MD - Filed by Filing Services Canada Inc. (403) 717-3898

EX-99.1 2 financials.htm CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 MD - Filed by Filing Services Canada Inc. (403) 717-3898

Third Quarter Report

Condensed Consolidated Interim Financial Statements

(expressed in thousands of United States dollars)

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

SHAREHOLDER UPDATE

Review of the Third Quarter and Outlook for the Fourth Quarter of Fiscal 2011

Bradford Cooke, Chairman and CEO of Canarc Resource Corp. (TSX: CCM, OTC-BB: CRCUF, DB-Frankfurt: CAN), is pleased to provide the following review of Canarc’s progress in the Third Quarter and its plans for the Fourth Quarter of fiscal 2011.

Q3 Review

·	Amended the Tay LP property option agreement with Ross River Minerals Inc. to add an additional year so that Canarc has more time to conduct the next drill program

·	Completed a Phase 1 exploration program on the Windfall Hills project including detailed soil and rock geochemical sampling over the main target area

·	Continued to seek a joint venture partner to advance the New Polaris high grade gold project to mine development and a feasibility study

The Tay LP property option agreement was amended by extending the completion dates for Stage 1 exploration expenditures from October 31, 2011 to October 31, 2012 and Stage 2 exploration expenditures from October 31, 2012 to October 31, 2013. Canarc agreed to increase the October 31, 2011 option payment from $50,000 to $75,000 and will make an additional payment of $25,000 on or before October 31, 2012. The $850,000 payment due October 31, 2012 has been extended to October 31, 2013.

Canarc advised Ross River that an airborne geophysical survey was completed last year which outlined several new anomalies requiring ground follow-up prior to drilling. By extending the agreement, Canarc will now have more time to effectively test these new targets next year. Canarc has spent approximately $670,000 to date on the property.

Management is in discussions with several parties interested in acquiring an interest in the New Polaris gold property by financing the initial mine development and a feasibility study. Work has commenced on the application for an underground development and exploration program at New Polaris.

At the Windfall Hills project Canarc geologists collected soil and rock samples over the main target area and assays are pending. The Windfall Hills properties are situated within the same geological belt of Tertiary volcanic rocks as Richfield’s Blackwater gold discovery. Richfield Ventures delineated a 4 million oz gold resource earlier this year and subsequently received a friendly take-over bid by New Gold for CAD$10.38 per share, valuing the company at more than CAD$550 million.

Q4 Outlook

In the 4th Quarter, Management plans a thorough review of the historic Tay LP property data in the light of the positive results from the 470 kilometer airborne geophysical survey that Cap-Ex completed last year. In addition, Canarc expects to complete its analysis of the sampling results to define targets for drilling at the Windfall Hills project in 2012.

James Moors, B.Sc., P.Geo, Vice President, Exploration for Canarc, is the Qualified Person who reviewed the technical information herein and approved this news release.

We appreciate the support of our many shareholders, and we can all look forward to a more rewarding year of growth for the Company.

Canarc Resource Corp. is a growth-oriented, gold exploration company listed on the TSX (CCM) and the OTC-BB (CRCUF). Canarc is currently focused on advancing its New Polaris gold mine project in north-western British Columbia to the feasibility stage, exploring the large Tay LP property and acquiring attractive gold exploration and mining projects in North America.

CANARC RESOURCE CORP.

Per:

/s/ Bradford J. Cooke

Bradford J. Cooke November 10, 2011

Chairman and C.E.O.

CAUTIONARY DISCLAIMER – FORWARD LOOKING STATEMENTS

Certain statements contained herein regarding the Company and its operations constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. All statements that are not historical facts, including without limitation statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, are “forward-looking statements”. We caution you that such “forward looking statements” involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include fluctuations in precious metal prices, unpredictable results of exploration activities, uncertainties inherent in the estimation of mineral reserves and resources, fluctuations in the costs of goods and services, problems associated with exploration and mining operations, changes in legal, social or political conditions in the jurisdictions where the Company operates, lack of appropriate funding and other risk factors, as discussed in the Company’s filings with Canadian and American Securities regulatory agencies. The Company expressly disclaims any obligation to update any forward-looking statements.

Notice of No Auditor Review of

Unaudited Condensed Consolidated Interim Financial Statements

For the Three and Nine Months Ended September 30, 2011

In accordance with National Instrument 51-102 Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of these unaudited condensed consolidated interim financial statements, they must be accompanied by a notice indicating that the unaudited condensed consolidated interim financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed consolidated interim financial statements of Canarc Resource Corp. (the “Company”) for the three and nine months ended September 30, 2011 (the “Financial Statements”) have been prepared by and are the responsibility of the Company’s management, and have not been reviewed by the Company’s auditors. The Financial Statements are stated in terms of United States dollars, unless otherwise indicated, and are prepared in accordance with International Accounting Standards 34 (“IAS 34”) and International Financial Reporting Standards 1 (“IFRS 1”), which are based on the principles of International Financial Reporting Standards (“IFRS”).

CANARC RESOURCE CORP.

Condensed Consolidated Interim Statements of Financial Position

(Unaudited – Prepared by Management)

(expressed in thousands of United States dollars)

				2010
	September 30, 2011			December 31			January 1
				(Note 15)			(Note 15)

ASSETS

CURRENT ASSETS
Cash	$	258		$	592		$	155
Receivables and prepaids		131			105			145
Marketable securities (Note 5)		32			25			-
Royalty receivable - current portion (Note 6(b))		25			50			50
Total Current Assets		446			772			350

NON-CURRENT ASSETS
Mineral properties (Note 6)		12,476			12,724			12,626
Deposit on asset acquisition (Note 6(c))		-			300			-
Equipment (Note 7)		8			10			2
Royalty receivable - long-term portion (Note 6(b))		-			-			46
Long-term investments (Note 8)		89			94			143
Total Non-Current Assets		12,573			13,128			12,817
Total Assets	$	13,019		$	13,900		$	13,167

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	460		$	532		$	607
Notes payable (Note 9)		83			80			63
Flow through obligations (Note 10)		187			226			329
Derivative liability for warrants (Note 11)		-			1,049			177
Total Current Liabilities		730			1,887			1,176
Deferred income tax		113			120			-
Total Liabilities		843			2,007			1,176

SHAREHOLDERS' EQUITY
Share capital (Note 12)		58,196			57,685			56,436
Reserve for share-based payments (Note 15)		1,040			1,239			1,296
Accumulated other comprehensive income		(566	)		10			-
Deficit		(46,494	)		(47,041	)		(45,741	)
Total Shareholders' Equity		12,176			11,893			11,991
Total Liabilities and Shareholders' Equity	$	13,019		$	13,900		$	13,167

Nature of operations and going concern (Note 1)

Commitments and contingencies (Notes 6 and 10)

Subsequent events (Notes 6(a)(ii) and 12(d))

Refer to the accompanying notes to the condensed consolidated interim financial statements.

CANARC RESOURCE CORP.

Condensed Consolidated Interim Statements of Comprehensive (Loss) Income

(Unaudited – Prepared by Management)

(expressed in thousands of United States dollars, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010

Expenses:
Amortization	$	1		$	-		$	2		$	1
Corporate development		2			6			35			12
Employee and director remuneration (Note 13)		87			84			321			284
Foreign exchange loss		-			19			15			10
General and administrative		63			47			201			159
Shareholder relations		13			11			64			37
Share-based payments (Note12(c))		115			56			182			95

Loss before the undernoted		(281	)		(223	)		(820	)		(598	)

Interest and other investment income		-			-			1			-
Accretion of royalty receiveable		-			1			-			3
Gain from long term investment		-			95			-			257
Flow through financing costs (Note 10)		-			193			-			193
Unrealized gain (loss) of derivative warrant liability		-			(3	)		-			146
Interest and finance charges		(2	)		(1	)		(7	)		(4	)
Due diligence cost on asset acquisition (Note 6(c))		-			-			(60	)		-

(Loss) income before income tax		(283	)		62			(886	)		(3	)

Future income tax recovery (Notes 10 and 12(b))		-			(33	)		1			80

Net (loss) income for the period		(283	)		29			(885	)		77

Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities (Note 5)		(30	)		10			9			10

Comprehensive (loss) income for the period	$	(313	)	$	39		$	(876	)	$	87

Basic and diluted (loss) income per share	$	-		$	-		$	(0.01	)	$	-

Weighted average number of shares outstanding		93,625,591			81,969,655			92,948,652			81,969,655

Refer to the accompanying notes to the condensed consolidated interim financial statements.

CANARC RESOURCE CORP.

Condensed Consolidated Interim Statements of Shareholders’ Equity

(Unaudited – Prepared by Management)

(expressed in thousands of United States dollars)

						Fiscal Year ended December 31, 2010
	September 30, 2011 Nine Months ended					Three Months ended December 31, 2010					Nine Months ended September 30, 2010
	Shares		Amount			Shares		Amount			Shares		Amount

Share capital:
Balance, beginning of period		90,985,890	$	57,685			81,969,655	$	56,356			81,969,655	$	56,436
Issued:
Private placement		-		-			8,500,000		1,244			-		-
Conversion of convertible debenture (Note 6(c))		1,282,051		300			-		-			-		-
Exercise of stock options		44,000		7			20,000		3			-		-
Exercise of warrants		1,313,650		205			275,000		67			-		-
Property acquisition (Note 6(a)(ii))		-		-			221,235		24			-		-
Provision for flow-through shares (Note 12(b))		-		(1	)		-		(9	)		-		(80	)
Balance, end of period		93,625,591		58,196			90,985,890		57,685			81,969,655		56,356

Reserve for share-based payments:
Balance, beginning of period				1,239					1,173					1,296
Share-based payments for the period				182					48					95
Fair value from exercise of stock options				(3	)				(1	)				-
Expiration of stock options				(378	)				19					(218	)
Balance, end of period				1,040					1,239					1,173

Accumulated other comprehensive (loss) income:
Balance, beginning of period				10					10					-
Unrealized (loss) gain on available-for-sale securities				9					-					10
Currency translation loss from change in functional currency				(585	)				-					-
Balance, end of period				(566	)				10					10

Deficit:
Balance, beginning of period				(47,041	)				(45,446	)				(45,741	)
Reserve for derivative warrant liability				1,049					-					-
Foreign exchange on expired stock options				5					-					-
Expiration of stock options				378					(19	)				218
Net (loss) income for the period				(885	)				(1,576	)				77
Balance, end of period				(46,494	)				(47,041	)				(45,446	)

Total Shareholders' Equity			$	12,176				$	11,893				$	12,093

Refer to the accompanying notes to the condensed consolidated interim financial statements.

CANARC RESOURCE CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited – Prepared by Management)

(expressed in thousands of United States dollars)

	Nine Months Ended September 30,
	2011			2010

Cash provided from (used for):

Operations:
(Loss) income for the period	$	(885	)	$	77
Items not involving cash:
Accretion of royalty receivables		-			(3	)
Accrued interest		7			4
Amortization		2			1
Share-based payments		182			95
Gain on disposition of long term investments		-			(257	)
Flow through financing costs		-			(193	)
Deferred income tax recovery		(1	)		(80	)
Unrealized gain on derivative liability for warrants		-			(146	)
Unrealized currency translation gain		1			1
		(694	)		(501	)
Changes in non-cash working capital items:
Receivables and prepaids		(26	)		93
Accounts payable and accrued liabilities		(72	)		81
Flow through obligations		(39	)		-
Cash used by operating activities		(831	)		(327	)

Financing:
Issuance of common shares, net of share issuance costs		509			-

Investing:
Proceeds from royalty receivable		25			25
Proceeds from disposition of long term investments		-			306
Mineral properties, net of recoveries		(337	)		(27	)
Disposition of asset held for sale, net of acquisition		300			-
Cash (used by) provided from investing activities		(12	)		304

Decrease in cash		(334	)		(23	)
Cash, beginning of period		592			155

Cash, end of period	$	258		$	132

Refer to the accompanying notes to the condensed consolidated interim financial statements.

CANARC RESOURCE CORP.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited – Prepared by Management)

(expressed in thousands of United States dollars)

	Nine Months Ended September 30,
	2011		2010

Non-cash financing and investing activities:

Change from U.S. dollar to Canadian dollar functional currency:
Derivative liability for warrants	$	1,049	$	-
Cumulative translation adjustment		585		-

Available-for-sale securities received from optioned mineral property interests (Note 6(a)(ii))		-		14

Advance applied to acquisition of asset held for sale (Note 6(c))		300		-

Fair value of stock options allocated to shares issued on exercise of stock options		3		-

Expiration of stock options		378		218

Income taxes paid		-		-

Interest paid		-		-

Refer to the accompanying notes to the condensed consolidated interim financial statements.

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

1. Nature of Operations and Going Concern

Canarc Resource Corp. (the “Company”), a company incorporated under the laws of British Columbia, is in the mineral exploration business and has not yet determined whether its mineral properties contain reserves that are economically recoverable. The recoverability of amounts capitalized for mineral properties is dependent upon the existence of economically recoverable reserves in its mineral properties, the ability of the Company to arrange appropriate financing and receive necessary permitting for the exploration and development of its properties, and upon future profitable production or proceeds from the disposition thereof.

The Company has incurred significant net losses of $885,000 (September 30, 2010 – net income of $77,000) for the nine months ended September 30, 2011, and has a deficit of $46 million as at September 30, 2011 (December 31, 2010 - $47 million). Furthermore, the Company has working capital deficiency of $284,000 as at September 30, 2011 (December 31, 2010 – working capital deficiency of $1,115,000). These condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent on the ability of the Company to raise debt or equity financings, and the attainment of profitable operations. Management would seek to raise the necessary capital to meet its planned business objectives. There can be no assurance that management’s plans will be successful. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern and such adjustments could be material.

2. Significant Accounting Policies

(a) Basis of presentation:

These condensed consolidated interim financial statements are prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting (“IAS 34”) and International Financial Reporting Standards 1 – First-time Adoption of International Financial Reporting (“IFRS 1”) with an adoption date of January 1, 2011 and a transition date of January 1, 2010, based on the principles of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These financial statements do not include all of the information required for annual financial statements. Therefore, these condensed consolidated interim financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements and the notes thereto for the year ended December 31, 2010 and the accounting policies included in Note 2 to the Company’s unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2011. These unaudited condensed consolidated interim financial statements have been prepared consistently with the accounting policies and practices set out therein.

These are the Company’s third condensed consolidated interim financial statements for the third quarter of the period covered by the first consolidated annual financial statements to be presented in accordance with IFRS for the year ending December 31, 2011. The impact of the transition from Canadian generally accepted accounting principles (“Canadian GAAP”) to IFRS is explained in Note 15.

Canarc Resource Corp

Page 9

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

(a) Basis of presentation: (continued)

These condensed consolidated interim financial statements have been prepared on a historical cost basis except for financial instruments which are classified as available-for-sale financial assets and derivative financial liability, which are stated at their fair values. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

The accounting policies in Note 2 have been applied in preparing the condensed consolidated interim financial statements for the nine months ended September 30, 2011, the comparative financial information presented in these condensed consolidated interim financial statements for the nine months ended September 30, 2010, the opening balance sheet under IFRS as at January 1, 2010 which is the date of the Company’s date of transition from Canadian GAAP to IFRS, and at December 31, 2010. The accounting policies have been applied consistently by the Company and its subsidiaries.

(b) Currency translation:

Effective January 1, 2011, the Company’s financial functional currency changed from the United States dollar to the Canadian dollar but continues to maintain its reporting currency in the United States dollar.

Prior to January 1, 2011 when the functional currency was in the United States dollar, accounts denominated in currencies other than the United States dollar have been translated using the temporal method as follows:

Revenue and expense items at the rate of exchange in effect on the transaction date;

Non-monetary assets and liabilities at historical exchange rates, unless such items are carried at market, in which case they are translated at the exchange rate in effect on the balance sheet date; and

Monetary assets and liabilities at the exchange rate at the balance sheet date.

Exchange gains and losses are recorded in the condensed consolidated interim statements of comprehensive loss in the period in which they occur.

Effective January 1, 2011, the functional currency changed to the Canadian dollar, and accounts denominated in currencies other than the Canadian dollar have been translated using the current method as follows:

Revenue and expense items at the rate of exchange in effect on the transaction date;

Assets and liabilities at the exchange rate as the balance sheet date; and

Shareholders’ equity items at historical exchange rates.

All amounts are then translated from the Canadian dollar functional currency to the United States dollar reporting currency for each period using the current method the exchange rate at the end of each reporting period.

Exchange gains and losses are recorded as cumulative translation adjustment which is included as a component of shareholders’ equity.

Canarc Resource Corp

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CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

These condensed consolidated interim financial statements include the accounts of the Company and its integrated wholly-owned subsidiaries and its 40% owned investee, Benzdorp Gold N.V., which is proportionately consolidated. All significant intercompany transactions and balances are eliminated on consolidation.

(d)	Financial instruments:

(i) Financial assets:

The Company classifies its financial assets in the following categories: fair value through profit or loss, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of financial assets at recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are initially recognized at fair value with changes in fair value recorded through income. Cash and cash equivalents are included in this category of financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables are carried at amortized cost less any impairment. Loans and receivables comprise trade and other receivables.

Available-for-sale financial assets

Available-for-sale (AFS) financial assets are non-derivatives that are either designated as available-for sale or not classified in any of the other financial asset categories. Changes in the fair value of AFS financial assets are recognized as other comprehensive income and classified as a component of equity. AFS assets include investments in equities of other entities.

Management assesses the carrying value of AFS financial assets at least annually and any impairment charges are also recognized in profit or loss. When financial assets classified as available-for-sale are sold, the accumulated fair value adjustments recognized in other comprehensive income are included in profit and loss.

(ii) Financial liabilities:

The Company classifies its financial liabilities in the following categories: borrowings and other financial liabilities and derivative financial liabilities.

Canarc Resource Corp

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CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

(d)	Financial instruments: (continued)

(ii) Financial liabilities: (continued)

Borrowings and other financial liabilities

Borrowings and other financial liabilities are non-derivatives and are recognized initially at fair value, net of transaction costs incurred and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in the income statement over the period to maturity using the effective interest method.

Borrowings and other financial liabilities are classified as current or non-current based on their maturity date. Financial liabilities include trade accounts payable, note payables, other payables, advances from non-controlling interest, deferred credits, and loans.

Derivative financial liabilities

Derivative financial liabilities are initially recognized at their fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair value at each reporting period with changes in the fair value recognized in profit and loss. Derivative financial liabilities include warrants issued by the Company denominated in a currency other than the Company’s functional currency.

(iii) Fair value hierarchy:

The Company categorizes financial instruments measured at fair value at one of three levels according to the reliability of the inputs used to estimate fair values. The fair value of assets and liabilities included in level 1 are determined by reference to quoted prices in active markets for identical assets and liabilities. Assets and liabilities in level 2 are valued using inputs other than quoted prices for which all significant inputs are based on observable market data. Level 3 valuations are based on inputs that are not based on observable market data.

(e) Mineral properties:

All costs related to investments in mineral properties are capitalized on a property-by-property basis. Such costs include mineral property acquisition costs and exploration and development expenditures, net of any recoveries. The costs related to a property from which there is production, together with the costs of mining equipment, will be amortized using the unit-of-production method. When there is little prospect of further work on a property being carried out by the Company or its partners or when a property is abandoned or when the capitalized costs are not considered to be economically recoverable, the related property costs are written down to the amount recoverable.

Canarc Resource Corp

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CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

(e) Mineral properties: (continued)

From time to time, the Company may acquire or dispose of a mineral property interest pursuant to the terms of an option agreement. As the options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as property costs or recoveries when the payments are made or received. Proceeds received on the sale or option of the Company’s property interest is recorded as a reduction of the mineral property cost. The Company recognizes in income those costs that are recovered on mineral property interests when amounts received or receivable are in excess of the carrying amount.

The amounts shown for mineral properties represent costs incurred to date and include advance net smelter return (“NSR”) royalties, less recoveries and write-downs, and are not intended to reflect present or future values.

(f) Equipment:

Equipment is recorded at cost and, for equipment subject to amortization, the Company uses the declining balance method at rates varying from 10% to 30% annually.

(g) Proceeds on unit offerings:

Proceeds received on the issuance of units, consisting of common shares and warrants, are first allocated to the fair value of the common shares with any residual value then allocated to warrants.

(h) Flow-through common shares:

Flow-through common shares entitle a company that incurs certain resource expenditures in Canada to renounce them for tax purposes allowing the expenditures to be deducted for income tax purposes by the investors who purchased the shares. The proceeds from common shares issued under flow-through common share financing agreements are credited to share capital. The tax impact to the Company of the renouncement is recorded on the date that the renunciation is filed with taxation authorities, through a decrease in share capital and the recognition of a deferred tax liability.

A portion of the deferred income tax assets that were not previously recognized are recognized as a recovery of deferred income taxes in the consolidated statements of operations up to the amount of the deferred income tax liability or renouncement.

Canarc Resource Corp

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CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

(i)	Share-based payment:

The Company has a stock option plan that is described in Note 12. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the 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 offset to the recorded cost is to the reserve for share-based payments. Consideration received on the exercise of stock options is recorded as share capital and the related reserve for share-based payments is transferred to share capital. Upon expiry, the recorded value is transferred to deficit.

The Company has a share appreciation rights plan, which provides option holders the right to receive the number of common shares, valued at the quoted market price at the time of exercise of the stock options, that represent the share appreciation since granting the options. The fair value of the underlying stock option, which is cancelled on the exercise of the share appreciation rights, is transferred from the related reserve for share-based payments to share capital. The difference between the quoted market price, on the date the share appreciation right is exercised, of the shares issued and the fair value of the stock option is recorded as share capital and charged to operations.

(j)	Environmental rehabilitation:

The Company recognizes liabilities for statutory, contractual, constructive or legal obligations associated with the retirement of property, plant and equipment, when those obligations result from the acquisition, construction, development or normal operation of the assets. The net present value of future rehabilitation cost estimates arising from the decommissioning of plant and other site preparation work is capitalized to mining assets along with a corresponding increase in the rehabilitation provision in the period incurred. Discount rates using a pre-tax rate that reflect the time value of money are used to calculate the net present value. The rehabilitation asset is depreciated on the same basis as mining assets.

The Company’s estimates of reclamation costs could change as a result of changes in regulatory requirements, discount rates and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to mining assets with a corresponding entry to the rehabilitation provision. The Company’s estimates are reviewed annually for changes in regulatory requirements, discount rates, effects of inflation and changes in estimates.

Changes in the net present value, excluding changes in the Company’s estimates of reclamation costs, are charged to profit and loss for the period.

The net present value of restoration costs arising from subsequent site damage that is incurred on an ongoing basis during production are charged to profit and loss in the period incurred.

The costs of rehabilitation projects that were included in the rehabilitation provision are recorded against the provision as incurred. The cost of ongoing current programs to prevent and control pollution is charged against profit and loss as incurred.

Canarc Resource Corp

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CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

2. Significant Accounting Policies (continued)

(k) Earnings (loss) per share:

Basic earnings (loss) per share is computed by dividing the earnings (loss) for the period by the weighted average number of common shares outstanding during the period. The treasury stock method is used to calculate diluted earnings (loss) per common share amounts. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of the diluted per common share amount assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. In the Company’s case, diluted loss per common share presented is the same as basic loss per common share as the effect of outstanding options and warrants in the loss per common share calculation would be anti-dilutive.

(l)	Critical accounting estimates:

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates relate to determining the recoverability of mineral property interests and property, plant and equipment, the determination of accrued liabilities and accrued site remediation, rates of amortization for mineral property and equipment, the variables used in the determination of the fair value of stock options granted and warrants issued, and the determination of the valuation allowance for deferred tax assets. While management believes the estimates are reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows.

(m)	Provisions:

Provisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount receivable can be measured reliably.

Canarc Resource Corp

Page 15

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

3.	Management of Capital

The Company is an exploration stage company and this involves a high degree of risk. The Company has not determined whether its properties contain economically recoverable reserves of ore and currently has not earned any revenues from its mineral property interests and, therefore, does not generate cash flows from operations. The Company’s primary source of funds comes from the issuance of share capital and proceeds from notes payable. The Company is not subject to any externally imposed capital requirements.

The Company defines its capital as share capital. Capital requirements are driven by the Company’s exploration activities on its mineral property interests. To effectively manage the Company’s capital requirements, the Company has a planning and budgeting process in place to ensure that adequate funds are available to meet its strategic goals. The Company monitors actual expenses to budget on all exploration projects and overhead to manage costs, commitments and exploration activities.

The Company has in the past invested its capital in liquid investments to obtain adequate returns. The investment decision is based on cash management to ensure working capital is available to meet the Company’s short-term obligations while maximizing liquidity and returns of unused capital.

Although the Company has been successful at raising funds in the past through the issuance of share capital, it is uncertain whether it would be able to continue this financing in the future. The Company will continue to rely on debt and equity financings to meet its commitments as they become due, to continue exploration work on its mineral property interests and to meet its administrative overhead costs for the coming periods.

There were no changes in the Company’s approach to capital management during the nine months ended September 30, 2011.

4.	Management of Financial Risk

The Company has classified its cash as financial assets at fair value through profit or loss, marketable securities and long-term investments as available-for-sale financial assets, receivables as loans and receivables, and accounts payable and accrued liabilities, notes payable and flow through obligation as borrowings and other financial liabilities.

The Company has classified its derivative liability for warrants as derivative financial liabilities and are measured at fair value. All gains and losses are included in operations in the period in which they arise.

The Company’s long term investment in shares of Aztec Metals Corp. (“Aztec”) is classified as available-for-sale but such shares do not have a quoted market price in an active market and are therefore measured at cost.

Canarc Resource Corp

Page 16

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

4.	Management of Financial Risk (continued)

The fair values of the Company’s receivables, accounts payable and accrued liabilities, notes payable, and flow through obligation approximate their carrying values due to the short terms to maturity. Cash and marketable securities are measured at fair values using level 1 inputs. Disclosure is not made of the fair value of the long-term investments as the shares do not have a quoted market price in an active market. The fair value of the royalty receivable approximates its carrying value as it was initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. The royalty receivable is level 3 in the fair value hierarchy as it is based on unobservable inputs. Derivative liability for warrants is level 3 in the fair value hierarchy as it is also based on unobservable inputs.

The Company is exposed in varying degrees to a variety of financial instrument related risks, including credit risk, liquidity risk, and market risk which includes foreign currency risk and interest rate risk. The types of risk exposure and the way in which such exposure is managed are provided as follows.

(a) Credit risk:

Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations.

The Company's credit risk is primarily attributable to its liquid financial assets including cash. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash with high-credit quality Canadian financial institutions. Non-contractural/taxes receivables from government agencies are not considered financial instruments. The royalty receivable is due from an unrelated company, and the Company has not taken any steps to mitigate the credit risk associated with this receivable (Note 6(b)).

(b) Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.

The Company ensures that there is sufficient capital in order to meet short-term business requirements, after taking into account the Company's holdings of cash and its ability to raise equity financings. The Company will require significant additional funding to meet its short-term liabilities, flow through obligations and administrative overhead costs, and to maintain its mineral property interests in 2011.

Accounts payable and accrued liabilities are due in accordance with normal terms of trade, and the notes payables are due on demand.

The significant market risk exposures to which the Company is exposed are foreign currency risk and interest rate risk.

Canarc Resource Corp

Page 17

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

4.	Management of Financial Risk (continued)

(i) Foreign currency risk:

The Company’s mineral properties and operations are in Canada, and would subject it to foreign currency fluctuations. A certain portion of its operating expenses are incurred in Canadian dollars, and fluctuations in U.S. dollars would impact the cumulative translation adjustment of the Company and the values of its assets and liabilities as its financial statements are stated in U.S. dollars.

At September 30, 2011, the Company is exposed to currency risk for its U.S. dollar equivalent of assets and liabilities denominated in currencies other than U.S. dollars as follows:

	Held in Canadian dollars
	(stated in U.S. dollars)

Cash	$	80
Receivables and prepaids		131
Marketable securities		32
Mineral properties		12,476
Equipment		8
Long-term investments		89
Accounts payable and accrued liabilities		(381	)
Notes payable		(83	)
Flow through obligation		(187	)
Deferred income tax liability		(113	)
Net assets	$	12,052

Based upon the above net exposure as at September 30, 2011 and assuming all other variables remain constant, a 10% depreciation or appreciation of the U.S. dollar relative to the Canadian dollar could result in a decrease/increase of $1.2 million in cumulative translation adjustment in the Company’s shareholders’ equity.

The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.

(ii) Interest rate risk:

In respect of financial assets, the Company's policy is to invest cash at floating rates of interest in cash equivalents, in order to maintain liquidity, while achieving a satisfactory return. Fluctuations in interest rates impact on the value of cash equivalents. Interest rate risk is not significant to the Company as it has no cash equivalents at period-end and the notes payable are stated at a fixed interest rate.

Canarc Resource Corp

Page 18

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

5. Marketable Securities

	September 30, 2011			December 31, 2010

Investment in shares of companies, at cost	$	14		$	14
Change in fair value		19			10
Foreign currency translation adjustment		(1	)		1
	$	32		$	25

The quoted market value of shares of companies was $32,000 at September 30, 2011.

6. Mineral Properties

	British Columbia							Yukon
	New Polaris			Windfall Hills		Devil's Thumb		Tay-LP			Total
	(Note 6(a)(i))			(Note 6(a)(iii))		(Note 6(a)(iv))		(Note 6(a)(ii))

Acquisition Costs:

Balance, January 1, 2010	$	3,605		$	-	$	-	$	25		$	3,630
Additions		-			-		-		49			49
Balance, December 31, 2010		3,605			-		-		74			3,679
Additions and adjustments from change in functional currency		6			66		6		68			146
Balance, September 30, 2011		3,611			66		6		142			3,825

Deferred Exploration Expenditures:

Balance, January 1, 2010		8,556			-		-		440			8,996
Additions, net of recoveries		104			-		-		(55	)		49
Balance, December 31, 2010		8,660			-		-		385			9,045
Additions and adjustments from change in functional currency		(476	)		74		10		(2	)		(394	)
Balance, September 30, 2011		8,184			74		10		383			8,651
Mineral property interests, September 30, 2011	$	11,795		$	140	$	16	$	525		$	12,476

Canarc Resource Corp

Page 19

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

6. Mineral Properties (continued)

(a) Canada:

(i) New Polaris:

The New Polaris property, which is located in the Atlin Mining Division, British Columbia, is 100% owned by the Company subject to a 15% net profit interest which may be reduced to a 10% net profit interest within one year of commercial production by issuing 150,000 common shares to Rembrandt Gold Mines Ltd. Acquisition costs at September 30, 2011 include a reclamation bond for CAD$250,000.

(ii) Tay-LP:

On August 24, 2009, the Company entered into an option agreement with Ross River Minerals Inc. and Ross River Gold Ltd. (collectively, “Ross River”) to acquire a 100% interest in the Tay-LP gold property, located in Yukon, by paying CAD$1 million in cash and/or shares and spending CAD$1.5 million on exploration over a three-year period which can occur in two stages. In the first stage, the Company can earn a 51% interest by paying CAD$150,000 in cash and spending CAD$900,000 on exploration on or before October 31, 2011. In the second stage, the Company can earn an additional 49%, thereby totalling a 100% interest, by paying CAD$850,000 in cash or common shares at the Company’s discretion and spending CAD$600,000 on exploration on or before October 31, 2012. If the Company does not proceed with the second stage, then a joint venture would be formed. The Company shall pay to the optionors a gold bonus equal to CAD$1 per ounce (“oz”) of gold for all proven and probable gold reserves and measured and indicated gold resources to a maximum of 1 million oz gold. The option agreement is subject to a NSR totalling 3% which can be reduced to 1.5% by payments totalling US$1.95 million. Commencing on or before October 31, 2009 and continuing on or before October 31 of each subsequent year until the property is put into commercial production, the Company shall pay to the NSR holders annual advance NSR royalty payments totalling CAD$25,000 or that number of common shares of the Company and which shall be deducted from NSR obligations. The NSR of 3% shall be subject to maximum total payments based on one million payable ounces of gold being mined by commercial production but will be reduced to 500,000 payable ounces of gold if the NSR was reduced to 1.5%. The Company made cash payments of CAD$50,000 in October 2010 and CAD$20,000 in August 2009. In October 2011, the Company issued 215,580 common shares (2010 - 221,235 common shares and 2009 - 160,250 common shares) at a value of CAD$0.11596 (2010 - CAD$0.113 and 2009 - CAD$0.156) per common share as the annual advance NSR royalty for CAD$25,000 for the Tay-LP property.

On September 3, 2011, the Company and Ross River amended the option agreement by increasing the cash payment of CAD$50,000 to CAD$75,000 (paid) due by October 31, 2011, deferring the exploration expenditure of CAD$500,000 from October 31, 2011 to October 31, 2012 and exploration expenditure of CAD$600,000 from October 31, 2012 to October 31, 2013, and including a cash payment of CAD$25,000 due by October 31, 2012.

Canarc Resource Corp

Page 20

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

6. Mineral Properties (continued)

(a) Canada: (continued)

(ii) Tay-LP: (continued)

In late March 2010, the Company entered into an option agreement with Cap-Ex Ventures Ltd. (“Cap-Ex”) whereby Cap-Ex can acquire 50% of the Company’s interest in the Tay-LP gold property by paying CAD$100,000 of which CAD$25,000 have been received, issuing 200,000 common shares of which 100,000 shares have been issued, incurring exploration expenditures of CAD$675,000 by October 31, 2011, and maintaining the Company’s underlying option agreement in good standing until October 2011. In April 2010, Cap-Ex made a cash payment of CAD$30,000 directly to Ross River. Cap-Ex terminated the option agreement in March 2011.

(iii) Windfall Hills:

In April 2011, the Company entered into two option agreements to purchase 100% interests in two adjacent gold properties located in British Columbia. The Company can acquire a 100% interest in the Atna properties by making US$750,000 in cash payments over a 4 year period (US$50,000 paid), honouring a pre-existing 1.5% NSR production royalty that can be purchased for CAD$1 million, and granting the vendor a 2% NSR production royalty.

The Company can acquire a 100% interest in the Dunn properties by making CAD$250,000 in cash payments over a 4 year period (CAD$15,000 paid), and a final bonus payment based on all gold resources estimated in an independent NI 43-101 technical report. The formula for the bonus payment is US$30 per oz for measured resources, US$20 per oz for indicated resources, and US$10 per oz for inferred resources.

(iv) Devil’s Thumb:

In May 2011, the Company staked three gold properties totalling 17,175 hectares northeast of its Windfall Hills properties in central British Columbia.

(b) Sara Kreek, Suriname:

As at December 31, 2005, the Company held 80% of the shares of Sara Kreek Resource, the company that holds the Sara Kreek concession. On April 15, 2006, the Company entered into a Settlement and Termination Agreement with Suriname Wylap Development N.V. (“Wylap Development”) to transfer its interest in Sara Kreek Resource to Wylap Development. The Company received a cash payment of $400,000 in 2006 and shall receive the greater of $50,000 per year, payable semi-annually, or 1.5% royalty on annual gross production from the Sara Kreek property until December 31, 2011, in settlement of all claims, loans and advances owed to the Company. The Company has received $50,000 in annual royalties. In June 2011, the Company received $25,000 as the semi-annual royalty for 2011.

Canarc Resource Corp

Page 21

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

6. Mineral Properties (continued)

(b) Sara Kreek, Suriname: (continued)

The royalty receivable has been determined using the effective interest rate method. The expected future cash flows have been discounted using the effective interest rate to determine the present value as at September 30, 2011.

Present value of expected cash flows from royalties as at January 1, 2009	$	138
Add: Accretion for the year		8
Less: Royalty received during the year		(50	)
Present value of expected cash flows from royalties as at December 31, 2009		96
Add: Accretion for the year		4
Less: Royalty received during the year		(50	)
Present value of expected cash flows from royalties as at December 31, 2010		50
Less: Royalty received during the period		(25	)
Less: Current portion of royalty receivable as at September 30, 2011		(25	)
Long-term portion of royalty receivable as at September 30, 2011	$	-

In December 2010, the Company was the accepted bidder to acquire an open pit, heap leach gold mine through a bankruptcy court auction held in Reno, Nevada. The Company agreed to purchase the Relief Canyon gold mine assets from Firstgold Corporation (“Firstgold”) for $11 million, subject to a due diligence period which expired on February 4, 2011. As a condition of its winning bid, the Company paid a non-refundable deposit of US$300,000 in December 2010 to Firstgold in trust pending the Company’s due diligence, and was also obligated to pay US$20,000 bi-weekly to Firstgold for its operating expenses during the due diligence period. If the Company elected not to proceed with the purchase of the Relief Canyon gold mine assets, the Company was obligated to pay an additional US$300,000 to Firstgold but in return, Firstgold would transfer ownership of its fully built, permitted and operating commercial assay laboratory located near the Relief Canyon mine-site to the Company.

To finance the acquisition, the Company arranged a CAD$12 million bridge loan with Effisolar Energy Corporation (“Effisolar”), subject to Effisolar’s due diligence, execution of definitive loan documents and regulatory and exchange approvals. The bridge loan was to close on or before February 3, 2011, matured in one year, bore simple annual interest rate of 12%, and was secured by a first charge on the Relief Canyon gold mine assets. The Company would issue a closing bonus of one million common shares to Effisolar and would have the right to repay the loan at any time after six months. If the Company elected not to proceed with the purchase of the Relief Canyon gold mine assets whereby the acquisition of the commercial assay laboratory would then need to be financed, the Company arranged a separate CAD$300,000 convertible loan with Effisolar, subject to Effisolar’s due diligence, execution of definitive loan documents and regulatory and exchange approvals. At the Company’s election, the convertible loan was to close on or before February 3, 2011, mature in one month, bear no interest and automatically convert into common shares of the Company based on the 10-day average closing price on the TSX.

Canarc Resource Corp

Page 22

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

6. Mineral Properties (continued)

In January 2011, after conducting due diligence, both the Company and Effisolar decided not to proceed with the Relief Canyon project. In early February 2011, the Company paid an additional US$300,000 to Firstgold whereby ownership of the commercial assay laboratory was transferred to the Company. The Company issued a convertible debenture for CAD$300,000 to Effisolar for the interest free loan from Effisolar, which was then converted into 1,282,051 common shares of the Company on March 2, 2011.

In May 2011, the Company disposed of assay laboratory for US$600,000 plus recovery of out-of-pocket expenses incurred by the Company.

(d) Expenditure options:

As at September 30, 2011, to maintain the Company’s interest and/or to fully exercise the options under various property agreements covering its properties, the Company must make payments to the optionors as follows:

	Option		Option		Exploration		Advance Royalty		Net Smelter		Number of
	Payments		Payments		Commitments (1)		Payments		Reduction		Shares
	(CAD$000s)		(US$000s)		(CAD$000s)		(CAD$000s)		(US$000s)

New Polaris (Note 6(a)(i)):
Net profit interest reduction or buydown												150,000

Tay-LP (Note 6(a)(ii)):
October 31, 2011 (paid)	$	75			$	-
October 31, 2012		25				230
October 31, 2013		850				600

Annual advance royalty payments until commercial production							$	25

Net smelter reduction from 3% to 1.5%									$	1,950

Windfall Hills (Note 6(a)(iii)):

Atna properties:
April 12, 2012				100
April 12, 2013				150
April 12, 2014				200
April 12, 2015				250

Dunn properties:
April 20, 2012		25
April 20, 2013		35
April 20, 2014		50
April 20, 2015		125

	$	1,185	$	700	$	830	$	25	$	1,950		150,000

(1)

Exploration commitments for the Tay-LP property are adjusted for management fees of 5% and 10% and exploration expenditures incurred by Cap-Ex.

Canarc Resource Corp

Page 23

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

6. Mineral Properties (continued)

(d) Expenditure options: (continued)

These amounts may be reduced in the future as the Company determines which properties to continue to explore and which to abandon.

(e) Title to mineral property interests:

The Company has diligently investigated rights of ownership of all of its mineral properties/concessions and, to the best of its knowledge, all agreements relating to such ownership rights are in good standing. However, all properties/concessions may be subject to prior claims, agreements or transfers, and rights of ownership may be affected by undetected defects.

(f) Realization of assets:

The Company’s investment in and expenditures on its mineral property interests comprise a significant portion of the Company’s assets. Realization of the Company’s investment in these assets is dependent on establishing legal ownership of the properties, on the attainment of successful commercial production or from the proceeds of their disposal. The recoverability of the amounts shown for mineral property interests is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the properties, and upon future profitable production or proceeds from the disposition thereof.

(g) Environmental:

Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing. The impact of new and future environmental legislation of the Company’s operation may cause additional expenses and restrictions.

If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated.

The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous materials and other matters. The Company may also be held liable should environmental problems be discovered that were caused by former owners and operators of its properties and properties in which it has previously had an interest. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties that may result in material liability to the Company.

Canarc Resource Corp

Page 24

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

7. Equipment

				Accumulated			Net Book
	Cost			Amortization			Value

Balance, January 1, 2010	$	140		$	138		$	2
Additions		10			-			10
Dispositions		(140	)		(138	)		(2	)
Balance, December 31, 2010		10			-			10
Additions		-			2			(2	)
Balance, September 30, 2011	$	10		$	2		$	8

8. Long-Term Investments

As at September 30, 2011, the Company had an interest of 9% in Aztec (December 31, 2010 – 9%).

9. Notes Payable

In May 2009, the Company received CAD$62,030 in demand loans from certain directors and an officer of the Company. The loans are repayable on demand and bore an interest rate of 9% per annum which was increased to 12% effective September 1, 2010, and were previously secured by the Company’s shareholdings in Caza Gold Corp. (“Caza”) at CAD$0.25 per share of Caza which has been replaced by a loan bonus of 12% payable upon repayment effective September 1, 2010. As at September 30, 2011, the Company accrued CAD$17,390 in interests and CAD$7,444 in loan bonuses.

10. Flow Through Obligation

Pursuant to an audit by the Canada Revenue Agency (the “CRA”) which was completed in June 2010, CRA disallowed approximately CAD$1.01 million in exploration expenditures incurred in 2007 as Canadian exploration expenditures (“CEE”) of which approximately CAD$795,000 as being disqualified for CEE for flow-through purposes. The Company accrued liabilities of approximately CAD$146,300 for estimated indemnities related to the disqualified CEE for flow-through purposes and CAD$49,200 in accrued interests related to the indemnities. Should the estimate change in the future, it may affect future results of operations and cash flows.

Canarc Resource Corp

Page 25

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

11. Derivative Liability for Warrants

Balance, December 31, 2010	$	1,049
Reserve for derivative liability for warrants due to change in functional currency		(1,049	)
Balance, September 30, 2011	$	-

Effective January 1, 2011, the Company’s functional currency changed from the U.S. dollar to the Canadian dollar, and has issued and outstanding warrants that have exercise prices which are denominated in Canadian dollar which is the same as its functional currency in fiscal 2011. These warrants are now considered indexed to the Company’s common shares and are no longer treated as derivative liabilities.

12. Share Capital

(a) Authorized:

The authorized share capital of the Company is comprised of an unlimited number of common shares without par value.

(b) Issued:

The Company issued a convertible debenture for CAD$300,000 to Effisolar for the interest free loan from Effisolar, which was then converted into 1,282,051 common shares of the Company on March 2, 2011. Note 6(c) provides further details.

In February 2011, the Company renounced CAD$4,761 in exploration expenditures from the proceeds of the flow-through private placements in 2009, resulting in the recognition of a future income tax recovery of approximately US$1,201.

The Company has a stock option plan that allows it to grant options to its employees, directors and consultants to acquire up to 16,335,000 common shares, of which options for 10,370,000 common shares are outstanding as at September 30, 2011. The exercise price of each option cannot be lower than the last recorded sale of a board lot on the Toronto Stock Exchange (“TSX”) during the trading day immediately preceding the date of granting or, if there was no such date, the high/low average price for the common shares on the TSX based on the last five trading days before the date of the grant. Options have a maximum term of ten years and terminate 30 days following the termination of the optionee’s employment, except in the case of death, in which case they terminate one year after the event. Vesting of options is made at the discretion of the board at the time the options are granted.

At the discretion of the board, certain option grants provide the holder the right to receive the number of common shares, valued at the quoted market price at the time of exercise of the stock options, that represent the share appreciation since granting the options.

Canarc Resource Corp

Page 26

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

12. Share Capital (continued)

The continuity of stock options for the nine months ended September 30, 2011 is as follows:

	September 30, 2011
				Weighted
				average
				exercise
	Number			price
	of Shares			(CAD$)

Outstanding, beginning of period		9,410,000		$	0.31
Granted		2,220,000		$	0.14
Exercised		(44,000	)	$	0.10
Forfeited		(16,000	)	$	0.10
Expired		(1,200,000	)	$	0.69
Outstanding, end of period		10,370,000		$	0.23

The following table summarizes information about stock options exercisable and outstanding at September 30, 2011:

		Options Outstanding			Options Exercisable
		Weighted	Weighted		Weighted	Weighted
		Average	Average		Average	Average
Exercise	Number	Remaining	Exercise	Number	Remaining	Exercise
Prices	Outstanding at	Contractual Life	Prices	Exercisable at	Contractual Life	Prices
(CAD$)	Sept 30, 2011	(Number of Years)	(CAD$)	Sept 30, 2011	(Number of Years)	(CAD$)

$0.74	325,000	0.3	$0.74	325,000	0.3	$0.74
$0.54	1,065,000	0.7	$0.54	1,065,000	0.7	$0.54
$0.46	750,000	1.0	$0.46	750,000	1.0	$0.46
$0.29	1,730,000	1.6	$0.29	1,730,000	1.6	$0.29
$0.11	1,640,000	2.8	$0.11	1,640,000	2.8	$0.11
$0.10	2,640,000	3.9	$0.10	1,568,000	3.9	$0.10
$0.135	2,220,000	4.8	$0.135	444,000	4.8	$0.135
	10,370,000	2.9	$0.23	7,522,000	2.3	$0.27

During the nine months ended September 30, 2011, the Company recognized share-based payments of $182,000, net of forfeitures, related to stock options.

Canarc Resource Corp

Page 27

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

12. Share Capital (continued)

During the nine months ended September 30, 2011, the Company recognized share-based payments of $182,000 based on the fair value of options that were earned by the provision of services during the period. Share-based payments are segregated between directors and officers, employees and consultants as follows:

	September 30, 2011

Directors and officers	$	170,077
Employees		11,923

	$	182,000

The weighted average fair value of stock options granted and the weighted average assumptions used to calculate share-based payments for stock option grants during the nine months ended September 30, 2011 are estimated using the Black-Scholes option pricing model as follows:

	September 30, 2011

Number of stock options granted		2,220,000
Fair value of stock options granted (CAD$)	$	0.11
Risk-free interest rate		2.22	%
Expected dividend yield		0	%
Expected stock price volatility		108	%
Expected option life in years		4.86

(d) Warrants:

At September 30, 2011, the Company had outstanding warrants as follows:

Exercise
Prices		Oustanding at				Oustanding at
(CAD$)	Expiry Dates	December 31, 2010	Issued	Exercised	Expired	September 30, 2011

$0.15	April 22, 2011	39,410	-	(31,675)	(7,735)	-
$0.15	October 22, 2011 (1)	202,160	-	-	-	202,160
$0.15	April 22, 2011	2,319,140	-	(1,185,975)	(1,133,165)	-
$0.165	May 9, 2011	128,410	-	(96,000)	(32,410)	-
$0.22	June 13, 2012	4,250,000	-	-	-	4,250,000

		6,939,120	-	(1,313,650)	(1,173,310)	4,452,160

(1) These warrants expired unexercised.

Canarc Resource Corp

Page 28

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

12. Share Capital (continued)

(e) Common shares reserved for issuance at September 30, 2011:

	Number of Shares

Stock options (Note 12(c))		10,370,000
Warrants (Note 12(d))		4,452,160

Balance, September 30, 2011		14,822,160

(f) Shareholder rights plan:

On May 31, 2005, the shareholders of the Company approved a shareholder rights plan (the “Plan”) that became effective on April 30, 2005. The Plan is intended to ensure that any entity seeking to acquire control of the Company makes an offer that represents fair value to all shareholders and provides the board of directors with sufficient time to assess and evaluate the offer, to permit competing bids to emerge, and, as appropriate, to explore and develop alternatives to maximize value for shareholders. Under the Plan, each shareholder at the time of the Plan’s adoption was issued one Right for each common share of the Company held. Each Right entitles the registered holder thereof, except for certain “Acquiring Persons” (as defined in the Plan), to purchase from treasury one common share at a 50% discount to the prevailing market price, subject to certain adjustments intended to prevent dilution. The Rights are exercisable after the occurrence of specified events set out in the Plan generally related to when a person, together with affiliated or associated persons, acquires, or makes a take-over bid to acquire, beneficial ownership of 20% or more of the outstanding common shares of the Company. The Rights expire on April 30, 2015.

13. Related Party Transactions

Except as disclosed elsewhere in the condensed consolidated interim financial statements, general and administrative costs during the nine months ended September 30, 2011 include:

-	CAD$29,200 of salaries to an employee who is a director;

-	CAD$30,000 for directors’ fees. As at September 30, 2011, the Company accrued CAD$138,700 in directors fees included in accounts payable;

-	CAD$54,500 in legal fees to a law firm in which a senior officer of the Company is a partner. As at September 30, 2011, the Company owed CAD$65,300 to the law firm;

-	CAD$100,300 in office rent and salary allocations recovered from companies sharing certain common directors. As at September 30, 2011, the Company was owed CAD$20,700 from such companies; and

-	CAD$71,700 in office rent and salary allocations incurred to a company sharing a certain common director. As at September 30, 2011, the Company owed CAD$26,200 to the company.

The above transactions are incurred in the normal course of business and are recorded at the exchange amount, being the amount agreed upon by the related parties.

Canarc Resource Corp

Page 29

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

14. Segment Disclosures

The Company has one operating segment, being mineral exploration, with all assets located in Canada as at September 30, 2011.

Canarc Resource Corp

Page 30

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS

These are the Company’s third condensed consolidated interim financial statements for the period covered by the first annual consolidated financial statements to be presented in accordance with IFRS for the year to end December 31, 2011.

(a) IFRS 1 “First-time Adoption of International Financial Reporting Standards” (IFRS 1):

In preparing these condensed consolidated interim financial statements, the Company has applied IFRS 1, First-time Adoption of International Financial Reporting Standards, which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 gives entities adopting IFRS for the first time a number of optional and mandatory exceptions, in certain areas, to the general requirement for full retrospective application of IFRS. The following are the optional exemptions available under IFRS 1 that the Company has elected to apply:

Business combinations

The Company has elected to apply IFRS 3, Business Combinations, prospectively to business combinations that occur after the date of transition. The Company has elected this exemption under IFRS 1, which removes the requirement to retrospectively restate all business combinations prior to the date of transition to IFRS.

Fair value or revaluation as deemed cost

The Company has used the amount determined under a previous GAAP revaluation as the deemed cost for certain assets. The Company elected the exemption for certain assets which were written down under Canadian GAAP, as the revaluation was broadly comparable to fair value under IFRS. The carrying value of those assets on transition to IFRS is therefore, consistent with the Canadian GAAP carrying value on the transition date.

Share-based payments

The Company elected to not apply IFRS 2, Share-based Payments, to equity instruments granted before November 7, 2002 and those granted but fully vested before the date of transition to IFRS. As a result, the Company has applied IFRS 2 for stock options granted after November 7, 2002 that are not fully vested at January 1, 2010.

Canarc Resource Corp

Page 31

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(b) Adjustments on transition to IFRS:

IFRS has many similarities with Canadian GAAP as it is based on a similar conceptual framework. However there are important differences with regard to recognition, measurement and disclosure. Although adoption of IFRS did not change the Company’s actual cash flows, it did result in changes to the Company’s statements of financial position, statements of comprehensive loss, and statements of changes in equity as set out below:

(i)

Warrants:

Under Canadian GAAP, the Company classified warrants which were exercisable in Canadian dollars to purchase common shares as equity instruments. Under IFRS, warrants issued by the Company to purchase common shares at an exercise price which is stated in a currency other than the Company’s functional currency are considered derivative financial liabilities. Such warrants are required to be measured and recognized at fair value with changes to initial recognition charged to operations. The Company has determined fair value using the Black-Scholes option pricing model.

(ii)	Share-based payments:

Under Canadian GAAP, the Company accounts for forfeitures of stock option as they occur. For IFRS, estimates of forfeitures are initially recognized when stock options are granted and subsequently adjusted for actual forfeitures as they occur. The Company has recognized vesting of stock options on an accelerated grading basis which is similar to IFRS. On the transition date of January 1, 2010, the Company recognized IFRS transition provisions for unvested stock options.

Under Canadian GAAP, expired unexercised stock options remained in contributed surplus. On transition to IFRS, the Company elected to change its accounting policy for the treatment of share-based payments whereby amounts included in the reserve for share-based payments for expired unexercised stock options are transferred to deficit.

Canarc Resource Corp

Page 32

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(c)	The effect of the differences between Canadian GAAP and IFRS on select accounts in the statements of financial position and the statements of comprehensive loss is summarized as follows:

			2010
	December 31,		September 30,		January 1,

Total Liabilities under Canadian GAAP	$	959	$	892	$	999

Adjustments to transition to IFRS:
Derivative liability for warrants (Note 15(b)(i))		1,049		31		177

Total Liabilities under IFRS	$	2,008	$	923	$	1,176

			2010
	December 31,		September 30,		January 1,

Share Capital under Canadian GAAP	$	57,660	$	56,356	$	56,436

Adjustments to transition to IFRS:
Exercise of warrants which are derivative liabilities (Note 15(b)(i))		24		-		-
Exercise of stock options (Note 15(b)(ii))		1		-		-

Share Capital under IFRS	$	57,685	$	56,356	$	56,436

				2010
	December 31,			September 30,			January 1,

Contributed Surplus under Canadian GAAP	$	2,483		$	2,438		$	2,354

Adjustments to transition to IFRS:
Transferred to deficit for expired unexercised share-based payments (Note 15(b)(ii))		(1,257	)		(1,276	)		(1,058	)
Transferred to reserve for share-based payments (Note 15(b)(ii))		(1,226	)		(1,162	)		(1,296	)

Contributed Surplus under IFRS	$	-		$	-		$	-

Canarc Resource Corp

Page 33

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(c)	The effect of the differences between Canadian GAAP and IFRS on select accounts in the statements of financial position and the statements of comprehensive loss is summarized as follows: (continued)

				2010
	December 31,			September 30,			January 1,

Reserve for Share-based Payments:

Adjustments to transition to IFRS:
Transferred from contributed surplus for unexercised share-based payments (Note 15(b)(ii))	$	1,296		$	1,296		$	1,296
Share-based payments for the period (Note 15(b)(ii))		143			95			-
Exercise of stock options (Note 15(b)(ii))		(1	)		-			-
Expiration of stock options (Note 15(b)(ii))		(199	)		(218	)		-

Reserve for Share-based Payments under IFRS	$	1,239		$	1,173		$	1,296

				2010
	December 31,			September 30,			January 1,

Deficit under Canadian GAAP	$	(47,212	)	$	(46,680	)	$	(46,622	)

Adjustments to transition to IFRS:
Derivative liability for warrants (Note 15(b)(i))		(1,074	)		(31	)		(177	)
Transferred from contributed surplus for expired unexercised share-based payments (Note 15(b)(ii))		1,058			1,058			1,058
Share-based payments for the period (Note 15(b)(ii))		(13	)		(11	)		-
Forfeiture of share-based payments (Note 15(b)(ii))		199			218			-
Foreign exchange		1						-

Deficit under IFRS	$	(47,041	)	$	(45,446	)	$	(45,741	)

Canarc Resource Corp

Page 34

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(c)	The effect of the differences between Canadian GAAP and IFRS on select accounts in the statements of financial position and the statements of comprehensive loss is summarized as follows: (continued)

	2010
	Year ended			Nine Months ended			Three Months ended
	December 31,			September 30,			September 30,

Comprehensive (Loss) Income under Canadian GAAP	$	(580	)	$	(48	)	$	44

Adjustments to transition to IFRS:
Unrealized (loss) gain from derivative liability for warrants (Note 15(b)(i))		(896	)		146			(3	)
Share-based payments (Note 15(b)(ii))		(13	)		(11	)		(1	)
Foreign exchange		-			-			(1	)

Comprehensive (Loss) Income under IFRS	$	(1,489	)	$	87		$	39

Canarc Resource Corp

Page 35

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements:

A reconciliation of the above noted changes is included in these following Consolidated Statements of Financial Position and Consolidated Statements of Comprehensive Loss for the dates noted below. The effects of transition from Canadian GAAP to IFRS on the cash flow are not material; therefore a reconciliation of cash flows has not been presented.

Transitional Consolidated Statement of Financial Position – January 1, 2010

Consolidated Interim Statement of Financial Position Reconciliation – September 30, 2010

Consolidated Interim Statement of Comprehensive Loss Reconciliation – Three months ended September 30, 2010

Consolidated Interim Statement of Comprehensive Loss Reconciliation – Nine months ended September 30, 2010

Consolidated Statement of Financial Position Reconciliation – December 31, 2010

Consolidated Statement of Comprehensive Loss Reconciliation – December 31, 2010

Canarc Resource Corp

Page 36

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(i)	The January 1, 2010 Canadian GAAP consolidated statement of financial position has been reconciled to IFRS as follows:

					January 1, 2010
		Canadian			Effect of Transition
	Notes	GAAP			to IFRS			IFRS

ASSETS

CURRENT ASSETS
Cash		$	155		$	-		$	155
Receivables and prepaids			145						145
Royalty receivable - current portion			50						50
Total Current Assets			350			-			350
NON-CURRENT ASSETS
Mineral properties			12,626						12,626
Equipment			2						2
Royalty receivable - long-term portion			46						46
Long-term investments			143						143
Total Non-Current Assets			12,817			-			12,817
Total Assets		$	13,167		$	-		$	13,167

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	607		$	-		$	607
Notes payable			63						63
Flow through obligation			329						329
Derivative liability for warrants	15(b)(i)		-			177			177
Total Current Liabilities			999			177			1,176

SHAREHOLDERS' EQUITY
Share capital			56,436						56,436
Contributed surplus	15(b)(ii)		2,354			(2,354	)		-
Reserve for share-based payments	15(b)(ii)		-			1,296			1,296
Deficit	15(b)(i) and (ii)		(46,622	)		881			(45,741	)
Total Shareholders' Equity			12,168			(177	)		11,991
Total Liabilities and Shareholders' Equity		$	13,167		$	-		$	13,167

Canarc Resource Corp

Page 37

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(ii)	The September 30, 2010 Canadian GAAP consolidated interim statement of financial position has been reconciled to IFRS as follows:

							September 30, 2010
				Canadian			Effect of Transition
	Notes			GAAP			to IFRS			IFRS

ASSETS

CURRENT ASSETS
Cash				$	132		$	-		$	132
Receivables and prepaids					52						52
Marketable securities					24						24
Royalty receivable - current portion					25						25
Total Current Assets					233			-			233
NON-CURRENT ASSETS
Mineral properties					12,639						12,639
Equipment					1						1
Royalty receivable - long-term portion					49						49
Long-term investments					94						94
Total Non-Current Assets					12,783			-			12,783
Total Assets				$	13,016		$	-		$	13,016

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities				$	695		$	-		$	695
Notes payable					68						68
Flow through obligation					129						129
Derivate liability for warrants		15	(b)(i)		-			31			31
Total Current Liabilities					892			31			923

SHAREHOLDERS' EQUITY
Share capital					56,356						56,356
Contributed surplus	15(b)(ii)				2,438			(2,438	)		-
Accumulated other comprehensive income					10						10
Reserve for share-based payments	15(b)(ii)				-			1,173			1,173
Deficit	15(b)(i) and (ii)				(46,680	)		1,234			(45,446	)
Total Shareholders' Equity					12,124			(31	)		12,093
Total Liabilities and Shareholders' Equity				$	13,016		$	-		$	13,016

Canarc Resource Corp

Page 38

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(iii)

The Canadian GAAP consolidated interim statement of comprehensive loss for the three months ended September 30, 2010 has been reconciled to IFRS as follows:

						September 30, 2010
			Canadian			Effect of Transition
	Notes		GAAP			to IFRS			IFRS

Expenses:
Amortization			$	-		$	-		$	-
Corporate development				6			-			6
Employee and director remuneration				84						84
Foreign exchange loss (gain)				19			1			20
General and administrative				46						46
Shareholder relations				11						11
Stock-based compensation	15(b)(ii)			55			1			56

Loss before the undernoted				(221	)		(2	)		(223	)

Accretion of royalty receiveable				1						1
Gain from long term investments				95						95
Flow through financing costs				193						193
Interest expense				(1	)					(1	)
Unrealized loss from derivative liability for warrants		15(b)(i)		-			(3	)		(3	)
Income before income tax				67			(5	)		62
Future income tax recovery				(33	)					(33	)
Net income for the period				34			(5	)		29

Other comprehensive income (loss):
Unrealized gain on available-for-sale securities				10						10

Comprehensive loss for the period			$	44		$	(5	)	$	39

Basic and diluted gain per share			$	-					$	-

Weighted average number of shares outstanding				81,969,655						81,969,655

Canarc Resource Corp

Page 39

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(iv)	The Canadian GAAP consolidated interim statement of comprehensive loss for the nine months ended September 30, 2010 has been reconciled to IFRS as follows:

						September 30, 2010
			Canadian			Effect of Transition
	Notes		GAAP			to IFRS			IFRS

Expenses:
Amortization			$	1		$	-		$	1
Corporate development				12						12
Employee and director remuneration				284						284
Foreign exchange loss (gain)				10						10
General and administrative				159						159
Shareholder relations				37						37
Stock-based compensation	15(b)(ii)			84			11			95

Loss before the undernoted				(587	)		(11	)		(598	)

Accretion of royalty receiveable				3						3
Gain from long term investments				257						257
Flow through financing costs				193						193
Interest expense				(4	)					(4	)
Unrealized gain from derivative liability for warrants		15(b)(i)		-			146			146
Loss before income tax				(138	)		135			(3	)

Future income tax recovery				80						80
Net (loss) income for the period				(58	)		135			77

Other comprehensive income (loss):
Unrealized gain on available-for-sale securities				10						10

Comprehensive (loss) income for the period			$	(48	)	$	135		$	87

Basic and diluted loss per share			$	-					$	-

Weighted average number of shares outstanding				81,969,655						81,969,655

Canarc Resource Corp

Page 40

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(v)	The December 31, 2010 Canadian GAAP consolidated interim statement of financial position has been reconciled to IFRS as follows:

					December 31, 2010
		Canadian			Effect of Transition
	Notes	GAAP			to IFRS			IFRS

ASSETS

CURRENT ASSETS
Cash		$	592		$	-		$	592
Receivables and prepaids			105						105
Marketable securities			25						25
Royalty receivable - current portion			50						50
Total Current Assets			772			-			772
NON-CURRENT ASSETS
Mineral properties			12,724						12,724
Deposit on asset acquisition			300						300
Equipment			10						10
Royalty receivable - long-term portion			-						-
Long-term investments			94						94
Total Non-Current Assets			13,128			-			13,128
Total Assets		$	13,900		$	-		$	13,900

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued liabilities		$	532		$	-		$	532
Notes payable			81						81
Flow through obligation			226						226
Derivative liability for warrants	15(b)(i)		-			1,049			1,049
Total Current Liabilities			839			1,049			1,888
Future income tax liability			120						120
Total Liabilities			959			1,049			2,008

SHAREHOLDERS' EQUITY
Share capital	15(b)(ii)		57,660			25			57,685
Contributed surplus	15(b)(ii)		2,483			(2,483	)		-
Accumulated other comprehensive income			10						10
Reserve for share-based payments	15(b)(ii)		-			1,239			1,239
Deficit	15(b)(i) and (ii)		(47,212	)		170			(47,042	)
Total Shareholders' Equity			12,941			(1,049	)		11,892
Total Liabilities and Shareholders' Equity		$	13,900		$	-		$	13,900

Canarc Resource Corp

Page 41

CANARC RESOURCE CORP.

Notes to the Condensed Consolidated Interim Financial Statements

Three and Nine Months ended September 30, 2011

(Unaudited – Prepared by Management)

(tabular dollar amounts expressed in thousands of United States dollars, except per share amounts)

15. Transition to IFRS (continued)

(d)	Reconciliation to previously reported financial statements: (continued)

(vi)	The Canadian GAAP consolidated statement of comprehensive loss for the year ended December 31, 2010 has been reconciled to IFRS as follows:

					December 31, 2010
		Canadian			Effect of Transition
	Notes	GAAP			to IFRS			IFRS

Expenses:
Amortization		$	1		$	-		$	1
Corporate development			12						12
Employee and director remuneration			383						383
Foreign exchange loss			43						43
General and administrative			308						308
Shareholder relations			62						62
Stock-based compensation	15(b)(ii)		130			13			143

Loss before the undernoted			(939	)		(13	)		(952	)

Gain on disposition of long-term investment			257						257
Accretion of royalty receivable			4						4
Write-off of equipment			(1	)					(1	)
Unrealized loss from derivative liability for warrants	15(b)(i)		-			(896	)		(896	)
Due diligence costs on asset acquisition			(20	)					(20	)
Interest expense			(14	)					(14	)
Flow through financing costs			150						150

Loss before income tax			(563	)		(909	)		(1,472	)

Future income tax expense			(27	)					(27	)

Net loss for the year			(590	)		(909	)		(1,499	)

Other comprehensive (loss) income:
Unrealized gain (loss) on available-for-sale securities			10						10

Comprehensive loss for the year		$	(580	)	$	(909	)	$	(1,489	)


Basic and diluted loss per share		$	(0.01	)				$	(0.02	)

Weighted average number of common shares outstanding			82,446,825						82,446,825

Canarc Resource Corp

Page 42

CORPORATE INFORMATION

	HEAD OFFICE	#301 – 700 West Pender Street
		Vancouver, BC, Canada, V6C 1G8
		Telephone: (604) 685-9700
		Facsimile: (604) 685-9744

		Website: www.canarc.net

	DIRECTORS	Bradford Cooke
		Bruce Bried
		Derek Bullock
		Leonard Harris
		William Price

	OFFICERS	Bradford Cooke ~ Chairman and Chief Executive Officer
		Garry Biles ~ President and Chief Operating Officer
		James Moors ~ Vice-President, Exploration
		Gregg Wilson ~ Vice-President, Investor Relations
		Philip Yee ~ Chief Financial Officer
		Stewart Lockwood ~ Secretary

	REGISTRAR AND	Computershare Investor Services Inc.
	TRANSFER AGENT	3rd Floor, 510 Burrard Street
		Vancouver, BC, Canada, V6C 3B9

	AUDITORS	Smythe Ratcliffe LLP
		7th Floor, 355 Burrard Street
		Vancouver, BC, Canada, V6C 2G8

	SOLICITORS	Vector Corporate Finance Lawyers
		#1040 – 999 West Hastings Street
		Vancouver, BC, Canada, V6C 2W2

	SHARES LISTED	Trading Symbols
		TSX: CCM
		OTC-BB: CRCUF
		DBFrankfurt: CAN

Canarc Resource Corp

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