UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16 OF THE SECURITIES EXCHANGE ACT OF 1934
For the month of SEPTEMBER, 2012
Commission File Number: 001-31799
ROUGE RESOURCES LTD.
(formerly Gemstar Resources Ltd.)
(Translation of
Registrants Name into English)
#203-409 Granville St, Vancouver, British Columbia,
Canada, V6C 1T2
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will
file annual reports under cover Form 20-F or
Form 40-F]
Form 20-F
[X] Form 40-F [ ]
[Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation
S-T Rule 101(b)(1)]
Yes
[ ] No [X]
[Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation
S-T Rule 101(b)(7)]
Yes
[ ] No [X]
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also
thereby furnishing the
information to the Commission pursuant to Rule 12-g-3-3(b) under the Securities
Exchange Act of 1934]
Yes [ ] No [X]
If Yes is marked, indicate below the file number assigned to
the registrant in connection with Rule
12g3-2(b): 82-_______________
SUBMITTED HEREWITH
Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Rouge Resources Ltd. | ||
Dated: September 21, 2012 | By: | /s/ Linda Smith |
Linda Smith | ||
Title: | Chief Executive Officer |
ROUGE RESOURCES LTD.
(An Exploration Stage Company)
UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 31, 2012
(Expressed in Canadian Dollars)
| Statements of Financial Position | |
| Statements of Comprehensive Loss | |
| Changes in Shareholders Equity (Deficiency) | |
| Statements of Cash Flows | |
| Notes to Financial Statements |
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the condensed interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim financial statements of the Company have been prepared by management and approved by the Audit Committee and Board of Directors of the Company. They include appropriate accounting principles, judgement and estimates in accordance with IFRS for interim financial statements.
The Companys independent auditors have not performed a review of these condensed interim financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of condensed interim financial statements by an entitys auditors.
Rouge Resources Ltd.
Condensed Interim Statements of
Financial Position
(Expressed in Canadian dollars unaudited)
Notes | July 31, 2012 | July 31, 2011 | January 31, 2012 | ||||||||
(audited) | |||||||||||
ASSETS | |||||||||||
Current assets | |||||||||||
Cash | $ | 108,000 | $ | 108,715 | $ | 17,823 | |||||
Harmonized sales tax refundable | 4,253 | 3,626 | 2,951 | ||||||||
112,253 | 112,341 | 20,774 | |||||||||
Non-current assets | |||||||||||
Credit card security deposit | 6,900 | 6,900 | 6,900 | ||||||||
Equipment net | 4 | 2,199 | 3,161 | 2,587 | |||||||
Exploration and evaluation assets | 5 | 229,246 | 212,879 | 212,879 | |||||||
238,345 | 222,940 | 222,366 | |||||||||
TOTAL ASSETS | $ | 350,598 | $ | 335,281 | $ | 243,140 | |||||
LIABILITIES | |||||||||||
Current liabilities | |||||||||||
Trade payables and accrued liabilities | 6 | $ | 132,566 | $ | 97,242 | $ | 58,030* | ||||
Related party payables | 7 | 209,460 | 185,272 | 254,118* | |||||||
342,026 | 282,514 | 312,148 | |||||||||
Non-current liabilities | |||||||||||
Loan payable | 8 | 39,676 | - | 39,676 | |||||||
Related party payable | 7 | 100,000 | - | - | |||||||
139,676 | - | 39,676 | |||||||||
TOTAL LIABILIITES | 481,702 | 282,514 | 351,824 | ||||||||
SHAREHOLDERS EQUITY (DEFICENCY) | |||||||||||
Share capital | 9 | 3,110,796 | 3,110,796 | 3,110,796 | |||||||
Share subscriptions received | 9 | 108,000 | - | - | |||||||
Equity component of convertible note | 53,357 | 53,357 | 53,357 | ||||||||
Deficit | (3,403,257 | ) | (3,111,386 | ) | (3,272,837 | ) | |||||
TOTAL SHAREHOLDERS EQUITY (DEFICIENCY) | (131,104 | ) | 52,767 | (108,684 | ) | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY) | $ | 350,598 | $ | 335,281 | $ | 243,140 |
* Reclassified to conform with July 31, 2012 presentation
Going concern | 1 |
Approved on behalf of the Board of Directors:
Linda Smith | Ronald McGregor | |
Director | Director |
See accompanying notes to these condensed interim financial statements | 2 |
Rouge Resources Ltd.
Condensed Interim Statements of
Comprehensive Loss
(Expressed in Canadian dollars unaudited)
Year ended | |||||||||||||||||
Notes | Three months ended July 31, | Six months ended July 31, | January 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | |||||||||||||
(audited) | |||||||||||||||||
Expenses | |||||||||||||||||
Amortization | 4 | $ | 194 | $ | 217 | $ | 388 | $ | 433 | $ | 1,008 | ||||||
Accounting and audit fees | 454 | 6,438 | 3,274 | 10,325 | 36,262 | ||||||||||||
Listing application expenses | 13 | 9,794 | 2,873 | 65,673 | 27,965 | 90,507 | |||||||||||
Management fees | 7 | 15,000 | 15,000 | 30,000 | 30,000 | 60,000 | |||||||||||
Office and miscellaneous | 7 | 8,688 | 13,709 | 19,047 | 28,547 | 55,859 | |||||||||||
Professional fees | - | - | 1,767 | 6,809 | 11,125 | ||||||||||||
Transfer agent and filing fees | 7,644 | 7,223 | 9,510 | 8,667 | 16,360 | ||||||||||||
Travel and promotion | - | 2,479 | 761 | 5,087 | 8,163 | ||||||||||||
Comprehensive loss | $ | (41,774 | ) | $ | (47,939 | ) | $ | (130,420 | ) | $ | (117,833 | ) | $ | (279,284 | ) | ||
Loss per share | |||||||||||||||||
basic and diluted | 9 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | |
Weighted average number of shares outstanding | |||||||||||||||||
basic and diluted | 40,565,171 | 40,565,171 | 40,565,171 | 40,565,171 | 40,565,171 |
See accompanying notes to these condensed interim financial statements | 3 |
Rouge Resources Ltd.
Condensed Interim Statement of Changes
in Shareholders Equity (Deficiency)
(Expressed in Canadian dollars unaudited)
Share | Equity | ||||||||||||||||||
Common Shares | Subscriptions | Component of | |||||||||||||||||
Number | Amount | Received | Convertible Note | Deficit | Total | ||||||||||||||
Balance at February 1, 2011 | 40,565,171 | $ | 3,110,796 | $ | 53,357 | $ | (2,993,553 | ) | $ | 170,600 | |||||||||
Comprehensive loss for the six months ended July 31, 2011 |
(117,833 | ) | (117,833 | ) | |||||||||||||||
Balance at July 31, 2011 | 40,565,171 | $ | 3,110,796 | $ | 53,357 | $ | (3,111,386 | ) | $ | 52,767 | |||||||||
Balance at Aug 1, 2011 | 40,565,171 | $ | 3,110,796 | $ | 53,357 | $ | (3,111,386 | ) | $ | 52,767 | |||||||||
Comprehensive loss for the six months ended January 31, 2012 |
(161,451 | ) | (161,451 | ) | |||||||||||||||
Balance at January 31, 2012 | 40,565,171 | $ | 3,110,796 | $ | 53,357 | $ | (3,272,837 | ) | $ | (108,684 | ) | ||||||||
Balance at February 1, 2012 | 40,565,171 | $ | 3,110,796 | $ | - | $ | 53,357 | $ | (3,272,837 | ) | $ | (108,684 | ) | ||||||
Comprehensive loss for the six months ended July 31, 2012 |
(130,420 | ) | (130,420 | ) | |||||||||||||||
Share subscriptions received | 108,000 | 108,000 | |||||||||||||||||
Balance at July 31, 2012 | 40,565,171 | $ | 3,110,796 | $ | 108,000 | $ | 53,357 | $ | (3,403,257 | ) | $ | (131,104 | ) |
See accompanying notes to these condensed interim financial statements | 4 |
Rouge Resources Ltd.
Condensed Interim Statements of Cash
Flows
(Expressed in Canadian dollars unaudited)
Year ended | ||||||||||||||||
Three months ended July 31, | Six months ended July 31, | January 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | ||||||||||||
Operating activities | (audited) | |||||||||||||||
Comprehensive loss | $ | (41,774 | ) | $ | (47,939 | ) | $ | (130,420 | ) | $ | (117,833 | ) | $ | (279,284 | ) | |
Adjustments for non-cash item: | ||||||||||||||||
Amortization | 194 | 217 | 388 | 433 | 1,008 | |||||||||||
(41,580 | ) | (47,722 | ) | (130,032 | ) | (117,400 | ) | (278,276 | ) | |||||||
Changes in non-cash working capital items: | ||||||||||||||||
Harmonized sales tax refundable | 3,196 | 7,649 | (1,302 | ) | 4,793 | 5,468 | ||||||||||
Trade payables and accrued liabilities | 53,187 | (17,297 | ) | 65,502 | 4,719 | 14,217 | ||||||||||
Net cash flows used in operating activities | 14,803 | (57,370 | ) | (65,832 | ) | (107,888 | ) | (258,591 | ) | |||||||
Investing activities | ||||||||||||||||
Expenditures on equipment | - | (708 | ) | - | (708 | ) | (709 | ) | ||||||||
Expenditures on exploration and evaluation assets | (1,203 | ) | - | (16,367 | ) | (12,000 | ) | (12,000 | ) | |||||||
Net cash flows used in investing activities | (1,203 | ) | (708 | ) | (16,367 | ) | (12,708 | ) | (12,709 | ) | ||||||
Financing activities | ||||||||||||||||
Increase in related party payable | 28,440 | 51,990 | 64,376 | 84,359 | 144,171 | |||||||||||
Share subscriptions received | 60,000 | - | 108,000 | - | - | |||||||||||
Net cash flows from financing activities | 88,440 | 51,990 | 172,376 | 84,359 | 144,171 | |||||||||||
Increase (decrease) in cash | 102,040 | (6,088 | ) | 90,177 | (36,237 | ) | (127,129 | ) | ||||||||
Cash, beginning | 5,960 | 114,803 | 17,823 | 144,952 | 144,952 | |||||||||||
Cash, end | $ | 108,000 | $ | 108,715 | $ | 108,000 | $ | 108,715 | $ | 17,823 |
See accompanying notes to these condensed interim financial statements | 5 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
1. Nature and continuance of operations
Rouge Resources Ltd (the Company) was incorporated on March 31, 1988 in British Columbia, Canada. The Companys registered office address is located at 203 - 409 Granville St., Vancouver, British Columbia, V6C 1T2. The Company is an exploration stage company engaged in the acquisition, exploration and development of exploration and evaluation assets in Canada. The Company continues to monitor claims in North-Central Ontario and plans to make additional acquisitions in this and other areas when and if the claims are considered to be strategic or otherwise beneficial to the Company. Effective August 30, 2012, the Companys shares were listed on the TSX Venture Exchange under the trading symbol ROU (see Note 12).
These condensed interim financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. As at July 31, 2012, the Company had not advanced any of its properties to commercial production and is not able to finance day-to-day business activities through its operations The Companys continuation as a going concern is dependent upon the successful results from its mineral property exploration activities; its ability to attain profitable operations; and its ability to raise equity capital or borrowings sufficient to meet current and future obligations. Management intends to finance operating expenses over the next twelve months from existing cash reserves, private placement of common shares and/or loans from officers/ directors.
2. Significant accounting policies and basis of preparation
These financial statements were authorized for issue on September 20, 2012 by the directors of the Company.
Statement of compliance and conversion to International
Financial Reporting Standards
These condensed interim financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards
Board (IASB) along with interpretations of the International Financial
Reporting Interpretations Committee (IFRIC). Therefore, these financial
statements comply with International Accounting Standard (IAS) 34, Interim
Financial Reporting.
This interim financial report does not include all of the information required of a full annual financial report and is intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the end of the last annual reporting period. It is therefore recommended that this financial report be read in conjunction with the audited annual financial statements of the Company for the year ended January 31, 2012 filed on SEDAR. However, this interim financial report does provide selected significant disclosures that are required in the annual financial statements under IFRS.
Basis of preparation
These condensed interim
financial statements are presented in Canadian dollars unless otherwise noted;
have been prepared on an accrual basis; and are based on historical costs,
modified where applicable.
Significant accounting judgments, estimates and
assumptions
The preparation of the Companys financial statements in
conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities and
contingent liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Estimates and
assumptions are continuously evaluated based on managements experience and
other factors, including expectations of future events believed to be reasonable
under the circumstances. However, actual outcomes can differ from these
estimates.
See accompanying notes to these condensed interim financial statements | 6 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Areas requiring a significant degree of estimation and judgment relate to the determination of the useful lives of furniture and equipment, the recoverability of the carrying value of exploration and evaluation assets, measurement of accrued liabilities and recoverability/ measurement of deferred tax assets and liabilities. Actual results may differ from those estimates and judgments.
Foreign currency translation and balances
The
functional currency of the Company is measured using the currency of the primary
economic environment in which it operates. The financial statements are
presented in Canadian dollars which is the Companys functional currency.
Foreign currency transactions, where applicable, are translated into Canadian dollars using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items, if any, are recognized in the Statement of Comprehensive Loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.
Exchange differences arising on the translation of non-monetary items are recognized in the Statement of Comprehensive Loss to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
Exploration and evaluation expenditures
Exploration and evaluation expenditures include the costs of
acquiring licenses, costs associated with exploration and evaluation activity,
and the fair value (at acquisition date) of exploration and evaluation assets
acquired in a business combination. Exploration and evaluation expenditures are
capitalized. Costs incurred before the Company has obtained the legal rights to
explore an area are expensed in the Statement of Comprehensive Loss. Government
tax credits received are recorded as a reduction to the cumulative costs
incurred and capitalized on the related property.
Exploration and evaluation assets are assessed for impairment if: (i) insufficient data exists to determine technical feasibility and commercial viability; and (ii) facts and circumstances suggest that the carrying amount exceeds the recoverable amount.
Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets.
The recoverability of the carrying values of exploration and evaluation assets is dependent on: the existence of economically recoverable ore reserves, the ability to obtain necessary financing to complete the development of such ore reserves, and the possible success of future operations or, alternatively, sale of the respective areas of interest. The Company has not yet determined whether any of its exploration and evaluation assets contain economically recoverable reserves.
Loss per share
Basic loss per share is
calculated by dividing the loss attributable to common shareholders by the
weighted average number of common shares outstanding in the period. For all
periods presented, the loss attributable to common shareholders equals the reported loss attributable to
owners of the Company. Diluted loss per share is calculated by the treasury
stock method. Under this method, the weighted average number of common shares
outstanding for the calculation of diluted loss per share 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. Any stock options or share purchase warrants outstanding cause the
calculation of diluted loss per share to be anti-dilutive and are therefore not
included in the calculation.
See accompanying notes to these condensed interim financial statements | 7 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Share-based payments
The Company has a stock
option plan. 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 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. Compensation expense is
recognized and the corresponding amount is recorded in the share option reserve.
The fair value of options is determined using the BlackScholes pricing model
which incorporates all market vesting conditions. The number of shares and
options expected to vest is reviewed and adjusted at the end of each reporting
period such that the amount recognized for services received as consideration
for the equity instruments granted shall be based on the number of equity
instruments that eventually vest. When the options are exercised, share capital
is credited for the consideration received and the related share option reserve
is decreased.
Financial instruments
Financial
assets
The Company classifies its financial instruments in the
following categories: fair value through profit or loss investments (FVTPL),
loans and receivables, held-to-maturity investments, available-for-sale
investments and financial liabilities. The classification depends on the purpose
for which the financial instruments were acquired. Management determines the
classification of its financial instruments at initial recognition.
Financial assets are classified at fair value through profit or loss when they are held-for-trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, or classified as non-current assets where maturities are greater than 12 months after the end of the reporting period.
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Companys intention to hold these investments to maturity. They are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those instruments that are expected to mature within 12 months after the end of the reporting period.
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value. These are included in current assets. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses on monetary financial assets.
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost.
See accompanying notes to these condensed interim financial statements | 8 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Regular purchases and sales of financial assets are recognized on the trade-date, ie. the date on which the group commits to purchase the asset.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.
Financial liabilities
All financial
liabilities are initially recorded at fair value and classified upon inception
as FVTPL or other financial liabilities.
Financial liabilities classified as other financial liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized costs using the effective interest rate method. The effective interest rate method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
The Companys trade payables and accrued liabilities and related party payables are classified as other financial liabilities.
Financial liabilities classified as FVTPL include financial liabilities held-for-trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives, are also classified as held for trading and recognized at fair value with changes in fair value recognized in earnings unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized in earnings. The Company is not exposed to any derivative instruments and has no foreign exchange hedges in place at this time.
Impairment of assets
The carrying amount of
the Companys non-financial assets, namely its exploration and evaluation
assets, is reviewed for indications of impairment at each reporting date. If
such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss. An impairment loss is
recognized in the Statement of Comprehensive Loss when the carrying amount of
the asset, or its cash-generating unit, exceeds its recoverable amount.
The recoverable amount is the greater of the assets fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash flows from other assets or groups of assets. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist due to a change in the estimates used to determine the recoverable amount. However, the reversal can not result in an amount greater than the carrying amount (net of depreciation or amortization) that would have been determined had no impairment loss been recognized in previous years. An impairment loss with respect to goodwill is never reversed.
See accompanying notes to these condensed interim financial statements | 9 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Assets that have an indefinite useful life (ie. not subject to amortization) are tested annually for impairment.
Income taxes
Current income
tax
Current income tax assets and liabilities for the current period
are measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted, at the reporting date, in the
countries where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is
provided using the balance sheet method on temporary differences at the
reporting date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
Flow-through shares
On the issuance of
flow-through shares, any premium received in excess of the closing market price
of the Companys common shares is initially recorded as a liability
(flow-through tax liability) and included in trade payables and accrued
liabilities. Provided that the Company has renounced the related expenditures,
or that there is a reasonable expectation that it will do so, the flow-through
tax liability is reduced on a pro-rata basis as the expenditures are incurred
and a deferred tax liability is recognized. The reduction to the flow-through
tax liability is recognized in profit or loss as other income.
To the extent that the Company has suitable unrecognized deductible temporary differences, an offsetting recovery of deferred income taxes would be recorded.
Restoration and environmental obligations
The
Company recognizes liabilities for statutory, contractual, constructive or legal
obligations associated with the retirement of long-term assets, when those
obligations result from the acquisition, construction, development or normal
operation of the assets. The net present value of future restoration cost
estimates arising from the decommissioning of plant and other site preparation
work is capitalized to exploration and evaluation assets along with a
corresponding increase in the restoration provision in the period incurred.
Discount rates using a pre-tax rate that reflects the time value of money are
used to calculate the net present value. The restoration asset will be
depreciated on the same basis as other mining assets.
See accompanying notes to these condensed interim financial statements | 10 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
The Companys estimates of restoration 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 exploration and evaluation assets with a corresponding entry to the restoration provision. The Companys 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 Companys 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 or loss in the period incurred.
The costs of restoration projects that were included in the provision are recorded against the provision as incurred. The costs to prevent and control environmental impacts at specific properties are capitalized in accordance with the Companys accounting policy for exploration and evaluation assets.
At present, the Company is not required to provide for restoration and environmental obligations. Accordingly, no provision has been made.
Asset Retirement Obligation
The Company is
subject to various government laws and regulations relating to environmental
disturbances caused by exploration and evaluation activities and may from time
to time incur asset retirement obligations and the associated retirement costs
related to site reclamation and abandonment. The fair value of the liability for
an asset retirement obligation is recorded when it is incurred and the
corresponding increase to the asset is depreciated over the life of the asset.
The liability is increased over time to reflect an accretion element considered
in the initial measurement at fair value. As at the interim period ended July
31, 2012 and the year ended January 31, 2012, the Company had not incurred any
asset retirement obligation related to its exploration and evaluation
assets.
Financing Costs
Professional, consulting,
regulatory, agency commissions and other costs directly attributable to either
shares or debt financing transactions are recorded as deferred financing costs
until the financing transaction is completed, if completion of the transaction
is considered likely; otherwise these costs are expensed as incurred. Share and
debt issuance costs are charged to either share capital or debt carry value
respectively when the financing transaction is completed. Deferred financing
costs related to financing transactions not completed are charged to
expense.
Equipment
Equipment is stated at historical
cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part, if applicable, is derecognized. All other repairs and maintenance are charged to the statement of loss and comprehensive loss during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statement of comprehensive loss.
Amortization is calculated on a declining balance method to write off the cost of the assets down to their residual values at the rate of 30% per year.
See accompanying notes to these condensed interim financial statements | 11 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
3. Accounting standards issued but not yet effective
Certain pronouncements have been issued by the IASB or the IFRIC that are mandatory for accounting periods beginning after January 1, 2012 or later periods.
The following new standards, amendments and interpretations have not been early adopted in these financial statements and are not expected to have a material effect on the Companys future results and financial position:
a) |
IFRS 9 Financial Instruments (New to replace IAS 39 and IFRIC 9) |
b) |
IFRS 10 Consolidated Financial Statements (New to replace consolidation requirements in IAS 27 as amended in 2008 and SIC-12) |
c) |
IFRS 11 Joint Arrangements (New to replace IAS 31 and SIC-13) |
d) |
IFRS 12 Disclosure of Interests in Other Entities (New to replace disclosure requirements in IAS 27 as amended in 2008, IAS 28 (as revised in 2003 and IAS 31) |
e) |
IFRS 13 Fair Value Measurement (New; to replace fair value measurement guidance in other IFRSs) |
f) |
IAS 1 Presentation of Financial Statements, (Amendments regarding Presentation of Other Comprehensive Income) |
g) |
IAS 19 Employee Benefits (Amended in 2011) |
h) |
IAS 27 Separate Financial Statements (Amended in 2011) |
i) |
IAS 28 Investments in Associates and Joint Ventures (Amended in 2011), and |
j) |
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (New). |
4. Equipment
Accumulated | Net book | ||||||||
Cost | amortization | Value | |||||||
Balance at February 1, 2011 | $ | 8,001 | $ | (5,115 | ) | $ | 2,886 | ||
Additions | 709 | 709 | |||||||
Amortization | (1,008 | ) | (1,008 | ) | |||||
Balance at January 31, 2012 | $ | 8,710 | $ | (6,123 | ) | $ | 2,587 | ||
Additions | - | - | |||||||
Amortization | (388 | ) | (388 | ) | |||||
Balance at July 31, 2012 | $ | 8,710 | $ | (6,511 | ) | $ | 2,199 |
See accompanying notes to these condensed interim financial statements | 12 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
5. Exploration and evaluation assets
The following table summarizes the amounts expended on exploration and evaluation assets for the six months ended July 31, 2012 and the year ended January 31, 2012:
Total for | |||||||||||||
six months | Total for | ||||||||||||
ended | year ended | ||||||||||||
Canada | Canada | July 31, | January 31, | ||||||||||
Dotted Lake | Lampson Lake | 2012 | 2012 | ||||||||||
Property acquisition costs | |||||||||||||
Balance, beginning | $ | 15,261 | $ | 21,033 | $ | 36,294 | $ | 24,294 | |||||
Additions | - | 16,000 | 16,000 | 12,000 | |||||||||
Balance, end | 15,261 | $ | 37,033 | $ | 52,294 | $ | 36,294 | ||||||
Exploration and evaluation costs | |||||||||||||
Balance, beginning | $ | 176,585 | $ | - | $ | 176,585 | $ | 176,585 | |||||
Additions | |||||||||||||
Drilling and related costs | |||||||||||||
Field and camp costs | |||||||||||||
Geological consulting | |||||||||||||
Project administration | 367 | 367 | |||||||||||
Travel and accommodation | |||||||||||||
Balance, end | $ | 176,952 | $ | - | $ | 176,952 | $ | 176,585 | |||||
Total balance, end | $ | 192,213 | $ | 37,033 | $ | 229,246 | $ | 212,879 |
The original Dotted Lake Property (Dotted Lake Property) was originally comprised of one claim acquired by the Company in 2001 at a cost of $200,000. The claim was allowed to lapse in 2002 and accordingly was written off during the year ended January 31, 2003. It was re-staked by the Company in March 2003. In October 2009, the Company expanded its 100% owned holdings in the original Dotted Lake Property from a single claim to ten claims by means of staking at a cost of approximately $11,055. Title to the Property was originally held in trust for the Company by a director of the Company. Title was transferred to the Company during the year ended January 31, 2012.
On April 20, 2010, the Company entered into an option to purchase agreement with local prospectors (the Optionors) regarding an additional two claims adjacent to the Dotted Lake Property, known as the Lampson Lake Property. The Company has an exclusive option to purchase a 100% interest in these two claims by making option payments totaling $60,000 as follows: $7,000 paid on April 20, 2010 when the agreement was signed; $12,000 paid on April 20, 2011; $16,000 paid on April 20, 2012; and $25,000 payable on April 20, 2013. These claims are subject to a 2% net smelter royalty (NSR) in favour of the Optionors on one claim and with respect to the other, a combination of a 2% NSR in favour of the Optionors and a 1% NSR on any metals and/or a 1% Net Sales Return royalty payable to Ontario Exploration Company (OEC) on any precious metals recovered from the property. The Company has the right to buy back 1% of the NSR in favour of the Optioners for $1,000,000 and to buy back three-quarters of 1% of the royalty vested with OEC over 10 years on an increasing scale from $15,000 to $750,000. In anticipation of meeting the final payment schedule, title was transferred to the Company during the year ended January 31, 2012. However, beneficial interest in the property will not be transferred until the final option payment of $25,000 is made on or before April 20, 2013.
Although our work on the Dotted Lake Property in the past three years has identified some gold mineralization hosted in sulphide rich shear bands in granitoid rock, there is no assurance that a commercially viable mineral deposit exists on our exploration and evaluation assets. Further exploration is required before a final evaluation of the economic feasibility can be determined. Significant additional financing and considerable time and effort will be required before our mineral claims can be further explored and, if warranted, developed into a commercial enterprise.
See accompanying notes to these condensed interim financial statements | 13 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
6. Trade payables and accrued liabilities
As at | |||||||||||
As at July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Trade payables | $ | 132,566 | $ | 74,317 | $ | 22,730 | |||||
Accrued liabilities | - | 22,925 | 35,300 | ||||||||
Related party payable | - | - | - * | ||||||||
$ | 132,566 | $ | 97,242 | $ | 58,030 |
* Reclassified to conform with July 31, 2012 presentation
7. Related party payable and transactions
At July 31, 2012, the amount payable to two directors and officers of the Company was $309,460 (January 31, 2012 - $245,084).
As at | |||||||||||
As at July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Payable to two directors and officers of the Company | $ | 309,460 | $ | 185,272 | $ | 254,118* |
* Reclassified to conform with July 31, 2012 presentation
In order to meet the unallocated working capital requirements of the TSX Venture Exchange in connection with the two financings and the Companys listing on the Exchange (see Note 13), one of the two director/officers, who is also a shareholder of the Company, entered into an Agreement with the Company on June 30, 2012 to defer $100,000 of loans owed to him to a date on or after December 31, 2013. Consequently, this amount was reclassified as a long term liability thereby reducing the Companys current working capital deficiency.
All amounts payable to related parties are non-interest bearing and unsecured with no fixed term of repayment.
The Company had the following transactions with two directors and officers of the Company during the six months ended July 31, 2012 and 2011 and the year ended January 31, 2012:
Year ended | |||||||||||
Six months ended July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Accounting and financial reporting services | $ | 3,274 | $ | - | $ | - | |||||
Management services | 30,000 | 30,000 | $ | 60,000 | |||||||
Office rent | 15,000 | 15,000 | 30,000 | ||||||||
$ | 48,274 | $ | 45,000 | $ | 90,000 |
These transactions are recorded at the exchange amount, which
is the consideration agreed to between the related parties.
See accompanying notes to these condensed interim financial statements | 14 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
8. Loan payable
In February 2012, the Company entered into an agreement to defer $39,676 of debt owed to a professional advisor to a date beyond July 31, 2013. Accordingly, this amount was reclassified from current to a long term liability as at January 31, 2012 and remains the same as at July 31, 2012. The amount is unsecured and non-interest bearing.
9. Share capital
Authorized share capital
Unlimited number of
common shares without par value.
Issued share capital
At July 31, 2012, there
were 40,565,171 issued and fully paid common shares outstanding (January 31,
2012 40,565,171). Although no shares were issued during the six months ended
July 31, 2012share subscriptions of $108,000 were received in cash in connection
with the Companys non-brokered private placement financing of up to $200,000
from an offering of 800,000 units announced March 16, 2012. The closure of this
financing was announced August 28, 2012 in conjunction with the Companys
concurrent brokered private placement. (see Note 12)
Basic and diluted loss per share
The
calculation of basic and diluted loss per share for the six months ended July
31, 2012 was based on the comprehensive loss attributable to common shareholders
of $130,420 (July 31, 2011 - $117,833) and the weighted average number of common
shares outstanding of 40,565,171 (July 31, 2011 40,565,171).
Stock options
The Companys stock option plan
is in the form of a rolling stock option plan, which provides that a committee
of the Board of Directors may from time to time, at its discretion, grant to
directors, officers, employees and consultants to the Company, non-transferable
stock options to purchase common shares, provided that the number of common
shares reserved for issuance in any twelve month period will not exceed 10% of
the Companys issued and outstanding common shares. Such options will be
exercisable for a period of up to 5 years from the date of grant at a price not
less than the closing price of the Companys shares on the last trading day
before the grant of such options less any discount, if applicable, but in any
event not less than $0.10 per share
The number of common shares reserved for issuance to any one optionee insider in any twelve month period will not exceed ten percent (10%) of the issued and outstanding common shares and the number of common shares reserved for issuance to any one employee or consultant will not exceed two percent (2%) of the issued and outstanding common shares. Options may be exercised no later than 90 days following cessation of the optionees position with the Company or 30 days following cessation of an optionee conducting investor relations activities position.
At July 31, 2012, the Company had not granted any stock options.
See accompanying notes to these condensed interim financial statements | 15 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Share purchase warrants
The changes in share
purchase warrants during the six months ended July 31, 2012 and the year ended
January 31, 2012 are as follows:
Six Months Ended | Year Ended | |||||||||||
July 31, 2012 | January 31, 2012 | |||||||||||
Weighted | Weighted | |||||||||||
average | average | |||||||||||
Number of | exercise | Number of | exercise | |||||||||
warrants | price | warrants | price | |||||||||
Balance, beginning | 30,000,000 | $ | 0.10 | 30,000,000 | $ | 0.10 | ||||||
Warrants issued | - | |||||||||||
Warrants expired | (30,000,000 | ) | ||||||||||
Balance, end | - | - | 30,000,000 | $ | 0.10 |
On April 30, 2012, the 30,000,000 warrants expired without being exercised.
10. Income taxes
The Company has non-capital losses available for carry forward against future taxable income totaling approximately $1,354,000, excluding the comprehensive loss of $130,420 for six months ended July 31, 2012, which expire as follows:
2015 | $ | 84,000 | |
2026 | 132,000 | ||
2027 | 176,000 | ||
2028 | 152,000 | ||
2029 | 183,000 | ||
2030 | 105,000 | ||
2031 | 243,000 | ||
2032 | 279,000 | ||
$ | 1,354,000 |
In addition, the Company has certain allowances in respect of resource exploration and development costs incurred amounting to approximately $413,000 which, subject to certain restrictions, are available to offset future taxable income. The application of both the non-capital losses and the resource exploration and development allowances against future taxable income is subject to final determination of the respective amounts by the Canada Revenue Agency. A valuation allowance has been used to offset the net benefit related to the future tax assets due to the uncertainty associated with the ultimate realization of the non-capital losses and resource allowances before expiry.
See accompanying notes to these condensed interim financial statements | 16 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
11. Financial risk and capital
management
The Company is exposed in varying degrees to a variety of
financial instrument related risks. The Board of Directors approves and monitors
the risk management processes, inclusive of documented investment policies,
counterparty limits, and controlling & reporting structures. The type of
risk exposure and the way in which such exposure is managed by the Company is as
follows:
Credit risk
Credit risk is the risk that one
party to a financial instrument will fail to discharge an obligation and cause
the other party to incur a financial loss. The Companys primary exposure to
credit risk is on its cash held in bank accounts. The majority of cash is
deposited in bank accounts held with one major bank in Canada so there is a
concentration of credit risk. This risk is managed by using a major bank that is
a high credit quality financial institution as determined by rating agencies.
The Companys secondary exposure to risk is on its harmonized sales tax
refundable which is minimal since it is recoverable from the Canadian
Government.
Liquidity risk
Liquidity risk is the risk that
the Company will not be able to meet its financial obligations as they fall due.
The Company has a planning and budgeting process in place to help determine the
funds required to support the Companys normal operating requirements on an
ongoing basis. The Company attempts to ensure there is sufficient access to
funds to meet on-going business requirements, taking into account its current
cash position and potential funding sources.
Historically, the Company's source of funding has been either the issuance of equity securities for cash through private placements or loans from directors and officers. The Companys access to financing is always uncertain and there can be no assurance of continued access to significant funding from these sources.
Foreign exchange risk
Foreign currency risk
is the risk that the fair values of future cash flows of a financial instrument
will fluctuate because they are denominated in currencies that differ from the
Companys functional currency. The Company only operates in Canada and is
therefore not exposed to foreign exchange risk arising from transactions
denominated in a foreign currency.
Interest rate risk
Interest rate risk is the
risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Companys exposure to
interest rate risk relates to its ability to earn interest income on cash
balances at variable rates. Changes in short term interest rates will not have a
significant effect on the fair value of the Companys cash account.
Commodity Price Risk
The Companys ability to
raise capital to fund exploration or development activities is subject to risks
associated with fluctuations in the market price of precious metals. The Company
closely monitors commodity prices to determine the most appropriate course of
action.
Capital Management
The Company's policy is to
maintain a strong capital base sufficient to maintain investor and creditor
confidence and to sustain future development of the business. The capital
structure of the Company consists of working and share capital. There were no
changes in the Company's approach to capital management during the period and
the Company is not subject to any externally imposed capital requirements.
See accompanying notes to these condensed interim financial statements | 17 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
Classification of financial instruments
Financial assets included in the statement of financial position are as follows:
As at | |||||||||||
As at July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Financial assets: | |||||||||||
Cash | $ | 108,000 | $ | 108,715 | $ | 17,823 | |||||
Harmonized sales tax refundable | 4,253 | 3,626 | 2,951 | ||||||||
Credit card security deposit | 6,900 | 6,900 | 6,900 | ||||||||
$ | 119,153 | $ | 119,241 | $ | 27,674 |
Other financial liabilities included in the statement of financial position are as follows:
As at | |||||||||||
As at July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Other financial liabilities: | |||||||||||
Trade payables | $ | 132,566 | $ | 74,317 | $ | 18,430* | |||||
Related party payables | 309,460 | 185,272 | 254,118* | ||||||||
Loan payable | 39,676 | - | 39,676 | ||||||||
$ | 481,702 | $ | 259,589 | $ | 312,224 |
* Reclassified to conform with July 31, 2012 presentation
Fair value
The fair value of the Companys financial assets and liabilities approximate the carrying amounts.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 Inputs that are not based on observable market data.
The following is a breakdown of the Companys financial assets measured at fair value as at July 31, 2012 and January 31, 2012:
As at July 31, 2012 | ||||||||||
Level 1 | Level 2 | Level 3 | ||||||||
Cash | $ | 108,000 | $ | - | $ | - | ||||
Harmonized sales tax refundable | 4,253 | |||||||||
Credit card security deposit | 6,900 |
As at January 31, 2012 | ||||||||||
Level 1 | Level 2 | Level 3 | ||||||||
Cash | $ | 17,823 | $ | - | $ | - | ||||
Harmonized sales tax refundable | 2,951 | |||||||||
Credit card security deposit | 6,900 |
See accompanying notes to these condensed interim financial statements | 18 |
Rouge Resources Ltd. |
Notes to the Condensed Interim Financial Statements |
(Expressed in Canadian dollars - unaudited) |
For the six months ended July 31, 2012 and 2011 |
11. Segmented information
The Company operates in a single reportable operating segment being the acquisition, exploration and development of mineral properties, currently all located in Canada.
12. Subsequent event
On August 28, 2012, the Company announced closure of its brokered private placement financing through Canaccord Genuity Corp. (the Agent) for $829,000 (3,316,000 Units) and its non-brokered private placement financing for $188,000 (752,000 Units) for combined gross proceeds of $1,017,000. The Units of the Company were sold for $0.25 per unit. Each unit consists of one common share and one transferable share purchase warrant, with each warrant entitling the holder to acquire one additional common share of the Company at a price of $0.40 per share for a period of one year from the date of closing. The financings were completed in conjunction with the Companys listing on the TSX Venture Exchange (the Exchange) and the shares commenced trading on August 30, 2012 under the symbol ROU. This increase of 4,068,000 shares brings the total issued and outstanding to 44,633,171 shares at this time.
The common shares and warrants comprising the Units and any common shares issued upon exercise of the Warrants are subject to a four month hold period which expires on December 29, 2012.
A cash commission of $58,030 was paid to the Agent equal to 7% of the gross proceeds raised from the brokered private placement as well as a corporate finance fee of $30,000.
The net proceeds received by the Company from the two financings, after deduction of the Agents Commission, the corporate finance fee and the balance of the costs to complete the brokered financing, totaled $892,660. The Companys intention is to use these funds to eliminate the current working capital deficiency; to continue exploration activities on the Dotted Lake Property; to complete the option agreement regarding purchase of the adjacent Lampson Lake claims (see Note 5); and to meet on-going working capital requirements.
See accompanying notes to these condensed interim financial statements | 19 |
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ROUGE RESOURCES LTD.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR SIX MONTHS ENDED JULY 31,
2012
(Stated in Canadian Dollars)
1
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ITEM 1.1 DATE AND INTRODUCTION
This Management Discussion and Analysis (MD&A) was prepared as of September 20, 2012 and authorized for issue by the directors of the Company effective on this date. It should be read in conjunction with the condensed interim financial statements and notes for the six months ended July 31, 2012 contained herein along with the audited financial statements and notes for the year ended January 31, 2012.
The financial statements contained herein are stated in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) along with interpretations of the International Financial Reporting Interpretations Committee (IFRIC). Therefore, they comply with International Accounting Standard (IAS) 34 Interim Financial Reporting.
We (or the Company) were incorporated under the name Gemstar Resources Ltd. on March 31, 1988 pursuant to the provisions of the Company Act (British Columbia). In March 2006, we were transitioned to the Business Corporations Act (British Columbia). On March 25, 2008, we announced the following: a change in Company name to Rouge Resources Ltd; consolidation of our outstanding share capital on a one new for ten old (1:10) share basis; and an increase in our authorized share capital from 10 million shares without par value to an unlimited number of shares without per value. The 1:10 share consolidation resulted in all share and per share information in the financial statements being presented on a retroactive basis as if the share consolidation took place at the beginning of all years presented.
Our registered and records office is located at 203-409 Granville Street, Vancouver BC, V6C 1T2. We have been a reporting issuer in British Columbia and Alberta since April 3, 1989 and became a foreign issuer in the United States pursuant to filings with the US Securities and Exchange Commission on or about November 15, 2003. Prior to August 30, 2012, our common shares were only quoted on the OTC:BB in the United States and now, effective on this date, they are also listed for trading on the TSX Venture Exchange under the symbol ROU.
At July 31, 2012, there were 40,565,171 issued and fully paid common shares outstanding (January 31, 2012 40,565,171) and no shares were issued during the six months ended July 31, 2012. However, subsequent to the quarter end, the Company announced closure of its two private placement financings, comprised of 4,068,000 Units of shares and warrants for total gross proceeds of $1,017,000. This increase of 4,068,000 shares brings the total issued and outstanding to 44,633,171 shares at this time.
We have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets. Additional information relating to the Company, including our listing application conditionally approved by the TSX Venture Exchange on April 25, 2012, is available on both SEDAR at www.sedar.com and EDGAR at www.sec.gov/edgar.
Description of business
We are an exploration stage company focused on the exploration of certain mining claims located in the Thunder Bay Mining District of North Central Ontario, Canada.and have no current revenues nor have we earned any since inception. We hold a 100% interest in the original Dotted Lake Property in this area, which has been the only focus of our exploration activities to date. In addition, we have an exclusive option agreement to acquire mineral interests in the Lampson Lake Property adjacent to the Dotted Lake Property.
2
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ITEM 1.2 OVERALL PERFORMANCE
During the six months ended July 31, 2012, the Company reported a comprehensive loss of $130,420 compared to a comprehensive loss of $117,833 for the same period last year. In addition, we spent $16,367 on our exploration and evaluation assets of which $16,000 related to the Lampson Lake option agreement. This agreement calls for the Company to make total payments of $60,000 over the three year period ending April 30, 2013 of which $35,000 has been paid to date with the final payment of $25,000 due on or before April 20, 2013. No other exploration work was conducted during this period primarily due to the significant effort required to complete the two private placement financings which was announced after the quarter end on August 30, 2012. Combined gross proceeds of $1,017,000 was raised including $829,000 from the brokered private placement (3,316,000 Units) and $188,000 from the concurrent non-brokered private placement (752,000 Units).
The combined net proceeds received by the Company, after deduction of the Agents Commission, the corporate finance fee and the balance of the costs required to complete the brokered financing, totaled $892,660. The Company intends to use these funds to eliminate its current working capital deficiency; to continue exploration activities on the Dotted Lake Property; to complete the option agreement regarding purchase of the adjacent Lampson Lake claims; and to meet on-going working capital requirements. However, there may be circumstances when, for sound business reasons, a reallocation of these funds may be necessary.
Exploration and evaluation assets
The following table summarizes the amounts expended on exploration and evaluation assets for the six months ended July 31, 2012 and year ended January 31, 2012:
Total for | |||||||||||||
six months | Total for | ||||||||||||
ended | year ended | ||||||||||||
North Central Ontario, Canada | July 31, | January 31, | |||||||||||
Dotted Lake | Lampson Lake | 2012 | 2012 | ||||||||||
Property acquisition costs | |||||||||||||
Balance, beginning | $ | 15,261 | $ | 21,033 | $ | 36,294 | $ | 24,294 | |||||
Additions | - | 16,000 | 16,000 | 12,000 | |||||||||
Balance, end | 15,261 | $ | 37,033 | $ | 52,294 | $ | 36,294 | ||||||
Exploration and evaluation costs | |||||||||||||
Balance, beginning | $ | 176,585 | $ | - | $ | 176,585 | $ | 176,585 | |||||
Additions | |||||||||||||
Drilling and related costs | |||||||||||||
Field and camp costs | |||||||||||||
Geological consulting | |||||||||||||
Project administration | 367 | - | 367 | - | |||||||||
Travel and accommodation | |||||||||||||
Balance, end | $ | 176,952 | $ | - | $ | 176,952 | $ | 176,585 | |||||
Total balance, end | $ | 192,213 | $ | 37,033 | $ | 229,246 | $ | 212,879 |
The original Dotted Lake Property was comprised of one claim acquired by the Company in 2001 at a cost of $200,000. The claim was allowed to lapse in late calendar 2002 and accordingly was written off during year ended January 31, 2003. It was re-staked by the Company in March 2003 since it was less expensive than completing the exploration work assessment during the extreme winter weather conditions existing at the time. Since then, the Company has conducted certain acquisition and exploration activities on the Property; completed a National Instrument 43-101 compliant geological report; and kept its mineral interests in The Property in good standing with the Ontario Ministry of Northern Development and Mines (MNDM) for future exploration. In October 2009, the Company expanded its 100% owned holdings in the original Property from a single 15-unit claim to ten claims of 82 units by means of staking at a cost of approximately $11,000. Title to the Property was originally held in trust for the Company by a director of the Company but was since transferred to the Company during the year ended January 31, 2012.
3
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
On April 20, 2010, the Company entered into an option agreement with local prospectors (the Optionors) regarding the Lampson Lake Property consisting of two additional claims comprising an aggregate of 22 units adjacent to the Dotted Lake Property. The Company has an exclusive option to purchase a 100% interest in these two claims by making option payments totalling $60,000 as follows: $7,000 paid on April 20, 2010 when the agreement was signed; $12,000 paid on April 20, 2011; $16,000 on April 20, 2012; and $25,000 payable on April 20, 2013. These claims are subject to a 2% net smelter royalty (NSR) in favour of the Optionors on one claim and with respect to the other, a combination of a 2% NSR in favour of the Optionors and a 1% NSR on any metals and/or a 1% Net Sales Return royalty payable to Ontario Exploration Company (OEC) on any precious minerals recovered from the property. The Company has the right to buy back 1% of the NSR in favour of the Optionors for $1,000,000 and to buy back three-quarters 3/4 of 1% of the royalty vested with OEC over 10 years on an increasing scale from $15,000 to $750,000. In anticipation of meeting the final payment schedule, title was transferred to the Company on January 27, 2012. However, beneficial interest in the property will not be transferred until the final option payment of $25,000 is made on or before April 20, 2013.
Following this final option payment on April 20, 2013, the Companys holdings will total 12 claims of 104 mining units on 1,683 hectares. At present and pending approval of the MNDM, the Dotted Lake Property is in good standing until on-going claim anniversary dates ranging from November 17, 2013 to March 14, 2014 with $5,707 remaining in work credits to be applied in the future.
The Company continues to monitor claims in the Dotted Lake area and may make additional acquisitions from time to time when management considers the purchase to be strategic or otherwise potentially beneficial to the Company.
Pursuant to the NI 43-101 recommendations from the Companys consulting geologist, Fladgate Exploration Consulting, and following completion of our private placement financings subsequent to July 31, 2012, we plan to conduct future exploration on our mineral property interests as soon as possible. The program is estimated to cost $226,000 for additional soil sampling, prospecting and trenching to expand on the anomalous zinc and coincident gold anomalies observed from previous soil samples. Once started, the program is expected to complete within three weeks followed by data compilation and testing over an additional two months.
Although our work on the Dotted Lake Property in the past three years has identified some gold mineralization hosted in sulphide rich shear bands in granitoid rock, there is no assurance that a commercially viable mineral deposit exists on our exploration and evaluation assets. Further exploration is required before a final evaluation of the economic feasibility can be determined. Significant financing and considerable time and effort will be required before our mineral claims can be further explored and, if warranted, developed into a commercial enterprise.
4
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ITEM 1.3 SELECTED FINANCIAL INFORMATION
The following table summarizes selected financial information as at and for the six months ended July 31, 2012 and 2011 with comparative figures as at and for the year ended January 31, 2012:
Six Months Ended | Year Ended | |||||||||
July 31, 2012 | July 31, 2011 | January 31, 2012 | ||||||||
FINANCIAL POSITION | ||||||||||
Total Assets | $ | 350,598 | $ | 325,281 | $ | 243,140 | ||||
Total Liabilities | $ | 481,702 | $ | 282,514 | $ | 351,824 | ||||
Accumulated Deficit | $ | (3,403,257 | $ | (3,111,386 | ) | $ | (3,272,837 | ) | ||
OPERATIONS | ||||||||||
Total Revenues | Nil | Nil | Nil | |||||||
Comprehensive Loss | $ | (130,420 | ) | $ | (117,833 | ) | $ | (279,284 | ) | |
Comprehensive Loss per sh. | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) |
ITEM 1.4 RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 31, 2012
The following table summarizes results of operations for the six months ended July 31, 2012 and 2011 with comparative figures for year ended January 31, 2012:
Six Months Ended | Year Ended | |||||||||
July 31, 2012 | July 31, 2011 | January 31, 2012 | ||||||||
Revenue | $ | Nil | $ | Nil | $ | Nil | ||||
Expenses | ||||||||||
Amortization and accretion | 388 | 433 | 1,008 | |||||||
Listing application fees & exp. | 65,673 | 27,965 | 90,507 | |||||||
Management fees | 30,000 | 30,000 | 60,000 | |||||||
Office administration and travel | 19,808 | 33,634 | 64,022 | |||||||
Professional fees | 5,041 | 417,134 | 47,387 | |||||||
Transfer agent and filing fees | 9,510 | 8,667 | 16,360 | |||||||
Comprehensive loss | $ | (130,420 | ) | $ | (117,833 | ) | $ | (279,284 | ) |
The Company is in the exploration stage and has not generated any revenues since inception. For six months ended July 31, 2012, a comprehensive loss of $130,420 was recorded versus a loss of $117,833 for the same period last year. This $12,587 increase in comprehensive loss resulted from the following:
- | $45 decrease in amortization. |
- |
$37,708 increase in listing application fees and expenses due to intensity of the documentation required by our lawyer, the Agents lawyer and the regulatory authorities in connection with completion of the two private placement financings on August 30, 2012. This was required to obtain final approval of the listing application which was conditionally approved by the TSX- Venture Exchange on April 25, 2012. |
5
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
- |
$13,826 decrease in office administration and travel expenses mainly due to on-going concerted effort to reduce overhead expenses. |
- |
$12,093 decrease in professional fees (legal, audit and accounting) primarily due to concentration of time and effort by company lawyer on completion of the two private placement financings. |
- |
$843 increase in transfer agent and filing fees |
THREE MONTHS ENDED JULY 31, 2012
For three months ended July 31, 2012, a comprehensive loss of $41,774 was reported versus a comprehensive loss of $47,939 for the same period last year. This $6,165 increase in comprehensive loss resulted from the following:
- |
$23 decrease in amortization. |
- |
$6,921 increase in listing application fees and expenses due to intensity of the documentation required by our lawyer, the Agents lawyer and the regulatory authorities in connection with completion of the two private placement financings on August 30, 2012. This was required to obtain final approval of the listing application which was conditionally approved by the TSX- Venture Exchange on April 25, 2012. |
- |
$7,500 decrease in office administration and travel expenses mainly due to on-going concerted effort to reduce overhead expenses. |
- |
$5,984 decrease in professional fees (legal, audit and accounting) primarily due to concentration of time and effort by company lawyer on completion of the two private placement financings. |
- |
$421 increase in transfer agent and filing fees |
ITEM 1.5 SUMMARY OF QUARTERLY RESULTS
The following table summarizes operating results for the eight most recently completed quarters:
2nd Qtr | 1st Qtr | 4th Qtr | 3rd Qtr | 2nd Qtr | 1st Qtr | 4th Qtr | 3rd Qtr | |
ended | ended | ended | ended | ended | ended | ended | ended | |
July 31 12 | Apr. 30 12 | Jan. 31 12 | Oct. 31 11 | July 31 11 | Apr. 30 11 | Jan. 31 11 | Oct. 31 10 | |
Total revenues | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
Comprehensive loss | ($41,774) | ($88,646) | ($83,074) | ($78,377) | $ (47,939) | ($69,894) | ($108,336) | ($41,844) |
Loss per share | (47,939) ($0.00) | ($0.00) | ($0.01) | ($0.00) | ($0.00) | ($0.00) | ($0.01) | ($0.00) |
Operating cash flow | ||||||||
(Deficiency) | $14,803 | ($80,635) | ($66,515) | ($84,188) | ($ 57,370) | ($50,518) | ($72,760) | ($45,508) |
Our comprehensive losses are fairly consistent from quarter to quarter being comprised mainly of ongoing management fees, professional fees, office administration and transfer agent & filing fees. Each of the five quarters ended April 30, 2012, January 31, 2012, October 31, 2011, April 30, 2011 and January 31, 2011 show greater losses than normal due to the legal, agency and regulatory fees & expenses incurred in connection with the listing application and the two private placement financings which closed on August 30, 2012.
6
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Reconciliation of previous Canadian GAAP to IFRS
IFRS requires the Company to reconcile to previous Canadian GAAP for equity, comprehensive loss and cash flow for comparative periods. The Companys adoption of IFRS did not have a monetary impact on equity, comprehensive loss and operating, investing or financing cash flows in the prior periods. As a result, there were no adjustments to the statements of financial position, comprehensive loss, cash flows and changes in shareholders equity for the above eight quarters.
ITEM 1.6 LIQUIDITY
The following table summarizes the Companys working capital (deficiency) position as at July 31, 2012 and 2011 with comparative figures as at January 31, 2012 year end:
As at | As at | |||||||||
Working Capital (Deficiency) | July 31, 2012 | July 31, 2011 | January 31, 2012 | |||||||
Current assets | $ | 112,253 | $ | 112,341 | $ | 20,774 | ||||
Current liabilities | (342,026 | ) | (282,514 | ) | (312,148 | ) | ||||
Working capital (deficiency) | $ | (229,773 | ) | $ | (170,173 | ) | $ | (291,374 | ) |
During the three months ended July 31, 2012, the working capital deficiency decreased to $229,773 from $291,374 as at January 31, 2012 primarily due to a director/officers agreement with the Company on June 30, 2012 to defer $100,000 of loans owed to him to a date on or after December 31, 2013. Consequently, this amount was reclassified into long term liabilities thereby reducing the Companys current working capital deficiency.
The current assets at July 31, 2012 includes cash of $108,000 from share subscriptions received to July 31, 2012 in connection with the Companys non-brokered private placement financing of up to $200,000 from an offering of 800,000 units announced on March 16, 2012. The closure of this financing was announced on August 28, 2012 in conjunction with the Companys concurrent brokered private placement.
The current liabilities at July 31, 2012 includes $209,460 of related party payables (January 31, 2012 -$245,084) after a $100,000 reclassification to long term liabilities due to debt deferral agreement. This amount is primarily due to one of our director/officers, who continued to fund on-going operating expenses of the Company pending completion of the two private placements and approval of Exchange listing. The Company expects to substantially repay the related party payable going forward due to August 30, 2012 completion of the financings.
7
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
The following table summarizes cash flows for six months ended July 31, 2012 and 2011 with comparative figures for year ended January 31, 2012:
Cash Flows | Six Months Ended | Year Ended | ||||||||
July 31, 2012 | July 31, 2011 | January 31, 2012 | ||||||||
Net cash used in operating activities | $ | (65,832 | ) | $ | (107,888 | ) | $ | (258,591 | ) | |
Net cash used in investing activities | (16,367 | ) | (12,708 | ) | (12,709 | ) | ||||
Net cash provided by financing activities | 172,376 | 84,359 | 144,171 | |||||||
Increase (decrease) in cash | $ | 90,177 | $ | (36,237 | ) | $ | (127,129 | ) | ||
Cash, beginning | 17,823 | 144,952 | 144,952 | |||||||
Cash, end | $ | 108,000 | $ | 108,715 | $ | 17,823 |
At July 31, 2012, the Companys cash position was $108,000 compared to $17,823 at January 31, 2012. The $90,177 increase in cash for six months ended July 31, 2012 (2012 period) and the $36,237 decrease in cash for six months ended July 31, 2011 (2011 period) resulted from the following cash flow activities:
(i) |
Net cash used in operating activities of $65,832 in 2012 period and $107,888 in 2011 period was due in both periods to on-going operating losses adjusted for increases in non-cash working capital items. | |
(ii) |
Net cash used in investing activities of $16,367 in 2012 period and $12,708 in 2011 period was due to scheduled payments of $16,000 and $12,000 respectively under the exclusive option agreement to purchase the Lampson Lake Property. | |
(iii) |
Net cash provided by financing activities of $172,376 in the 2012 period was due to $108,000 of share subscriptions received under the non-brokered private placement completed subsequent to July 31, 2012 along with a $64,376 increase in related party payable used for funding of operating expenses. The $84,359 of cash provided in the 2011 period was due entirely to funding received from related party payable. |
ITEM 1.7 CAPITAL RESOURCES
Share Capital
Authorized
Unlimited number of common shares
without par value.
Issued share capital
At July 31, 2012, there
were 40,565,171 issued and fully paid common shares outstanding (January 31,
2012 40,565,171). Although no shares were issued during the six months ended
July 31, 2012, share subscriptions of $108,000 were received in cash in
connection with the Companys non-brokered private placement financing of up to
$200,000 from an offering of 800,000 units announced March 16, 2012. The closure
of this financing was announced August 28, 2012 in conjunction with the
Companys concurrent brokered private placement. (see Item 1.11 below)
8
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Basic and diluted loss per share
The
calculation of basic and diluted loss per share for the six months ended July
31, 2012 was based on the comprehensive loss attributable to common shareholders
of $130,420 (July 31, 2011 - $117,833) and the weighted average number of common
shares outstanding of 40,565,171 (July 31, 2011 40,565,171).
Diluted loss per share does not include effect of the 30,000,000 share purchase warrants which expired on April 30, 2012.
Stock options
The Companys stock option plan
is in the form of a rolling stock option plan, which provides that a committee
of the Board of Directors may from time to time, at its discretion, grant to
directors, officers, employees and consultants to the Company, non-transferable
stock options to purchase common shares, provided that the number of common
shares reserved for issuance in any twelve month period will not exceed 10% of
the Companys issued and outstanding common shares. Such options will be
exercisable for a period of up to 5 years from the date of grant at a price not
less than the closing price of the Companys shares on the last trading day
before the grant of such options less any discount. In any event, the exercise
price will not be less than $0.10 per share
The number of common shares reserved for issuance to any one optionee insider in any twelve month period will not exceed ten percent (10%) of the issued and outstanding common shares and the number of common shares reserved for issuance to any one employee or consultant will not exceed two percent (2%) of the issued and outstanding common shares. Options may be exercised no later than 90 days following cessation of the optionees position with the Company or 30 days following cessation of an optionee conducting investor relations activities position.
As at July 31, 2012, the Company had no issued and outstanding stock options.
Share purchase warrants
The changes in share
purchase warrants during the six months ended July 31, 2012 and the year ended
January 31, 2012 are as follows:
Six Months Ended | Year Ended | |||||||||||||
July 31, 2012 | January 31, 2012 | |||||||||||||
Weighted | Weighted | |||||||||||||
average | average | |||||||||||||
Number of | exercise | Number of | exercise | |||||||||||
warrants | price | warrants | Price | |||||||||||
Balance, beginning | ||||||||||||||
30,000,000 | $ | 0.10 | 30,000,000 | $ | 0.10 | |||||||||
Warrants issued | - | - | ||||||||||||
Warrants expired | (30,000,000 | ) | - | |||||||||||
Balance, end | - | - | 30,000,000 | $ | 0.10 |
On April 30, 2012, the 30,000,000 warrants expired without being exercised.
With no operating revenues to date, we continue to finance our operations through the issuance of common shares and advances from related parties. As discussed elsewhere in this report, two private placements were recently completed in late August 2012, but there can be no assurance that additional financing will be available when needed or, if available, on commercially reasonable terms. If we are unable to obtain additional financing on a timely basis, either through issuance of more common shares or obtaining additional advances from related parties, we may not be able to meet our obligations as they come due which may impact our ability to continue as a going concern in the future.
9
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
To a significant extent, our ability to raise capital is affected by trends and uncertainties beyond our control. These include general economic conditions, the market prices for precious metals and results from our exploration programs. The Companys ability to reach its business objectives may be significantly impaired if general economic conditions continue to deteriorate, prices for metals such as zinc, gold, copper and platinum fall or if results from planned exploration programs are unsuccessful.
ITEM 1.8 OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
ITEM 1.9 TRANSACTIONS BETWEEN RELATED PARTIES
At July 31, 2012, the amount payable to two directors and officers of the Company was $309,460 (January 31, 2012 - $254,118).
As at July 31, | As at | ||||||||||
January 31, | |||||||||||
2012 | 2011 | 2012 | |||||||||
Payable to two directors and officers of the Company | $ | 309,460 | $ | 185,272 | $ | 254,118* |
* Reclassified to conform with July 31, 2012 presentation
In order to meet the unallocated working capital requirements of the TSX Venture Exchange in connection with the two private placements and the Companys Exchange listing, one of the two director/officers, who is also a shareholder of the Company, entered into an Agreement with the Company on June 30, 2012 to defer $100,000 of loans owed to him by the Company to a date on or after December 31, 2013. Consequently, this amount was reclassified as a long term liability thereby reducing the Companys current working capital deficiency.
All amounts payable to related parties are non-interest bearing and unsecured with no fixed term of repayment.
The Company had the following transactions with two directors and officers of the Company during the six months ended July 31, 2012 and 2011 and the year ended January 31, 2012:
Year ended | |||||||||||
Six months ended July 31, | January 31, | ||||||||||
2012 | 2011 | 2012 | |||||||||
Accounting and financial reporting services | $ | 3,274 | $ | - | $ | - | |||||
Management services | 30,000 | 30,000 | $ | 60,000 | |||||||
Office rent | 15,000 | 15,000 | 30,000 | ||||||||
$ | 48,274 | $ | 45,000 | $ | 90,000 |
These transactions are recorded at the exchange amount, which is the consideration agreed to between the related parties.
10
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ITEM 1.10 FOURTH QUARTER ENDED JANUARY 31, 2012
Not applicable at this time.
ITEM 1.11 SUBSEQUENT AND PROPOSED TRANSACTIONS
On August 28, 2012, the Company announced closure of its brokered private placement financing through Canaccord Genuity Corp. (the Agent) for $829,000 (3,316,000 Units) and its non-brokered private placement financing for $188,000 (752,000 Units) for combined gross proceeds of $1,017,000. The Units of the Company were sold for $0.25 per unit. Each unit consists of one common share and one transferable share purchase warrant, with each warrant entitling the holder to acquire one additional common share of the Company at a price of $0.40 per share for a period of one year from the date of closing. The financings were completed in conjunction with the Companys listing on the TSX Venture Exchange (the Exchange) and the shares commenced trading on August 30, 2012 under the symbol ROU. This increase of 4,068,000 shares brings the total issued and outstanding to 44,633,171 shares at this time.
The common shares and warrants comprising the Units and any common shares issued upon exercise of the Warrants are subject to a four month hold period which expires on December 29, 2012.
A cash commission of $58,030 was paid to the Agent equal to 7% of the gross proceeds raised from the brokered private placement as well as a corporate finance fee of $30,000.
The net proceeds received by the Company from the two financings, after deduction of the Agents Commission, the corporate finance fee and the balance of the costs to complete the brokered financing, totaled $892,660. The Companys intention is to use these funds to eliminate the current working capital deficiency; to continue exploration activities on the Dotted Lake Property; to complete the option agreement regarding purchase of the adjacent Lampson Lake claims; and to meet on-going working capital requirements.
ITEM 1.12 CRITICAL ACCOUNTING ESTIMATES
These condensed interim financial statements are presented in Canadian dollars; have been prepared on an accrual basis; and are based on historical costs, modified where applicable.
The preparation of these financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated based on managements experience and other factors, including expectations of future events believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.
Areas requiring a significant degree of estimation and judgment relate to the determination of the useful lives of furniture and equipment, the recoverability of the carrying value of exploration and evaluation assets, the measurement of accrued liabilities and the recoverability/ measurement of deferred tax assets and liabilities.
11
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
ITEM 1.13 CHANGES IN ACCOUNTING POLICIES, INCLUDING INITIAL ADOPTION
Statement of compliance and conversion to International
Financial Reporting Standards
These condensed interim financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards
Board (IASB) along with interpretations of the International Financial
Reporting Interpretations Committee (IFRIC). Therefore, these financial
statements comply with International Accounting Standard (IAS) 34, Interim
Financial Reporting.
This interim financial report does not include all the information required of a full annual financial report and is intended to provide users with an update in relation to events and transactions that are significant to an understanding of the changes in financial position and performance of the Company since the end of the last year end reporting period. It is therefore recommended that this financial report be read in conjunction with the audited annual financial statements of the Company for the year ended January 31, 2012. However, this interim financial report does provide selected significant disclosures that are required in the annual financial statements under IFRS.
Accounting standards issued but not yet
effective
Certain pronouncements have been issued by the IASB or the
IFRIC that are mandatory for accounting periods beginning after January 1, 2012
or later periods.
The following new standards, amendments and interpretations have not been early adopted in these financial statements and are not expected to have a material effect on the Companys future results and financial position:
a) |
IFRS 9 Financial Instruments (New to replace IAS 39 and IFRIC 9) |
b) |
IFRS 10 Consolidated Financial Statements (New to replace consolidation requirements in IAS 27 as amended in 2008 and SIC-12) |
c) |
IFRS 11 Joint Arrangements (New to replace IAS 31 and SIC-13) |
d) |
IFRS 12 Disclosure of Interests in Other Entities (New to replace disclosure requirements in IAS 27 as amended in 2008, IAS 28 (as revised in 2003 and IAS 31) |
e) |
IFRS 13 Fair Value Measurement (New to replace fair value measurement guidance in other IFRSs) |
f) |
IAS 1 Presentation of Financial Statements, (Amendments regarding Presentation of Other Comprehensive Income) |
g) |
IAS 19 Employee Benefits (Amended in 2011) |
h) |
IAS 27 Separate Financial Statements (Amended in 2011) |
i) |
IAS 28 Investments in Associates and Joint Ventures (Amended in 2011), and |
j) |
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (New). |
ITEM 1.14. FINANCIAL INSTRUMENTS AND RELATED RISKS
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling & reporting structures. The type of risk exposure and the way in which such exposure is managed by the Company is as follows:
Credit risk
Credit risk is the risk that one
party to a financial instrument will fail to discharge an obligation and cause
the other party to incur a financial loss. The Companys primary exposure to
credit risk is on its cash held in bank accounts. The majority of cash is
deposited in bank accounts held with one major bank in Canada so there is a concentration of credit risk. This risk
is managed by using a major bank that is a high credit quality financial
institution as determined by rating agencies. The Companys secondary exposure
to risk is on its harmonized sales tax refundable which is minimal since it is
recoverable from the Canadian Government.
12
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Liquidity risk
Liquidity risk is the risk that
the Company will not be able to meet its financial obligations as they fall due.
The Company has a planning and budgeting process in place to help determine the
funds required to support the Companys normal operating requirements on an
ongoing basis. The Company attempts to ensure there is sufficient access to
funds to meet on-going business requirements, taking into account its current
cash position and potential funding sources.
Historically, the Company's source of funding has been either the issuance of equity securities for cash through private placements or loans from directors and officers. The Companys access to financing is always uncertain and there can be no assurance of continued access to significant funding from these sources.
Foreign exchange risk
Foreign currency risk
is the risk that the fair values of future cash flows of a financial instrument
will fluctuate because they are denominated in currencies that differ from the
Companys functional currency. The Company only operates in Canada and is
therefore not exposed to foreign exchange risk arising from transactions
denominated in a foreign currency.
Interest rate risk
Interest rate risk is the
risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Companys exposure to
interest rate risk relates to its ability to earn interest income on cash
balances at variable rates. Changes in short term interest rates will not have a
significant effect on the fair value of the Companys cash account.
Commodity Price Risk
The Companys ability to
raise capital to fund exploration or development activities is subject to risks
associated with fluctuations in the market price of precious metals. The Company
closely monitors commodity prices to determine the most appropriate course of
action.
Capital Management
The Company's policy is to
maintain a strong capital base sufficient to maintain investor and creditor
confidence and to sustain future development of the business. The capital
structure of the Company consists of working and share capital. There were no
changes in the Company's approach to capital management during the period and
the Company is not subject to any externally imposed capital requirements.
Classification of financial instruments
Financial assets included in the statement of financial position are
as follows:
As at July 31, | As at | ||||||||||
January 31, | |||||||||||
2012 | 2011 | 2012 | |||||||||
Financial assets: | |||||||||||
Cash | $ | 108,000 | $ | 108,715 | $ | 17,823 | |||||
Harmonized sales tax refundable | 4,253 | 3,626 | 2,951 | ||||||||
Credit card security deposit | 6,900 | 6,900 | 6,900 | ||||||||
$ | 119,153 | $ | 119,241 | $ | 27,674 |
13
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Other financial liabilities included in the statement of financial position are as follows:
As at July 31, | As at | ||||||||||
January 31, | |||||||||||
2012 | 2011 | 2012 | |||||||||
Other financial liabilities: | |||||||||||
Trade payables | $ | 132,566 | $ | 74,317 | $ | 18,430 | * | ||||
Related party payables | 309,460 | 185,272 | 254,118 | * | |||||||
Loan payable | 39,676 | - | 39,676 | ||||||||
$ | 481,702 | $ | 259,589 | $ | 312,224 |
* Reclassified to conform with July 31, 2012 presentation
Fair value
The fair value of the Companys financial assets and liabilities approximate the carrying amounts.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
The following is a breakdown of the Companys financial assets measured at fair value as at July 31, 2012 and January 31, 2012:
As at July 31, 2012 | ||||||||||
Level 1 | Level 2 | Level 3 | ||||||||
Cash | $ | 108,000 | $ | - | $ | - | ||||
Harmonized sales tax refundable | 4,253 | |||||||||
Credit card security deposit | 6,900 |
As at January 31, 2012 | ||||||||||
Level 1 | Level 2 | Level 3 | ||||||||
Cash | $ | 17,823 | $ | - | $ | - | ||||
Harmonized sales tax refundable | 2,951 | |||||||||
Credit card security deposit | 6,900 |
ITEM 1.15 OTHER MD&A REQUIREMENTS
Managements Responsibility for Financial
Statements
Management is responsible for the preparation and fair
presentation of the Companys financial statements in accordance with IFRS, and
for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
Conflicts of interest
The Companys directors
and officers may serve as directors or officers, or may be associated with,
other reporting companies, or have significant shareholdings in other public
companies. To the extent that such other companies may participate in business or asset
acquisitions, dispositions, or ventures in which the Company may participate,
the directors and officers of the Company may have a conflict of interest in
negotiating and concluding on terms with respect to the transaction. If a
conflict of interest arises, the Company will follow the provisions of the
Business Corporations Act (BC) (Corporations Act) dealing with conflict of
interest. These provisions state that where a director has such a conflict, that
director must, at a meeting of the Companys directors, disclose his or her
interest and refrain from voting on the matter unless otherwise permitted by the
Corporations Act. In accordance with the laws of the Province of British
Columbia, the directors and officers of the Company are required to act
honestly, in good faith, and in the best interest of the Company.
14
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Disclosure Controls and Procedures
We maintain
a set of disclosure controls and procedures designed to ensure information
required to be disclosed in filings pursuant to regulatory requirements is
recorded, processed, summarized and reported within the required time periods.
Our management is responsible for the preparation and integrity of the financial
statements, including the maintenance of appropriate information systems,
procedures and internal controls. Our management is also responsible to ensure
that information disclosed externally, including the financial statements and
MD&A, is complete and reliable.
Our CEO and CFO have evaluated the disclosure controls and procedures over financial reporting for the period and have concluded they are operating effectively notwithstanding the inherent weakness of a small company having a very small staff. This lack of segregation of duties is overcome by heavy reliance on senior management and directors during the review and approval process along with the annual statutory audit.
Business and Regulatory Risks
We are engaged
in the mineral exploration business and manage related industry risk directly.
We are potentially at risk for environmental reclamation and fluctuations and
commodity-based market prices associated with resource property interests.
Management is of the opinion that the Company addresses environmental risk and
compliance in accordance with industry standards and specific project
environmental requirements. At present, the Company is not required to provide
for restoration and environmental obligations so no provision has been made.
However, there is no certainty that all environmental risks and contingencies
have been addressed.
Our exploration program will require significant future expenditures and there is no assurance any commercial mineral quantities will be found. If we are unable to generate significant revenues from our mineral claims, continued losses are expected into the foreseeable future. There is no history upon which to base any assumption as to the likelihood we will prove successful, and there is no assurance that we will generate any revenues nor ever achieve profitability. If unsuccessful in addressing these risks, the business will fail and investors could lose all of their investment in the company.
Regulatory risks include the possible delays in getting regulatory approval to the transactions that senior management and the Board of Directors believe to be in the Companys best interest, increased fees for statutory filings, and the introduction of increasingly more complex reporting requirements which must be complied with in order to maintain our public company position.
15
Rouge Resources Ltd.
Management Discussion and
Analysis
Six Months Ended July 31, 2012
Forward-looking statements
This Management
Discussion and Analysis may contain certain forward-looking statements, as
defined in the United States Private Securities Litigation Reform Act of 1995,
and within the meaning of Canadian securities legislation, relating to the
proposed use of proceeds. Forward-looking statements are statements that are not
historical facts; they are generally, but not always, identified by the words
expects, plans, anticipates, believes, intends, estimates,
projects, aims, potential,goal, objective, prospective, and similar expressions, or
that events or conditions will, would, may, can, could or should
occur. Forward-looking statements are based on the beliefs, estimates and
opinions of the Companys management on the date the statements are made and
they involve a number of risks and uncertainties. Consequently, there can be no
assurances that such statements will prove to be accurate and actual results and
future events could differ materially from those anticipated in such statements.
Factors that could cause future results to differ materially from those
anticipated in these forward-looking statements include, but are not limited to,
the following: a change in the use of proceeds, the volatility of mineral
prices, the possibility that exploration efforts will not yield economically
recoverable quantities of minerals, accidents and other risks associated with
mineral exploration and development operations, the risk that the Company will
encounter unanticipated geological factors, the Companys need for and ability
to obtain additional financing, the possibility that the Company may not be able
to secure permitting and other governmental clearances necessary to carry out
the Companys exploration and development plans, and the other risk factors
discussed in greater detail in the Companys various filings on SEDAR
(www.sedar.com) with Canadian securities regulators and its filings with the
U.S. Securities and Exchange Commission on EDGAR (www.sec.gov). Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
16
FORM 52-109FV2
CERTIFICATE OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Linda Smith, Chief Executive Officer for Rouge Resources Ltd., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together the interim filings) of Rouge Resources Ltd. (the "Issuer") for the interim period ended July 31, 2012. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: September 21, 2012
/s/ Linda
Smith
Linda Smith
Chief Executive Officer
Rouge Resources Ltd
NOTE TO READER | |
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of: | |
| |
i) |
controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
ii) |
a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. |
| |
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. | |
| |
Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. |
FORM 52-109FV2
CERTIFICATE OF INTERIM FILINGS
VENTURE ISSUER BASIC CERTIFICATE
I, Ronald McGregor, Chief Financial Officer for Rouge Resources Ltd., certify the following:
1. |
Review: I have reviewed the interim financial report and interim MD&A (together the interim filings) of Rouge Resources Ltd. (the "Issuer") for the interim period ended July 31, 2012. |
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the interim filings. |
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
Date: September 21, 2012
/s/ Ronald McGregor
Ronald McGregor
Chief Financial Officer
Rouge Resources Ltd
NOTE TO READER | |
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of: |
|
|
|
i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
ii) | a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. |
|
|
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. |
|
|
|
Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation. |