SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended August 31, 2008
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________ TO _______________________
Commission File # 000-53375
GUINNESS EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
98-0465540
(IRS Employer Identification Number)
1312 North Monroe Street, Spokane, Washington 99201
(Address of principal executive offices) (Zip Code)
(509) 252-9157
(Registrant’s telephone no., including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated file.
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes x No o
The issuer had 71,825,000 shares of common stock issued and outstanding as of October 3, 2008.
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
Page | |||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
QI-09
Three Month Period Ended August 31, 2008
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
August 31, 2008 (unaudited) | May 31, 2008 (See Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 185 | $ | 9,503 | ||||
Prepaid expenses | 1,779 | 1,115 | ||||||
Total current assets | 1,964 | 10,618 | ||||||
Total assets | $ | 1,964 | $ | 10,618 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | - | $ | 1,575 | ||||
Accrued liabilities | 3,306 | 3,766 | ||||||
Shareholder loans (Note 3) | 41,609 | 41,609 | ||||||
Total current liabilities | 44,915 | 46,950 | ||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Common shares, 75,000,000 shares with par value $0.001 authorized, 71,825,000 shares issued and outstanding | 5,525 | 71,825 | ||||||
Paid-in Capital | 47,975 | (18,325 | ) | |||||
Accumulated deficit in the development stage | (96,451 | ) | (89,832 | ) | ||||
Total stockholders’ equity (deficit) | (42,951 | ) | (36,332 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 1,964 | $ | 10,618 |
The accompanying notes to financial statements are an integral part of this statement
F-1
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
(Unaudited)
Three months ended August 31, 2008 | Three months ended August 31, 2007 | July 15, 2005 (inception) through August 31, 2008 | ||||||||||
EXPENSES: | ||||||||||||
Professional fees | $ | 4,260 | $ | 6,500 | $ | 67,757 | ||||||
Administrative expenses | 1,819 | 1,379 | 10,903 | |||||||||
Impairment loss on mineral property | - | - | 15,985 | |||||||||
Total expenses | 6,079 | 7,879 | 94,645 | |||||||||
Net (loss) from Operations | (6,079 | ) | (7,879 | ) | (94,645 | ) | ||||||
Interest expense | (540 | ) | (132 | ) | (1,806 | ) | ||||||
Net (loss) | $ | (6,619 | ) | $ | (8,011 | ) | $ | (96,451 | ) | |||
Loss per common share | $ | Nil | $ | Nil | ||||||||
Weighted average shares outstanding | 71,825,000 | 71,825,000 |
The accompanying notes to financial statements are an integral part of this statement
F-2
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
(Unaudited)
Three months ended August 31, 2008 | Three months ended August 31, 2007 | July 15, 2005 (inception) through August 31, 2008 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss for the period | $ | (6,619 | ) | $ | (8,011 | ) | $ | (96,451 | ) | |||
Reconciling adjustments: | ||||||||||||
Adjustments to reconcile net loss | ||||||||||||
to net cash used in operating activities | ||||||||||||
Net change in operating assets and liabilities | ||||||||||||
Prepaid expenses | (664 | ) | 314 | (1,779 | ) | |||||||
Accounts payable and accrued liabilities | (2,035 | ) | (12,921 | ) | 3,306 | |||||||
Mineral properties impairments | — | — | 15,985 | |||||||||
Net cash (used) by operating activities | (9,318 | ) | (20,618 | ) | (78,939 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of Mineral Property | — | — | (15,985 | ) | ||||||||
Net cash (used) by investing activities | — | — | (15,985 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Common stock issued for cash | — | — | 53,500 | |||||||||
Loans from shareholders | — | 14,734 | 41,609 | |||||||||
Net cash provided by financing activities | — | 14,734 | 95,109 | |||||||||
Net increase (decrease) in cash | (9,318 | ) | (5,884 | ) | 185 | |||||||
Cash, beginning of period | 9,503 | 6,407 | — | |||||||||
Cash, end of period | $ | 185 | $ | 523 | $ | 185 |
The accompanying notes to financial statements are an integral part of this statement
F-3
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
(Unaudited)
Note 1 – Basis of Presentation
The financial statements included herein have been prepared by Guinness Exploration, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States for interim financial information. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the May 31, 2008 audited financial statements and the accompanying notes included in the Company’s Form 10-KSB filed with the Commission. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be followed by the Company later in the year. The results of operations for the interim periods are not necessarily indicative of the results for the full year. In management’s opinion all adjustments necessary for a fair presentation of the Company’s financial statements are reflected in the interim periods included.
Amounts shown for May 31, 2008 are based upon the audited financial statements of that date.
Note 2 – Summary of Significant Accounting Policies
This summary of significant accounting policies is presented to assist in understanding Guinness Exploration Inc.’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States of America and have been consistently applied in the preparation of the financial statements, which are stated in U.S. Dollars.
The financial statements reflect the following significant accounting policies:
Exploration Stage Company
The Company is an exploration stage company as defined in the Financial Accounting Standards Board (“FASB”) Statements of Financial Accounting Standards (“SFAS”) No. 7. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced. As an exploration stage enterprise, the Company discloses the deficit accumulated during the exploration stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date.
Mineral Property and Exploration Costs
Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred using the guidance in the Emerging Issues Task Force (EITF) 04-02, Whether Mineral Rights are Tangible or Intangible Assets. The Company assesses the carrying costs for impairment under Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or Disposal of Long Lived Assets at
F-4
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
each fiscal quarter end. An impairment is recognized when the sum of the expected undiscounted future cash flows is less than the carrying amount of the mineral property. Impairment losses, if any, are measured as the excess of the carrying amount of the mineral property over its estimated fair value.
When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs then incurred to develop such property, are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the proven and probable reserves. If mineral properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Basic and Diluted Net Loss per Share
Basic net loss per share is computed in accordance with SFAS No. 128, “Earnings per Share”. Basic loss per share is calculated by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss available to common stockholders by common stock equivalents. At August 31, 2008, the Company did not have any common stock equivalents outstanding.
Fair Value of Financial Instruments
The carrying value of accounts payable, and other financial instruments reflected in the financial statements approximates fair value due to the short-term maturity of the instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
Income Taxes
The Company has adopted SFAS No. 109, “Accounting for Income Taxes”, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted rates in effect in the years during which the differences are expected to reverse and upon the possible realization of net operating loss carry-forwards.
F-5
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
Valuation of Long-Lived Assets
The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of un-depreciated balances through measurement of undiscounted operation cash flows on a basis consistent with accounting principles generally accepted in the United States of America.
Start-up Costs
The Company has adopted FASB Statement of Position No. 98-5 ("SOP 98-5"), "Reporting the Costs of Start-Up Activities." SOP 98-5 requires that all non-governmental entities expense the cost of start-up activities, including organizational costs as those costs are incurred.
Foreign Currency Translation
The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated in accordance with SFAS No. 52 Foreign Currency Translation, using the exchange rate prevailing at the balance sheet date. Historical cost balances are re-measured using historical exchange rates. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to consist of cash on hand and demand deposits in banks with an initial maturity of 90 days or less.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on these financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentation.
Note 2 – Going Concern
Generally accepted accounting principles in the United States of America contemplate the continuation of the Company as a going concern. However, the Company has accumulated operating losses since its inception and has limited business operations, which raises substantial doubt about the Company’s ability to continue as a going
F-6
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
Notes to Financial Statements
(Unaudited)
concern. The continuation of the Company is dependent upon the continuing financial support of investors and stockholders of the Company. As of August 31, 2008 we projected the Company would need additional cash resources to operate during the upcoming 12 months and would raise this capital through shareholder loans from our President. To this end, on September 4, 2008 our President made additional shareholder loans to the Company totaling $42,876. The Company intends to attempt to acquire additional operating capital through private equity offerings to the public and existing investors to fund its business plan. However, there is no assurance that equity or debt offerings will be successful in raising sufficient funds to assure the eventual profitability of the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Note 3 – Shareholder Loan
As at August 31, 2008, the Company had one related party shareholder loan outstanding of $41,609 that had $1,806 of accrued interest recorded in accrued liabilities on the balance sheet. This loan is uncollateralized and has no fixed repayment date. Subsequent to quarter end on September 4, 2008 our President made an additional shareholder loan to the Company of $42,876 which increased total shareholder loans outstanding to $84,485.
Note 4 – Subsequent Event
Subsequent to quarter end on September 4, 2008 our President made an additional shareholder loan to the Company of $42,876.
F-7
ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This quarterly report on Form 10-Q contains "forward-looking statements" relating to the registrant which represent the registrant's current expectations or beliefs including, statements concerning registrant’s operations, performance, financial condition and growth. For this purpose, any statement contained in this quarterly report on Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "anticipation", "intend", "could", "estimate", or "continue" or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel and variability of quarterly results, ability of registrant to continue its growth strategy and competition, certain of which are beyond the registrant's control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.
Overview
Guinness Exploration, Inc. (“Guinness”, “We”, the “Registrant”, or the “Company”) was incorporated in the State of Nevada on July 15, 2005. We are presently a shell company. In 2006, we purchased a uranium property in Saskatchewan, Canada and in 2008 we determined that we would not proceed with this property and formally abandoned the project. Currently we are pursuing merger and acquisition opportunities regarding other mineral exploration projects.
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles and we have expensed all development expenses related to the establishment of the company. Our fiscal year end is May 31st.
Since inception the Company has not been involved in any bankruptcy, receivership or similar proceedings.
Since inception the Company has not been involved in any reclassification, consolidation, or merger arrangements.
Results of Operations for the Comparative Three Month Periods Ended August 31, 2008 and August 31, 2007
Revenues
Since inception we have earned $nil in revenues.
Our operating expenses are classified into three categories:
- Professional fees
- Administrative expenses
- Impairment loss on mineral property
Professional Fees
Professional fees were $4,260 compared with $6,500 for the three month periods ended August 31, 2008 versus August 31, 2007. During the current periods professional fees were composed of auditor and accounting fees relating to the review of the financial statements included in this Report. During the period from July 15, 2005 (inception) to August 31, 2008 professional fees totaled $67,757. In the coming quarter, we project professional fees will remain at current levels.
Administrative Expenses
Administrative expenses were $1,819 compared with $1,379 for the three month periods ended August 31, 2008 versus August 31, 2007. During the current periods administrative fees were primarily composed of Edgar Agent filing fees related to our SEC filings. During the period from July 15, 2005 (inception) to August 31, 2008 professional fees totaled $10,903. We expect administrative fees to remain at current levels during the coming quarter.
Impairment Loss on Mineral Property
On April 6, 2006 we purchased a uranium property in Saskatchewan, Canada and on July 17, 2008 we determined we would not proceed with this property and formally abandoned the project. This abandonment is recorded in our financial statements as an Asset Impairment and totaled $15,985 for the year ended May 31, 2008.
Net Loss
We incurred a net loss of $(6,619) compared with $(8,011) for the three month periods ended August 31, 2008 versus August 31, 2007. During the period from July 15, 2005 (inception) to August 31, 2008, our net loss totaled $(96,451).
Material Events and Uncertainties
Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in mineral resource markets.
There can be no assurance that we will successfully address such risks, expenses and difficulties and cannot assure you that we will become profitable in the future.
Liquidity and Capital Resources
Since the date of our incorporation, we have raised $53,500 though private placements of our common shares and $41,609 through shareholder loans. As of August 31, 2008 we had cash on hand of $185 and prepaid expenses of $1,779. Additionally, subsequent to quarter end on September 4, 2008 our President made an additional cash loan of $42,875 to the Company. We project we will need to raise additional funds during the coming twelve months and expect we will receive sufficient shareholder loans from our President to cover our operating requirements. However, we also project we will need to raise additional equity to provide the funds necessary to explore and develop our current property and have plans to pursue further sales of common shares to existing shareholders and the public.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EXCHANGE RATE FLUCTUATION RISK
Our reporting currency is United States Dollars (“USD”). Our transactions are primarily conducted in USD but also include transactions in other currencies, notably the Canadian Dollar (“CDN”). Foreign currency rate fluctuations may have a material impact on the Company’s financial reporting. These fluctuations may have positive or negative impacts on the results of operations of the Company.
We have not entered into derivative contracts either to hedge existing risk or for speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures
As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e)) under the Exchange Act. Based on that evaluation, the Certifying Officers have concluded that, as of the Evaluation Date, the disclosure controls and procedures in place were adequate to ensure that information required to be disclosed by us, including our consolidated subsidiaries, in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported on a timely basis in accordance with applicable rules and regulations.
Internal control over financial reporting
The Certifying Officers reviewed our internal control over financial reporting (as defined in rules 13a-15(f) and 15d-15(f)) under the Exchange Act as of the Evaluation Date and concluded that no changes occurred in such control or in other factors during the first quarter of our fiscal year ending May 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not make any sales of equity securities during the quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has no senior securities outstanding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended August 31, 2008, no matters were submitted to a vote of the Company's security holders, through the solicitation of proxies or otherwise.
ITEM 5. OTHER INFORMATION
(a) During the quarter there was no information which would have been required to be filed via a report on Form 8-K which was not filed as such.
(b) During the quarter there were no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.
ITEM 6. EXHIBITS
EXHIBIT INDEX
Number | Exhibit Description | |
3.1 | Articles of Incorporation* | |
3.2 | Certificate of Amendment of Articles of Incorporation* | |
3.3 | Bylaws* | |
10.1 | Asset Purchase Agreement* | |
14.1 | Code of Ethics* | |
* Filed as an exhibit to our registration statement on Form SB-2 filed December 27, 2006 and incorporated herein by this reference
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GUINNESS EXPLORATION, INC.
/s/ Michael Juhasz
Michael Juhasz
President & CEO, CFO
Dated: October 3, 2008
11