RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
1.
NATURE AND CONTINUANCE OF OPERATIONS
RTN Stealth Software Inc. (formerly known as Arris Resources Inc. hereafter refers to the “Company” or
“RTN Stealth”) is a public company incorporated in the Province of British Columbia, Canada.
On December 21, 2009, the Company changedits name from Arris Resources Inc. to RTN Stealth Software
Inc. At the same time, the Company changed its trading symbol to RTN. The Company is listed on
Canadian National Stock Exchange. The Company holds an interest in an oil and gas project in Alberta,
Canada and an interest in various mineral claims in the Atlin Mining District in Atlin, BC. Subsequent to
the year ended December 31, 2009, the Company entered into the software business and executed a
definitive agreement to acquire an exclusive and perpetual license to a security trading software: the Market
Navigation, Trade Execution, and Market Timing Software (note 14).
Under the Plan of Arrangement dated November 5, 2009, and subsequent to the year end December 31,
2009, the Company transferred its interest in five mineral claims in British Columbia, Canada, its
agreement with a British Columbia manufacturing company to distribute its earth quake sensor products in
India and its marketable securities to its three subsidiaries to complete the spin-off. Excluding the
marketable securities of $1,448,800 that would have been transferred out, the Company would have a
working capital of $556,956 and accumulated a deficit of $3,018,127 as at December 31, 2009. As the
Company had changed its business from resource exploration into the software business, it is unsure
whether the Company may successfully change its business model and strategic direction. The ability of
the Company to continue to operate as a going concern is dependent on its ability to ultimately operate its
business at a profit. To date, the Company has not generated any revenues from operations and willmost
likely require additional funds to meet its obligations and the costs of its operations. As a result, further
losses are anticipated priorto the generation of any profits.
The Company’s future capital requirements will depend on many factors, including the costs of operating
the software business. The Company’s anticipated operating losses and increasing working capital
requirementsmay require that it obtain additional capital to continue operations.
The Company will depend almost exclusively on outside capital. Such outside capital will include the sale
of additional shares. There can be no assurance that capital will be available as necessary to meet these
continuing operating costs or, if the capital is available, that it will be on terms acceptable to the Company.
The issuances of additional equity securities by the Company may result in significant dilution to the equity
interests of its current shareholders. Obtaining commercial loans, assuming those loans would be available,
will increase the Company’s liabilities and future cash commitments. If the Company is unable to obtain
financing in the amounts and on terms deemed acceptable, the business and future success may be
adversely affected, thus giving rise to doubt about the Company’s ability to continue as a going concern.
The financial statements do not reflect adjustments to the carrying values of assets, liabilities or reported
results should the Company be unable to continue as a going concern.
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES
(a)
Basis of Presentation and Principles of Consolidation
These financial statements have been prepared in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”). Note 13, reconciles the consolidated financial statements prepared in
accordance with Canadian GAAP to financial statements prepared in accordance with United States
generally accepted accounting principles (“US GAAP”).
These consolidated financial statements include the accounts of RTN Stealth Software Inc. and its wholly
owned subsidiaries: Arris Holdings Inc. (“AHI”), Arris Minerals Inc. (“AMI”) (inactive) , Arris Oil & Gas
Inc. (“AOG”) (inactive), CLI Resources Inc. (“CLI”)and QMI Seismic Inc. (“QMI”).
All significant inter-company transactions and transactions have been eliminated upon consolidation.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES (continued)
(b)
Cash and cash equivalents
Cash and equivalents consist of cash and highly liquid investments, having maturity dates of three months
or less from the date of acquisition, that are readily convertible to known amounts of cash. As at December
31, 2009, the Companyhad cashand cash equivalents of $379,284 (2008- $99,366).
(c)
Financial Instruments
All financial instruments, including derivatives, are included on the Company’s balance sheet and
measured either at fair value or amortized cost. Changes in fair value are recognized in the statements of
operations or accumulated other comprehensive income, depending on the classification of the related
instruments.
All financial assets and liabilities are recognized when the entity becomes a party to the contract creating
the asset or liability. All financial instruments are classified into one of the following categories: held for
trading, held-to-maturity, loans and receivables, available-for-sale financial assets, or other financial
liabilities. Initial and subsequent measurement and recognition of changes in the value of financial
instruments depends on their initial classification:
• Held-to-maturity investments, loans and receivables, and other financial liabilities are initially
measured at fair value and subsequently measured at amortized cost. Amortization of premiums or
discounts and losses due to impairment are included in current period net earnings (loss).
• Available-for-sale financial assets are measured at fair value. Changes in fair value are included in
other comprehensive income (loss) until the gain or loss is recognized in net earnings (loss) or if
impairment is determined to be other than temporary.
• Held for trading financial instruments are measured at fair value. All changes in fair value are
included in net earnings (loss) in the period in which they arise.
• All derivative financial instruments are measured at fair value, even when they are part of a
hedging relationship. Changes in fair value are included in net earnings (loss) in the period in
which they arise, except for cash flow hedge transactions which qualify for hedge accounting
treatment in which case gains and losses are recognized in other comprehensive income (loss).
The Company had classified its financial instruments as follows:
Financial Instrument
Classification
Measurement
Cash and equivalents/ bank
indebtedness
Held for Trading
Fair Value
Marketable securities and
investments (i)
Available for Sale
Fair Value
Amortized
Accounts receivable
Loans and Receivables
cost
Amortized
Advances to a related party
Loans and Receivables
cost
Accounts payable and accrued
Other Financial
Amortized
liabilities
Liability
cost
Other Financial
Amortized
Advances from a related party
Liability
cost
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES (continued)
i.) Marketable securities and investments are classified as available-for-sale
securities and are measured at fair market value with unrealized gains or losses
recorded in other comprehensive income (loss). At the time securities are sold or
otherwise disposed of, gains or losses are included in net earnings (loss).
The Company also discloses quantitative and qualitative information that enable users to evaluate the
significance of financial instruments on the Company’s financial performance, andthe nature and extent of
risks arising from financial instruments to which the Company is exposed during the year and at the
balance sheet date. In addition, the Company discloses management’s objectives, policies and procedures
for managing these risks. These disclosures are presented in note 4.
(d)
Basis of Amortization
Equipment is recorded and amortized on a declining-balance basis at an annual rate of 55% for computer
equipment, 100% for software and 20% for office furniture.
(e)
Mineral Properties
The cost of unproven mineral rights and their related direct exploration costs are deferred until the
properties are placed into production, sold or abandoned. These deferred costs will be amortized on the
unit-of-production basis over the estimated useful life of the properties following the commencement of
production, or written-off if the properties are sold, allowed to lapse or abandoned.
Cost includes any cash consideration and the fair market value of any shares issued on the acquisition of
mineral right interests. Properties acquired under option agreements, whereby payments are made at the
sole discretion of the Company, are recorded in the accounts when the payments are made. The recorded
amounts of property acquisition costs and their related deferred exploration costs represent actual
expenditures incurred and are not intended to reflectpresent or future values.
The Company reviews capitalized costs on its mineral rights on a periodic basis and will recognize
impairment in value based upon current exploration results and upon management’s assessment of the
future probability of profitable revenues from the property or from the sale ofthe property. Management’s
assessment of the property’s estimated current fair market value is also based upon a review of other
property transactions that have occurred in the same geographic area as that of the property under review.
Administrative costs are expensed asincurred.
(f)
Oil and gas properties
Oil and natural gas properties are accounted for using the successful efforts method of accounting.
Geological and geophysical costs are expensed in the period in which they are incurred and costs of drilling
an unsuccessful well are expensed when it becomes known the well did not result in a discovery of proven
reserves or where one year has elapsed since the completion of drilling and efforts to establish proved
reserves are not practical. All other costs of exploring and developing proven reserves are capitalized as oil
and gas properties.
Oil and gas properties are depleted using the unit-of-production method. Unit-of-production rates are based
on proven developed reserves, which are reserves estimated to be recovered from existing facilities using
current operating methods. Unproved properties are not subject to depletion.
Oil and gas properties are assessed, at least annually, for impairment to ensure that the carryingvalue of the
property on the balance sheet is recoverable. If a property's carrying value exceeds the sum of undiscounted
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES (Continued)
future cash flows resulting from its use and eventual disposition, its value is impaired. An impairment loss
is recognized for the amount by which the carrying value exceeds its recoverable amount. This loss is
charged to depletion expense.
(g)
Impairment of long-lived assets
Long-lived assets, including mineral property interests, plant and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount
and the fair value less costs to sell, and are no longer amortized.
(h)
Share capital
Share capital issued for non-monetary consideration is recorded at its fair market value based on its trading
price on the TSX Venture Exchange on the date the agreement to issue the shares was entered into as
determined by the Board of Directors of the Company. Costs incurred to issue shares are deducted from
share capital.
(i)
Stock-based compensation
The Company records all stock-based payments using the fair value method. Under the fair value method,
stock-based payments are 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 measurable, and are charged to
operations over the vesting period. The offset is credited to contributed surplus.
Consideration received on the exercise of stock options is recorded as share capital and the related
contributed surplus is transferred to share capital.
(j)
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method,
future income tax assets and liabilities are computed based on differences between the carrying amounts of
assets and liabilities on the balance sheet and their corresponding tax values, generally using the
substantively enacted or enacted income tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Future income tax assets also result
from unused loss carry forwards, resource-related pools, and other deductions. Future tax assets are
recognized to the extent that they are considered more likely than not to berealized. The valuation of future
income tax assets is adjusted, if necessary, by the use of a valuation allowance to reflect the estimated
realizable amount.
(k)
Functional currency and foreign currency translations
The Company’s functional currency is the Canadian dollar as the Canadian dollar is the currency of the
primary economic environment in which the Company operates. All of the business operations of the
Company are located in Canada. The majority of the Company’s financings are in Canadian dollars.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES (Continued)
(k)
Functional currency and foreign currency translations (continued)
Foreign currency monetary assets and liabilities are translated into Canadian dollars at the exchange rate in
effect at the balance sheet date. Non-monetary assets, liabilities, revenues and expenses are translated into
Canadian dollars at the rate of exchange prevailing on the respective dates of the transactions. Foreign
exchange gains and losses are included in net earnings.
(l)
Earnings (loss) per common share
Loss per share is calculated based on the weighted average number of common shares issued and
outstanding during the year. The company follows the treasury stock method in the calculation of diluted
earnings per share for the current year. Under this method, the weighted average number of common shares
included the potential net issuance of common share of “in-the-money” options and warrants assuming the
proceeds are used to repurchase common shares at the average market price during the period, if dilutive.
The effect of potential issuances of shares under options and warrants would be anti-dilutive if a loss is
reported and, therefore basic and diluted loss per share is same for the previous years.
(m)
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the reporting
year. Significant areas requiring the use of management estimates relate to the impairment of mineral
properties, oil and gas properties, equipment, income taxes, valuation allowances for future income tax
assets, depreciation and amortization, and the assumptions used in computing stock-based compensation.
Actual results could differ from these estimates.
(n)
Segment disclosures
The Company operates in a single reportable operating segment, the exploration, development and
operation of mineral property interests, within the geographic area of British Columbia, Canada.
(o)
Going Concern (Amendments to Section 1400)
Canadian GAAP requires management to make an assessment of the Company’s ability to continue as a
going concern, and to disclose any material uncertainties related to events or conditions that may cast
significantdoubt upon the entity’s ability to continue as a going concern.
In assessing the appropriateness of the going concern assumption, management is required to consider all
available information about the future which is at least, but not limited to, twelve months from the balance
sheet date and to disclose any material uncertainties related to events or conditions that may cast significant
doubt upon the entity’s ability to continue as a going concern.
Disclosure with regard to going concern has been included in note 1.
(p)
Comparative figures
Certain comparative figures have been reclassified to conform to the presentation adopted for the current
period.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
2.
SUMMARY OF SIGNICANT ACCOUNTING POLICIES (Continued)
(q)
Flow-through shares
The Company may issue securities referred to as flow-through shares, whereby the investor may claim the
tax deductions arising from the expenditure of the proceeds. When resource expenditures are renounced to
the investors and the Company has reasonable assurance that the expenditures will be completed, future
income tax liabilities are recognized (renounced expenditures multiplied by the effective corporate tax rate),
and share capital is reduced. Previously unrecognized tax assets may then offset or eliminate the liability
recorded.
(r)
Asset Retirement Obligation
The fair value of a liability for an asset retirement obligation is recognized on an undisclosed cash flow
basis when a reasonable estimate of the fair value of the obligation can be made. The asset retirement
obligation is recorded as a liability with corresponding increases to the carrying amount of the related
long –lived asset. Subsequently, the asset retirement cost is allocated to expense using a systematic and
rational method and is adjusted toreflect period to period changes in the liability resulting from the passage
of time and from revisions to either expected payment dates or the amounts comprising the original
estimate of the obligation. As at December 31, 2009, the company does not have any asset retirement
obligations.
(s)
Environmental expenditures
The operations of the Company have been, and may in the future be, affected from time to time in varying
degree by changes in environmental regulations, including those for site restoration costs. The overall
future impact of such regulations is neither determinable nor predicable at the present time. The Company’s
policy is to meet or, if possible, surpass environmental standards set by relevant legislation by the
application of technically proven and economically feasible measures.
Expenditures that relate to ongoing environmental and reclamation programs are charged against operations
as incurred or capitalized and amortized depending on their expected future economic benefit. Estimated
future removal and site restoration costs will be recognized when the ultimate liability is reasonably
determinable, and will be charged against operations over the estimated remaining life of the related
business operations, net of expected recoveries.
3.
CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2009, the Company adopted the following accounting standards issued by the
Canadian Institute of Chartered Accountants (“CICA”). These new standards hav e been adopted
with no restatement to the prior periods as follows:
(a) Section 3064– Goodwill and Intangibles
The Canadian Accounting Standards Board ("AcSB") issued CICA Handbook Section 3064 which replaces
Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development
Costs. This new section establishes revised standards for the recognition, measurement, presentation and
disclosure of goodwill and intangible assets. The Company evaluated the impact of this new standard and
concluded that this standard did not have a significant impact on the Company’s consolidated financial
statements.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
3.
CHANGE IN ACCOUNTING POLICIES (Continued)
(b) EIC 173– Credit Risk and the Fair Value of Financial Assets and Financial Liabilities
The AcSB issued EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities,
which requires the Company to consider its own credit risk as well as the credit risk of its counterparties
when determining the fair value of financial assets and liabilities, including derivative financial
instruments. The standard is effective for the first quarter of fiscal 2009 and is required to be applied
retrospectively without restatement of prior periods. The adoption of this standard did not have an impact
on the valuation of financial assets or liabilities of the Company.
(c) EIC 174– Mining Exploration Costs
The AcSB issued EIC-174, Mining Exploration Costs, which provides guidance to mining enterprises
related to the measurement of exploration costs and the conditions that a mining enterprise should consider
when determining the need to perform an impairment review of such costs. The accounting treatments
provided in EIC-174 have been applied in the preparation of these consolidatedfinancial statements and did
not have an impact on the valuation of the Company’s mineral properties.
(d) Fair Value Hierarchy
During the year, CICA Handbook Section 3862, Financial Instruments – Disclosures was amended to
require enhanced disclosures about the relative reliability of the data, or “inputs”, that an entity uses to
measure the fair values of its financial instruments. It requires financial instruments measured at fair value
to be classified into one of three levels in the “fair value hierarchy” according to the rel ative reliability of
the inputs used to estimate the fair values. These disclosures are presented in note 4(b).
(e) Amendments to CICA 3855
The CICA amended Handbook Section 3855, Financial Instruments – Recognition and Measurement to
provide additional guidance concerning the assessment of embedded derivatives upon reclassification of a
financial asset out of the held-for-trading category, amend the definition of loans and receivables, amend
the categories of financial assets into which debt instruments are required or permitted to be classified,
amend the impairment guidance for held-to-maturity debt instruments and require reversal of impairment
losses on available-for sale debt instruments when conditions have changed. These amendments were
effective for fiscal years beginning on or after November 1, 2008. This amendment did not have a material
impact on the Company’s consolidated financial statements.
(f) New Accounting Standards Not Yet Adopted:
i) International Financial Reporting Standards ("IFRS")
The AcSB has announced its decision to replace Canadian generally accepted accounting principles
(“Canadian GAAP”) IFRS for all Canadian publicly-listed companies. The AcSB announced that the
changeover date will commence for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2011. The transition date for the Company to changeover to IFRS will be
January 1, 2010. Therefore, the IFRS adoption will require the restatement for comparative purposes of
amounts reported by the Company for the year ending December 31, 2010. The Company has begun
assessing the adoption of IFRS for 2011 and is considering the accounting policy choices under IFRS.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
3.
CHANGES IN ACCOUNTING POLICIES (Continued)
ii) Business Combinations/Consolidated Financial Statements/Non-Controlling Interests
The AcSB issued CICA Sections 1582, Business Combinations, 1601, Consolidated Financial Statements,
and 1602,Non-Controlling Interests, which superseded current Sections 1581,Business Combinationsand
1600 Consolidated Financial Statements. These new Sections replace existing guidance on business
combinations and consolidated financial statements to harmonize Canadian accounting for business
combinations with IFRS. These Sections will be applied prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
January 1, 2011. Earlier adoption is permitted. If an entity applies these Sections before January 1, 2011, it
is required to disclose that fact and apply each of the new sections concurrently. The Company is currently
evaluating the impact of the adoption of these changes on its consolidated financial statements.
4.
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS
(a) Capital Management Objectives
The Company's primary objectives when managing capital are to safeguard the Company's ability to
continue as a going concern, so that it can continue to provide returns for shareholders, and to have
sufficient liquidity available to fund suitable business opportunities as they arise.
The Company considers the components of shareholders' equity, as well as its cash and equivalents,
marketable securities as capital. The Company manages its capital structure and makes adjustments to it in
light of changes in economic conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Company may issue equity, sell assets, or return capital to
shareholders as well as issue or repay debt.
The mining properties in which the Company currently has an interest are in the exploration stage; as such
the Company has historically relied on the equity markets to fund its activities. The Company will continue
to acquire an interest in additionalmining propertiesand business projects other than mining if it feels there
is sufficient economic potential and if it has adequate financial resources to do so.
In order to facilitate the management of its capital requirements, management reviews the requirement on
an ongoing and regularly basis and believes that this approach, given the relative small size of the
Company, is reasonable.
The Company’s investment policy is to invest its cash in highly liquid short-term interest-bearing
investments, having maturity dates of three months or less from the date of acquisition and that are readily
convertible to known amounts ofcash.
There were no changes to the Company's approach to capital management during the year ended December
31, 2009.
(b) Carrying Amounts and Fair Values of Financial Instruments
The fair value of a financial instrument is the price at which a party would accept the rights and/or
obligations of the financial instrument from an independent third party. Given the varying influencing
factors, the reported fair values are only indicators of the prices that may actually be realized for these
financial instruments.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
4.
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS(continued)
(b) Carrying Amounts and Fair Values of Financial Instruments (continued)
Financial instruments measured at fair value are classified into one of three levels in the fair value
hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels
of the fair value hierarchy are:
• Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
• Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly
or indirectly; and
• Level 3 – Inputs that are not based on observable market data.
It is not practicable to determine the fair value of advances from amounts receivable because of the nature
of such amounts and the absence of a secondary market for such instruments. The fair value of the
promissory note is not readily determinable with sufficient reliability due to the uncertainty around the
maturities and the future cash flows associated with the promissory note.
Aside from the financial instruments mentioned above, the following table illustrates the classification of
the Company’s financial instruments recorded at fair value within the fair value hierarchy as at
December 31, 2009:
Financial assets at fair value
Level 1
Level 2
Level 3
December
December
31, 2009
31, 2008
Cash and equivalents
$379,284
$
-
$
-
$ 379,284
$ 999,366
Held for trading
379,284
-
-
379,284
999,366
Marketable securities (note 7)
1,448,800
-
-
1,448,800
320,000
Available for sale financial assets
1,448,800
-
-
1,448,800
320,000
Total financial assets at fair value $1,828,084
$
-
$
-
$ 1,828,084
$ 419,366
Financial liabilities at fair value
Level 1
Level 2
Level 3
December
December
31, 2009
31, 2008
Total financial liabilities at fair value
$
-
$
-
$
-
$
-
$
-
(c) Financial Instrument Risk Exposure and Risk Management
The Company is exposed in varying degrees of financial instrument related risks. The Board approves
and monitors the risk management processes, including treasury policies, counterparty limits,
controlling and reporting structures. The types of risk exposure and the way in which such exposure is
managed are provided as follows:
(i.) Credit Risk
The Company is exposed to credit risk with respect to its cash, cash equivalents and amounts receivable.
Amounts receivable are primarily amounts owing from government agencies.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
4.
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
(c) Financial Instrument Risk Exposure and Risk Management (continued)
(i.) Credit Risk (continued)
Concentration of credit risk exists with respect to the Company’s cash and cash equivalents as the
majority of the amounts are held at several national financial institutions with strong investment-grade
ratings by a primary rating agency. The Company’s concentration of credit risk and maximum exposure
thereto is the Company’s cash and cash equivalents December 31, 2009 balance of $379,284 held at
several national financial institutions.
(ii.) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall
due. The Company manages liquidity by maintaining sufficient cash balances.
The following are the principal contractual maturities of financial liabilities:
Contractual
Over 3
As at December 31, 2009
Obligations
2010
2011
2012
years
Accounts payable and accrued
liabilities
$ 75,072 $ 75,072 $
– $
– $
–
Total liabilities
$ 75,072 $ 75,072 $
– $
– $
–
Contractual
Over 3
As at December 31, 2008
Obligations
2009
2010
2011
years
Accounts payable and accrued
liabilities
$ 2,094 $ 2,094 $
– $
– $
–
Amounts due to a related party
74,941
74,941
–
–
–
Total liabilities
$ 77,035 $ 77,035 $
– $
– $
–
(iii.) MarketRisk
-
CommodityPrice Risk
As at December 31, 2009, the Company was still in developmental stage with no revenue generating
mineral or oil and gas assets; therefore, the Company is not exposed to any commodity price risk.
-
Foreign Exchange Risk
The Company’s foreign currency transactions make it subject to foreign currency fluctuations and
inflationary pressures which may adversely affect the Company’s financial position, results of
operations, and cash flows. The Company is affected by changes in exchange rates between the
Canadian Dollar and US Dollar. During the fiscal year 2009, the Company attempts to transact its
business predominantly in Canadian Dollar to mitigate the foreign exchange risk.
As at December 31, 2009,the financial assets of the Company were all heldin Canadian dollars.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
4.
CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS(continued)
(c) Financial Instrument Risk Exposure and Risk Management (continued)
(iii.) MarketRisk (continued)
-
Interest Rate Risk
Interest rate risk consists of two components:
i)
To the extent that payments made or received on the Company’s monetary assets and liabilities are
affected by changes in the prevailing market interest rate, the Company is exposed to interest rate
cash flowrisk.
ii) To the extent that changes in prevailing market interest rates differs from the interest rates the
Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk.
The Company is not exposed to significant interest rate risk due to the short-term maturity nature of its
monetary assets. If the prevailing interest rate increases or decreases by 10%, the interest income would
have been increased or decreased by $3,000.
5.
MARKETABLE SECURITIES AND SHORT TERM INVESTMENT
As at December 31, 2009
Unrealized
Cost
gain (loss)
Fair value
Dessert Gold Ventures Inc. – common shares
$
303,515
$ (63,515)
$
240,000
Maxtech Ventures Inc. – common shares
220,515
8,285
228,800
Ona Power Corporation– security units (5b)
420,000
560,000
980,000
$
944,030
$ 504,770
$ 1,448,800
As at December 31, 2008
Unrealized
Cost
gain (loss)
Fair value
Dessert Gold Ventures Inc. – convertible debenture
(5a)
$
508,333 $ (188,333)
$ 320,000
$
508,333 $ (188,333)
$ 320,000
(a)
On October 31, 2008, the Company subscribed for an unsecured convertible debenture of Desert
Gold Ventures Inc. (“Desert Gold”), in the principal amount of $500,000. The debenture carries an interest
rate of 10% per annum and matures on April 30, 2009. At any time prior to the maturitydate, the Company
will be able to convert all or parts of the principal amount and the unpaid interest into units of Desert Gold
at a price of $0.50 per unit. Each unit consists of one common share and one common share purchase
warrant. Each warrant allows the Company to purchase one common share of Desert Gold at a priceof
$0.60 for a period of 6 months from thedate of the issuanceof such warrants.
The debenture of Desert Gold is classified as short-term investment held-for-trading according to Section
3855 of the CICA Handbook, and has been adjusted to fair value inthese financial statements based onthe
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
5.
MARKETABLE SECURITIES AND SHORT TERM INVESTMENT(continued)
December 31, 2008 estimated fair value of 1,016,666 common shares of Desert Gold ($305,000) and
1,016,666 warrants of that company at a fair value, estimated utilizing the Black-Scholes valuation formula,
of $15,000.
On April 30, 2009, the maturity date of the convertible feature of the convertible debenture, the Company
did not convert the debenture into common shares of Dessert Gold. The debenture was therefore reclassified
from held-for-trading short-term investment to held-to-maturity loan receivable on the same date in
accordance with CICA Section 3855. The previous write-down of convertible debenture, $188,333, was
recovered to reflect its carrying cost as at April 30, 2009. The debenture was fully repaid on July 2009.
The Company further advanced $25,000 to Dessert Gold on May 11, 2009, which was due on August 9,
2009. On July 31, 2009, Desert Gold made a payment of $562,756 to redeem the debenture and to fully
repay the May 11, 2009 advance.
(b)
The Company subscribed 2,800,000 security units of Ona Power Corp. (“Ona”) through a private
placement on August 20, 2009. Each security unit consists of one common share and one common share
purchase warrant (the “Warrant”). Each Warrant entitles the Company to acquire one common share ofOna
at a price of $0.20 per share for a period of two years.
The investment in Ona units is classified as marketable securities available-for-sale according to Section
3855 of the CICA Handbook, and has been adjusted to fair value in these consolidated financial statements
as of December 31, 2009. The Company allocated $218,400 to Ona common shares and $201,600 to Ona
warrants at date of acquisition. The allocation was calculated by valuing the common shares and warrants
separately and adjusting the resulting amounts on a pro-rata basis so the sum of the amounts allocated to the
common share and the warrants equal to the amount of cash investment. The assumptions used in valuing
the fair value of the warrants by using the Black-Scholes Option Pricing Model are: Risk-free interest rate of
1.5%, dividend yield of 0%, expected volatility of 188% and expected life of 2 years. The fair value
adjustments to the Ona common shares and the warrants as at December 31, 2009 were based on the same
pro-rata basis as calculated on date of acquisition and resulted an adjustment to the common shares
component of $291,200 and an adjustment to the warrants component of $268,800 for a total fair value
adjustments of $560,000.
6.
EQUIPMENT
December 31, 2009
December 31, December 31,
2008
2007
Cost
Accumulated
Net
Net
Net
Amortization
Office furniture
$
3,414
$
1,922
$
1,492
$
1,865 $
2,305
Computer
10,348
8,000
2,348
3,664
1,771
equipment
Computer
10,073
9,973
100
572
-
software
Leasehold
2,522
2,522
-
1,156
1,577
improvements
$
26,357 $
22,417
$
3,940
$
7,257 $
5,653
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
7.
MINERAL PROPERTY
Moly Project - Atlin, BC
In October 2008, the Company entered into an agreement with TJJ Holdings Inc., whereby TJJHoldings Inc.
agreed to sell to the Company all the interest in the mineral claims. Twenty two mineral claims cover
approximately 15,000acres thatare located nearGladys Lake molybdenumoccurrences wereacquired for $295,6 12.
On September 9, 2009, the Company utilized its consulting geologists and miningengineers to complete its
evaluation of the twenty two mineral claims and determined the feasibility for further development of the
claims. As a result, 17 molly claims previously acquired have been allowed to expire and the Company
keeps the remained 5 claims. For the year ended December 31, 2009, the mineral claims have been written
down to $67,185 accordingly.
Option Agreement in Guinea
On October 15, 2009, the Company entered into an option agreement, whereby the Company can earn up to
an undivided 70% interest in the Forecariah Copper Concession (225 sq. Km). The Company decided not to
proceed further and let the option agreement expires after the technical information in connection with the
Concession was further reviewed by management.
8.
OIL AND GAS PROPERTY
Alexander Prospect, Alberta
In February 2007, the Company entered into an agreement with Arctos Petroleum Corp. (“Arctos”) whereby
Arctos agreed to sell to the Company an interest in the Alexander property in consideration for
$150,000.The Company holds a 30% working interest in 64 gross hectares (19.2 Net Ha) of rights in this
property which includes the producing Ellerslie/Wabamun oil well at 6-7-57-1W5 and a 40% interest in an
oil battery at 3-7-57-1W5. The Companydid not contribute towards this project andis in a non-participation
penalty position on both the well and battery. As a result the Company has written down the investment to
$1 for the year ended December 31, 2009.
9.
ARRANGEMENT WITH INCANA INVESTMENTS INC.
a. Interest in Real Estate Property
On May 4, 2009, the Company entered into a contract of purchase and sale agreement (the “Property
Contract”) and an amended agreement dated May 21, 2009 to purchase a property located in Surrey, BC,
Canada. The purchase price of the property was initially set at $677,000 with a non-refundable deposit of
$10,000 to be made upon completion of a successful feasibility study of the property on or before August 4,
2009 subsequently extended to August 4, 2010 as part of the amended agreement dated May 21, 2009. The
balance of $667,000 will be paid upon completion of the contract on or before May 4, 2010. The amended
agreement also allows the Company to assign the Property Contract to another party.
b. Plan of Arrangement
On May 19, 2009, the Company entered into an Arrangement Agreement with Incan Investments Inc.
(“Incana”), its former wholly own subsidiary to proceed with a corporate restructuring by way of statutory
plan to transfer cash of $100,000 and assign the Property Contract to Incana. The corporate restructuring
was completed on October 2, 2009 with the sequence of events illustrated in a chronological order as
follows:
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
9.
ARRANGEMENT WITH INCANA INVESTMENTS INC. (continued)
b. Plan of Arrangement (continued)
i) On May 21, 2009, the Company registered the Arrangement Agreement with the Supreme Court of
British Columbia. Pursuant to the registered Arrangement Agreement, the following transactions would
occur in chronological sequence:
1)
The Company would transfer $100,000 in cash and assign the Property Contract to Incana in
exchange for 15,043,372 Incana Shares (the “Distributed Incana Shares”).
2)
The Company would change its authorized share capital by:
•
altering the identifying name of the Arris Resources shares to class A common shares without par
value, being the “Arris Resources Class A Shares”;
•
creating a class consisting of an unlimited number of common shares without par value being the
“New Shares”, and
•
creating a class consisting of an unlimited number of Class A preferred shares without par value,
being the “Arris Resources Class A Preferred Shares”.
3)
Each issued Arris Resources Class A Shares would be exchanged for one New Shares and one
Arris Resources Class A Preferred Shares.
4)
The Company would redeem the issued Arris Resources Class A Preferred Shares for
consideration consisting solely of the Distributed Incana Shares such that each holder of Arris
Resources Class A Preferred Shares will, subject to the rounding of fractions and the exercise of
rights of dissent, receive that number of Incana Shares that is equal to the number of Arris
Resources Class A Preferred Shares held by such holder multiplied by the Exchange Factor.
ii) On June 19, 2009, the Arrangement Agreement was approved by the shareholders of the Company at
annual special meeting.
iii) On July 29, 2009, 40,000 (200,000 post-stock split) options were exercised.
iv) On October 2, 2009, the Company issued 15,083,372 (75,416,860 post-stock split) New Shares which
consists of [1] 15,043,372 (75,216,860 Post-stock split), the total number of the Company’s outstanding
shares as at May 21, 2009, and [2] 40,000 (200,000 post-stock split), the number of shares issued from
the options exercised in iii) and 15,083,372 (75,416,860 post-stock split) Arris Resources Class A
Preferred Shares. The Company immediately redeemed all the preferred shares by transferring its
ownership of 15,083,372 Distributed Incana Shares to the Company’s own shareholders.
In pursuant to the Plan of Arrangement Agreement, the costs relating to the Arrangement will be borne by
the party incurring them. Prior to the spin-off of Incana, all expenses incurred by Incana were all related to
the Arrangement and thus Incana was either liable for these expenses itself or had already reimbursed the
Company for any expenses incurred by it on behalf of Incana. As a result, prior to the spin-off of Incana,
there were no expenses or revenues necessary to be consolidated into the Company’s account.
RTN STEALTH SOFRWARE INC.
(Formerly known as Arris Resources Inc.)
Notes to Consolidated Financial Statements
For the year ended December 31, 2009, 2008 and 2007
(Expressed in Canadian dollars, unless stated otherwise)
10.
RELATED PARTY TRANSACTIONS
All transactions with related parties have occurred in the normal course of operations and management
represents that they have occurred on a basis consistent with those involving unrelated parties, and
accordingly that they are measured at fair value.
a)
During the year ended December 31, 2009, a company controlled by the President charged the
Company $61,750 in consulting and administrative fees and $60,000 in rental expenses (2008 -
45,000; 2007 - nil). Another Company controlled by the President also charged the Company
$50,000 in property research charges. At December 31, 2008 the Company owes $nil for these
expenses (2008- $52,500; 2007- nil).
b)
During the year ended December 31, 2009, two companies related by common director charged
the Company $45,000 management fees and $48,229 finders’ fees as share issuance costs
respectively.
c)
During the year ended December 31, 2009, the Company also paid $3,000 directors fee to each of
three directors for a total of $9,000.
d)
During the year ended December 31, 2009, the Company owed $nil (2008 - $22,441; 2007-
$22,441) to the company controlled by the spouse of the Company’s president.
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