Rise Gold Corp. 10-K

Item 8. Financial Statements and Supplementary Data. 41 CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States Dollars) FOR THE YEAR ENDED JULY 31, 2020 RISE GOLD CORP. (An Exploration Stage Company) CONSOLIDATED BALANCE SHEETS (Expressed in United States Dollars) Nature and continuance of operations (Note 1) Subsequent events (Note 16) Approved and authorized by the Board on October 27, 2020. “Benjamin Mossman” Director “Murray Flanigan” Director Benjamin Mossman Murray Flanigan The accompanying notes are an integral part of these consolidated financial statements. 42 RISE GOLD CORP. (An Exploration Stage Company) CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Expressed in United States Dollars) The accompanying notes are an integral part of these consolidated financial statements. 43 RISE GOLD CORP. (An Exploration Stage Company) CONSOLIDATED STATEMENT OF CASH FLOWS (Expressed in United States Dollars) Supplemental disclosure with respect to cash flows (Note 14) The accompanying notes are an integral part of these consolidated financial statements. 44 RISE GOLD CORP. (An Exploration Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Expressed in United States Dollars) The accompanying notes are an integral part of these consolidated financial statements. 45 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 1. NATURE AND CONTINUANCE OF OPERATIONS Rise Gold Corp. (the “Company”) was originally incorporated as Atlantic Resources Inc. in the State of Nevada on February 9, 2007 and is in the exploration stage. On April 11, 2012, the Company merged its wholly-owned subsidiary, Patriot Minefinders Inc., a Nevada corporation, in and to the Company to effect a name change to Patriot Minefinders Inc. On January 14, 2015, the Company completed a name change to Rise Resources Inc. in the same manner. On March 29, 2017, the Company changed its name to Rise Gold Corp. These mergers were carried out solely for the purpose of effecting these changes of names. On September 18, 2020, the Company increased its authorized capital from 40,000,000 shares to 400,000,000 shares. On January 29, 2016, the Company completed an initial public offering in Canada and began trading on the Canadian Securities Exchange (“CSE”) on February 1, 2016. The Company is in the early stages of exploration and as is common with any exploration company, it raises financing for its acquisition activities. The accompanying consolidated financial statements have been prepared on the going concern basis, which presumes that the Company will continue operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has incurred a loss of $5,471,535 for the year ended July 31, 2020 and has accumulated a deficit of $17,940,599. The ability of the Company to continue as a going concern is dependent on the Company’s ability to maintain continued support from its shareholders and creditors and to raise additional capital and implement its business plan. There is no assurance that the Company will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. However, management believes that the Company has sufficient working capital to meet its projected minimum financial obligations for the next fiscal year. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Furthermore, during the year ended July 31, 2020, the novel coronavirus outbreak (“COVID-19”) was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the Company’s business are not known at this time. These impacts could include an impact on the Company’s ability to obtain debt and equity financing to fund ongoing exploration activities as well as its ability to explore and conduct business. These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At July 31, 2020, the Company had working capital of $3,267,744 (2019 – working capital deficiency of $506,583). 2. BASIS OF PREPARATION Generally accepted accounting principles These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”) for financial information with the instructions to Form 10-K and Regulation S-K. Certain of the prior year comparative figures have been reclassified to conform to the presentation adopted in the current year. 46 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 2. BASIS OF PREPARATION (continued) Basis of Consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Rise Grass Valley Inc. All significant intercompany accounts and transactions have been eliminated on consolidation. Subsidiaries Subsidiaries are all entities over which the Company has exposure to variable returns from its involvement and has the ability to use power over the investee to affect its returns. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases. The accounts of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Intercompany transactions, balances and unrealized gains or losses on transactions are eliminated upon consolidation. Use of Estimates The preparation of these financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant areas requiring the use of estimates include the carrying value and recoverability of mineral properties and the recognition of deferred tax assets based on the change in unrecognized deductible temporary tax differences. Actual results could differ from those estimates, and would impact future results of operations and cash flows. 47 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 3. SIGNIFICANT ACCOUNTING POLICIES Functional and reporting currency The Company changed its functional currency from Canadian dollars to United States dollars as at August 1, 2019. The change in functional currency from Canadian dollars to United States dollars is accounted for prospectively from August 1, 2019. Management determined that the Company’s functional currency had changed based on the assessment related to significant changes of the Company’s economic facts and circumstances. These significant changes included the fact that the Company’s equity and debt financings as well as the majority of the Company’s expenses are now primarily denominated in US dollars. Moreover, the Company’s place of business and management are now located in the United States. In addition, beginning August 1, 2019, the Company also changed its reporting currency from Canadian dollars to United States dollar to provide greater clarity to users of the financial statements. The change in reporting currency was applied retrospectively effective beginning August 1, 2019. Financial statements for all periods presented have been recast into United States dollars. All monetary assets and liabilities denominated in foreign currencies are translated into United States dollars using exchange rates in effect as of the date of the balance sheet date. The United States dollar translated amounts of nonmonetary assets and liabilities as of August 1, 2019 became the historical accounting basis for those assets and liabilities as of August 1, 2019. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. All resulting exchange differences were recognized within currency translation adjustment, a separate component of shareholders’ equity. In applying the change in reporting currency, the Company applied the current rate method for presenting the comparative period presented. Under this method, all assets and liabilities of the Company’s operations were translated from their Canadian dollar functional currency into United States dollars using the exchange rates in effect on the balance sheet date, and shareholders’ equity were translated at the historical rates. Opening shareholders’ equity at August 1, 2017 has been translated at the historic rate on that date and any other movements in shareholders’ equity during the period from August 1, 2017 to July 31 2019 were translated using the appropriate historical rates at the date of the respective transaction. All other revenues, expenses and cash flows were translated at the average rates during the reporting periods presented. The resulting translation adjustments are reported under comprehensive income as a separate component of shareholders’ equity. Derivatives Derivatives are initially recognized at the fair value on the date the derivative contract is entered into and transaction costs are expensed. The Company’s derivatives are subsequently re-measured at their fair value at each balance sheet date with changes in fair value recognized in profit or loss. As the exercise price of the Company’s warrants are in Canadian Dollars, and the functional currency of the Company is the United States Dollar, these warrants are considered a derivative as a variable amount of cash in the Company’s functional currency will be received upon exercise. Receivables The Company reviews all receivables that exceed terms and establishes an allowance for doubtful accounts based on management's assessment of the collectability of trade and other receivables. 48 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Mineral property The costs of acquiring mineral rights are capitalized at the date of acquisition. After acquisition, various factors can affect the recoverability of the capitalized costs. If, after review, management concludes that the carrying amount of a mineral property is impaired, it will be written down to estimated fair value. Exploration costs incurred on mineral properties are expensed as incurred. Development costs incurred on proven and probable reserves will be capitalized. Upon commencement of production, capitalized costs will be amortized using the unit-of-production method over the estimated life of the ore body based on proven and probable reserves (which exclude non-recoverable reserves and anticipated processing losses). When the Company receives an option payment related to a property, the proceeds of the payment are applied to reduce the carrying value of the exploration asset. Long-lived assets Long-lived assets, consisting of equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Equipment Equipment is recorded at cost less accumulated depreciation. Depreciation is provided over the assets’ useful lives on a straight-line basis. Equipment purchased by the Company is depreciated over 15 years. Asset retirement obligations The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). Loss per share Basic loss per common share is computed using the weighted average number of common shares outstanding during the year. To calculate diluted loss per share, the Company adjusts net income (loss) attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares such as stock options and warrants. As at July 31, 2020, 1,005,000 outstanding options and 12,472,000 outstanding warrants were excluded from the diluted calculation. Financial instruments The Company’s financial instruments consist of cash, receivables, accounts payable and accrued liabilities, loan payable, payable to related parties and equipment loan. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from its financial instruments. The fair values of these financial instruments approximate their carrying values unless otherwise noted. 49 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value of financial assets and liabilities The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor’s carrying amount or exchange amount. Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest rate method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income. The following indicates the fair value hierarchy of the valuation techniques the Company utilizes to determine the fair value of financial assets that are measured at fair value on a recurring basis. Level 1 – Unadjusted quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 – Inputs that are not based on observable market data. Cash is considered level 1 and classified as cash on hand and held at banks. Financial instruments, including payable to related parties, loan payable, accounts payable and accrued liabilities and equipment loan are classified as other financial liabilities and are carried at cost, which management believes approximates fair value due to the short-term nature of these instruments. Concentration of credit risk The financial instrument which potentially subjects the Company to concentration of credit risk is cash. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of July 31, 2020, and 2019, the Company has not exceeded the federally insured limit. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. Stock-based compensation The Company accounts for share-based compensation under the provisions of ASC 718, “Compensation-Stock Compensation”. Under the fair value recognition provisions, stock-based compensation expense is measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measured. Share-based compensation for all stock-based awards to employees and directors is recognized as an expense over the requisite service period, which is generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value. 50 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Income taxes The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss from the current year and any adjustment to income taxes payable related to previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or subsequently enacted by the year-end date. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax asset will not be recognized. Recently adopted and recently issued accounting standards On February 25, 2016, the FASB issued ASU No. 2016-02, “Leases”. This ASU applies to public companies beginning January 1, 2019 and affects the requirement that lessees account for all leases – both operating and finance – on the balance sheet while recognizing both an asset for the right to use the leased asset and an obligation to make lease payments over the lease term. The Company has assessed the impact of the adoption of this standard and determined that it has no significant impact. Other than the above, the Company has determined that other significant newly issued accounting pronouncements are either not applicable to the Company’s business or that no material effect is expected on the financial statements as a result of future adoption. 4. PREPAID EXPENSES 51 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 5. MINERAL PROPERTY INTERESTS The Company’s mineral properties balance consists of: Title to mineral properties Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain mineral titles as well as the potential for problems arising from the frequently ambiguous conveying history characteristic of many mineral properties. As at July 31, 2020, the Company holds title to the Idaho-Maryland Gold Mine Property. As of July 31, 2020, based on management’s review of the carrying value of mineral rights, management determined that there is no evidence that the cost of these acquired mineral rights will not be fully recovered and accordingly, the Company determined that no adjustment to the carrying value of mineral rights was required. As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and has incurred only acquisition and exploration costs. Idaho-Maryland Gold Mine Property, California On August 30, 2016, the Company entered into an option agreement with three parties to purchase a 100% interest in and to the Idaho-Maryland Gold Mine property located near Grass Valley, California, United States. Pursuant to the option agreement, in order to exercise the option, the Company was required to pay $2,000,000 by November 30, 2016. Upon execution of the option agreement, the Company paid the vendors a non-refundable cash deposit in the amount of $25,000, which would be credited against the purchase price of $2,000,000 upon exercise of the option. On November 30, 2016, the Company negotiated an extension on the closing date of the option agreement to December 26, 2016, in return for a cash payment of $25,000, which would be credited against the purchase price of $2,000,000 upon exercise of the option. On December 28, 2016, the Company negotiated a further no-cost extension of the closing date of the option agreement to April 30, 2017. On January 25, 2017, the Company exercised the option by paying $1,950,000 and acquired a 100% interest in the Idaho-Maryland Gold Mine property. In connection with the option agreement, the Company agreed to pay a cash commission of $140,000 equal to 7% of the purchase price of $2,000,000. The commission was settled on January 25, 2017 through the issuance of 92,000 units valued at $1.16 (C$2.00) per unit. Each unit consisted of one share of common stock and one transferable share purchase warrant exercisable into one share of common stock at a price of $3.04 (C$4.00) for a period of two years from the date of issuance. The Company also incurred additional transaction costs of $109,053, which have been included in the carrying value of the Idaho-Maryland Gold Mine. 52 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 5. MINERAL PROPERTY INTERESTS (cont’d…) On January 6, 2017, the Company entered into an option agreement with Sierra Pacific Industries Inc. (“Sierra”) to purchase a 100% interest in and to certain surface rights totalling approximately 82 acres located near Grass Valley, California, United States, contiguous to the Idaho-Maryland Gold Mine property acquired by the Company on January 25, 2017. Pursuant to the option agreement, in order to exercise the option, the Company was required to pay $1,900,000 by March 31, 2017. Upon execution of the option agreement, the Company paid the vendors a non-refundable cash deposit in the amount of $100,000, which was credited against the purchase price of $1,900,000 upon exercise of the option. On April 3, 2017, the Company negotiated an extension of the closing date of the option agreement to June 30, 2017, in return for a cash payment of $200,000, at which time a payment of $1,600,000 was due in order to exercise the option. On June 7, 2017, the Company negotiated an extension of the closing date of the option agreement to September 30, 2017, in return for a cash payment of $300,000, at which time a payment of $1,300,000 was due in order to exercise the option. On May 14, 2018, the Company completed the purchase of the surface rights totalling approximately 82 acres by making final payments totalling $1,300,000. On June 13, 2019, the Company received $150,000 from a third party as a prepayment to use the Company’s property for a period of six months. On December 13, 2019, the third party paid an additional $75,000 to continue using the Company’s property for another three months. As at July 31, 2020, $225,000 has been recognized as other income ($175,000 during the year ended July 31, 2020 and $50,000 during the year ended July 31, 2019) with the balance of $Nil (July 31, 2019 - $101,339) remaining as an advance. As at July 31, 2020, the Company has incurred cumulative exploration expenditures of $6,387,402 on the Idaho-Maryland Gold Mine property as follows: Year ended July 31, 2020 Year ended July 31, 2019 Recast (Note 3) Idaho-Maryland Gold Mine expenditures: Opening balance $ 4,750,611 $ 1,901,276 Consulting 1,472,374 536,217 Engineering 32,543 - Exploration (117,792) 1,650,633 Rent 71,363 93,832 Supplies 11,007 151,564 Sampling 112,153 237,162 Logistics 32,157 161,198 Depreciation 22,986 18,729 Total expenditures for the year 1,636,791 2,849,335 Closing balance $ 6,387,402 $ 4,750,611 53 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 6. EQUIPMENT AND EQUIPMENT LOAN During the year ended July 31, 2018, the Company recorded an equipment loan of $495,481 in connection with two diamond core drilling rigs purchased. As at July 31, 2019, the outstanding balance on this loan was $223,574. Pursuant to an agreement with the lender, the Company completed the purchase of the drilling equipment by making a lump sum payment which was due on or before December 1, 2019. Early settlement of the equipment loan resulted in a gain on settlement of equipment loan of $19,924 . 7. CONTINGENCY During the year ended July 31, 2014, the Company entered into a binding letter of intent (“LOI”) with Wundr Software Inc. (“Wundr”). Under the terms of the LOI, the Company would acquire 100% of the issued and outstanding common shares of Wundr. Due to unforeseen circumstances, the Company did not complete the transactions contemplated in the LOI, which the Company announced had expired on January 10, 2014. On September 17, 2014, the Company learned that it was the subject, along with a number of additional defendants, of a notice of civil claim (the “Claim”) filed in the Supreme Court of British Columbia by Wundr, under which Wundr is seeking general damages from the Company as well as damages for conspiracy to cause economic harm. None of the allegations contained in the Claim have been proven in court. Management has determined that the probability of the Claim resulting in an unfavourable outcome and financial loss to the Company is unlikely. 54 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 8. CONVERTIBLE DEBENTURE On February 13, 2019, the Company entered into convertible debenture whereby it received $772,917 (C$1,000,000) of principal amount (the “Debenture”) from Meridian Jerritt Canyon Corp. (“Meridian”), a wholly-owned subsidiary of Yamana Gold Inc. (“Yamana”). The Debenture has a term of six months and an annual interest rate of 12%, calculated and compounded monthly, payable in cash or units of the Company at Yamana’s option except as described below. The principal amount of the Debenture and any accrued interest thereon is convertible into units at a conversion price of C$1.00 per unit (the “Conversion Price”) at any time at the sole discretion of Meridian. In addition, the principal amount of the Debenture will automatically be converted into units at the Conversion Price if, during the term of the Debenture, Rise Gold is able to raise proceeds of C$800,000 under the Private Placement from investors other than Yamana in connection with the March 2019 private placement. On March 1, 2019, the Company completed a non-brokered private placement for a total of $1,378,184 (C$1,827,472). In conjunction with the closing, a total of 10,049,724 units have been issued to Yamana, through its wholly-owned subsidiary, Meridian, upon conversion of the $757,897 of the debenture (C$1,000,000 principal amount and accrued interest of C$4,972). As at July 31, 2019, the Debenture was fully converted. 9. RELATED PARTY TRANSACTIONS Key management personnel consist of the Chief Executive Officer, Chief Financial Officer, and the directors of the Company. The remuneration of the key management personnel is as follows: a) Salaries of $135,000 (2019 - $135,000) were paid or accrued to the CEO of the Company. b) Consulting fees of $Nil (2019 - $15,391) were paid or accrued to the former CFO of the Company and consulting fees of $Nil (2019 - $4,383) to a company in which the former CFO and a former director held a 50% interest. c) Directors fees of $84,167 (2019 - $55,106) to directors of the Company. d) During the year ended July 31, 2020, the Company paid $133,708 (2019 - $120,901) in professional fees to a company controlled by a director of the Company. e) During the year ended July 31, 2019, the Company received and fully repaid $66,495 in loans from the CEO of the Company. f) Share-based compensation of $326,393 (2019 - $126,190) for options granted during the year ended July 31, 2020. g) As at July 31, 2020, $79,479 (2019 - $129,638) was owed to related parties. 55 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 10. LOAN PAYABLE On September 3, 2019, the Company completed a debt financing with Eridanus Capital LLC (the “Lender”) for $1,000,000 (the “Loan”). The Loan has a term of 4 years and an annual interest rate of 10% for the first two years increasing to 20% in year 3 and to 25% in year 4. Interest will accrue and be paid along with the principal upon the maturity date. The Lender received 1,150,000 bonus share purchase warrants as additional consideration for advancing the Loan. The fair value of these warrants was calculated to be $444,942 which was netted against the loan payable balance along with $15,000 paid to the lender for a total of $459,942 in issuance costs. Each warrant entitles the holder to acquire one share of common stock at an exercise price of $0.80 (C$1.00) for a period of three years from the date of issuance. The Loan may be repaid prior to the maturity date, in whole or in part, provided that all accrued interest is paid. In addition, if total interest payments are less than $200,000, the difference will be paid to the Lender as prepayment compensation. The Loan is secured against the assets of the Company and its subsidiary and will be used for permitting, engineering and working capital at the Company’s Idaho Maryland Gold Project. 11. WARRANT DERIVATIVE The exercise price of the Company’s share purchase warrants is fixed in Canadian dollars and the functional currency of the Company is the US dollar. These warrants are considered to be a derivative as a variable amount of cash in the Company’s functional currency that will be received on exercise of the warrants. Accordingly, the share purchase warrants issued as part of past financings, are classified and accounted for as warrant derivative. Share purchase warrants with a compensatory nature are not included in this calculation. The following table shows a continuity of the Company’s fair value of warrant derivative: As the initial recognition as well as the revaluation of these warrants both took place within the year ended July 31, 2020, the Company recorded a loss on fair value adjustment on warrant derivative of $2,218,107 during the year ended July 31, 2020. 56 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 11. WARRANT DERIVATIVE (continued) The following weighted average assumptions were used for the Black-Scholes pricing model valuation of warrants as at July 31, 2020 and August 1, 2019: July 31, 2020 August 1, 2019 Risk-free interest rate 1.52% 2.12% Expected life of warrants 0.46 – 2.05 years 0.16 to 2.93 years Expected annualized volatility 92.6% to 117% 115.6% to 127.5% Dividend Nil Nil Forfeiture rate 0% 0% 12. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL Private Placements On August 30, 2018, the Company completed a first tranche of a non-brokered private placement, issuing an aggregate of 288,125 units at a price of $0.60 (C$0.80) per unit for gross proceeds of $177,580 (C$230,500). Each unit consists of one share of common stock and one share purchase warrant exercisable into one share of common stock at a price of $0.90 (C$1.20) for a period of three years from the date of issuance until August 30, 2021. On September 17, 2018, the Company completed a second tranche of a non-brokered private placement, issuing an aggregate of 200,313 units at a price of $0.60 (C$0.80) per unit for gross proceeds of $123,089 (C$160,250). Each unit consists of one share of common stock and one share purchase warrant exercisable into one share of common stock at a price of $0.90 (C$1.20) for a period of three years from the date of issuance until September 17, 2021. On October 16, 2018, the Company completed a strategic initial investment in a financing of $1,352,606 (C$1,750,000) by issuing 1,750,000 units to Meridian Jerritt Canyon Corp. (“Meridian”), a wholly-owned subsidiary of Yamana Gold Inc. (“Yamana”). Each unit consists of one share of common stock at a price of $0.80 (C$1.00) per unit and one-half of one share purchase warrant exercisable at a price of $1.00 (C$1.30) until October 16, 2020. As a result of the investment, the investor owned approximately 12.6% of the Company’s issued and outstanding shares on a non-diluted basis. In conjunction with the investment, the Company issued 87,500 share purchase warrants valued at $37,630 (discount rate – 1.65%, volatility – 139.09%, expected life – 2 years, dividend yield – 0%) as a finder’s fee to Southern Arc Minerals Inc. (“Southern Arc”), a party at arm’s length with the Company, which will be exercisable into one share of common stock at a price of $1.00 (C$1.30) until October 16, 2020. On November 5, 2018, the Company raised $572,694 (C$750,000) through the sale of 750,000 units at $0.80 (C$1.00) per unit where each unit consists of one share of common stock and one half of one share purchase warrant exercisable into one share of common stock at a price of $1.00 (C$1.30) until November 5, 2020. All 750,000 units issued in the final tranche were acquired by Southern Arc. 57 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 12. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued) On March 1, 2019, the Company completed a non-brokered private placement for a total of $1,378,184 (C$1,827,472) through the sale of 1,827,472 units at a price of $0.80 (C$1.00) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant is exercisable into one share of common stock at a price of $1.00 (C$1.30) until March 1, 2021. Out of the 1,827,472 units issued as part of this private placement, 1,004,972 units were issued to Meridian to settle convertible debt balance of $757,897 (C$1,004,972). In connection with the private placement, the Company incurred finders’ fees and share issuance costs of $80,919 (C$107,299), and issued a total of 19,950 finders’ warrants valued at $8,371 (C$11,100) (discount rate – 1.65%, volatility – 139.09%, expected life – 2 years, dividend yield – 0%), exercisable into one share of common stock at a price of $0.13 for a period of two years from the date of issuance. On July 3, 2019, the Company completed the first tranche of a non-brokered private placement. The Company raised a total of $552,000 (C$725,769) through the sale of 1,036,813 units at a price of $0.50 (C$0.70) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant entitles the holder to acquire one additional share at an exercise price of $0.80 (C$1.00) until July 3, 2022. On August 19, 2019, the Company completed the second tranche of a non-brokered private placement for a total of $2,412,281 (C$3,207,850) through the sale of 4,582,644 units at a price of $0.53 (C$0.70) per unit where each unit consists of one share of common stock and one-half of one share purchase warrant. Each whole warrant is exercisable into one share of common stock at a price of $0.80 (C$1.00) until August 19, 2022. The Company has paid finders’ fees and associated legal fees of $8,710 and issued a total of 11,196 finder’s warrants with a value of $4,990 entitling the holder to acquire one share at a price of $0.80 (C$1.00) until August 19, 2022. The following weighted average assumptions were used for the Black-Scholes pricing model valuation of these warrants: Risk-free interest rate – 1.52%; expected volatility – 123.27%; share price of C$0.85 and strike price – C$1.00; expected life of warrants – 3 years. On July 31, 2020, the Company completed a non-brokered private placement for a total of $3,272,875 through the issuance of 4,363,833 units at a price of $0.75 per Unit (C$1.02 per Unit), with each Unit comprising of one share of common stock (a “Share”) and one-half of one share purchase warrant. Each whole warrant entitles the holder to acquire one Share at an exercise price of $1.00 until July 31, 2022. The Company paid a total of $40,414 in finders fees and issued a total of 43,435 finders warrants with a fair value of $15,500, where each finder’s warrant entitles the holder to acquire one Share at a price of $1.00 until July 31, 2022. The following weighted average assumptions were used for the Black-Scholes pricing model valuation of these warrants: Risk-free interest rate – 1.52%; expected volatility – 115.42%; share price of C$0.86 and strike price – C$1.02; expected life of warrants – 2 years. To accommodate the lack of authorized capital to facilitate the closing of the private placement, the Company’s President and CEO surrendered 1,097,298 stock options priced between C$0.70 and C$2.40 per share. 58 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 12. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued) Stock Options On November 30, 2018, the Company granted 290,000 stock options with a fair value of $131,300 to employees and directors of the Company. The options are exercisable at C$1.00 per share for a period of five years and expire on November 30, 2023. During the year ended July 31, 2020, the Company granted a total of 826,284 stock options with a fair value of $357,271 to employees, officers, directors, and consultants of the Company, exercisable at a weighted average price of C$0.68 per share for a period of five years. The following incentive stock options were outstanding at July 31, 2020: Number of Options Weighted Average Exercise Price ($C) Expiry Date 110,000 $ 1.50 March 22, 2021 75,000 0.50 March 17, 2023 350,000 1.20 April 19, 2023 180,000 1.00 November 30, 2023 290,000 1.00 August 21, 2024 1,005,000 $ 1.03 Stock option transactions are summarized as follows: 59 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 12. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued) The following weighted average assumptions were used for the Black-Scholes pricing model valuation of stock options issued during the year ended July 31: 2020 2019 Risk-free interest rate 1.52% 2.12% Expected life of stock options 3-5 years 5.0 years Expected annualized volatility 117.21%-123.27% 136.38% Dividend Nil Nil Forfeiture rate 0% 0% Warrants The following warrants were outstanding at July 31, 2020: Number of Warrants Exercise Price (C$) Expiry Date 3,516,100 1.50 April 18, 2021 288,125 1.20 August 31, 2021 200,313 1.20 September 17, 2021 962,500 1.30 October 16, 2020 375,000 1.30 November 5, 2020 933,686 1.30 March 1, 2021 518,407 1.00 July 3, 2022 2,302,517 1.00 August 19, 2022 1,150,000 1.00 September 3, 2022 2,225,352 1.36 July 31, 2022 12,472,000 1.27 60 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 12. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued) Warrant transactions are summarized as follows: The following weighted average assumptions were used for the Black-Scholes pricing model valuation of finders’ warrants issued during the year ended July 31: 2020 2019 Risk-free interest rate 1.52% 1.65% Expected life of warrants 2.0-2.05 years 2.0 years Expected annualized volatility 115.42%-116.76% 139.09% Dividend Nil Nil Forfeiture rate 0% 0% Share-Based Payments The Company has a stock option plan under which it is authorized to grant options to executive officers and directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. Under the plan the exercise price of each option equals the market price of the Company’s stock, less any applicable discount, as calculated on the date of grant. The options can be granted for a maximum term of 5 years with vesting determined by the board of directors. 61 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 13. INCOME TAXES A reconciliation of income taxes (recovery) at statutory rates with the reported taxes is as follows: 2020 2019 Loss before income taxes $ (5,471,535) $ (4,361,900) Expected income tax (recovery) at statutory tax rates $ (1,148,000) $ (918,948) Change in statutory, foreign tax, foreign exchange rates and other (158,000) (184,244) Permanent differences 253,000 28,054 Adjustment to prior years provision versus statutory tax return and expiry of non-capital losses (7,000) 257,032 Change in unrecognized deductible temporary difference 1,060,000 818,106 Income tax recovery $ - $ - Significant components of deferred tax assets (liabilities) that have not been included on the Company’s consolidated balance sheet are as follows: 2020 2019 Deferred tax assets (liabilities): Mineral property interest $ 1,381,000 $ 1,075,897 Non-capital losses available for future period 2,228,000 1,524,755 3,609,000 2,600,652 Unrecognized deferred tax assets (3,609,000) (2,600,652) Net deferred tax assets $ - $ - The Company has approximately $7,650,000 (2019 - $8,703,000) in net operating losses which may be carried forward and applied against taxable income in future years. The significant components of the Company’s temporary differences, unused tax credits and unused tax losses that have not been included on the consolidated statement of financial position are as follows: Tax attributes are subject to review and potential adjustments by tax authorities. 62 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 14. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS During the years ended July 31, 2020 and 2019, the Company had the following non-cash financing and investing activities: For the year ended July 31, 2020: a) The Company issued a total of 11,196 finder’s warrants entitling the holder to acquire one share at a price of C$1.00 until August 19, 2022 with a fair value of $4,990. b) The Company issued a total of 43,435 finder’s warrants entitling the holder to acquire one share at a price of C$1.02 until August 19, 2022 with a fair value of $15,500 (C$20,777). For the year ended July 31, 2019: c) Issued 107,450 in finders’ warrants valued at $46,001 recorded as share issuance costs (Note 12); d) As at July 31, 2019, accounts payable and accrued liabilities include $20,836 relating to the July 2020 instalment of the equipment loan; e) During the year ended July 31, 2019, the Company issued 62,500 units at C$0.80 per unit to settle C$50,000 in accounts payable and 7,500 units to settle C$7,500 in accounts payable. f) As at July 31, 2019, the Company has $37,842 of share issuance costs included in accounts payable and accrued liabilities. 15. SEGMENTED INFORMATION A reporting segment is defined as a component of the Company that: - Engages in business activities from which it may earn revenues and incur expenses; - Operating results are reviewed regularly by the entity’s chief operating decision maker; and - Discrete financial information is available The Company has determined that it operates its business in one geographical segment located in California, United States, where all of its equipment and mineral property interests are located. 63 RISE GOLD CORP. (An Exploration Stage Company) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 2020 (Expressed in United States Dollars) 16. SUBSEQUENT EVENTS On September 22, 2020, the Company announced that it has granted a total of 1,338,500 stock options to the Corporation’s President & CEO, Benjamin Mossman. The stock options are excisable at a price of US$0.90 (C$1.20) per share until September 22, 2025. On September 23, 2020, the Company announced that it has completed the non-brokered private placement announced previously. The Corporation raised a total of US$250,000 through the issuance of 333,333 units at a price of US$0.75 per Unit (CDN$1.02 per Unit), with each Unit comprising one share of common stock and one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one Share at an exercise price of US$1.00 until September 21, 2022. Subsequent to the year ended July 31, 2020, 962,500 warrants expired unexercised. 64 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.