision, investors should consider the investment risks set out below and those described elsewhere in this document, which are in addition to the usual risks associated with an investment in a business at an early stage of development. The directors of the Company consider the risks set out below to be the most significant to potential investors of the Company, but not all of the risks associated with an investment in Shares of the Company may be described below. If any of these risks materialize into actual events or circumstances or other possible additional risks and uncertainties of which the directors are currently unaware or which they consider not to be material in relation to the Company’s business, actually occur, the Company’s assets, liabilities, financial conditions, results of operations (including future results of operations), business and business prospects, are likely to be materially and adversely affected. In such circumstances, the price of the Company’s Shares could decline and any investors may lose all or part of their investment.
Market Risk for Securities
The Company is a private company whose common shares are not listed for trading on a stock exchange. There can be no assurance that an active trading market for the Company or the Resulting Issuer Shares will be established and/or sustained after the Share Exchange. Upon close of the Share Exchange and listing on the CSE, the market price for the Resulting Issuer Shares could be subject to wide fluctuations. Factors such as commodity prices, government regulation, interest rates, share price movements of peer companies and competitors, as well as overall market movements, may have a significant impact on the market price of the Resulting Issuer Shares. The stock market has from time to time experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of particular
{W0253761.DOCX}14 companies.
Reliance on Licensing
The ability of the Company or the Resulting Issuer to successfully grow, store and distribute medical marijuana in Canada will depend on success of the Company or the Resulting Issuer in acquiring a Production License. Health Canada has received over 800 Production License applications to date, the number of submissions continues to grow, and there are indications that the approval process is becoming elongated. Once a license is obtained, any failure to comply with the terms of the License, or any failure to renew the License after its expiry date, would have a material adverse impact on the financial condition and operations of our business.
No Operating History Risk
As the Company, Pubco and the Resulting Issuer are start-up companies, there are limited operating histories. The Company has not entered the sales and distribution stage. The Company and the Resulting Issuer will be subject to all of the business risks and uncertainties associated with any new business enterprise, including the risks that it will be unable to acquire the necessary Production License, successfully produce commercial marijuana, or establish a market for our Product. The Resulting Issuer anticipates positive cash flow from operations by the earliest of January 2015. There can be no assurance that consumer demand for our products will be as anticipated, or that we will become profitable.
Change in Law, Regulations and Guidelines
The Company and the Resulting Issuer’s business will be subject to particular laws, regulations, and guidelines. The production and distribution of medical marijuana is a highly regulated field, and although the Company and the Resulting Issuer intend to comply with all laws and regulations, there is no guarantee that the governing laws and regulations will not change which will be outside of the Company and the Resulting Issuer’s control. On March 21, 2014, the Federal Court of Canada issued an order allowing certain individuals to continue under their MMAR licenses, thereby affecting the repeal of the MMAR. As of the date of this MD&A the Government of Canada has decided to appeal the order; however, it is unclear what a final ruling on this issue may be, and how it may affect the Company and the Resulting Issuer’s business. It is possible that a ruling in favour of the original order could allow persons who had a license under the MMAR to opt out of the new MMPR regime, thereby decreasing the size of the market for the Company and the Resulting Issuer’s business, and potentially materially and adversely affecting the Company and the Resulting Issuer’s business, its financial condition and operations.
Availability of Seed Supply and Skilled Labour
The Company and the Resulting Issuer’s ability to commence and continue operations will be dependent on its ability to acquire starting materials. There are four legal sources of starting materials under the MMPR:
1. Health Canada; 2. Personal-Use Production License holders under the MMAR regime; 3. Designated-Person Production License holders under the MMAR regime; and 4. Importation.
{W0253761.DOCX}15
There is no guarantee that Company or the Resulting Issuer will be able to acquire seeds from such sources. Further, the Company or the Resulting Issuer’s ability to maintain operations will be dependent on access to skilled labour. There is no guarantee that the Company or the Resulting Issuer will be successful in maintaining its supply of skilled labour, and a failure to do so would limit the Company or the Resulting Issuer’s ability to produce the predicted amounts of product. This would have an adverse effect on the Company or the Resulting Issuer’s operations and financial results.
Negative Publicity or Consumer Perception
The success of the medical marijuana industry may be significantly influenced by the public’s perception of marijuana’s medicinal applications. Medical marijuana is a controversial topic, and there is no guarantee that future scientific research, publicity, regulations, medical opinion and public opinion relating to medical marijuana will be favourable. The medical marijuana industry is an early-stage business that is constantly evolving with no guarantee of viability. The market for medical marijuana is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion relating to the consumption of medical marijuana may have a material adverse effect on our operational results, consumer base and financial results.
Competitive Risk
Although the market for the Company or the Resulting Issuer’s product does appear to be sizeable, the Resulting Issuer expects significant competition from other companies due to the recent nature of the MMPR regime. A large number of companies, possibly more than 800, appear to be applying for Production Licenses, some of which may have significantly greater financial, technical, marketing and other resources, may be able to devote greater resources to the development, promotion, sale and support of their products and services, and may have more extensive customer bases and broader customer relationships.
Should the size of the medical marijuana market increase as projected, the demand for product will increase as well, and if the Company and the Resulting Issuer hopes to be competitive it will need to invest significantly in research and development, marketing, production expansion, new client identification, and client support. If the Company or the Resulting Issuer is not successful in achieving sufficient resources to invest in these areas, the Company or the Resulting Issuer’s ability to compete in the market may be adversely affected, which could materially and adversely affect the Company or the Resulting Issuer’s business, its financial condition and operations.
Advertising and Promotional Risk
The Company or the Resulting Issuer’s future growth and profitability will depend on the effectiveness and efficiency of advertising and promotional costs, including the Company or the Resulting Issuer’s ability to (i) create brand recognition for its products; (ii) determine appropriate advertising strategies, messages and media; and (iii) maintain acceptable operating margins on such costs. There can be no assurance that advertising and promotional costs will result in revenues for the Company or the Resulting Issuer’s business in the future, or will generate awareness of the Company or the Resulting Issuer’s product. In addition, no assurance can be given that the Resulting Issuer will be able to manage the Company or the Resulting Issuer’s advertising and promotional costs on a cost-effective basis.
{W0253761.DOCX}16
Uninsured or Uninsurable Risk
The Company or the Resulting Issuer may become subject to liability for risks against which it cannot insure or against which the Company or the Resulting Issuer may elect not to insure due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for the Company or the Resulting Issuer’s usual business activities. Payment of liabilities for which the Company or the Resulting Issuer does not carry insurance may have a material adverse effect on the Resulting Issuer’s financial position and operations.
Conflicts of Interest Risk
Certain of the Company or the Resulting Issuer’s directors and officers are also directors and operators in other companies. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Company or the Resulting Issuer’s interests. In accordance with the corporate laws of British Columbia and Alberta, directors who have a material interest in any person who is a party to a material contract or a proposed material contract are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract.
In addition, the directors and the officers are required to act honestly and in good faith with a view to our best interests. However, in conflict of interest situations, the Company or the Resulting Issuer’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company or the Resulting Issuer. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavourable to the Company or the Resulting Issuer.
Key Personnel Risk
The Company or the Resulting Issuer’s success will depend on its directors’ and officers’ ability to develop the Company or the Resulting Issuer’s business and manage its operations, and on the Company or the Resulting Issuer’s ability to attract and retain key quality assurance, scientific, sales, public relations and marketing staff or consultants once operations begin. The loss of any key person or the inability to find and retain new key persons could have a material adverse effect on the Company or the Resulting Issuer’s business. Competition for qualified technical, sales and marketing staff, as well as officers and directors can be intense and no assurance can be provided that the Company or the Resulting Issuer will be able to attract or retain key personnel in the future, which may adversely impact the Company or the Resulting Issuer’s operations.
Speculative Nature of Investment Risk
An investment in the Company or the Resulting Issuer’s common shares carries a high degree of risk and should be considered as a speculative investment by purchasers. The Company or the Resulting Issuer has no history of earnings, limited cash reserves, a limited operating history, has not paid dividends, and is unlikely to pay dividends in the immediate or near future. The Company or the Resulting Issuer is in the development and planning phases of its business and has not started commercialization of its products and services. The Company or the Resulting Issuer’s operations are not yet sufficiently established such that the Company or the Resulting Issuer can mitigate the risks associated with the Company or the Resulting Issuer’s
{W0253761.DOCX}17 planned activities.
No Established Market for Shares Risk
There is currently no established consistent trading market through which common shares in the Company’s authorized capital may be sold. Even if a trading market develops, there can be no assurance that such market will continue in the future. Any investor of the Company, Pubco or the Resulting Issuer may lose their entire investment.
Agricultural Operations Risk
Since the Company or the Resulting Issuer’s business will revolve mainly around the growth of marijuana, an agricultural product, the risks inherent with agricultural businesses will apply. Such risks may include disease and insect pests, among others. Although the Company and the Resulting Issuer expects to grow the its product in a climate controlled, monitored, indoor location, there is not guarantee that changes in outside weather and climate will not adversely affect production. Further, any rise in energy costs may have a material adverse effect on the Company or the Resulting Issuer’s ability to produce medical marijuana.
Building Construction Risk
Since the Company has yet to complete the construction of its production facility, there may be unforeseeable events which cause an increase in the projected buildings or maintenance costs. Such an increase in costs may require the Company or the Resulting Issuer to re-allocate funds from other areas of its business; may require the Company or the Resulting Issuer to raise more funding than originally anticipated; and may delay the Company or the Resulting Issuer’s ability to go into production. Such delay may have a material adverse effect on our business and its financial results.
Transportation Risk
As a business revolving mainly around the growth of an agricultural product, the ability to obtain speedy, cost-effective and efficient transport services will be essential to the prolonged operations of the Company or the Resulting Issuer’s business. Should such transportation become unavailable for prolonged periods of time, there may be a material adverse effect on the Company or the Resulting Issuer’s business, financial situation, and operations.
Liquidity and Future Financing Risk
The Company is and the Resulting Issuer will be in the development stage, having not started operating and has not generated any revenue. The Company and the Resulting Issuer will likely operate at a loss until its business becomes established and therefore may require additional financing in order to fund future operations and expansion plans. The Company or the Resulting Issuer’s ability to secure any required financing to sustain its operations will depend in part upon prevailing capital market conditions, as well as the Company or the Resulting Issuer’s business success. There can be no assurance that the Company or the Resulting Issuer will be successful in its efforts to secure any additional financing or additional financing on terms satisfactory to the Company or the Resulting Issuer’s management. If additional financing is raised by issuing Company or the Resulting Issuer Shares, control may change and shareholders may suffer additional dilution. If adequate funds are not available, or are not available on acceptable terms, the Company or the Resulting Issuer may be required to scale
{W0253761.DOCX}18 back its business plan or cease operating.
Going-Concern Risk
The financial statements of the Company have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Company’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company or the Resulting Issuer will be successful in completing equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.
Global Economy Risk
An economic downturn of global capital markets has been shown to make the raising of capital by equity or debt financing more difficult. The Resulting Issuer will be dependent upon the capital markets to raise additional financing in the future, while it establishes a user base for its products. As such, the Resulting Issuer is subject to liquidity risks in meeting its development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact the Resulting Issuer’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to the Company or the Resulting Issuer and its management. If uncertain market conditions persist, the Company or the Resulting Issuer’s ability to raise capital could be jeopardized, which could have an adverse impact on the Company or the Resulting Issuer’s operations and the trading price of the Resulting Issuer Shares on the CSE.
Dividend Risk
The Company has not paid dividends in the past and does not anticipate paying dividends in the near future. The Resulting Issuer expects to retain its earnings to finance further growth and, when appropriate, retire debt.
Share Price Volatility Risk
It is anticipated that the Resulting Issuer Shares will be re-listed for trading on the CSE. As such, external factors outside of the Resulting Issuer’s control such as announcements of quarterly variations in operating results, revenues and costs, and sentiments toward the medical marijuana sector stocks may have a significant impact on the market price of the Resulting Issuer Shares. Global stock markets, including the CSE, have from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operations of particular companies. There can be no assurance that an active or liquid market will develop or be sustained for the common shares.
Increased Costs of Being a Publicly Traded Company
As the Resulting Issuer will have publicly-traded securities, the Resulting Issuer will incur significant legal, accounting and filing fees not presently incurred by the Company. Securities legislation and the rules and policies of the CSE requires listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and
{W0253761.DOCX}19 disclose material compliance costs.
Value of the Company, Pubco and the Resulting Issuer
The Company, Pubco and the Resulting Issuer’s assets are of indeterminate value. For further particulars see the financial statements scheduled hereto.
Negative Cash Flow
The Company and Pubco had negative cash flows from operating activities in their respective most recent financial years being the year ended June 30, 2014.
Fluctuating Prices of Raw Materials May Adversely Affect the Resulting Issuer
The Company and the Resulting Issuer’s revenues, if any, are expected to be in large part derived from the production, sale and distribution of marijuana. The price of production, sale and distribution of marijuana will fluctuate widely due to the how young the marijuana industry is and is affected by numerous factors beyond the Company or Resulting Issuer’s control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new production and distribution developments and improved production and distribution methods. The effect of these factors on the price of product produced by the Company or Resulting Issuer and, therefore the economic viability of any of the Resulting Issuer’s business, cannot accurately be predicted.
Changing Environmental Regulations May Adversely Affect the Resulting Issuer
All phases of the Company are or the Resulting Issuer’s operations will be subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for noncompliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company, Pubco or the Resulting Issuer’s operations.
Political and Economic Instability May Adversely Affect the Company or the Resulting Issuer
The Company or the Resulting Issuer may be affected by possible political or economic instability. The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates and high rates of inflation. Changes in medicine and agriculture development or investment policies or shifts in political attitude in certain countries may adversely affect the Resulting Issuer’s business. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, distribution, price controls, export controls, income taxes, expropriation of property, maintenance of assets, environmental legislation, land use, land claims of local people and water use. The effect of these factors cannot be accurately predicted.
{W0253761.DOCX}20
Lack of Share Liquidity
Pubco Shares are and the Resulting Issuer Shares will be subject to certain trade restrictions, which may include a hold period restricting the trading of the securities.
Limited Operating History and No Assurance of Profitability
Prior to the close of the Share Exchange, the Company operated as a private company since its inception on September 5, 2013. The brand is young, while growing, is still comparatively modest, owing in part to the industry, inability to aggressively execute our business plan because of a lack of working capital. The close of the Share Exchange and the listing on the CSE and, if any, capital raise is designed to provide the Resulting Issuer with the working capital we need to more fully implement the business objectives of the Resulting Issuer.
We are subject to all of the risks and uncertainties associated with any new business, including the risk that we will be unable to establish a market for our products and services, achieve our growth objectives, and/or ultimately become profitable.
Intellectual Property
The success of the Company and Resulting Issuer’s business depends in part on its ability to protect its ideas and technology. The Company and Pubco have no patented technology or trademarked business methods at this time nor have the Company, Pubco or the Resulting Issuer applied to register any patents, trademarks or copyrights or applied to register the trademark “Aurora”.
Even if the Company, Pubco and the Resulting Issuer moves to protect its technology with trademarks, patents, copyrights or by other means, the Company, Pubco and the Resulting Issuer are not assured that competitors will not develop similar technology, business methods or that the Company, Pubco and the Resulting Issuer will be able to exercise their respective legal rights. Other countries may not protect intellectual property rights to the same standards as does Canada. Actions taken to protect or preserve intellectual property rights may require significant financial and other resources such that said actions have a meaningfully impact our ability to successfully grow our business.
Significant Ownership Interest of Management and Directors
As of the date of this MD&A, the two officers and directors of the Company own an aggregate of 47,600,000 common shares, or approximately 59.5%, of all issued and outstanding common shares of the Company. As a group, these individuals could exercise substantial control over matters requiring shareholder approval, such as election of directors, approval of transactions, and changes to share structure. Until further rounds of financing are completed, other shareholders may be limited in their ability to exercise control over important corporate decisions.
On close of the Share Exchange, officers and directors of the Resulting Issuer will own an aggregate of 37,549,223 shares or approximately 37.5% of the issued and outstanding Resulting Issuer Shares. As a group, these individuals could exercise substantial control over matters requiring shareholder approval, such as election of directors, approval of transactions, and changes to share structure. Until further rounds of financing are completed, other shareholders may be limited in their ability to exercise control over important corporate
{W0253761.DOCX}21 decisions.
Marketing Effectiveness
The Company or the Resulting Issuer’s ability to grow its business and achieve positive earnings will depend in part on the effectiveness of advertising and other forms of promotion that, among other objectives, would seek to build brand awareness and meaningfully increase our user base. There can be no assurance that advertising and promotional expenditures will achieve these objectives.
This list is not exhaustive of the factors that may affect the Company’s forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. Investors should carefully consider the risks discussed in this MD&A.
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SCHEDULE “D”
Audited Financial Statements of Aurora for the Fiscal Year End of June 30, 2014
{W0251953.DOC}FORM 2A – LISTING STATEMENT October 10, 2014 Page 55
October 10, 2014
British Columbia Securities Commission Ontario Securities Commission
Dear Sirs/Madams:
Re: Aurora Cannabis Inc.
We refer to the Form 2A – Listing Statement of Aurora Cannabis Inc. (the “Company”) dated October 10, 2014 relating to the exchange of common shares of the Company and Aurora Marijuana Inc. (“Aurora”).
We consent to being named and to the use in the above-mentioned Form 2A – Listing Statement, of our report dated October 3, 2014, to the shareholders of Aurora Marijuana Inc. on the consolidated statement of financial position as at June 30, 2014 and the consolidated statements of loss and comprehensive loss, changes in equity, and cash flows and the notes to the consolidated financial statements for the period from September 5, 2013 (date of incorporation) to June 30, 2014.
We report that we have read the Form 2A – Listing Statement and have no reason to believe that there are any misrepresentations in the information contained therein that are derived from the financial statements upon which we have reported or that are within our knowledge as a result of our audit of such financial statements. We have complied with Canadian generally accepted standards for an auditor’s consent to the use of a report of the auditor included in an offering document, which does not constitute an audit or review of the prospectus as these terms are described in the CPA Canada Handbook – Assurance.
Yours truly,
MNP LLP
Accounting › Consulting › Tax Suite 400, 10104 - 103 Avenue NW; edmonton AB; t5J 0H8 1-800-661-7778 P: 780-451-4406 F: 780-454-1908 www.MNP.ca Aurora Marijuana Inc. Consolidated Financial Statements June 30, 2014 Independent Auditors’ Report
To the Shareholders of Aurora Marijuana Inc.:
We have audited the accompanying consolidated financial statements of Aurora Marijuana Inc. and its subsidiaries, which comprise the consolidated statement of financial position as at June 30, 2014, and the consolidated statements of loss and comprehensive loss, changes in equity and cash flows for the period from September 5, 2013 (date of incorporation) to June 30, 2014, 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, and for such internal control as management determines is necessary to enable the preparation of 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 audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. 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 auditors’ 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 Aurora Marijuana Inc. and its subsidiaries as at June 30, 2014 and their financial performance and their cash flows for the period from September 5, 2013 (date of incorporation) to June 30, 2014 in accordance with International Financial Reporting Standards.
Emphasis of Matters Without modifying our opinion, we draw attention to Note 3 to the financial statements which describes that the Company has prepared these consolidated financial statements on the basis applicable for a going concern. The Company has yet to attain commercial operations and has incurred a loss which, along with other matters as set forth in Note 3, indicates the existence of a material uncertainty that may cast doubt about the Company's ability to continue as a going concern.
Edmonton, Alberta
October 3, 2014 Chartered Accountants
Suite 400, 10104 - 103 Avenue NW, Edmonton, Alberta, T5J 0H8, Phone: (780) 451-4406, 1 (800) 661-7778 Aurora Marijuana Inc. Consolidated Statement of Financial Position As at June 30, 2014
2014
Assets Current Cash and cash equivalents 916,767 Goods and services tax receivable 244,523 Share subscriptions receivable (Note 10) 90,000
1,251,290 Non-current Property, plant and equipment (Note 7), (Note 12) 4,238,047 Receivable from shareholders (Note 8) 2,530
5,491,867
Liabilities Current Accounts payable and accrued liabilities 1,876,927 Notes payable 1,000,000 Advances from related party (Note 9) 845,725
3,722,652
Going concern (Note 3) Events after the reporting period (Note 16)
Equity Share capital (Note 10) 3,368,640 Warrants (Note 11) 224,110 Deficit (1,823,535)
1,769,215
5,491,867
Approved on behalf of the Board
signed "Terry Booth" signed "Steve Dobler" Director Director
The accompanying notes are an integral part of these consolidated financial statements
1 Aurora Marijuana Inc. Consolidated Statement of Loss and Comprehensive Loss For the period from September 11, 2013 (date of incorporation) to June 30, 2014
2014
Operating expenses (Note 12) Consulting fees (Note 12) 326,154 Salaries, wages and benefits 109,900 Advertising and promotion 81,561 Professional fees 59,646 Travel and entertainment 51,628 Utilities 43,651 Rental 40,000 Meals and entertainment 15,166 Insurance 11,599 Donations 5,650 Telephone, fax and internet 5,360 Courier and delivery 4,620 Vehicle expenses 4,106 Miscellaneous 788
759,829
Other expense Compensation expense (Note 6), (Note 11) (1,063,706)
Loss and comprehensive loss for the period (1,823,535)
The accompanying notes are an integral part of these consolidated financial statements
2 Aurora Marijuana Inc. Consolidated Statement of Changes in Equity For the period from September 11, 2013 (date of incorporation) to June 30, 2014
Share capital Warrants Deficit Total equity
Net loss for the period (1,823,535) (1,823,535) Shares issued at incorporation (Note 10) 200 - - 200 Acquisition of 1755517 Alberta Ltd. (Note 6) 1,000,000 - - 1,000,000 Class A agent warrants issued - 42,550 - 42,550 Class C shares issued for cash (Note 10) 2,550,000 - - 2,550,000 Fair value of Class C warrants issued (Note 11) (181,560) 181,560 - -
Balance June 30, 2014 3,368,640 224,110 (1,823,535) 1,769,215
The accompanying notes are an integral part of these consolidated financial statements
3 Aurora Marijuana Inc. Consolidated Statement of Cash Flows For the period from September 11, 2013 (date of incorporation) to June 30, 2014
2014
Cash provided by (used for) the following activities Operating activities Loss and comprehensive loss for the period (1,823,535) Non-cash compensation expense 1,063,706
(759,829) Goods and services tax receivable (244,523) Accounts payable and accrued liabilities 39,246
(965,106)
Financing activities Advances from related party 845,725 Advances to shareholders (2,530) Proceeds from issuance of common shares and warrants 2,460,200 Proceeds from notes payable 1,000,000
4,303,395
Investing activities Purchases of property, plant and equipment (2,421,522)
Cash resources, end of period 916,767
The accompanying notes are an integral part of these consolidated financial statements
4 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
1. Reporting entity
Aurora Marijuana Inc. ("Aurora") was incorporated under the Alberta Business Corporations Act on September 11, 2013 as 1770415 Alberta Ltd. and renamed on April 16, 2014. Aurora is domiciled in Canada. The consolidated financial statements of Aurora as at and for the period ended June 30, 2014 comprise Aurora and its wholly owned subsidiaries 1769474 Alberta Ltd. and 1755517 Alberta Ltd. (together referred to as the “Company”). The Company is primarily involved in developing a marijuana for medicinal purposes facility for future operation. The address of the Company’s registered office is 2200, 10155 - 102 Street NW, Edmonton, Alberta. The consolidated financial statements were approved by the board of directors and authorized for issue on October 3, 2014.
2. Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Centre ("IFRIC") in effect for the period ended June 30, 2014.
3. Going concern
These consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. The Company’s ability to continue as a going concern is dependent upon its ability to commence profitable operations and generate funds there from, and to continue to obtain borrowings or raise equity from third parties sufficient to meet current and future obligations and/or restructure the existing debt and payables. These conditions, combined with the loss incurred for the period ended June 30, 2014, indicate the existence of a material uncertainty that may cast doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not reflect the adjustments or reclassification of assets and liabilities which would be necessary if the Company were unable to continue its operations.
4. Basis of preparation
Basis of measurement The consolidated financial statements have been prepared in the historical basis except for certain financial instruments measured at fair value. Functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest dollar. Significant accounting judgments, estimates and assumptions The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that would require a material adjustment to the carrying amount of the asset or liability affected in the future. 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 revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the consolidated financial statements are as follows:
5 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
4. Basis of preparation (Continued from previous page) Share purchase warrants The fair value of share purchase warrants are estimated using the Black-Scholes option pricing model. This valuation model requires the input of highly subjective assumptions including the expected stock price volatility, expected lives of the options, expected dividends to be paid by the Company and risk-free interest rates. The assumptions used are described in Note 11. As the Company’s warrants have characteristics significantly different from those of traded instruments and because changes in the input assumptions can materially affect the fair value estimate, such value is subject to measurement uncertainty. Acquisition of 1755517 Alberta Ltd. Note 6 details the Company's transaction with 1755517 Alberta Ltd. ("1755517"). Management's significant judgements in relation to this transaction include the determination of whether 1755517 constitutes a business in accordance with IFRS 3; whether the transaction was with employees or those providing similar services in accordance with IFRS 2; and whether the transaction resulted in the acquisition of intangible assets in accordance with IAS 38. Future income taxes The calculation of future income tax is based on assumptions, which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Future income tax recorded is also subject to uncertainty regarding the magnitude on non-capital losses available for carry forward and of the balances in various tax pools as the corporate tax returns have not been prepared as of the date of financial statement preparation. By their nature, these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements from changes in such estimates in future periods could be material. The value of tax losses at June 30, 2014 has not been recognized in these consolidated financial statements due to uncertainty of future utilization. Further details are contained in Note 13. Property, plant and equipment Capitalization of development cost of property, plant and equipment is based on management’s judgment of eligibility of expenditures made relating to the construction of the building in relation to IAS 16. In determining the amounts to be capitalized, management estimates the amount of certain expenditures incurred to be capitalized as opposed to recognized as a period cost.
5. Summary of significant accounting policies
The following principle accounting policies have been adopted in the preparation of these consolidated financial statements. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries. The following subsidiaries have been included in the consolidated financial statements:
Entity Ownership % 1769474 Alberta Ltd. 100 1755517 Alberta Ltd. 100 Subsidiaries are entities controlled by the Company. Control is achieved where the Company is exposed, or has rights, to variable returns from its involvement with the investee and it has the ability to affect those returns through its power over the investee. In assessing control, only rights which give the Company the current ability to direct the relevant activities and that the Company has the practical ability to exercise, is considered. The results of subsidiaries acquired or disposed of during the period are included in these consolidated financial statements from the effective date of acquisition or up to the effective date of disposal, as appropriate. Revenue recognition Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have been transferred to the buyer and collection is reasonably assured.
6 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
5. Summary of significant accounting policies (Continued from previous page)
Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and short-term highly liquid investments with original maturities of three months or less that are readily convertible into to known amounts of cash and which are subject to an insignificant risk of changes in value. Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located. All assets having limited useful lives are depreciated using the straight-line method over their estimated useful lives. Assets are depreciated from the date of acquisition. Internally constructed assets are depreciated from the time an asset is available for use. As at June 30, 2014 all assets were not yet available for use and therefore depreciation rates have not been determined. The residual value, useful life and depreciation method applied to each class of assets are reassessed at each reporting date. Impairment of non-financial assets The Group assesses its property, plant and equipment for impairment at each reporting period or when events and circumstances warrant such a review. An impairment loss is recognized when the carrying amount excees the fair value of the assets. Impairment losses are reversed in future periods should there be changes in estimates utilized for determination of the recoverable amount subsequent to the recognition of the impairment loss. Income taxes Taxation on the loss for the year consists of current and deferred tax. Taxation is recognized in comprehensive loss except to the extent that the tax arises from a transaction or event which is recognized either in other comprehensive income or directly in equity, or a business combination. Current tax is the expected tax payable on the taxable income for the year using rates enacted or substantially enacted at the year end, and includes any adjustments to tax payable in respect of previous years. Deferred taxes Deferred tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statement financial position. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period, and which are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilized and are reviewed at the end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax liabilities and assets are offset when there is a legally enforceable right to offset current tax assets and liabilities when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offest and intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are not recognized in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination.
7 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
5. Summary of significant accounting policies (Continued from previous page)
Earnings per share Basic earnings per share is calculated using the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated using the treasury stock method whereby all options, warrants and equivalents are assumed if in-the-money, to have been excercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the period. Share-based payments Non-employees and employees of the Company receive remuneration in the form of share-based payment transactions, whereby non-employees and employees render services as consideration for equity instruments (‘equity-settled share- based payments’). Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. Refer to Note 11 for information on how the fair value of the equity instruments is measured. The fair value of the equity instruments granted is recognized as an expense over the estimated vesting period with a corresponding increase to warrants equity (for warrants) or contributed surplus (for options). Non-market vesting conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction. The estimate of the number of equity instruments expected to vest is revised if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense and equity account reflects the revised estimate. Equity-settled share-based payment transactions with parties other than employees or those providing similar services, are measured at the fair value of the goods or services received, except where the fair value cannot be estimated reliably, in which case they are measured indirectly at the fair value of the equity instruments granted. Financial instruments Financial assets at fair value through profit or loss: The Company has classified the following financial assets at fair value through loss: cash and cash equivalents. The Company has designated cash and cash equivalents on initial recognition at fair value through loss. This is in accordance with the Company’s risk management strategy. The Company’s financial assets at fair value through loss are initially recognized at their fair value. Fair value is determined by published price quotations in an active market. Transactions to purchase or sell these items are recorded on the trade date. Financial assets at fair value through loss are subsequently measured at their fair value. Net gains and losses arising from changes in fair value are recognized immediately in loss and comprehensive loss. Loans and receivables: The Company has classified the following financial assets as loans and receivables: goods and services tax receivable and receivable from shareholders. These assets are initially recognized at their fair value. Fair value is approximated by the instrument’s initial cost in a transaction between the parties. Transactions to purchase or sell these items are recorded on the trade date. Loans and receivables are subsequently measured at their amortized cost, using the effective interest method. Under this method, estimated future cash receipts are exactly discounted over the asset’s expected life, or other appropriate period, to its net carrying value. Amortized cost is the amount at which the financial asset is measured at initial recognition less principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount, and less any reduction for impairment or uncollectability. Net gains and losses arising from changes in fair value are recognized in loss and comprehensive loss upon derecognition or impairment.
8 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
5. Summary of significant accounting policies (Continued from previous page)
Financial liabilities measured at amortized cost: The Company has classified the following financial liabilities as financial liabilities measured at amortized cost: trade and other payables and advances from related party. These liabilities are initially recognized at their fair value. Fair value is determined by reference to recent arm’s length market transactions for the same instrument. Transactions to purchase or sell these items are recorded on the trade date and transaction costs directly attributable to their issue are included in the fair value cost of these liabilities, while transaction costs arising from their disposal are immediately recognized in loss and comprehensive loss. Total interest expense, calculated using the effective interest rate method, is recognized in loss and comprehensive loss. Financial liabilities measured at amortized cost are subsequently measured at amortized cost using the effective interest method. Under this method, estimated future cash payments are exactly discounted over the liability’s expected life, or other appropriate period, to its net carrying value. Amortized cost is the amount at which the financial liability is measured at initial recognition less principal repayments, and plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. Net gains and losses arising from changes in fair value are recognized in loss and comprehensive loss upon derecognition. Financial asset impairment The Company assesses impairment of all its financial assets, except those classified at fair value through loss. Management considers whether the issuer is having significant financial difficulty in determining whether objective evidence of impairment exists. Impairment is measured as the difference between the asset’s carrying value and its fair value. Any impairment, which is not considered temporary, is included in current period loss. The Company reverses impairment losses on financial assets carried at amortized cost when the decrease in impairment can be objectively related to an event occurring after the impairment loss was recognized. Comprehensive loss Comprehensive loss includes all changes in equity of the Company, except those resulting from investments by owners and distributions to owners. Comprehensive loss is the total of loss and other comprehensive loss. Other comprehensive loss comprises revenues, expenses, gains and losses that, in accordance with International Financial Reporting Standards, require recognition, but are excluded from loss. The Company does not have any items giving rise to other comprehensive loss. Fair value measurements The Company classifies fair value measurements recognized in the statement of financial position using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1: Quoted prices (unadjusted) are available in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions. Fair value measurements are classified in the fair value hierarchy based on the lowest level input that is significant to that fair value measurement. This assessment requires judgment, considering factors specific to an asset or a liability and may affect placement within the fair value hierarchy.
9 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
5. Summary of significant accounting policies (Continued from previous page) Standards issued but not yet effective The Company has not yet applied the following new standards, interpretations and amendments that have been issued as at June 30, 2014 but are not yet effective. Unless otherwise stated, the Company does not plan to early adopt any of these new or amended standards and interpretations. IFRS 9 Financial instruments IFRS 9 was issued in November 2009 and subsequently amended as part of an ongoing project to replace IAS 39 Financial instruments: Recognition and measurement. The standard requires classification of financial assets into two measurement categories based on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. The categories are those measured at fair value and those measured at amortized cost. The classification and measurement of financial liabilities is primarily unchanged from IAS 39. However, for financial liabilities measured at fair value, changes in the fair value attributable to changes in an entity’s “own credit risk” is now recognized in other comprehensive income instead of loss. This new standard will also impact disclosures provided under IFRS 7 Financial instruments: disclosures. The Company has not yet determined the impact of this amendment on its consolidated financial statements. In November 2013, the IASB amended IFRS 9. The amendments result in significant changes to hedge accounting. In addition, an entity can now apply the “own credit requirement” in isolation without the need to change any other accounting for financial instruments. The mandatory effective date of January 1, 2015 has been removed to provide sufficient time for preparers of financial statements to make the transition to the new requirements. The Company has not yet determined the impact of this amendment on its consolidated financial statements. IFRS 2 Share-based payment The amendment to IFRS 2, issued in December 2013 clarify the definition of “vesting conditions”, and separately define a “performance condition” and a “service condition”. A performance condition requires the counterparty to complete a specified period of service and to meet a specified performance target during the service period. A service condition solely requires the counterparty to complete a specified period of service. The amendments are effective for share-based payment transactions for which the grant date is on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements. IFRS 3 Business combinations The amendment to IFRS 3, issued in December 2013 clarify the accounting for contingent consideration in a business combination. At each reporting period, an entity measures contingent consideration classified as an asset or a financial liability at fair value, with changes in fair value recognized in loss. The amendments are effective for business combinations for which the acquisition date is on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements. IAS 16 Property, plant and equipment and IAS 38 Intangible assets The amendments to IAS 16 and IAS 38, issued in December 2013, clarify how an entity calculates the gross carrying amount and accumulated depreciation when a revaluation is performed. The amendments are effective for annual periods beginning on or after July 1, 2014. The Company has not yet determined the impact of this amendment on its consolidated financial statements. IAS 24 Related party disclosures The amendments to IAS 24, issued in December 2013, clarify that a management entity, or any member of a group of which it is a part, that provides key management services to a reporting entity, or its parent, is a related party of the reporting entity. The amendments also require an entity to disclose amounts incurred for key management personnel services provided by a separate management entity. This replaces the more detailed disclosure by category required for other key management personnel compensation. The amendments will only affect disclosure and are effective for annual periods beginning on or after July 1, 2014.
10 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
5. Summary of significant accounting policies (Continued from previous page) IAS 36 Impairment of assets The amendments to IAS 36, issued in May 2013, require: Disclosure of the recoverable amount of impaired assets; and Additional disclosures about the measurement of the recoverable amount when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The amendments will only affect disclosure and are effective for annual periods beginning on or after January 1, 2014.
6. Acquisition of 1755517 Alberta Ltd.
On May 1, 2014, the Company acquired 100% of the issued and outstanding shares of 1755517 Alberta Ltd., a private company (the "Transaction") in exchange for 8,000,000 Class D common shares. Management determined that 1755517 does not qualify as a business according to the definition in IFRS 3, therefore the Transaction does not constitute a business combination; rather, it is treated as an issuance of shares by the Company for the net assets of 1755517 and has been accounted for in accordance with IFRS 2 Share-based payments. As the consideration paid by the Company to acquire 1755517 was ultimately to individuals providing services similar to employees, management has determined that the transaction should be measured at the fair value of the equity instruments given up, and not the value of net assets received in accordance with IFRS 2. The 8,000,000 Class D common shares issued have a fair value of $1,000,000. As the individuals are not party to a long-term contractual arrangement with the Company and 1755517 does not own resources meeting the definition of intangible assets per IAS 38, any excess of consideration paid over net assets received is considered a current period compensation expense. At May 1, 2014, 175517 Alberta Ltd. had a net deficit of $21,156, creating a net compensation expense of $1,021,156 as a result of this transaction.
7. Property, plant and equipment
Computer Computer Buildings equipment software Total
Cost Additions 4,245,291 4,941 31,782 4,282,014
Net book value at June 30, 2014 4,201,324 4,941 31,782 4,238,047
As at June 30, 2014, no assets were available for use, therefore no provision for depreciation was recorded for the period.
8. Receivable from shareholders
Advances to the shareholders are unsecured, non-interest bearing, and have no fixed terms of repayment.
9. Advances from related party
Advances from related party are owing to a company controlled by ultimate shareholders of the Company. Advances are unsecured, non-interest bearing, and have no fixed terms of repayment.
11 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
10. Share capital
The Company has authorized an unlimited number of the following classes of shares: Class A, B, C, D, E, F & G voting common shares Class H, I, J, K, L & M non-voting common shares Class N, O, P, Q, R & S non-voting preferred shares
Issued share capital: 2014
20,400,000 Class C common shares 2,368,440 8,000,000 Class D common shares 1,000,000 25,800,000 Class E common shares 100 25,800,000 Class F common shares 100
80,000,000 Common shares 3,368,640
Common shares Number of shares Share capital ['000s] [Cdn '000s]
Class A shares issued at incorporation 360,000 100 Class B shares issued at incorporation 360,000 100 Cancellation of Class A shares (360,000) (100) Cancellation of Class B shares (360,000) (100) Issuance of Class E shares 25,800,000 100 Issuance of Class F shares 25,800,000 100 Issuance of Class D shares (Note 6) 8,000,000 1,000,000 Class C shares issued for cash 20,400,000 2,550,000 Fair value of Class C warrants issued - (181,560)
Balance at June 30, 2014 80,000,000 3,368,640
On May 1, 2014, the Class A and B shareholders entered into share exchange agreements pursuant to Section 86 of the Income Tax Act (Canada) (the "Act") whereby the 360,000 Class A and 360,000 Class B shares outstanding were exchanged for 25,800,000 Class E and 25,800,000 Class F shares. Subsequently on May 1, 2014, the Company entered into rollover agreements pursuant to Subsection 85(1) of the Act with the shareholders of 1755517 Alberta Ltd. as described in Note 6. The Company issued 8,000,000 Class D shares in consideration of acquiring all the outstanding shares of 1755517 Alberta Ltd. The fair value of the Class D shares issued was determined by reference to the consideration paid by third parties for equity instruments with similar features. On May 30, 2014, the Company issued 20,400,000 common share units consisting of one Class C common share and one- half warrant to purchase a Class C common share for $0.50 for a period of three years for consideration of $0.125 per unit. The Class C shares issued have been recorded at the net of the subscription price of $0.125 less the fair value of the one- half warrant issued (Note 11). At June 30, 2014, proceeds for 720,000 common share units ($90,000) remain receivable from the subscriber.
12 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
11. Share purchase warrants
During the period, the Company has granted 15,000,000 Class A warrants for consulting services provided and 10,200,000 warrants to Class C shareholders as described in Note 10. The Class A warrants are exercisable for a period of five years from issuance to purchase one Class A share of the Company at a price of $0.02 per share. The Class A warrants vest at the time at which the Company achieves certain performance milestones, estimated to be one year from the date of issuance. The fair value of these warrants has been estimated as $0.0043 per warrant based on the following assumptions: Volatility rate 70% Risk-free interest rate 1.67% Dividend yield rate 0.00% Weighted average life 5 years Of the aggregate fair value for the Class A warrants of $64,658, $42,550 has been recognized as compensation expense in the period from September 5, 2013 (date of incorporation) to June 30, 2014. The Class C warrants are exercisable for a period of three years from issuance to purchase one Class C share of the Company at a price of $0.50 per share. The fair value of these warrants has been estimated as $0.0178 per warrant based on the following assumptions: Volatility rate 70% Risk-free interest rate 1.52% Dividend yield rate 0.00% Weighted average life 3 years The aggregate fair value of the Class C warrants of $181,560 has been fully recognized in equity as at June 30, 2014. As at June 30, 2014, all the issued warrants remain outstanding, though only the 10,200,000 Class C warrants were exercisable. The average remaining useful life at June 30, 2014 of the 25,200,000 warrants is 3.81 years at a weighted average exercise price of $0.21.
12. Related party transactions
Key management compensation During the current period, the Company paid consulting fees to companies owned by management personnel who are also ultimate shareholders. Of the $217,187 of consulting fees incurred in the current period, $37,601 is included in trade and other payables at period-end. During the current period, consideration of 8,000,000 Class D common shares valued at $1,000,000, as disclosed in Note 6, was also paid to these companies. Transactions with ultimate shareholders During the current period, the Company incurred various expenses totalling $267,804 from a company owned by ultimate shareholders. During the current period, the Company capitalized $330,742 of building costs, $5,616 of computer software and $4,941 of computer equipment for property, plant and equipment purchased from companies owned by ultimate shareholders.
13. Income tax
As at June 30, 2014, the Company and its subsidiaries have non-capital losses for income tax purposes of approximately $770,000. The deferred income tax impact of these non-capital losses has not been recognized as the future use of these losses is uncertain as at June 30, 2014.
13 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
14. Capital management
The Company’s objective when managing capital is to safeguard the entity’s ability to continue as a going concern, so that it can commence providing returns for shareholders and benefits for other stakeholders. The Company sets the amount of capital in proportion to risk and manages the capital structure and makes adjustments to it in light of changes to economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may issue new shares or seek financing. The Company manages the following as capital:
2014
Cash and cash equivalents 916,767 Share capital 3,368,640 Warrants 224,110 Deficit (1,823,585)
2,685,932
The Company monitors capital on the basis of its ability to fund construction of the building.
15. Financial instruments
The Company as part of its operations carries a number of financial instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments except as otherwise disclosed. Credit risk Credit risk is the risk of financial loss because a counter party to a financial instrument fails to discharge its contractual obligations. The carrying amount of the Company’s financial instruments best represents the maximum exposure to credit risk. Fair value of financial instruments Cash and cash equivalents are stated at fair value and classified within Level 1 of the fair value hierarcy. The fair value of share subscriptions receivable, receivable from shareholders, accounts payable and accrued liabilities and advances from related party is approximated by their carrying amount due to their short term nature. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivery of cash or another financial asset. The Company enters into transactions to purchase goods and services on credit and borrow funds from related party creditors for which repayment is required at various maturity dates. Liquidity risk is measured by reviewing the Company’s future net cash flows for the possibility of negative net cash flow. The Company manages its liquidity risk monitoring cash flows and ensuring adequate resources are available from creditors to meet current needs.
14 Aurora Marijuana Inc. Notes to the Consolidated Financial Statements For the period from September 11, 2013 (date of incorporation) to June 30, 2014
16. Events after the reporting period
Subsequent to the reporting date, the Company issued 4,000,000 Class D stock options to a key member of management of the Company. The options are exercisable for one Class D share each at a price of $0.001 per share for a period of three years. The options vest in three tranches, 1,600,000 vest on December 21, 2014, 1,600,000 on June 21, 2015 and the remaining 800,000 vest December 21, 2015. The estimated fair value of these options is $460,400. On August 29 2014, the Company issued a non-interest bearing, unsecured, $1,500,000 convertible debenture to companies controlled by ultimate shareholders of the Company as settlement of the advances from related party as described in Note 9. The debenture matures August 29, 2019 and is convertible at that time at the option of the holder into Class A shares of the Company at a price of $0.125 per share. Additionally, on September 9, 2014 the Company entered into a definititve share exchange agreement with Prescient Mining Corp. ("Prescient"). Pursuant to the terms of the agreement, Prescient will acquire all of the issued and outstanding shares of Aurora from the shareholders of the Company in exchange for an aggregate of 60,000,000 common shares of Prescient ("Transaction Shares") at the time of closing of the transaction. 20,000,000 performance shares and 3,750,000 warrants have also been reserved for issuance based on a key milestone of Aurora achieving the registration of a minimum of 2,000 patients under the Health Canada MMPR program. Subsequent to this exchange and the issuance of the performance shares, Aurora shareholders will own approximately 66% of the common voting shares of Prescient. As such this transaction will constitute a reverse take-over, with a key result of the transaction being Aurora shareholders owning publicly listed shares. In addition, Prescient will also issue a total of 25,200,000 replacement warrants and 4,000,000 replacement stock options (collectively, the "Replacement Securities") to current holders of Aurora warrants and options and assume Aurora's currently outstanding non-interest bearing convertible debt in the principal amount of $1,500,000. All Transaction Shares and Replacement Warrants to be issued above are subject to strict escrow provisions and a right of first refusal ("ROFR") pursuant to the terms of the Share Exchange Agreement for a period of 36 months. The replacement stock options are also subject to an 18 month vesting period and ROFR.
15 SCHEDULE “E”
Pro-forma Consolidated Financial Statements of the Resulting Issuer
{W0251953.DOC}FORM 2A – LISTING STATEMENT October 10, 2014 Page 56
AURORA CANNABIS INC. (Formerly Prescient Mining Corp.)
PRO-FORMA CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited) (Expressed in Canadian Dollars)
AUGUST 31, 2014
{W0254418.DOC}
AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Pro-Forma Consolidated Statement of Financial Position As at August 31, 2014 (Unaudited)
Prescient Aurora Pro-forma Note Pro-forma Mining Corp. Marijuana Inc. adjustments 4 Consolidated $ $ $ $ ASSETS
Current assets: Cash and cash equivalents 1,181,972 (8,314) 1,894,050 (a),(h), (i) 3,067,708 Goods and services taxes recoverable 5,684 349,976 - 355,660 Interest receivable 29,838 - (29,838) (j) - Share subscriptions receivable 25,000 - - 25,000 Prepaid expenses 1,500 - - 1,500 Advances to related parties - 43,808 - 43,808 Advances to Aurora Marijuana Inc. 3,000,000 - (3,000,000) (j) - 4,243,994 385,470 (1,135,788) 3,493,676
Property, plant and equipment 706 6,301,207 - 6,301,913 Receivable from shareholders - 2,530 - 2,530
4,244,700 6,689,207 (1,135,788) 9,798,119
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities: Accounts payable and accrued liabilities 17,573 1,015,763 (29,838) (j) 1,003,498 Loan payable 500,000 - - 500,000 Due to Prescient Mining Corp. - 3,000,000 (3,000,000) (j) - 517,573 4,015,763 (3,029,838) 1,503,498
Convertible debenture - 745,765 - 745,765 517,573 4,761,528 (3,029,838) 2,249,263
Shareholders’ equity: (a), (b), (c), (d), (e), (f), Share capital 4,897,581 3,368,640 5,264,371 (i) 13,530,592 (b), (d), (e), Reserves 487,637 1,096,815 12,378,308 (g), (i), (k) 13,962,760 (b), (c), (d), (e), (g), (h), Deficit (1,658,091) (2,537,776) (15,748,629) (k) (19,944,496) 3,727,127 1,927,679 1,894,050 7,548,856
4,244,700 6,689,207 (1,135,788) 9,798,119
The accompanying notes are an integral part of these pro-forma consolidated financial statements.
{W0254418.DOC} AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
1. Basis of Presentation
The unaudited pro-forma consolidated statement of financial position of Aurora Cannabis Inc. (“Aurora Cannabis” or the “Company”) as at August 31, 2014 has been prepared by management using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The unaudited pro-forma consolidated statement of financial position has been prepared for inclusion in a listing statement of the Company dated October 10, 2014, relating to Prescient Mining Corp.’s (“Prescient”) reverse acquisition of all of the issued and outstanding capital stock of Aurora Marijuana Inc. (“Aurora”).
The unaudited pro-forma consolidated statement of financial position as at August 31, 2014 was compiled from the unaudited statement of financial position of Prescient as at August 31, 2014 and the unaudited statement of financial position of Aurora as at August 31, 2014, and includes all adjustments which, in the opinion of management, are necessary for the fair presentation, in all material respects, of the unaudited pro-forma consolidated statement of financial position as if the transactions described in Note 4 had occurred as at August 31, 2014.
The unaudited pro-forma consolidated statement of financial position is not necessarily indicative of the combined results or financial position that would have been attained had the transactions actually taken place at the dates indicated and do not purport to be indicative of the effects that may be expected to occur in the future.
2. Summary of Significant Accounting Policies
The unaudited pro-forma consolidated statement of financial position has been compiled using the significant accounting policies as set out in the audited financial statements of Prescient and Aurora as at and for the year ended June 30, 2014.
3. Proposed Transaction
On September 9, 2014, Prescient and Aurora entered into a Share Exchange Agreement (the “Agreement”) pursuant to which Prescient will acquire all of the issued and outstanding securities of Aurora in consideration for securities of Prescient, which will constitute a reverse takeover of Prescient by Aurora shareholders (the “Transaction”) as follows:
(a) Issuance of the following securities of Prescient to Aurora shareholders and warrant and option holders:
i. 60,000,000 common shares; ii. 21,450,000 warrants; and iii. 4,000,000 options.
(b) Assumption of Aurora’s non-interest bearing, unsecured shareholder loan of $1,500,000 convertible into common shares of the Company at a price of $0.125 per share at any time during the 5 year term; and
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AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
3. Proposed Transaction (Continued) (c) Issuance of 20,000,000 performance shares and 3,750,000 performance warrants at $0.02 per share for a term of 5 years exercisable on completion of a performance milestone.
4. Pro-Forma Adjustments and Assumptions
The unaudited pro-forma consolidated statement of financial position incorporates the following pro- forma assumptions:
(a) The completion subsequent to August 31, 2014, of a non-brokered private placement of 2,353,000 common shares at a price of $0.85 per share for gross proceeds of $2,000,050.
(b) The acquisition of Aurora by Prescient constitutes a reverse asset acquisition as Prescient does not meet the definition of a business, as defined in IFRS 3, Business Combinations. Accordingly, as a result of the Transaction, the consolidated statement of financial position has been adjusted for the elimination of Prescient’s share capital of $4,897,581, reserves of $487,637 and accumulated deficit of $1,658,091, all within shareholders’ equity.
(c) As a result of this reverse asset acquisition, a listing expense of $16,904,884 has been recorded. This reflects the difference between the estimated fair value of the Aurora shares to the Prescient shareholders less the net fair value of the assets of Prescient acquired. In accordance with reverse acquisition accounting: i. The assets and liabilities of Aurora were included in the pro-forma consolidated statement of financial position at their carrying values;
ii. The net assets of Prescient were included at their fair value of $3,727,127 (equal to the carrying value of the assets);
iii. The net assets have been allocated as follows: Cash and cash equivalents $ 1,181,972 Goods and services taxes recoverable 5,684 Interest receivable 29,838 Share Subscriptions receivable 25,000 Prepaid expenses 1,500 Advances to Aurora 3,000,000 Equipment 706 Accounts payable and accrued liabilities (17,573 ) Loan payable (500,000 ) Estimated fair value of net assets $ 3,727,127
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AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
4. Pro-Forma Adjustments and Assumptions (Continued)
iv. The listing expense of $16,904,884 was determined as follows: • The number of Prescient shares held by Aurora shareholders outstanding prior to the financing is estimated to be 60,000,000 or 59.5% of the combined entities. • The estimated fair value of Aurora is $51,000,000 based on the financing price of $0.85 per share. • The number of outstanding shares of Prescient prior to the Transaction and financing is determined to be 40,764,000 or 40.5% of the combined entities. • The portion of Aurora’s fair value attributed to Prescient is $20,632,011 calculated as 40.45% of Aurora’s fair value. • The difference between the fair value of $20,632,011 attributed to Prescient and the estimated fair value of the net assets of Prescient of $3,727,127 amounts to a listing expense of $16,904,884.
(d) The issuance of an aggregate of 21,450,000 warrants of Prescient to warrant holders of Aurora as follows:
i. 10,200,000 warrants exercisable at a price of $0.50 per share for a period of 3 years; and ii. 11,250,000 warrants exercisable at a price of $0.02 per share for a period of 5 years.
The warrants have an estimated fair value of $12,656,822 and were calculated using the Black- Sholes pricing model with the following weighted average assumptions: expected dividend yield – 0%; expected stock price volatility – 219.65%; risk-free interest rate – 1.09%; expected life – 1.5 years. The fair value of these warrants was recorded as a capital transaction, with a charge to share capital and reserves.
The 21,450,000 warrants of Aurora have been cancelled and the value of these warrants of $181,560 was reclassified from reserves to share capital and $53,415 from reserves to deficit.
(e) The grant of 4,000,000 stock options of Prescient to an option holder of Aurora exercisable at a price of $0.001 per share for a period of 5 years. 1,600,000 of the options shall vest on December 21, 2014, 1,600,000 on June 21, 2015 and 800,000 on December 21, 2015. Share- based payments of $144,237 were recorded for vested options. The fair value of the options was estimated using the Black-Sholes pricing model with the following weighted average assumptions: expected dividend yield – 0%; expected stock price volatility – 253.77%; risk-free interest rate – 1.09%; expected life – 1 year.
The 4,000,000 options of Aurora have been cancelled and the value of these options of $107,605 was reclassified from reserves to deficit.
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AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
(f) 3,000,000 common shares at a price of $0.85 are issuable as a finder’s fee at a value of $2,550,000, which was included in share issue costs.
4. Pro-Forma Adjustments and Assumptions (Continued)
(g) The grant of 1,000,000 stock options of Prescient on September 18, 2014, at a price of $1.01 per share for a period of 5 years. The options vest as to 25% on the date of grant and 12.5% every three months thereafter over a period of 18 months. Share-based payments of $208,287 were recorded for vested options. The fair value of the options was estimated using the Black-Sholes pricing model with the following weighted average assumptions: expected dividend yield – 0%; expected stock price volatility – 155.06%; risk-free interest rate – 1.59%; expected life – 3 years.
(h) Total transaction costs which are expected to be incurred for the reverse asset acquisition amount to $109,000 which includes exchange fees, professional and consulting fees.
(i) The exercise of 60,000 stock options and the issuance of 60,000 common shares for gross proceeds of $3,000, subsequent to August 31, 2014. $2,153 was transferred from reserves to share capital on exercise of these options.
(j) Aggregate loans and interests from Prescient to Aurora of $3,029,838 were eliminated on consolidation.
(k) The issuance of 250,000 broker’s warrants to a consultant for services rendered in connection with the Transaction. Each broker warrant entitles the consultant to acquire a common share of the Company at a price of $1.01 per share for a period of 1 year. Share-based payments of $201,332 were recorded for these warrants. The fair value of the warrants was estimated using the Black-Sholes pricing model with the following weighted average assumptions: expected dividend yield – 0%; expected stock price volatility – 254.15%; risk-free interest rate – 1.16%; expected life – 1 year.
5. Pro-Forma Share Capital
(a) Authorized
Unlimited number of voting common shares without par value; Unlimited number of Class “A” shares with a par value of $1.00; and Unlimited number of Class “B” shares with a par value of $5.00.
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AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
5. Pro-Forma Share Capital (Continued)
(b) The share capital of Aurora Cannabis Inc. will be as follows:
Shares Share Capital Reserves # $ $ Opening balance of Prescient 40,764,000 4,897,581 487,637 Opening balance of Aurora 80,000,000 3,368,640 1,096,815 Private placement 2,353,000 2,000,050 - Eliminate equity of Prescient - (4,897,581) (487,637) Prescient shares issued to Aurora shareholders 60,000,000 20,632,011 - Prescient warrants issued to Aurora warrant holders - (12,656,822) 12,656,822 Cancellation of Aurora warrants - 181,560 (234,975) Prescient options issued to Aurora option holders - - 144,237 Cancellation of Aurora options - - (107,605) Aurora shares exchanged pursuant to the Transaction (80,000,000) - - Finder’s fee shares 3,000,000 2,550,000 - Share issue costs - (2,550,000) - Share-based payments - - 409,619 Exercise of stock options 60,000 5,153 (2,153) 106,177,000 13,530,592 13,962,760
(c) Stock Options:
On completion of the Transaction, the following stock options will be outstanding:
Stock Options # Opening balance of Prescient 1,694,000 Stock options issued 1,000,000 Issuance of Prescient options to Aurora option holders 4,000,000 Exercise of options (60,000) 6,634,000
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AURORA CANNABIS INC. (Formerly Prescient Mining Corp.) Notes to the Pro-Forma Consolidated Statement of Financial Position August 31, 2014 (Unaudited)
5. Pro-Forma Share Capital (Continued)
(d) Warrants:
On completion of the Transaction, the following warrants and agent’s warrants will be outstanding:
Warrants # Opening balance of Prescient 1,280,000 Issuance of Prescient warrants to Aurora warrant holders 21,450,000 Issuance of broker’s warrants 250,000 22,980,000
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