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Wednesday, May 30, 2012 7:03:56 PM
Notice of No Auditor Review of Interim Consolidated Financial Statements
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=8649420
Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim consolidated financial statements they must be accompanied by a notice indicating that the interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Company for the three months ended March 31, 2012 have been prepared by, and are the responsibility of, the Company’s management.
The Company’s independent auditor has not performed a review of these interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim consolidated financial statements by an entity’s auditor.
“Paul Heney”
Paul Heney
Chairman and Chief Executive Officer
“Bradley J. Moynes”
Bradley J. Moynes
President
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RAINCHIEF ENERGY INC.
Interim Consolidated Balance Sheets
Unaudited – prepared by management
(Expressed in Canadian Dollars)
March 31,
2012
$ December 31,
2011
$
ASSETS
CURRENT
Cash 69,120 34,180
GST Recoverable 29,302 25,228
98,422 59,408
Property and Equipment (Note 3) 1,266 1,397
Oil and Gas property (Note 5) 50,020 -
149,708 60,805
LIABILITIES
CURRENT
Trade and Other Payables (Note 6) 241,559 187,128
Promissory Notes Payable (Note 8) 67,779 -
309,338 187,128
SHAREHOLDERS' DEFICIENCY
Share Capital (Note 9(b)) 2,975,359 2,922,923
Share Subscription Advance (Note 9(b)) - 41,064
Share Based Payments Reserve 276,310 276,310
Accumulated Other Comprehensive Income - -
Deficit (3,411,299 ) (3,366,620 )
(159,630 ) (126,323 )
149,708 60,805
Nature and Continuance of Operations (Note 1)
Approved on Behalf of the Board:
“Paul Heney” “Bradley J. Moynes”
Paul Heney
Chairman, Chief Executive Officer and Director Bradley J. Moynes
President and Director
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statements of Operations, Comprehensive Loss and Deficit
Unaudited – prepared by management
(Expressed in Canadian Dollars)
Three Months ended March 31,
2012
$ 2011
$
EXPENSES
Accounting, Audit and Legal 25,544 13,941
Amortization 131 70
Consulting and Investor Relations Expense 1,500 46,600
Filing and Transfer Agent Fees - 6,357
Management Fees 15,000 15,000
General and Administration 607 8,010
Interest and Bank Charges 204 228
Project Development Costs - 14,046
Travel and Automobile 649 4,802
43,635 109,054
LOSS BEFORE OTHER ITEMS 43,635 109,054
Foreign Exchange Loss (Gain) 672 (942 )
Loss on repurchase of shares (Note 9(b)(iii) 372 -
Gain on return of shares (Note 4) - (97,336 )
NET LOSS FOR THE PERIOD 44,679 10,776
Deficit, Beginning of the Period 3,366,620 3,280,089
DEFICIT, END OF THE PERIOD 3,411,299 3,290,865
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 36,115,484 37,253,427
BASIC AND DILUTED LOSS PER SHARE 0.00 0.00
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statement of Changes in Shareholders’ Equity
Unaudited – prepared by management
(Expressed in Canadian Dollars)
Note Number of
common
shares Share
capital Equity-based
payments
reserve Share
subscriptions
received Deficit Total
Balance, December 31, 2010 37,573,908 2,786,932 276,310 196,263 (3,184,297 ) 75,208
Shares surrendered and returned to treasury 6 (4,500,000 ) (97,336 ) - (97,336 )
Shares Issued for Cash 9(b)(i) 1,703,334 233,327 (196,263 ) - 37,064
Net loss for the period - - - - (10,776 ) (10,776 )
Balance, March 31, 2011 34,777,242 2,922,923 276,310 - (3,195,073 ) 4,160
Share subscriptions received 9(b)(ii) - - - 41,064 - 41,064
Net loss for the period - - - - (171,547 ) (171,547 )
Balance, December 31, 2011 34,777,242 2,922,923 276,310 41,064 (3,366,620 ) (126,323 )
Shares issued for cash 9(b)(ii) 1,330,000 41,064 - (41,064 ) - -
Shares repurchased 9(b)(iii) (1,100,000 ) (21,725 ) - - - (21,725 )
Shares issued pursuant to the exercise of warrants 9(b)(iv) 1,650,000 33,097 - - - 33,097
Shares issued pursuant to a directors resolution 9(b)(v) 200,000 - - - - -
Net loss for the period - - - - (44,679 ) (44,679 )
Balance, March 31, 2012 36,857,242 2,975,359 276,310 - (3,411,299 ) (159,630 )
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statements of Cash Flows
Unaudited – prepared by management
(Expressed in Canadian Dollars)
March 31,
2012 2011
$ $
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net Loss for the Period (44,679 ) (10,776 )
Non-Cash Items
Amortization 131 70
Gain on return of shares (Note 6) - (97,336 )
Changes in Non-Cash Working Capital Accounts
GST Recoverable (4,074 ) (3,697 )
Accounts Payable and Accrued Liabilities 54,431 (6,550 )
5,809 (118,289 )
INVESTING ACTIVITIES
Fixed Assets acquired 50,020 1,345
FINANCING ACTIVITIES
Share Subscriptions Received - 59,356
Proceeds Received on Exercise of Share Warrants 33,097 -
Proceeds Received on Issuance of Promissory Notes 67,779 -
Repurchase of Common Shares (21,725 ) -
79,151 59,356
INCREASE (DECREASE) IN CASH 34,940 60,278
Bank Indebtedness, Beginning of the Period 34,180 171,237
CASH (BANK INDEBTEDNESS), END OF THE PERIOD 69,120 110,959
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 1 – NATURE AND CONTINUANCE OF OPERATIONS
Rainchief Energy Inc. (the “Company”) was incorporated on December 28, 2000 under the Company Act of the Province of British Columbia, Canada. The Company is engaged in the financing and development of photovoltaic solar energy projects in Europe. Prior to January 1, 2010, the Company had operations in oil and gas exploration, and wine and spirit distribution.
While these unaudited interim condensed financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company continues to incur significant operating losses and has no current source of revenue. As at March 31, 2012, the Company has a consolidated deficit of $3,411,299 and a working capital deficit of $210,916.
The Company’s ability to continue operations is uncertain and is dependent upon generating profitable operations, maintaining current financing obligations and/or obtaining new sources of financing. The outcome of these matters cannot be predicted at this time. Although the Company has been successful in obtaining financing in the past, there is no assurance that the Company will be successful with future financing ventures in light of the current economic climate.
These unaudited interim condensed financial statements do not reflect any adjustments to the amounts and classifications of assets and liabilities, which would be necessary should the Company be unable to continue operations.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
a) Statement of Compliance
These interim condensed financial statements, including comparative figures have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting , as issued by the International Accounting Standards Board (“IASB”). They do not include all of the information required for full annual financial statements.
These condensed consolidated interim financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s December 31, 2011 consolidated annual financial statements.
These condensed consolidated interim financial statements have been prepared on the historical cost basis. The condensed consolidated interim financial statements are presented in Canadian dollars.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
The policies applied in these interim financial statements are based on IFRS policies as of May 25 2012, the date the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ended December 31, 2012 could result in restatement of these interim financial statements, including the transition adjustments recognized on changeover to IFRS.
b) Basis of Presentation
These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as available-for-sale that have been measured at fair value. Cost is the fair value of the consideration given in exchange for net assets.
c) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (collectively, the “Company”). Intercompany balances and transactions are eliminated in preparing the consolidated financial statements. The following companies have been consolidated within these consolidated financial statements:
Entity Country of Incorporation Holding Functional Currency
Rainchief Energy Inc. Canada Parent Company Canadian Dollar
Jaydoc Capital Corp. (Note 6) Canada 100% Canadian Dollar
Rainchief Renewable-1 S.R.L. Italy 100% Canadian Dollar
The Company through its subsidiaries, Jaydoc Capital Corp. and Rainchief Renewable-1 S.R.L., was engaged in the development of photovoltaic solar energy projects in Europe until December 31, 2011.
The Company disposed of its wholly-owned Canadian subsidiaries, Black Diamond Importers Inc. and Point Grey Energy Inc., and its wholly-owned U.S. subsidiary, Liberty Valley Wines LLC, in 2009 (Note 5). Accordingly, these consolidated financial statements only include the accounts of these subsidiaries up to their date of disposal. The wine and spirit distribution and oil and gas exploration activities of these subsidiaries comprised the Company’s principal business operations prior to January 1, 2010, and therefore has not been presented as a disposal of an operating segment of the Company or as discontinued operations.
The financial results of the Company’s reporting segments have been presented in Note 15.
d) Foreign Currency
These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company. Each subsidiary determines its own functional currency (Note 2(c)) and items included in the financial statements of each subsidiary are measured using that functional currency.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
i) Transactions and Balances in Foreign Currencies
Foreign currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in profit or loss.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.
ii) Foreign Operations
On consolidation, the assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the reporting date and their revenues and expenses are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognized in other comprehensive income and accumulated in the currency translation reserve in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in earnings and recognized as part of the gain or loss on disposal.
e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognized to write off the cost of the property and equipment less their residual values over their useful lives using the declining balance method at 30% per annum for computer equipment and 20% for furniture and equipment, except in the year of acquisition when one-half of the rate is used. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
f) Project Development Costs
Project development costs are expensed as incurred.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Impairment of Non-Current Assets
The carrying amounts of non-current assets are reviewed for impairment whenever facts and circumstances suggest that the carrying amounts may not be recoverable. If there are indicators of impairment, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Individual assets are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are independent from other group assets.
The recoverable amount of an asset or cash generating unit is the higher of its fair value less costs to sell and its value in use. An impairment loss exists if the asset’s or cash generating unit’s carrying amount exceeds the recoverable amount and is recorded as an expense immediately. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount rate that reflects the current market indicators.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately.
h) Provisions
Provisions are recognized when a present legal or constructive obligation exists as a result of past events and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the effect is material, the provision is discounted using an appropriate current market-based pre-tax discount rate.
i) Share Capital
The Company records proceeds from share issuances, net of commissions and issuance costs. Shares issued for other than cash consideration are valued at the quoted price on the Over-the-Counter Bulletin Board in the United States based on the earliest of: (i) the date the shares are issued, and (ii) the date the agreement to issue the shares is reached.
j) Share-Based Payments
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of stock options and other share-based payments is recorded based on the estimated fair value using the Black-Scholes option-pricing model at the grant date and charged to profit over the vesting period. The amount recognized as an expense is adjusted to reflect the number of equity instruments expected to vest.
Upon the exercise of stock options and other share-based payments, consideration received on the exercise of these equity instruments is recorded as share capital and the related share-based payment reserve is transferred to share capital. The fair value of unexercised equity instruments are transferred from reserve to retained earnings upon expiry.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Loss per Share
Basic loss per share is calculated by dividing net loss by the weighted average number of common shares issued and outstanding during the reporting period. Diluted loss per share is the same as basic loss per share, as the issuance of shares on the exercise of stock options and share purchase warrants is anti-dilutive.
l) Income Taxes
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.
i) Current Income Tax
Current income tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the consolidated financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
ii) Deferred Income Tax
Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full.
ii) Deferred Income Tax
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified at fair value through profit or loss) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets and financial liabilities are measured subsequently as described below. The Company does not have any derivative financial instruments.
i) Financial Assets
For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:
? Financial assets at fair value through profit or loss;
? Loans and receivables;
? Held-to-maturity investments; and
? Available-for-sale financial assets.
The category determines subsequent measurement and whether any resulting income and expense is recognized in profit or loss or in other comprehensive income.
All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.
? Financial assets at fair value through profit or loss – Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The Company’s cash falls into this category of financial instruments.
? Loans and receivables – Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortized cost using the effective interest method less any provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s subscription receivable fall into this category of financial instruments.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is based on recent historical counterparty default rates for each identified group. The impairment losses are recognized in profit or loss.
? Held-to-maturity investment s – Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity, other than loans and receivables. Investments are classified as held-to-maturity if the Company has the intention and ability to hold them until maturity. The Company currently does not hold financial assets in this category.
Held-to-maturity investments are measured subsequently at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired as determined by reference to external credit ratings, then the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss.
? Available-for-sale financial assets – Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Company currently does not hold financial assets in this category.
Available-for-sale financial assets are measured at fair value. Gains and losses are recognized in other comprehensive income and reported within the available-for-sale reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognized in profit or loss. When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognized in other comprehensive income is reclassified from the equity reserve to profit or loss, and presented as a reclassification adjustment within other comprehensive income.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale financial assets, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated in the revaluation reserve.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
ii) Financial Liabilities
For the purpose of subsequent measurement, financial liabilities are classified as either financial liabilities at fair value through profit or loss, or other financial liabilities upon initial recognition.
· Financial liabilities at fair value through profit or loss – Financial liabilities at fair value through profit or loss include financial liabilities that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. Liabilities in this category are measured at fair value with gains or losses recognized in profit or loss. The Company currently does not hold financial liabilities in this category.
· Other financial liabilities – Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate method amortization process. The Company’s trade and other payables and amount due to related parties fall into this category of financial instruments.
A financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
n) Comparative Figures
Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the current period.
o) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group
IFRS 9 – Financial Instruments
IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income.
IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This IFRS defines the principle of control and establishes control as the basis for determining which entities are consolidated in an entity’s consolidated financial statements. IFRS 10 sets out three elements of control: a) power over the investee; b) exposure, or rights, to variable returns from involvement with the investee; and c) the ability to use power over the investee to affect the amount of the investors’ return. IFRS 10 sets out the requirements on how to apply the control principle. IFRS 10 supersedes International Accounting Standards (“IAS”) 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”) 12 “Consolidation – Special Purpose Entities”.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 “Interests in Joint Ventures”, and SIC 13 “Jointly Controlled Entities – Non-Monetary Contributions by Venturers”.
IFRS 12 – Disclosure of Interest in Other Entities
IFRS 12 combines the disclosure requirements for an entity’s interests in subsidiaries, joint arrangements, associates, and structured entities into one comprehensive disclosure standard. The objective of IFRS 12 is for an entity to disclose information that helps users of its financial statements evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. IFRS 12 also requires that an entity disclose the significant judgments and assumptions it has made.
IFRS 13 – Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure fair value under IFRS when fair value is required or permitted by IFRS.
NOTE 3 – PROPERTY AND EQUIPMENT
Computer
Equipment
$ Furniture and
Equipment
$
Total
$
COST
December 31, 2011 5,236 1,656 6,892
Additions - - -
March 31, 2012 5,236 1,656 6,892
ACCUMULATED DEPRECIATION
December 31, 2011 3,999 1,496 5,495
Depreciation Charge 112 19 131
March 31, 2012 4,111 1,515 5,626
NET BOOK VALUE
At December 31, 2011 1,237 160 1,397
At March 31, 2012 1,125 141 1,266
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 4 – ACQUISITION OF JAYDOC CAPITAL CORP.
Effective December 22, 2010, the Company acquired all of the issued and outstanding common shares of Jaydoc Capital Corp. (“Jaydoc”), a company incorporated under the Business Corporations Act of the Province of British Columbia, Canada. The purchase consideration was satisfied by the Company issuing 4,000,000 common shares with a fair value of $80,000 and 7,000,000 share purchase warrants with a fair value of $18,600 valued at the date of the purchase agreement on October 12, 2010. Each warrant was exercisable into one common share of the Company at a price of US$0.02 per share until November 22, 2010. The Company incurred legal fees of $25,646 in connection with the acquisition.
Jaydoc was acquired to facilitate the Company’s business venture in solar energy development. The assets of Jaydoc are its business plan and strategic business relationship with operational partners that offer experience and knowledge in the development, engineering and construction of solar energy projects in Italy and the European Union. Jaydoc had no other assets or liabilities as at the date of acquisition.
The acquisition has been accounted for by the purchase method with the fair value of the consideration being allocated to intangible asset comprising of the business plan and relationship for solar power project under development.
$
Fair Value of 4,000,000 Common Shares Issued 80,000
Fair Value of 7,000,000 Share Purchase Warrants Issued 18,600
Total Consideration Paid, Being the Fair Value of Intangible Asset Acquired 98,600
On November 22, 2010, the former shareholders of Jaydoc (the “vendors”) subscribed to 5,000,000 common shares of the Company upon the exercise of warrants for gross proceeds totaling $101,386 (US$100,000) at an exercise price of US$0.02 per share. The fair value of these warrants in the amount of $13,286 was transferred from reserve to share capital accordingly. The remaining 2,000,000 warrants expired unexercised.
On December 31, 2010, the Company wrote down the intangible asset due to the lack of reliable measurement of the future cash flows of the solar energy project.
On March 4, 2011, the Company entered into a Stock Surrender, Settlement and Voluntary Pooling Agreement with the vendors who agreed to surrender 50% of the common shares received for the sale of Jaydoc and 50% of the common shares received upon the exercise of warrants.
Accordingly, a total of 4,500,000 common shares were returned to the treasury of the Company as final settlement of deficiencies identified by the Company in certain representations arising out of the Jaydoc acquisition. The Company has recorded the book value of the shares surrendered in the amount of $97,336 as a gain in 2011.
In connection to the settlement, the vendors agreed to hold in escrow the remaining 4,500,000 common shares received from the Jaydoc sale and the private placement. 12.5% of these shares are released at a 90-day interval with the first release on May 30, 2011 (Note 11(e)).
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 5 – OIL AND GAS PROPERTY
Gulf Jensen Oil Prospect
On February 10, 2012, the Company entered into an agreement with Nueva Oil and Gas Corporation (“Nueva”) for a farm-in interest in certain oil and gas leases in Curry County, New Mexico, United States (the “Gulf Jensen Oil Prospect”). Nueva is an arm’s length private oil company based in Calgary, Canada.
Pursuant to the terms of the agreement, the Company agreed to pay US$50,000 (the initial acquisition amount) upon execution of the agreement and undertook to fund 100% of the cost of an initial seismic program pursuant to the agreement. In addition, the Company may acquire a 90% working interest in the Gulf Jensen Oil Prospect for an additional payment of US$75,000.
As of March 31, 2012 the Company had paid Nueva US$33,400 of the initial acquisition amount. On April 4, 2012, the Company exercised its option to acquire a 90% working interest in the Gulf Jensen Oil Prospect and paid Nueva US$75,000.
NOTE 6 – TRADE AND OTHER PAYABLES
March 31,
2012
$ December 31,
2011
$
Trade Payables 61,400 88,700
Accrued Liabilities 91,509 18,000
Provision (Note 10) 60,750 60,750
Related Party Payable (Note 10(a)) 27,900 19,678
241,559 187,128
NOTE 7 – PROVISION
In March 2009, the Company was served with a Notice of Termination citing breach of a licensing agreement by the Company as a result of its default on certain royalty payments. The total amount of claim against the Company was $60,750 which the Company has recorded a provision for on December 31, 2009.
The outcome of this legal claim is uncertain, and management is of the opinion that the claim has no merit and seeks to recover all costs. Any recovery resulting from the resolution of this claim will be accounted for in the period of settlement.
NOTE 8 – PROMISSORY NOTES PAYABLE
In March 2012, the Company issued promissory notes totalling $67,779 (US$68,000) including US$17,000 from a company controlled by a Director (also an Officer) of the Company. The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the notes default.
17
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 9 – SHARE CAPITAL
a) Authorized Capital
Unlimited number of common shares without par value.
b) Issued and Outstanding Common Shares
i) Private Placements in 2011
On January 24, 2011, the Company completed a private placement of 1,300,001 shares at US$0.15 per share, raising gross proceeds of $196,263 (US$195,000). The subscription proceeds were received in 2010.
On March 14, 2011, the Company completed a private placement of 403,333 shares at US$0.15 per share, raising gross proceeds of $59,356 (US$60,500).
ii) Private Placements in 2012
On January 17, 2012, the Company completed a private placement of 330,000 shares at US$0.03 per share raising gross proceeds of $10,362 (US$9,900) and a private placement of 1,000,000 units at US$0.03 per share, raising gross proceeds of $30,702 (US$30,000). Each unit consists of one common share and one warrant exercisable into one common share at US$0.03 per share until December 31, 2013. The subscription proceeds of $41,064 (US$39,900) were received in 2011.
iii) Repurchase and Cancellation of Units
On March 2, 2012, the Company repurchased 1,100,000 units at US$0.02 per unit for a total cost of US$22,000. These units were initially issued in a private placement completed in May 2010 at a subscription price of US$0.02 per unit. Each unit consisted of one common share and one warrant exercisable into one common share at US$0.02 per share until March 30, 2015. These units were returned to treasury and subsequently cancelled. The Company recorded a loss of $372 in connection with the repurchase of the units.
iv) Shares issued pursuant to the exercise of Share Purchase Warrants
In February and March 2012, the Company issued a total of 1,650,000 common shares upon the exercise of warrants at an exercise price of US$0.02 per share for total gross proceeds of US$33,000.
v) Shares issued pursuant to a Directors’ Resolution
On March 21, 2012, pursuant to a Directors’ Resolution, the Company issued 200,000 post-consolidation shares to the President of the Company and a person related to the President of the Company (the Parties). The Parties purchased 2,000,000 shares in the Company during 2002. In 2006 the Company filed a Form 20-F and registered with the United States Securities and Exchange Commission as a Foreign Private issuer. At that time, as a result of a clerical oversight the share certificates evidencing the purchase of the purchase of the shares by the Parties were not recorded by the share transfer agents. The Company consolidated its share capital on the basis of one new common share for every ten old common shares on March 22, 2010. Having been satisfied that the Company had received valuable consideration for the common shares from the Parties in 2002, the Directors authorized the issuance of the share certificates to the Parties as evidence of their ownership of the shares and to accurately reflect the number of common shares outstanding.
18
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 9 – SHARE CAPITAL (continued)
c) Share Purchase Warrants
The continuity of warrants for the period ended March 31, 2012 is shown in the table below. The quantity and exercise price of warrants have been retroactively restated to reflect the share consolidation which took effect on March 22, 2010.
Expiry Date Exercise Price December 31,
2011
Issued
Exercised Expired/
Cancelled March 31,
2012
December 31, 2013 $US 0.03 - 1,000,000 -
June 30, 2014 $US 0.80 320,000 - - - 320,000
March 30, 2015 $US 0.02 9,110,000 - (1,650,000 ) (1,100,000 ) -
October 15, 2015 $US 0.04 500,000 - - - 500,000
October 28, 2015 $US 0.02 1,000,000 - - - 1,000,000
Total 10,930,000 1,000,000 (1,650,000 ) (1,100,000 ) 9,180,000
Weighted Average Exercise Price $US 0.04 $US 0.03 $US 0.02 $US (0.02 ) $US 0.05
d) Shares in Escrow
As at March 31, 2012, the Company has 2,250,500 shares held in escrow (December 31, 2011 – 2,812,500).
19
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 10 – RELATED PARTIES TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. Details of transactions between the Company and other related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described below.
a) Related Party Balances
As at December 31, 2011, the Company had $27,900 (December 31, 2011 – $19,678) in trade and other payables owed to key management personnel. The amounts owed to key management personnel arose from outstanding management fees, and are non-interest bearing, unsecured and have no specified terms of repayment.
b) Compensation of Key Management Personnel
The Company incurred management fees and share-based payments for services provided by key management personnel for the periods ended March 31, 2012 and 2011 as described below. All related party transactions were in the ordinary course of business and were measured at their exchange amount.
Three Months ended March 31,
2012
$ 2011
$
Management Fees 15,000 18,100
Share-Based Payments - -
15,000 18,100
Effective November 1, 2010, the Company entered into a management agreement with a company controlled by a Director (also an Officer) of the Company for general management and administration services at $5,000 per month for a term of 2 years.
20
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 11 – SUBSEQUENT EVENTS
a) Promissory notes
In April and May 2012 the Company issued additional promissory notes totaling $49,484 (US$49,500). The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the Company default on the notes.
b) Weber City Prospect farm-in agreement
On May 8, 2012 the Company entered into a farm-in agreement with Rich Investments and Leare Developments, both of Vancouver, BC, in respect of the Weber City Prospect, consisting of 5,800 acres of oil and gas leases located in New Mexico, USA.
Under the terms of the agreement, the Company may earn up to an 80% working interest in the property by undertaking a seismic exploration survey of the project. Nueva Oil and Gas (the Company’s partner in the Gulf Jensen Prospect – see Note 5) will acquire up to a 10% working interest in the Weber City Prospect and will manage all exploration and development activities on the project..
NOTE 12 – FINANCIAL INSTRUMENTS
The Company’s financial instruments are exposed to certain financial risks:
a) Fair Values
The carrying values of cash, bank indebtedness, accounts receivable, accounts payable and accrued liabilities, and amounts due to and from related parties approximate their fair value as at the balance sheet date.
b) Liquidity Risk
Liquidity risk refers to the risk that an entity will encounter difficulty meeting obligations associated with financial liabilities. The Company is dependent upon on the availability of credit from its suppliers and its ability to generate sufficient funds from equity and debt financing to meet current and future obligations. There can be no assurance that such financing will be available on terms acceptable to the Company.
c) Credit Risks
Credit risk is the risk of loss associated with a counter party’s inability to fulfill its payment obligations. Management considers that risks related to credit are not significant to the Company at this time.
d) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Management considers that risks related to interest are not significant to the Company at this time. Amounts owed from and to related parties are non-interest bearing.
21
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 12 – FINANCIAL INSTRUMENTS (continued)
e) Foreign Exchange Risk
The Company operates in Canada and the United States and some of its material expenditures are payable in U.S. dollars. The Company is therefore subject to currency exchange risk arising from the degree of volatility of changes in exchange rates between the Canadian dollar and the U.S. dollar. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.
As at March 31, 2012, the Company had the following financial instruments in U.S. dollars:
US$
Cash 67,838
Accounts Payable 16,600
Promissory notes 68,000
152,438
NOTE 13 – CAPITAL MANAGEMENT
The Company’s objective for managing its capital structure is to safeguard the Company’s ability to continue as a going concern and to ensure it has the financial capacity, liquidity and flexibility to fund its on-going operations and capital expenditures including investment in resource properties it has or may acquire.
The Company manages its share capital as capital, which as at March 31, 2012 totalled $2,975,359 (December 31, 2009 - $2,922,923). At this time the Company’s access to the debt market is limited and it relies on equity issuances and the support of shareholders to fund its investments in capital assets and resource properties. The Company monitors capital to maintain a sufficient working capital position to fund annualized administrative expenses and capital investments.
As at March 31, 2012 the Company had a working capital deficiency of $210,916. The Company will issue shares and may from time to time adjust its capital spending to maintain or adjust the capital structure. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits.
The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future. There were no changes in the Company’s approach to capital management during the period ended March 31, 2012.
22
RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions
And Results of Operations (“MD&A”)
For The Three Months Ending March 31, 2012
--------------------------------------------------------------------------------
RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
This report is dated May 25, 2012
The following discussion and analysis prepared as at May 25, 2012, explains trends in the financial condition and results of operations of Rainchief Energy Inc. (“REI” or “the Company”) for the three months ended March 31, 2012 as compared to the same period in 2011. This discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011. The Company’s critical accounting estimates, significant accounting policies and risk factors have remained substantially unchanged and are still applicable to the Company unless otherwise indicated. The financial statements have been prepared in accordance with International Financial Reporting Standards. All financial statement figures are reported in Canadian dollars unless explicitly stated otherwise.
Caution on Forward-Looking Information
This report contains certain statements that constitute forward-looking information. These forward-looking statements are not descriptive of historical matters and may refer to management’s expectation or plans. These statements include, but are not limited to statements concerning our business objectives and plans and future trends in our industry. Inherent in forward-looking statements are risks and uncertainties beyond management’s ability to predict or control including risks that may affect REI’s operating or capital plans. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements in this discussion and analysis as well as contained in other components of the annual report. Such statements are based upon a number of assumptions that may prove incorrect, including but not limited to, the following assumptions: that there is no material deterioration in general business and economic conditions; that there are no unanticipated fluctuations in interest or exchange rates; that there is no cancellation or unfavorable variation to its current major contracts; that if required, REI is able to finance future acquisitions on reasonable terms; and that REI maintains its ongoing relations with its business partners. We caution you that the foregoing list of important factors and assumptions is not exhaustive. You should also carefully consider matters discussed under “Risk and Uncertainties” contained elsewhere in this discussion. REI undertakes no obligation to update publicly or otherwise revise any forward-looking statements or the list of factors, whether as a result of new information or future events or otherwise, except as may be required under applicable laws.
2
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Overview
The Company is a British Columbia corporation, incorporated on December 28, 2000. The registered and corporate office is at 885 West Georgia Street Suite 1500, Vancouver, British Columbia V6C 4E8, telephone (604) 601-2070. The Company does not have an agent in the United States.
The Company was incorporated under the name Black Diamond Holdings Corporation. On September 26, 2007, the Company changed its name from Black Diamond Holdings Corporation to Black Diamond Brands Corporation. On November 21, 2008 the Company changed its name to Rainchief Energy Inc. The Company is listed as a fully reporting issuer on the FINRA OTC bulletin board and is traded under the symbol “RCFEF”.
The Company is an energy exploration company focused on the identification and evaluation for acquisition of energy assets worldwide. The Company is currently seeking to acquire an ownership interest in a conventional oil, heavy oil and/or alternative energy project, and implement a strategic financial and development program in order to generate revenue from these assets. The Company will also seek out opportunities to partner with other companies in order to participate in larger energy projects.
Organization Structure
As of the date of this report the Company has two wholly-owned subsidiaries. Jaydoc Capital Corporation was acquired on December 22, 2010. Rainchief Renewable-1 SRL was incorporated under the laws of the Republic of Italy.
Recent corporate developments
During the period commencing on January 1, 2012, the Company experienced the following corporate developments:
Private Placements
On January 17, 2012, the Company completed a private placement of 330,000 shares at US$0.03 per share raising gross proceeds of $10,362 (US$9,900) and a private placement of 1,000,000 units at US$0.03 per share, raising gross proceeds of $30,702 (US$30,000). Each unit consists of one common share and one warrant exercisable into one common share at US$0.03 per share until December 31, 2013. The subscription proceeds of $41,064 (US$39,900) were received in 2011.
Repurchase and Cancellation of Units
On March 2, 2012, the Company repurchased 1,100,000 units at US$0.02 per unit for a total cost of US$22,000. These units were initially issued in a private placement completed in May 2010 at a subscription price of US$0.02 per unit. Each unit consisted of one common share and one warrant exercisable into one common share at US$0.02 per share until March 30, 2015. These units were returned to treasury and subsequently cancelled. The Company recorded a loss of $372 in connection with the repurchase of the units.
3
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Shares issued pursuant to the exercise of Share Purchase Warrants
In February and March 2012, the Company issued a total of 1,650,000 common shares upon the exercise of warrants at an exercise price of US$0.02 per share for total gross proceeds of US$33,000.
Shares issued pursuant to a Directors’ Resolution
On March 21, 2012, pursuant to a Directors’ Resolution, the Company issued 200,000 post-consolidation shares to the President of the Company and a person related to the President of the Company (the Parties). The Parties purchased 2,000,000 shares in the Company during 2002. In 2006 the Company filed a Form 20-F and registered with the United States Securities and Exchange Commission as a Foreign Private issuer. At that time, as a result of a clerical oversight the share certificates evidencing the purchase of the purchase of the shares by the Parties were not recorded by the share transfer agents. The Company consolidated its share capital on the basis of one new common share for every ten old common shares on March 22, 2010. Having been satisfied that the Company had received valuable consideration for the common shares from the Parties in 2002, the Directors authorized the issuance of the share certificates to the Parties as evidence of their ownership of the shares and to accurately reflect the number of common shares outstanding.
Promissory notes
In April and May 2012 the Company issued additional promissory notes totaling $49,484 (US$49,500). The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the Company default on the notes.
Weber City Prospect farm-in agreement
On May 8, 2012 the Company entered into a farm-in agreement with Rich Investments and Leare Developments, both of Vancouver, BC, in respect of the Weber City Prospect, consisting of 5,800 acres of oil and gas leases located in New Mexico, USA.
Under the terms of the agreement, the Company may earn up to an 80% working interest in the property by undertaking a seismic exploration survey of the project. Nueva Oil and Gas (the Company’s partner in the Gulf Jensen Prospect) will acquire up to a 10% working interest in the Weber City Prospect and will manage all exploration and development activities on the project.
4
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Selected Annual Information
The following table provides a brief summary of the Company’s annual financial data for the latest three fiscal years ended December 31, 2011.
Years ended December 31,
2009*
$ 2010
$ 2011
$
Net loss 480,025 398,327 182,323
Basic and diluted loss per share 0.19 0.02 0.01
Total assets 14,284 205,148 60,805
Total liabilities 282,429 129,940 187,128
* Reported in accordance with Canadian GAAP
Results of Operations
For the three months ended March 31, 2012 the Company had net losses of $44,679 as compared with net losses of $10,776 for the three months ended March 31, 2011.
Accounting, Audit and Legal expenses increased by $11,603 to $25,544 for the three months ended March 31, 2012 as compared with $13,941 for the three months ended March 31, 2011 as a result of additional legal expenses related to the Company’s acquisition of interests in Oil and Gas properties. .
Consulting and Investor Relations Expense for the three months ended March 31, 2012, amounted to $1,500, a decrease of $45,100 as compared with $46,600 incurred for the three months ended March 31, 2011. The decrease resulted from reduced use of business development consultants in the period under review
During the three months ended March 31, 2012, the Company incurred $Nil in Project Development Costs, as compared with $14,046 during the three months ended March 31, 2011, which was incurred in connection with a solar energy project in Italy.
The Company did not incur any Filing and Transfer Agents Fees for the three months ended March 31, 2012 as compared with $6,357 incurred during the three months ended March 31, 2011
Management fees for the three months ended March 31 2012 were unchanged at $15,000, as compared with the three months ended March 31, 2011.
The Company did not incur any General and Administration expenses for the three months ended March 31, 2012 as compared with an expense of $833 incurred in the three months ended March 31, 2011 General and Administration expenses for the three months ended March 31, 2011 were comprised of Office, Telephone and Computer Expenses - $533 and Office Rent - $ 300. General and Administration expenses for the nine months ended March 31, 2012 increased by $15,331 to $17,534 from $2,203 for the nine months ended March 31, 2011.
5
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
The Company did not incur any travel expenses in the three month periods ended March 31, 2012 and 2010. Travel expenses for the nine months ended March 31, 2012 were $4,802, as compared to $Nil expended during nine months ended March 31, 2011. These expenses were incurred in connection with the Company’s entry into the solar energy market.
The Company incurred a loss on foreign exchange of $672 for the three months ended March 31, 2012, as compared with a foreign exchange gain of $942 for the three months ended March 31, 2011. The loss and gain resulted from changes in the foreign currency exchange rate between the Canadian and US Dollars.
During the three months ended March 31, 2012 the Company incurred a loss of $397 in connection with the repurchase of 1,100,000 of its common shares.
During the three months ended March 31, 2011, the Company incurred a gain in respect of shares surrendered and returned to Treasury in connection with the finalization of the acquisition of Jaydoc Capital Corp.
Financial position
The Company had a working capital deficiency of $210,916 as at March 31, 2012, as compared with a working capital deficiency of $127,720 as at December 31, 2011; a decrease of $83,186
The increase in working capital deficiency of $83,186 during the three months ended March 31, 2012 was due increase in Cash of $34,940 and HST Recoverable of $4,074, offset by increases in Accounts Payable of $54,431 and Promissory Notes of $67,779.
Liquidity and Capital Resources
Changes in Accounts Payable and HST Receivable accounts during the three months ended March 31, 2012 provided $14,530 (three months ended March 31, 2011 – provided $14,076).
During the three months ended March 31, 2012, the Company received proceeds from the exercise of Share Warrants in the amount of $33,097 and proceeds on the issuance of Promissory notes in the amount of $67,779. The Company utilized $21,725 to repurchase certain common shares from an investor. During the three months ended March 31, 2011, the Company received subscriptions for Common shares in the amount of $59,356.
6
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
The uses of cash during the three months ended March 31, 2012 were $44,548 to fund the Company's continuing operations and $50,020 to acquire the interest in the Gulf Jensen project. During the three months ended March 31, 2011, continuing operations consumed cash in the amount of $108,112.
Provision
The Company is the respondent in a lawsuit filed in the Supreme Court of British Columbia. The Plaintiff seeks damages in the amount of $60,750, claiming breach of a licensing agreement relating to the Company’s use of certain photographs, the copyright to which is held by the plaintiff. The Company recorded a contingent liability for this amount as at December 31, 2009. The outcome of this legal claim is uncertain, and management is of the opinion that the claim has no merit.
Quarterly Disclosure – Eight Quarters Preceding Most Recently Completed Financial Year
The following table sets forth selected unaudited financial information prepared by management of the Company.
Three months ended
June 30,
2011
$ September 30,
2011
$ December 31,
2011
$ March 31,
2012
$
Revenues - - - -
Net loss 106,158 36,152 20,267 44,679
Basic and Diluted loss per share
(post-share consolidation) 0.00 0.00 0.00 0.00
Three months ended
June 30,
2010
$ September 30,
2010
$ December 31,
2010
$ March 31,
2011
$
Revenues - - - -
Net loss 107,276 30,982 244,099 19,746
Basic and Diluted loss per share
(post-share consolidation) 0.01 0.00 0.01 0.00
Earnings Information
The Company has not paid any dividends on its common shares. The Company has no present intention of paying dividends on its common shares as it anticipates that all available funds will be invested to finance the growth of its business.
7
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Transactions with Related Parties
As reported in the unaudited interim condensed financial statements for the three months ended March 31, 2012, the Company was involved in certain transactions with related parties:
The Company incurred management fees and share-based payments for services provided by key management personnel for the periods ended March 31, 2012 and 2011 as described below. All related party transactions were in the ordinary course of business and were measured at their exchange amount.
Three Months ended March 31,
2012
$ 2011
$
Management Fees 15,000 18,100
Share-Based Payments - -
15,000 18,100
Effective November 1, 2010, the Company entered into a management agreement with a company controlled by a Director (also an Officer) of the Company for general management and administration services at $5,000 per month for a term of 2 years.
Significant Accounting Policies
The Company’s critical accounting estimates are as described in the Company’s unaudited interim condensed financial statements for the three months ended March 31, 2012
Significant Accounting Estimates
The Company’s critical accounting estimates are as described in Note 3 of the Company’s 2011 Consolidated Annual Financial Statements.
New Accounting Standards Not Yet Adopted
A number of new accounting standards, amendments to standards, and interpretations are issued but not yet effective up the date of issuance of the Company’s consolidated financial statements. The Company intends to adopt the following standards when they become effective. These standards are required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet determined the impact of these standards on its consolidated financial statements.
IFRS 9 – Financial Instruments
IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income.
8
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This IFRS defines the principle of control and establishes control as the basis for determining which entities are consolidated in an entity’s consolidated financial statements. IFRS 10 sets out three elements of control: a) power over the investee; b) exposure, or rights, to variable returns from involvement with the investee; and c) the ability to use power over the investee to affect the amount of the investors’ return. IFRS 10 sets out the requirements on how to apply the control principle. IFRS 10 supersedes International Accounting Standards (“IAS”) 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”) 12 “Consolidation – Special Purpose Entities”.
IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 “Interests in Joint Ventures”, and SIC 13 “Jointly Controlled Entities –Non-Monetary Contributions by Venturers”.
IFRS 12 – Disclosure of Interest in Other Entities
IFRS 12 combines the disclosure requirements for an entity’s interests in subsidiaries, joint arrangements, associates, and structured entities into one comprehensive disclosure standard. The objective of IFRS 12 is for an entity to disclose information that helps users of its financial statements evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. IFRS 12 also requires that an entity disclose the significant judgments and assumptions it has made.
IFRS 13 – Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure fair value under IFRS when fair value is required or permitted by IFRS.
The impact of IFRS transition on Internal Controls over Financial Reporting
The Company continues to design and implement internal controls to ensure the integrity and accuracy of information under IFRS. These controls and procedures address the change-over to IFRS as at January 1, 2010, (including Board approval of new accounting policies), and the re-alignment of the subsequent quarterly and annual financial reporting processes to meet the additional disclosure requirements of IFRS.
9
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Off Balance Sheet Arrangements
The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations, or with respect to any obligations under a variable interest equity arrangement.
Financial Instruments
a) Financial Instruments
The financial instrument guidelines require all financial assets, except those held to maturity and derivative financial instruments, to be measured at fair market value. All financial liabilities are measured at fair value if they are held for trading. Other financial liabilities are measured at amortized cost.
The Company classifies its financial instruments into one of the following balance sheet categories:
? Held-for-trading financial assets and liabilities that are initially measured at fair value and where subsequent changes in fair value are recognized in the statement of operations;
? Available-for-sale financial assets that are initially measured at fair value and where subsequent changes in fair value are recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts are transferred to and recorded in net income; and
? Held-to-maturity investments, loans and receivables, or other financial liabilities – all of which are initially measured at cost and where subsequent changes in cost are amortized using the effective interest rate method.
Accordingly, the Company has classified its financial instruments as follows:
? Cash is classified as held-for-trading and accordingly carried at its fair value;
? Subscription receivable is classified as loan and receivable, and accordingly carried at its amortized cost;
? Accounts payable and accrued liabilities, and amounts due to related parties are classified as other financial liabilities and are currently carried at their amortized cost.
The Company undertakes certain transactions in foreign currencies denominated in U.S. dollars and as such is subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange rate risk.
10
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Internal Control over Financial Reporting
As at the date of this report, Management is not aware of any change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Outstanding Share Data
(a) Common shares
Authorized
Unlimited number of common shares without par value.
Issued and outstanding as at March 31, 2012
36,857,242 common shares for a net consideration of $2,975,359
(b) Stock Options
Outstanding stock options as at March 31, 2012
Nil
(c) Share Purchase Warrants
Outstanding share purchase warrants as at March 31, 2012
9,180,000 warrants at a weighted average exercise price of US$0.05 per share.
The warrants expire on various dates between December 31, 2013 and October 28, 2015:
Risk Factors
Risks Related to the Business
We have a history of operating losses and need additional capital to implement our business plan . For the three months ended March 31, 2012, we recorded a net loss from operations of $44,679, as compared with a net loss of $10,776 for the three months ended March 31, 2012. The financial statements have been prepared using IFRS applicable to a going concern. However, as disclosed in Note 1 to the interim condensed financial statements, our ability to continue operations is uncertain.
We continue to incur operating losses, and have a consolidated deficit of $3,411,299 as at March 31, 2012. Operations for the three months ended March 31, 2012 have been funded primarily from the issuance of share capital and the continued support of creditors. Historically, we have met working capital needs primarily by selling equity to Canadian residents, and from loans (including loans from relatives of principal shareholders).
We estimate that we will require at least $1,500,000 to begin a series of alternative energy property acquisitions. A full implementation of our business plan for these property acquisitions will be delayed until the necessary capital is raised.
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Our entry into the alternative energy property acquisition business may not be successful and there are risks attendant on these activities
The alternative energy property acquisition business is highly competitive, and is populated with many companies, large and small, with the capital and expertise to evaluate, purchase, and exploit producing and non-producing opportunities. Even with capital and experience, industry risks are significant. Environmental compliance is an increasingly complex and costly obstacle to many new projects, and often times, and even if permits are obtained, they may be sufficiently restrictive that a property cannot be exploited to its full potential.
We may not be able to locate acquisition opportunities, or finance those we can identify. We offer no assurance that our entry into this business activity will be successful.
Risks Related to Our Stock
If we have to raise capital by selling securities in the future, your rights and the value of your investment in the Company could be reduced . If we issue debt securities, the lenders would have a claim to our assets that would be superior to the stockholder rights. Interest on the debt would increase costs and negatively impact operating results. If we issue more common stock or any preferred stock, your percentage ownership will decrease and your stock may experience additional dilution, and the holders of preferred stock (called preference securities in Canada) may have rights, preferences and privileges which are superior to (more favorable) the rights of holders of the common stock. It is likely the Company will sell securities in the future. The terms of such future transactions presently are not determinable.
If the market for our common stock is illiquid in the future, you could encounter difficulty if you try to sell your stock . Our stock trades on the “OTC.BB” but it is not actively traded. If there is no active trading market, you may not be able to resell your shares at any price, if at all. It is possible that the trading market in the future will continue to be "thin" or "illiquid," which could result in increased price volatility. Prices may be influenced by investors' perceptions of us and general economic conditions, as well as the market for beverage companies generally. Until our financial performance indicates substantial success in executing our business plan, it is unlikely that there will be coverage by stock market analysts will be extended. Without such coverage, institutional investors are not likely to buy the stock. Until such time, if ever, as such coverage by analysts and wider market interest develops, the market may have a limited capacity to absorb significant amounts of trading. As the stock is a “penny stock,” there are additional constraints on the development of an active trading market – see the next risk factor.
The penny stock rule operates to limit the range of customers to whom broker-dealers may sell our stock in the market . In general, "penny stock" (as defined in the SEC’s rule 3a51-1 under the Securities Exchange Act of 1934) includes securities of companies which are not listed on the principal stock exchanges, or the Nasdaq National Market or the Nasdaq Capital Market, and which have a bid price in the market of less than $5.00; and companies with net tangible assets of less than $2 million ($5 million if the issuer has been in continuous operation for less than three years), or which has recorded revenues of less than $6 million in the last three years.
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
As "penny stock" our stock therefore is subject to the SEC’s rule 15g-9, which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and "accredited investors" (generally, individuals with net worth in excess of $1 million or annual incomes exceeding $200,000, or $300,000 together with their spouses, or individuals who are the officers or directors of the issuer of the securities). For transactions covered by rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. This rule may adversely affect the ability of broker-dealers to sell our stock, and therefore may adversely affect our stockholders' ability to sell the stock in the public market.
Your legal recourse as a United States investor could be limited . The Company is incorporated under the laws of British Columbia. Most of the assets now are located in Canada. Our directors and officers and the audit firm are residents of Canada. As a result, if any of our shareholders were to bring a lawsuit in the United States against the officers, directors or experts in the United States, it may be difficult to effect service of legal process on those people who reside in Canada, based on civil liability under the Securities Act of 1933 or the Securities Exchange Act of 1934. In addition, we have been advised that a judgment of a United States court based solely upon civil liability under these laws would probably be enforceable in Canada, but only if the U.S. court in which the judgment were obtained had a basis for jurisdiction in the matter. We also have been advised that there is substantial doubt whether an action could be brought successfully in Canada in the first instance on the basis of liability predicated solely upon the United States' securities laws.
Additional Information
Additional information relating to the Company is available on SEDAR at www.sedar.com or EDGAR at www.sec.gov
13
Form 52-109FV2
Certification of Interim Filings Venture Issuer Basic Certificate
I, Bradley J. Moynes , President of Rainchief Energy Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Rainchief Energy Inc. (the “issuer”) for the interim period ended March 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, with respect to 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: May 30, 2012
“Bradley J. Moynes ”
Bradley J. Moynes
Director & President
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ 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
Certification of Interim Filings Venture Issuer Basic Certificate
I, Paul E. Heney , Chief Executive Officer of Rainchief Energy Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Rainchief Energy Inc. (the “issuer”) for the interim period ended March 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, with respect to 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: May 30, 2012
“Paul E. Heney ”
Paul E. Heney
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ 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.
http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=8649420
Under National Instrument 51-102, Part 4, subsection 4.3(3) (a), if an auditor has not performed a review of the interim consolidated financial statements they must be accompanied by a notice indicating that the interim consolidated financial statements have not been reviewed by an auditor.
The accompanying unaudited interim consolidated financial statements of the Company for the three months ended March 31, 2012 have been prepared by, and are the responsibility of, the Company’s management.
The Company’s independent auditor has not performed a review of these interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim consolidated financial statements by an entity’s auditor.
“Paul Heney”
Paul Heney
Chairman and Chief Executive Officer
“Bradley J. Moynes”
Bradley J. Moynes
President
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RAINCHIEF ENERGY INC.
Interim Consolidated Balance Sheets
Unaudited – prepared by management
(Expressed in Canadian Dollars)
March 31,
2012
$ December 31,
2011
$
ASSETS
CURRENT
Cash 69,120 34,180
GST Recoverable 29,302 25,228
98,422 59,408
Property and Equipment (Note 3) 1,266 1,397
Oil and Gas property (Note 5) 50,020 -
149,708 60,805
LIABILITIES
CURRENT
Trade and Other Payables (Note 6) 241,559 187,128
Promissory Notes Payable (Note 8) 67,779 -
309,338 187,128
SHAREHOLDERS' DEFICIENCY
Share Capital (Note 9(b)) 2,975,359 2,922,923
Share Subscription Advance (Note 9(b)) - 41,064
Share Based Payments Reserve 276,310 276,310
Accumulated Other Comprehensive Income - -
Deficit (3,411,299 ) (3,366,620 )
(159,630 ) (126,323 )
149,708 60,805
Nature and Continuance of Operations (Note 1)
Approved on Behalf of the Board:
“Paul Heney” “Bradley J. Moynes”
Paul Heney
Chairman, Chief Executive Officer and Director Bradley J. Moynes
President and Director
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statements of Operations, Comprehensive Loss and Deficit
Unaudited – prepared by management
(Expressed in Canadian Dollars)
Three Months ended March 31,
2012
$ 2011
$
EXPENSES
Accounting, Audit and Legal 25,544 13,941
Amortization 131 70
Consulting and Investor Relations Expense 1,500 46,600
Filing and Transfer Agent Fees - 6,357
Management Fees 15,000 15,000
General and Administration 607 8,010
Interest and Bank Charges 204 228
Project Development Costs - 14,046
Travel and Automobile 649 4,802
43,635 109,054
LOSS BEFORE OTHER ITEMS 43,635 109,054
Foreign Exchange Loss (Gain) 672 (942 )
Loss on repurchase of shares (Note 9(b)(iii) 372 -
Gain on return of shares (Note 4) - (97,336 )
NET LOSS FOR THE PERIOD 44,679 10,776
Deficit, Beginning of the Period 3,366,620 3,280,089
DEFICIT, END OF THE PERIOD 3,411,299 3,290,865
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 36,115,484 37,253,427
BASIC AND DILUTED LOSS PER SHARE 0.00 0.00
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statement of Changes in Shareholders’ Equity
Unaudited – prepared by management
(Expressed in Canadian Dollars)
Note Number of
common
shares Share
capital Equity-based
payments
reserve Share
subscriptions
received Deficit Total
Balance, December 31, 2010 37,573,908 2,786,932 276,310 196,263 (3,184,297 ) 75,208
Shares surrendered and returned to treasury 6 (4,500,000 ) (97,336 ) - (97,336 )
Shares Issued for Cash 9(b)(i) 1,703,334 233,327 (196,263 ) - 37,064
Net loss for the period - - - - (10,776 ) (10,776 )
Balance, March 31, 2011 34,777,242 2,922,923 276,310 - (3,195,073 ) 4,160
Share subscriptions received 9(b)(ii) - - - 41,064 - 41,064
Net loss for the period - - - - (171,547 ) (171,547 )
Balance, December 31, 2011 34,777,242 2,922,923 276,310 41,064 (3,366,620 ) (126,323 )
Shares issued for cash 9(b)(ii) 1,330,000 41,064 - (41,064 ) - -
Shares repurchased 9(b)(iii) (1,100,000 ) (21,725 ) - - - (21,725 )
Shares issued pursuant to the exercise of warrants 9(b)(iv) 1,650,000 33,097 - - - 33,097
Shares issued pursuant to a directors resolution 9(b)(v) 200,000 - - - - -
Net loss for the period - - - - (44,679 ) (44,679 )
Balance, March 31, 2012 36,857,242 2,975,359 276,310 - (3,411,299 ) (159,630 )
The accompanying notes are an integral part of these interim financial statements
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RAINCHIEF ENERGY INC.
Interim Consolidated Statements of Cash Flows
Unaudited – prepared by management
(Expressed in Canadian Dollars)
March 31,
2012 2011
$ $
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net Loss for the Period (44,679 ) (10,776 )
Non-Cash Items
Amortization 131 70
Gain on return of shares (Note 6) - (97,336 )
Changes in Non-Cash Working Capital Accounts
GST Recoverable (4,074 ) (3,697 )
Accounts Payable and Accrued Liabilities 54,431 (6,550 )
5,809 (118,289 )
INVESTING ACTIVITIES
Fixed Assets acquired 50,020 1,345
FINANCING ACTIVITIES
Share Subscriptions Received - 59,356
Proceeds Received on Exercise of Share Warrants 33,097 -
Proceeds Received on Issuance of Promissory Notes 67,779 -
Repurchase of Common Shares (21,725 ) -
79,151 59,356
INCREASE (DECREASE) IN CASH 34,940 60,278
Bank Indebtedness, Beginning of the Period 34,180 171,237
CASH (BANK INDEBTEDNESS), END OF THE PERIOD 69,120 110,959
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 1 – NATURE AND CONTINUANCE OF OPERATIONS
Rainchief Energy Inc. (the “Company”) was incorporated on December 28, 2000 under the Company Act of the Province of British Columbia, Canada. The Company is engaged in the financing and development of photovoltaic solar energy projects in Europe. Prior to January 1, 2010, the Company had operations in oil and gas exploration, and wine and spirit distribution.
While these unaudited interim condensed financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company continues to incur significant operating losses and has no current source of revenue. As at March 31, 2012, the Company has a consolidated deficit of $3,411,299 and a working capital deficit of $210,916.
The Company’s ability to continue operations is uncertain and is dependent upon generating profitable operations, maintaining current financing obligations and/or obtaining new sources of financing. The outcome of these matters cannot be predicted at this time. Although the Company has been successful in obtaining financing in the past, there is no assurance that the Company will be successful with future financing ventures in light of the current economic climate.
These unaudited interim condensed financial statements do not reflect any adjustments to the amounts and classifications of assets and liabilities, which would be necessary should the Company be unable to continue operations.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
a) Statement of Compliance
These interim condensed financial statements, including comparative figures have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting , as issued by the International Accounting Standards Board (“IASB”). They do not include all of the information required for full annual financial statements.
These condensed consolidated interim financial statements have been prepared on the basis of accounting policies and methods of computation consistent with those applied in the Company’s December 31, 2011 consolidated annual financial statements.
These condensed consolidated interim financial statements have been prepared on the historical cost basis. The condensed consolidated interim financial statements are presented in Canadian dollars.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
The policies applied in these interim financial statements are based on IFRS policies as of May 25 2012, the date the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the Company’s annual financial statements for the year ended December 31, 2012 could result in restatement of these interim financial statements, including the transition adjustments recognized on changeover to IFRS.
b) Basis of Presentation
These consolidated financial statements have been prepared on a historical cost basis except for financial instruments classified as available-for-sale that have been measured at fair value. Cost is the fair value of the consideration given in exchange for net assets.
c) Basis of Consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (collectively, the “Company”). Intercompany balances and transactions are eliminated in preparing the consolidated financial statements. The following companies have been consolidated within these consolidated financial statements:
Entity Country of Incorporation Holding Functional Currency
Rainchief Energy Inc. Canada Parent Company Canadian Dollar
Jaydoc Capital Corp. (Note 6) Canada 100% Canadian Dollar
Rainchief Renewable-1 S.R.L. Italy 100% Canadian Dollar
The Company through its subsidiaries, Jaydoc Capital Corp. and Rainchief Renewable-1 S.R.L., was engaged in the development of photovoltaic solar energy projects in Europe until December 31, 2011.
The Company disposed of its wholly-owned Canadian subsidiaries, Black Diamond Importers Inc. and Point Grey Energy Inc., and its wholly-owned U.S. subsidiary, Liberty Valley Wines LLC, in 2009 (Note 5). Accordingly, these consolidated financial statements only include the accounts of these subsidiaries up to their date of disposal. The wine and spirit distribution and oil and gas exploration activities of these subsidiaries comprised the Company’s principal business operations prior to January 1, 2010, and therefore has not been presented as a disposal of an operating segment of the Company or as discontinued operations.
The financial results of the Company’s reporting segments have been presented in Note 15.
d) Foreign Currency
These consolidated financial statements are presented in Canadian dollars, which is also the functional currency of the parent company. Each subsidiary determines its own functional currency (Note 2(c)) and items included in the financial statements of each subsidiary are measured using that functional currency.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
i) Transactions and Balances in Foreign Currencies
Foreign currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary items at year-end exchange rates are recognized in profit or loss.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary items measured at fair value are translated using the exchange rates at the date when fair value was determined.
ii) Foreign Operations
On consolidation, the assets and liabilities of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the reporting date and their revenues and expenses are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognized in other comprehensive income and accumulated in the currency translation reserve in equity. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognized in earnings and recognized as part of the gain or loss on disposal.
e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognized to write off the cost of the property and equipment less their residual values over their useful lives using the declining balance method at 30% per annum for computer equipment and 20% for furniture and equipment, except in the year of acquisition when one-half of the rate is used. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
f) Project Development Costs
Project development costs are expensed as incurred.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Impairment of Non-Current Assets
The carrying amounts of non-current assets are reviewed for impairment whenever facts and circumstances suggest that the carrying amounts may not be recoverable. If there are indicators of impairment, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Individual assets are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are independent from other group assets.
The recoverable amount of an asset or cash generating unit is the higher of its fair value less costs to sell and its value in use. An impairment loss exists if the asset’s or cash generating unit’s carrying amount exceeds the recoverable amount and is recorded as an expense immediately. In assessing the value in use, the estimated future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount rate that reflects the current market indicators.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately.
h) Provisions
Provisions are recognized when a present legal or constructive obligation exists as a result of past events and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the effect is material, the provision is discounted using an appropriate current market-based pre-tax discount rate.
i) Share Capital
The Company records proceeds from share issuances, net of commissions and issuance costs. Shares issued for other than cash consideration are valued at the quoted price on the Over-the-Counter Bulletin Board in the United States based on the earliest of: (i) the date the shares are issued, and (ii) the date the agreement to issue the shares is reached.
j) Share-Based Payments
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of stock options and other share-based payments is recorded based on the estimated fair value using the Black-Scholes option-pricing model at the grant date and charged to profit over the vesting period. The amount recognized as an expense is adjusted to reflect the number of equity instruments expected to vest.
Upon the exercise of stock options and other share-based payments, consideration received on the exercise of these equity instruments is recorded as share capital and the related share-based payment reserve is transferred to share capital. The fair value of unexercised equity instruments are transferred from reserve to retained earnings upon expiry.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
k) Loss per Share
Basic loss per share is calculated by dividing net loss by the weighted average number of common shares issued and outstanding during the reporting period. Diluted loss per share is the same as basic loss per share, as the issuance of shares on the exercise of stock options and share purchase warrants is anti-dilutive.
l) Income Taxes
Tax expense recognized in profit or loss comprises the sum of deferred tax and current tax not recognized in other comprehensive income or directly in equity.
i) Current Income Tax
Current income tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the consolidated financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
ii) Deferred Income Tax
Deferred income taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax liabilities are always provided for in full.
ii) Deferred Income Tax
Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets and liabilities are offset only when the Company has a right and intention to offset current tax assets and liabilities from the same taxation authority.
Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified at fair value through profit or loss) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities classified at fair value through profit or loss are recognized immediately in profit or loss.
Financial assets and financial liabilities are measured subsequently as described below. The Company does not have any derivative financial instruments.
i) Financial Assets
For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition:
? Financial assets at fair value through profit or loss;
? Loans and receivables;
? Held-to-maturity investments; and
? Available-for-sale financial assets.
The category determines subsequent measurement and whether any resulting income and expense is recognized in profit or loss or in other comprehensive income.
All financial assets except for those at fair value through profit or loss are subject to review for impairment at least at each reporting date. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.
? Financial assets at fair value through profit or loss – Financial assets at fair value through profit or loss include financial assets that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The Company’s cash falls into this category of financial instruments.
? Loans and receivables – Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortized cost using the effective interest method less any provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company’s subscription receivable fall into this category of financial instruments.
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups, which are determined by reference to the industry and region of a counterparty and other shared credit risk characteristics. The impairment loss estimate is based on recent historical counterparty default rates for each identified group. The impairment losses are recognized in profit or loss.
? Held-to-maturity investment s – Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity, other than loans and receivables. Investments are classified as held-to-maturity if the Company has the intention and ability to hold them until maturity. The Company currently does not hold financial assets in this category.
Held-to-maturity investments are measured subsequently at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired as determined by reference to external credit ratings, then the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss.
? Available-for-sale financial assets – Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Company currently does not hold financial assets in this category.
Available-for-sale financial assets are measured at fair value. Gains and losses are recognized in other comprehensive income and reported within the available-for-sale reserve within equity, except for impairment losses and foreign exchange differences on monetary assets, which are recognized in profit or loss. When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognized in other comprehensive income is reclassified from the equity reserve to profit or loss, and presented as a reclassification adjustment within other comprehensive income.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
In respect of available-for-sale financial assets, impairment losses previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income and accumulated in the revaluation reserve.
Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred.
13
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
ii) Financial Liabilities
For the purpose of subsequent measurement, financial liabilities are classified as either financial liabilities at fair value through profit or loss, or other financial liabilities upon initial recognition.
· Financial liabilities at fair value through profit or loss – Financial liabilities at fair value through profit or loss include financial liabilities that are either classified as held for trading or that meet certain conditions and are designated at fair value through profit or loss upon initial recognition. Liabilities in this category are measured at fair value with gains or losses recognized in profit or loss. The Company currently does not hold financial liabilities in this category.
· Other financial liabilities – Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate method amortization process. The Company’s trade and other payables and amount due to related parties fall into this category of financial instruments.
A financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
n) Comparative Figures
Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the current period.
o) Standards, amendments and interpretations to existing standards that are not yet effective and have not been adopted early by the Group
IFRS 9 – Financial Instruments
IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income.
IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This IFRS defines the principle of control and establishes control as the basis for determining which entities are consolidated in an entity’s consolidated financial statements. IFRS 10 sets out three elements of control: a) power over the investee; b) exposure, or rights, to variable returns from involvement with the investee; and c) the ability to use power over the investee to affect the amount of the investors’ return. IFRS 10 sets out the requirements on how to apply the control principle. IFRS 10 supersedes International Accounting Standards (“IAS”) 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”) 12 “Consolidation – Special Purpose Entities”.
14
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 “Interests in Joint Ventures”, and SIC 13 “Jointly Controlled Entities – Non-Monetary Contributions by Venturers”.
IFRS 12 – Disclosure of Interest in Other Entities
IFRS 12 combines the disclosure requirements for an entity’s interests in subsidiaries, joint arrangements, associates, and structured entities into one comprehensive disclosure standard. The objective of IFRS 12 is for an entity to disclose information that helps users of its financial statements evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. IFRS 12 also requires that an entity disclose the significant judgments and assumptions it has made.
IFRS 13 – Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure fair value under IFRS when fair value is required or permitted by IFRS.
NOTE 3 – PROPERTY AND EQUIPMENT
Computer
Equipment
$ Furniture and
Equipment
$
Total
$
COST
December 31, 2011 5,236 1,656 6,892
Additions - - -
March 31, 2012 5,236 1,656 6,892
ACCUMULATED DEPRECIATION
December 31, 2011 3,999 1,496 5,495
Depreciation Charge 112 19 131
March 31, 2012 4,111 1,515 5,626
NET BOOK VALUE
At December 31, 2011 1,237 160 1,397
At March 31, 2012 1,125 141 1,266
15
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 4 – ACQUISITION OF JAYDOC CAPITAL CORP.
Effective December 22, 2010, the Company acquired all of the issued and outstanding common shares of Jaydoc Capital Corp. (“Jaydoc”), a company incorporated under the Business Corporations Act of the Province of British Columbia, Canada. The purchase consideration was satisfied by the Company issuing 4,000,000 common shares with a fair value of $80,000 and 7,000,000 share purchase warrants with a fair value of $18,600 valued at the date of the purchase agreement on October 12, 2010. Each warrant was exercisable into one common share of the Company at a price of US$0.02 per share until November 22, 2010. The Company incurred legal fees of $25,646 in connection with the acquisition.
Jaydoc was acquired to facilitate the Company’s business venture in solar energy development. The assets of Jaydoc are its business plan and strategic business relationship with operational partners that offer experience and knowledge in the development, engineering and construction of solar energy projects in Italy and the European Union. Jaydoc had no other assets or liabilities as at the date of acquisition.
The acquisition has been accounted for by the purchase method with the fair value of the consideration being allocated to intangible asset comprising of the business plan and relationship for solar power project under development.
$
Fair Value of 4,000,000 Common Shares Issued 80,000
Fair Value of 7,000,000 Share Purchase Warrants Issued 18,600
Total Consideration Paid, Being the Fair Value of Intangible Asset Acquired 98,600
On November 22, 2010, the former shareholders of Jaydoc (the “vendors”) subscribed to 5,000,000 common shares of the Company upon the exercise of warrants for gross proceeds totaling $101,386 (US$100,000) at an exercise price of US$0.02 per share. The fair value of these warrants in the amount of $13,286 was transferred from reserve to share capital accordingly. The remaining 2,000,000 warrants expired unexercised.
On December 31, 2010, the Company wrote down the intangible asset due to the lack of reliable measurement of the future cash flows of the solar energy project.
On March 4, 2011, the Company entered into a Stock Surrender, Settlement and Voluntary Pooling Agreement with the vendors who agreed to surrender 50% of the common shares received for the sale of Jaydoc and 50% of the common shares received upon the exercise of warrants.
Accordingly, a total of 4,500,000 common shares were returned to the treasury of the Company as final settlement of deficiencies identified by the Company in certain representations arising out of the Jaydoc acquisition. The Company has recorded the book value of the shares surrendered in the amount of $97,336 as a gain in 2011.
In connection to the settlement, the vendors agreed to hold in escrow the remaining 4,500,000 common shares received from the Jaydoc sale and the private placement. 12.5% of these shares are released at a 90-day interval with the first release on May 30, 2011 (Note 11(e)).
16
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 5 – OIL AND GAS PROPERTY
Gulf Jensen Oil Prospect
On February 10, 2012, the Company entered into an agreement with Nueva Oil and Gas Corporation (“Nueva”) for a farm-in interest in certain oil and gas leases in Curry County, New Mexico, United States (the “Gulf Jensen Oil Prospect”). Nueva is an arm’s length private oil company based in Calgary, Canada.
Pursuant to the terms of the agreement, the Company agreed to pay US$50,000 (the initial acquisition amount) upon execution of the agreement and undertook to fund 100% of the cost of an initial seismic program pursuant to the agreement. In addition, the Company may acquire a 90% working interest in the Gulf Jensen Oil Prospect for an additional payment of US$75,000.
As of March 31, 2012 the Company had paid Nueva US$33,400 of the initial acquisition amount. On April 4, 2012, the Company exercised its option to acquire a 90% working interest in the Gulf Jensen Oil Prospect and paid Nueva US$75,000.
NOTE 6 – TRADE AND OTHER PAYABLES
March 31,
2012
$ December 31,
2011
$
Trade Payables 61,400 88,700
Accrued Liabilities 91,509 18,000
Provision (Note 10) 60,750 60,750
Related Party Payable (Note 10(a)) 27,900 19,678
241,559 187,128
NOTE 7 – PROVISION
In March 2009, the Company was served with a Notice of Termination citing breach of a licensing agreement by the Company as a result of its default on certain royalty payments. The total amount of claim against the Company was $60,750 which the Company has recorded a provision for on December 31, 2009.
The outcome of this legal claim is uncertain, and management is of the opinion that the claim has no merit and seeks to recover all costs. Any recovery resulting from the resolution of this claim will be accounted for in the period of settlement.
NOTE 8 – PROMISSORY NOTES PAYABLE
In March 2012, the Company issued promissory notes totalling $67,779 (US$68,000) including US$17,000 from a company controlled by a Director (also an Officer) of the Company. The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the notes default.
17
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 9 – SHARE CAPITAL
a) Authorized Capital
Unlimited number of common shares without par value.
b) Issued and Outstanding Common Shares
i) Private Placements in 2011
On January 24, 2011, the Company completed a private placement of 1,300,001 shares at US$0.15 per share, raising gross proceeds of $196,263 (US$195,000). The subscription proceeds were received in 2010.
On March 14, 2011, the Company completed a private placement of 403,333 shares at US$0.15 per share, raising gross proceeds of $59,356 (US$60,500).
ii) Private Placements in 2012
On January 17, 2012, the Company completed a private placement of 330,000 shares at US$0.03 per share raising gross proceeds of $10,362 (US$9,900) and a private placement of 1,000,000 units at US$0.03 per share, raising gross proceeds of $30,702 (US$30,000). Each unit consists of one common share and one warrant exercisable into one common share at US$0.03 per share until December 31, 2013. The subscription proceeds of $41,064 (US$39,900) were received in 2011.
iii) Repurchase and Cancellation of Units
On March 2, 2012, the Company repurchased 1,100,000 units at US$0.02 per unit for a total cost of US$22,000. These units were initially issued in a private placement completed in May 2010 at a subscription price of US$0.02 per unit. Each unit consisted of one common share and one warrant exercisable into one common share at US$0.02 per share until March 30, 2015. These units were returned to treasury and subsequently cancelled. The Company recorded a loss of $372 in connection with the repurchase of the units.
iv) Shares issued pursuant to the exercise of Share Purchase Warrants
In February and March 2012, the Company issued a total of 1,650,000 common shares upon the exercise of warrants at an exercise price of US$0.02 per share for total gross proceeds of US$33,000.
v) Shares issued pursuant to a Directors’ Resolution
On March 21, 2012, pursuant to a Directors’ Resolution, the Company issued 200,000 post-consolidation shares to the President of the Company and a person related to the President of the Company (the Parties). The Parties purchased 2,000,000 shares in the Company during 2002. In 2006 the Company filed a Form 20-F and registered with the United States Securities and Exchange Commission as a Foreign Private issuer. At that time, as a result of a clerical oversight the share certificates evidencing the purchase of the purchase of the shares by the Parties were not recorded by the share transfer agents. The Company consolidated its share capital on the basis of one new common share for every ten old common shares on March 22, 2010. Having been satisfied that the Company had received valuable consideration for the common shares from the Parties in 2002, the Directors authorized the issuance of the share certificates to the Parties as evidence of their ownership of the shares and to accurately reflect the number of common shares outstanding.
18
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 9 – SHARE CAPITAL (continued)
c) Share Purchase Warrants
The continuity of warrants for the period ended March 31, 2012 is shown in the table below. The quantity and exercise price of warrants have been retroactively restated to reflect the share consolidation which took effect on March 22, 2010.
Expiry Date Exercise Price December 31,
2011
Issued
Exercised Expired/
Cancelled March 31,
2012
December 31, 2013 $US 0.03 - 1,000,000 -
June 30, 2014 $US 0.80 320,000 - - - 320,000
March 30, 2015 $US 0.02 9,110,000 - (1,650,000 ) (1,100,000 ) -
October 15, 2015 $US 0.04 500,000 - - - 500,000
October 28, 2015 $US 0.02 1,000,000 - - - 1,000,000
Total 10,930,000 1,000,000 (1,650,000 ) (1,100,000 ) 9,180,000
Weighted Average Exercise Price $US 0.04 $US 0.03 $US 0.02 $US (0.02 ) $US 0.05
d) Shares in Escrow
As at March 31, 2012, the Company has 2,250,500 shares held in escrow (December 31, 2011 – 2,812,500).
19
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 10 – RELATED PARTIES TRANSACTIONS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed. Details of transactions between the Company and other related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described below.
a) Related Party Balances
As at December 31, 2011, the Company had $27,900 (December 31, 2011 – $19,678) in trade and other payables owed to key management personnel. The amounts owed to key management personnel arose from outstanding management fees, and are non-interest bearing, unsecured and have no specified terms of repayment.
b) Compensation of Key Management Personnel
The Company incurred management fees and share-based payments for services provided by key management personnel for the periods ended March 31, 2012 and 2011 as described below. All related party transactions were in the ordinary course of business and were measured at their exchange amount.
Three Months ended March 31,
2012
$ 2011
$
Management Fees 15,000 18,100
Share-Based Payments - -
15,000 18,100
Effective November 1, 2010, the Company entered into a management agreement with a company controlled by a Director (also an Officer) of the Company for general management and administration services at $5,000 per month for a term of 2 years.
20
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 11 – SUBSEQUENT EVENTS
a) Promissory notes
In April and May 2012 the Company issued additional promissory notes totaling $49,484 (US$49,500). The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the Company default on the notes.
b) Weber City Prospect farm-in agreement
On May 8, 2012 the Company entered into a farm-in agreement with Rich Investments and Leare Developments, both of Vancouver, BC, in respect of the Weber City Prospect, consisting of 5,800 acres of oil and gas leases located in New Mexico, USA.
Under the terms of the agreement, the Company may earn up to an 80% working interest in the property by undertaking a seismic exploration survey of the project. Nueva Oil and Gas (the Company’s partner in the Gulf Jensen Prospect – see Note 5) will acquire up to a 10% working interest in the Weber City Prospect and will manage all exploration and development activities on the project..
NOTE 12 – FINANCIAL INSTRUMENTS
The Company’s financial instruments are exposed to certain financial risks:
a) Fair Values
The carrying values of cash, bank indebtedness, accounts receivable, accounts payable and accrued liabilities, and amounts due to and from related parties approximate their fair value as at the balance sheet date.
b) Liquidity Risk
Liquidity risk refers to the risk that an entity will encounter difficulty meeting obligations associated with financial liabilities. The Company is dependent upon on the availability of credit from its suppliers and its ability to generate sufficient funds from equity and debt financing to meet current and future obligations. There can be no assurance that such financing will be available on terms acceptable to the Company.
c) Credit Risks
Credit risk is the risk of loss associated with a counter party’s inability to fulfill its payment obligations. Management considers that risks related to credit are not significant to the Company at this time.
d) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Management considers that risks related to interest are not significant to the Company at this time. Amounts owed from and to related parties are non-interest bearing.
21
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RAINCHIEF ENERGY INC.
Notes to the Interim Consolidated Financial Statements
March 31, 2012
(Expressed in Canadian Dollars)
NOTE 12 – FINANCIAL INSTRUMENTS (continued)
e) Foreign Exchange Risk
The Company operates in Canada and the United States and some of its material expenditures are payable in U.S. dollars. The Company is therefore subject to currency exchange risk arising from the degree of volatility of changes in exchange rates between the Canadian dollar and the U.S. dollar. The Company does not use derivative instruments to reduce its exposure to foreign currency risk.
As at March 31, 2012, the Company had the following financial instruments in U.S. dollars:
US$
Cash 67,838
Accounts Payable 16,600
Promissory notes 68,000
152,438
NOTE 13 – CAPITAL MANAGEMENT
The Company’s objective for managing its capital structure is to safeguard the Company’s ability to continue as a going concern and to ensure it has the financial capacity, liquidity and flexibility to fund its on-going operations and capital expenditures including investment in resource properties it has or may acquire.
The Company manages its share capital as capital, which as at March 31, 2012 totalled $2,975,359 (December 31, 2009 - $2,922,923). At this time the Company’s access to the debt market is limited and it relies on equity issuances and the support of shareholders to fund its investments in capital assets and resource properties. The Company monitors capital to maintain a sufficient working capital position to fund annualized administrative expenses and capital investments.
As at March 31, 2012 the Company had a working capital deficiency of $210,916. The Company will issue shares and may from time to time adjust its capital spending to maintain or adjust the capital structure. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits.
The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future. There were no changes in the Company’s approach to capital management during the period ended March 31, 2012.
22
RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions
And Results of Operations (“MD&A”)
For The Three Months Ending March 31, 2012
--------------------------------------------------------------------------------
RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
This report is dated May 25, 2012
The following discussion and analysis prepared as at May 25, 2012, explains trends in the financial condition and results of operations of Rainchief Energy Inc. (“REI” or “the Company”) for the three months ended March 31, 2012 as compared to the same period in 2011. This discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2011. The Company’s critical accounting estimates, significant accounting policies and risk factors have remained substantially unchanged and are still applicable to the Company unless otherwise indicated. The financial statements have been prepared in accordance with International Financial Reporting Standards. All financial statement figures are reported in Canadian dollars unless explicitly stated otherwise.
Caution on Forward-Looking Information
This report contains certain statements that constitute forward-looking information. These forward-looking statements are not descriptive of historical matters and may refer to management’s expectation or plans. These statements include, but are not limited to statements concerning our business objectives and plans and future trends in our industry. Inherent in forward-looking statements are risks and uncertainties beyond management’s ability to predict or control including risks that may affect REI’s operating or capital plans. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements in this discussion and analysis as well as contained in other components of the annual report. Such statements are based upon a number of assumptions that may prove incorrect, including but not limited to, the following assumptions: that there is no material deterioration in general business and economic conditions; that there are no unanticipated fluctuations in interest or exchange rates; that there is no cancellation or unfavorable variation to its current major contracts; that if required, REI is able to finance future acquisitions on reasonable terms; and that REI maintains its ongoing relations with its business partners. We caution you that the foregoing list of important factors and assumptions is not exhaustive. You should also carefully consider matters discussed under “Risk and Uncertainties” contained elsewhere in this discussion. REI undertakes no obligation to update publicly or otherwise revise any forward-looking statements or the list of factors, whether as a result of new information or future events or otherwise, except as may be required under applicable laws.
2
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Overview
The Company is a British Columbia corporation, incorporated on December 28, 2000. The registered and corporate office is at 885 West Georgia Street Suite 1500, Vancouver, British Columbia V6C 4E8, telephone (604) 601-2070. The Company does not have an agent in the United States.
The Company was incorporated under the name Black Diamond Holdings Corporation. On September 26, 2007, the Company changed its name from Black Diamond Holdings Corporation to Black Diamond Brands Corporation. On November 21, 2008 the Company changed its name to Rainchief Energy Inc. The Company is listed as a fully reporting issuer on the FINRA OTC bulletin board and is traded under the symbol “RCFEF”.
The Company is an energy exploration company focused on the identification and evaluation for acquisition of energy assets worldwide. The Company is currently seeking to acquire an ownership interest in a conventional oil, heavy oil and/or alternative energy project, and implement a strategic financial and development program in order to generate revenue from these assets. The Company will also seek out opportunities to partner with other companies in order to participate in larger energy projects.
Organization Structure
As of the date of this report the Company has two wholly-owned subsidiaries. Jaydoc Capital Corporation was acquired on December 22, 2010. Rainchief Renewable-1 SRL was incorporated under the laws of the Republic of Italy.
Recent corporate developments
During the period commencing on January 1, 2012, the Company experienced the following corporate developments:
Private Placements
On January 17, 2012, the Company completed a private placement of 330,000 shares at US$0.03 per share raising gross proceeds of $10,362 (US$9,900) and a private placement of 1,000,000 units at US$0.03 per share, raising gross proceeds of $30,702 (US$30,000). Each unit consists of one common share and one warrant exercisable into one common share at US$0.03 per share until December 31, 2013. The subscription proceeds of $41,064 (US$39,900) were received in 2011.
Repurchase and Cancellation of Units
On March 2, 2012, the Company repurchased 1,100,000 units at US$0.02 per unit for a total cost of US$22,000. These units were initially issued in a private placement completed in May 2010 at a subscription price of US$0.02 per unit. Each unit consisted of one common share and one warrant exercisable into one common share at US$0.02 per share until March 30, 2015. These units were returned to treasury and subsequently cancelled. The Company recorded a loss of $372 in connection with the repurchase of the units.
3
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Shares issued pursuant to the exercise of Share Purchase Warrants
In February and March 2012, the Company issued a total of 1,650,000 common shares upon the exercise of warrants at an exercise price of US$0.02 per share for total gross proceeds of US$33,000.
Shares issued pursuant to a Directors’ Resolution
On March 21, 2012, pursuant to a Directors’ Resolution, the Company issued 200,000 post-consolidation shares to the President of the Company and a person related to the President of the Company (the Parties). The Parties purchased 2,000,000 shares in the Company during 2002. In 2006 the Company filed a Form 20-F and registered with the United States Securities and Exchange Commission as a Foreign Private issuer. At that time, as a result of a clerical oversight the share certificates evidencing the purchase of the purchase of the shares by the Parties were not recorded by the share transfer agents. The Company consolidated its share capital on the basis of one new common share for every ten old common shares on March 22, 2010. Having been satisfied that the Company had received valuable consideration for the common shares from the Parties in 2002, the Directors authorized the issuance of the share certificates to the Parties as evidence of their ownership of the shares and to accurately reflect the number of common shares outstanding.
Promissory notes
In April and May 2012 the Company issued additional promissory notes totaling $49,484 (US$49,500). The notes are non-interest bearing, unsecured, and have a maturity date of December 31, 2013. The notes shall become immediately payable should the Company complete financing in excess of US$5,000,000 prior to December 31, 2013 and shall bear interest at 3% per annum compounded annually should the Company default on the notes.
Weber City Prospect farm-in agreement
On May 8, 2012 the Company entered into a farm-in agreement with Rich Investments and Leare Developments, both of Vancouver, BC, in respect of the Weber City Prospect, consisting of 5,800 acres of oil and gas leases located in New Mexico, USA.
Under the terms of the agreement, the Company may earn up to an 80% working interest in the property by undertaking a seismic exploration survey of the project. Nueva Oil and Gas (the Company’s partner in the Gulf Jensen Prospect) will acquire up to a 10% working interest in the Weber City Prospect and will manage all exploration and development activities on the project.
4
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Selected Annual Information
The following table provides a brief summary of the Company’s annual financial data for the latest three fiscal years ended December 31, 2011.
Years ended December 31,
2009*
$ 2010
$ 2011
$
Net loss 480,025 398,327 182,323
Basic and diluted loss per share 0.19 0.02 0.01
Total assets 14,284 205,148 60,805
Total liabilities 282,429 129,940 187,128
* Reported in accordance with Canadian GAAP
Results of Operations
For the three months ended March 31, 2012 the Company had net losses of $44,679 as compared with net losses of $10,776 for the three months ended March 31, 2011.
Accounting, Audit and Legal expenses increased by $11,603 to $25,544 for the three months ended March 31, 2012 as compared with $13,941 for the three months ended March 31, 2011 as a result of additional legal expenses related to the Company’s acquisition of interests in Oil and Gas properties. .
Consulting and Investor Relations Expense for the three months ended March 31, 2012, amounted to $1,500, a decrease of $45,100 as compared with $46,600 incurred for the three months ended March 31, 2011. The decrease resulted from reduced use of business development consultants in the period under review
During the three months ended March 31, 2012, the Company incurred $Nil in Project Development Costs, as compared with $14,046 during the three months ended March 31, 2011, which was incurred in connection with a solar energy project in Italy.
The Company did not incur any Filing and Transfer Agents Fees for the three months ended March 31, 2012 as compared with $6,357 incurred during the three months ended March 31, 2011
Management fees for the three months ended March 31 2012 were unchanged at $15,000, as compared with the three months ended March 31, 2011.
The Company did not incur any General and Administration expenses for the three months ended March 31, 2012 as compared with an expense of $833 incurred in the three months ended March 31, 2011 General and Administration expenses for the three months ended March 31, 2011 were comprised of Office, Telephone and Computer Expenses - $533 and Office Rent - $ 300. General and Administration expenses for the nine months ended March 31, 2012 increased by $15,331 to $17,534 from $2,203 for the nine months ended March 31, 2011.
5
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
The Company did not incur any travel expenses in the three month periods ended March 31, 2012 and 2010. Travel expenses for the nine months ended March 31, 2012 were $4,802, as compared to $Nil expended during nine months ended March 31, 2011. These expenses were incurred in connection with the Company’s entry into the solar energy market.
The Company incurred a loss on foreign exchange of $672 for the three months ended March 31, 2012, as compared with a foreign exchange gain of $942 for the three months ended March 31, 2011. The loss and gain resulted from changes in the foreign currency exchange rate between the Canadian and US Dollars.
During the three months ended March 31, 2012 the Company incurred a loss of $397 in connection with the repurchase of 1,100,000 of its common shares.
During the three months ended March 31, 2011, the Company incurred a gain in respect of shares surrendered and returned to Treasury in connection with the finalization of the acquisition of Jaydoc Capital Corp.
Financial position
The Company had a working capital deficiency of $210,916 as at March 31, 2012, as compared with a working capital deficiency of $127,720 as at December 31, 2011; a decrease of $83,186
The increase in working capital deficiency of $83,186 during the three months ended March 31, 2012 was due increase in Cash of $34,940 and HST Recoverable of $4,074, offset by increases in Accounts Payable of $54,431 and Promissory Notes of $67,779.
Liquidity and Capital Resources
Changes in Accounts Payable and HST Receivable accounts during the three months ended March 31, 2012 provided $14,530 (three months ended March 31, 2011 – provided $14,076).
During the three months ended March 31, 2012, the Company received proceeds from the exercise of Share Warrants in the amount of $33,097 and proceeds on the issuance of Promissory notes in the amount of $67,779. The Company utilized $21,725 to repurchase certain common shares from an investor. During the three months ended March 31, 2011, the Company received subscriptions for Common shares in the amount of $59,356.
6
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
The uses of cash during the three months ended March 31, 2012 were $44,548 to fund the Company's continuing operations and $50,020 to acquire the interest in the Gulf Jensen project. During the three months ended March 31, 2011, continuing operations consumed cash in the amount of $108,112.
Provision
The Company is the respondent in a lawsuit filed in the Supreme Court of British Columbia. The Plaintiff seeks damages in the amount of $60,750, claiming breach of a licensing agreement relating to the Company’s use of certain photographs, the copyright to which is held by the plaintiff. The Company recorded a contingent liability for this amount as at December 31, 2009. The outcome of this legal claim is uncertain, and management is of the opinion that the claim has no merit.
Quarterly Disclosure – Eight Quarters Preceding Most Recently Completed Financial Year
The following table sets forth selected unaudited financial information prepared by management of the Company.
Three months ended
June 30,
2011
$ September 30,
2011
$ December 31,
2011
$ March 31,
2012
$
Revenues - - - -
Net loss 106,158 36,152 20,267 44,679
Basic and Diluted loss per share
(post-share consolidation) 0.00 0.00 0.00 0.00
Three months ended
June 30,
2010
$ September 30,
2010
$ December 31,
2010
$ March 31,
2011
$
Revenues - - - -
Net loss 107,276 30,982 244,099 19,746
Basic and Diluted loss per share
(post-share consolidation) 0.01 0.00 0.01 0.00
Earnings Information
The Company has not paid any dividends on its common shares. The Company has no present intention of paying dividends on its common shares as it anticipates that all available funds will be invested to finance the growth of its business.
7
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Transactions with Related Parties
As reported in the unaudited interim condensed financial statements for the three months ended March 31, 2012, the Company was involved in certain transactions with related parties:
The Company incurred management fees and share-based payments for services provided by key management personnel for the periods ended March 31, 2012 and 2011 as described below. All related party transactions were in the ordinary course of business and were measured at their exchange amount.
Three Months ended March 31,
2012
$ 2011
$
Management Fees 15,000 18,100
Share-Based Payments - -
15,000 18,100
Effective November 1, 2010, the Company entered into a management agreement with a company controlled by a Director (also an Officer) of the Company for general management and administration services at $5,000 per month for a term of 2 years.
Significant Accounting Policies
The Company’s critical accounting estimates are as described in the Company’s unaudited interim condensed financial statements for the three months ended March 31, 2012
Significant Accounting Estimates
The Company’s critical accounting estimates are as described in Note 3 of the Company’s 2011 Consolidated Annual Financial Statements.
New Accounting Standards Not Yet Adopted
A number of new accounting standards, amendments to standards, and interpretations are issued but not yet effective up the date of issuance of the Company’s consolidated financial statements. The Company intends to adopt the following standards when they become effective. These standards are required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet determined the impact of these standards on its consolidated financial statements.
IFRS 9 – Financial Instruments
IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income.
8
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
IFRS 10 – Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This IFRS defines the principle of control and establishes control as the basis for determining which entities are consolidated in an entity’s consolidated financial statements. IFRS 10 sets out three elements of control: a) power over the investee; b) exposure, or rights, to variable returns from involvement with the investee; and c) the ability to use power over the investee to affect the amount of the investors’ return. IFRS 10 sets out the requirements on how to apply the control principle. IFRS 10 supersedes International Accounting Standards (“IAS”) 27 “Consolidated and Separate Financial Statements” and Standing Interpretations Committee (“SIC”) 12 “Consolidation – Special Purpose Entities”.
IFRS 11 – Joint Arrangements
IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 “Interests in Joint Ventures”, and SIC 13 “Jointly Controlled Entities –Non-Monetary Contributions by Venturers”.
IFRS 12 – Disclosure of Interest in Other Entities
IFRS 12 combines the disclosure requirements for an entity’s interests in subsidiaries, joint arrangements, associates, and structured entities into one comprehensive disclosure standard. The objective of IFRS 12 is for an entity to disclose information that helps users of its financial statements evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance, and cash flows. IFRS 12 also requires that an entity disclose the significant judgments and assumptions it has made.
IFRS 13 – Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to measure fair value under IFRS when fair value is required or permitted by IFRS.
The impact of IFRS transition on Internal Controls over Financial Reporting
The Company continues to design and implement internal controls to ensure the integrity and accuracy of information under IFRS. These controls and procedures address the change-over to IFRS as at January 1, 2010, (including Board approval of new accounting policies), and the re-alignment of the subsequent quarterly and annual financial reporting processes to meet the additional disclosure requirements of IFRS.
9
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Off Balance Sheet Arrangements
The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative financial obligations, or with respect to any obligations under a variable interest equity arrangement.
Financial Instruments
a) Financial Instruments
The financial instrument guidelines require all financial assets, except those held to maturity and derivative financial instruments, to be measured at fair market value. All financial liabilities are measured at fair value if they are held for trading. Other financial liabilities are measured at amortized cost.
The Company classifies its financial instruments into one of the following balance sheet categories:
? Held-for-trading financial assets and liabilities that are initially measured at fair value and where subsequent changes in fair value are recognized in the statement of operations;
? Available-for-sale financial assets that are initially measured at fair value and where subsequent changes in fair value are recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts are transferred to and recorded in net income; and
? Held-to-maturity investments, loans and receivables, or other financial liabilities – all of which are initially measured at cost and where subsequent changes in cost are amortized using the effective interest rate method.
Accordingly, the Company has classified its financial instruments as follows:
? Cash is classified as held-for-trading and accordingly carried at its fair value;
? Subscription receivable is classified as loan and receivable, and accordingly carried at its amortized cost;
? Accounts payable and accrued liabilities, and amounts due to related parties are classified as other financial liabilities and are currently carried at their amortized cost.
The Company undertakes certain transactions in foreign currencies denominated in U.S. dollars and as such is subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to hedge exposure to foreign exchange rate risk.
10
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Internal Control over Financial Reporting
As at the date of this report, Management is not aware of any change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Outstanding Share Data
(a) Common shares
Authorized
Unlimited number of common shares without par value.
Issued and outstanding as at March 31, 2012
36,857,242 common shares for a net consideration of $2,975,359
(b) Stock Options
Outstanding stock options as at March 31, 2012
Nil
(c) Share Purchase Warrants
Outstanding share purchase warrants as at March 31, 2012
9,180,000 warrants at a weighted average exercise price of US$0.05 per share.
The warrants expire on various dates between December 31, 2013 and October 28, 2015:
Risk Factors
Risks Related to the Business
We have a history of operating losses and need additional capital to implement our business plan . For the three months ended March 31, 2012, we recorded a net loss from operations of $44,679, as compared with a net loss of $10,776 for the three months ended March 31, 2012. The financial statements have been prepared using IFRS applicable to a going concern. However, as disclosed in Note 1 to the interim condensed financial statements, our ability to continue operations is uncertain.
We continue to incur operating losses, and have a consolidated deficit of $3,411,299 as at March 31, 2012. Operations for the three months ended March 31, 2012 have been funded primarily from the issuance of share capital and the continued support of creditors. Historically, we have met working capital needs primarily by selling equity to Canadian residents, and from loans (including loans from relatives of principal shareholders).
We estimate that we will require at least $1,500,000 to begin a series of alternative energy property acquisitions. A full implementation of our business plan for these property acquisitions will be delayed until the necessary capital is raised.
11
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
Our entry into the alternative energy property acquisition business may not be successful and there are risks attendant on these activities
The alternative energy property acquisition business is highly competitive, and is populated with many companies, large and small, with the capital and expertise to evaluate, purchase, and exploit producing and non-producing opportunities. Even with capital and experience, industry risks are significant. Environmental compliance is an increasingly complex and costly obstacle to many new projects, and often times, and even if permits are obtained, they may be sufficiently restrictive that a property cannot be exploited to its full potential.
We may not be able to locate acquisition opportunities, or finance those we can identify. We offer no assurance that our entry into this business activity will be successful.
Risks Related to Our Stock
If we have to raise capital by selling securities in the future, your rights and the value of your investment in the Company could be reduced . If we issue debt securities, the lenders would have a claim to our assets that would be superior to the stockholder rights. Interest on the debt would increase costs and negatively impact operating results. If we issue more common stock or any preferred stock, your percentage ownership will decrease and your stock may experience additional dilution, and the holders of preferred stock (called preference securities in Canada) may have rights, preferences and privileges which are superior to (more favorable) the rights of holders of the common stock. It is likely the Company will sell securities in the future. The terms of such future transactions presently are not determinable.
If the market for our common stock is illiquid in the future, you could encounter difficulty if you try to sell your stock . Our stock trades on the “OTC.BB” but it is not actively traded. If there is no active trading market, you may not be able to resell your shares at any price, if at all. It is possible that the trading market in the future will continue to be "thin" or "illiquid," which could result in increased price volatility. Prices may be influenced by investors' perceptions of us and general economic conditions, as well as the market for beverage companies generally. Until our financial performance indicates substantial success in executing our business plan, it is unlikely that there will be coverage by stock market analysts will be extended. Without such coverage, institutional investors are not likely to buy the stock. Until such time, if ever, as such coverage by analysts and wider market interest develops, the market may have a limited capacity to absorb significant amounts of trading. As the stock is a “penny stock,” there are additional constraints on the development of an active trading market – see the next risk factor.
The penny stock rule operates to limit the range of customers to whom broker-dealers may sell our stock in the market . In general, "penny stock" (as defined in the SEC’s rule 3a51-1 under the Securities Exchange Act of 1934) includes securities of companies which are not listed on the principal stock exchanges, or the Nasdaq National Market or the Nasdaq Capital Market, and which have a bid price in the market of less than $5.00; and companies with net tangible assets of less than $2 million ($5 million if the issuer has been in continuous operation for less than three years), or which has recorded revenues of less than $6 million in the last three years.
12
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RAINCHIEF ENERGY INC.
Management’s Discussion and Analysis of Financial Conditions and Results of Operations
(“MD&A”)
For the three months ending March 31, 2012
As "penny stock" our stock therefore is subject to the SEC’s rule 15g-9, which imposes additional sales practice requirements on broker-dealers which sell such securities to persons other than established customers and "accredited investors" (generally, individuals with net worth in excess of $1 million or annual incomes exceeding $200,000, or $300,000 together with their spouses, or individuals who are the officers or directors of the issuer of the securities). For transactions covered by rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. This rule may adversely affect the ability of broker-dealers to sell our stock, and therefore may adversely affect our stockholders' ability to sell the stock in the public market.
Your legal recourse as a United States investor could be limited . The Company is incorporated under the laws of British Columbia. Most of the assets now are located in Canada. Our directors and officers and the audit firm are residents of Canada. As a result, if any of our shareholders were to bring a lawsuit in the United States against the officers, directors or experts in the United States, it may be difficult to effect service of legal process on those people who reside in Canada, based on civil liability under the Securities Act of 1933 or the Securities Exchange Act of 1934. In addition, we have been advised that a judgment of a United States court based solely upon civil liability under these laws would probably be enforceable in Canada, but only if the U.S. court in which the judgment were obtained had a basis for jurisdiction in the matter. We also have been advised that there is substantial doubt whether an action could be brought successfully in Canada in the first instance on the basis of liability predicated solely upon the United States' securities laws.
Additional Information
Additional information relating to the Company is available on SEDAR at www.sedar.com or EDGAR at www.sec.gov
13
Form 52-109FV2
Certification of Interim Filings Venture Issuer Basic Certificate
I, Bradley J. Moynes , President of Rainchief Energy Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Rainchief Energy Inc. (the “issuer”) for the interim period ended March 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, with respect to 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: May 30, 2012
“Bradley J. Moynes ”
Bradley J. Moynes
Director & President
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ 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
Certification of Interim Filings Venture Issuer Basic Certificate
I, Paul E. Heney , Chief Executive Officer of Rainchief Energy Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Rainchief Energy Inc. (the “issuer”) for the interim period ended March 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, with respect to 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: May 30, 2012
“Paul E. Heney ”
Paul E. Heney
Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ 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.
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