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 February 28, 2010
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)
P.O. Box 1910 – Level 7 Anzac House, 181 Willis Street, Wellington, New Zealand 6140
(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 o No x
The issuer had 133,700,000 shares of common stock issued and outstanding as of April 12, 2010.
GUINNESS EXPLORATION, INC.
(An Exploration Stage Company)
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (unaudited)
QIII-10
Nine Month Period Ended February 28, 2010
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Balance Sheets
February 28, 2010 (unaudited) | May 31, 2009 (See Note 1) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 833,427 | $ | 20,638 | ||||
Prepaid expenses | 27,972 | 6,203 | ||||||
Total current assets | 861,399 | 26,841 | ||||||
Total assets | $ | 861,399 | $ | 26,841 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 3,667 | $ | - | ||||
Note payable (Note 5) | 471,934 | - | ||||||
Shareholder loans (Note 8) | - | 86,285 | ||||||
Total current liabilities | $ | 475,601 | $ | 86,285 | ||||
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6) | - | - | ||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred shares, 100,000,000 shares authorized with par value $0.001 authorized, 0 shares issued and outstanding | $ | - | $ | - | ||||
Common shares, 500,000,000 shares with par value $0.001 authorized, 133,700,000 and 71,825,000 shares issued and outstanding at February 28, 2010 and May 31, 2009, respectively (Note 6) | 133,700 | 71,825 | ||||||
Paid-in Capital | 1,481,600 | (18,325 | ) | |||||
Accumulated deficit in the exploration stage | (1,229,502 | ) | (112,944 | ) | ||||
Total stockholders’ equity (deficit) | $ | 385,798 | $ | (59,444 | ) | |||
Total liabilities and stockholders’ equity (deficit) | $ | 861,399 | $ | 26,841 |
The accompanying notes to financial statements are an integral part of these consolidated financial statements
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Operations
(Unaudited)
Three months ended February 28, 2010 | Three months ended February 28, 2009 | Nine months ended February 28, 2010 | Nine months ended February 28, 2009 | July 15, 2005 (inception) through February 28, 2010 | ||||||||||||||||
EXPENSES: | ||||||||||||||||||||
Exploration property purchases | $ | 951 | $ | - | $ | 951 | $ | - | $ | 951 | ||||||||||
Exploration expenses | 6,774 | - | 6,774 | - | 6,774 | |||||||||||||||
Professional fees | 48,463 | 2,275 | 62,214 | 13,467 | 141,178 | |||||||||||||||
Administrative expenses | 8,244 | 909 | 11,066 | 3,453 | 24,379 | |||||||||||||||
Investor relations | 25,100 | - | 26,530 | - | 26,530 | |||||||||||||||
Mineral property impairments (Note 7) | 1,005,668 | - | 1,005,668 | - | 1,021,653 | |||||||||||||||
Total expenses | 1,095,200 | 3,184 | 1,113,203 | 16,920 | 1,221,465 | |||||||||||||||
Net (loss) from Operations | (1,095,200 | ) | (3,184 | ) | (1,113,203 | ) | (16,920 | ) | (1,221,465 | ) | ||||||||||
Interest expense | (1,170 | ) | (953 | ) | (3,355 | ) | (2,440 | ) | (8,037 | ) | ||||||||||
Net (loss) | $ | (1,096,370 | ) | $ | (4,137 | ) | $ | (1,116,558 | ) | $ | (19,360 | ) | $ | (1,229,502 | ) | |||||
Loss per common share | $ | (0.01 | ) | $ | Nil | $ | (0.01 | ) | $ | Nil | ||||||||||
Weighted average shares outstanding | 116,887,500 | 71,825,000 | 86,680,770 | 71,825,000 |
The accompanying notes to financial statements are an integral part of these consolidated financial statements
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended February 28, 2010 | Nine months ended February 28, 2009 | July 15, 2005 (inception) through February 28, 2010 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss for the period | $ | (1,116,558 | ) | $ | (19,360 | ) | $ | (1,229,502 | ) | |||
Reconciling adjustments: | ||||||||||||
Adjustments to reconcile net loss | ||||||||||||
to net cash used in operating activities: | ||||||||||||
Interest accrued on shareholder loans | 3,355 | 2,440 | 8,037 | |||||||||
Payments for interest on shareholder loans | (3,355 | ) | — | (8,037 | ) | |||||||
Mineral properties impairments | 1,005,668 | — | 1,021,653 | |||||||||
Net change in operating assets and liabilities | ||||||||||||
Prepaid expenses | (21,769 | ) | (5,134 | ) | (27,972 | ) | ||||||
Accounts payable and accrued liabilities | 3,667 | (5,309 | ) | 3,667 | ||||||||
Net cash (used) by operating activities | (128,992 | ) | (27,363 | ) | (232,154 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Payments for mineral properties | (471,934 | ) | — | (487,919 | ) | |||||||
Net cash (used) by investing activities | (471,934 | ) | — | (487,919 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Common stock issued for cash | 1,500,000 | — | 1,553,500 | |||||||||
Proceeds from shareholder loans | 51,663 | 41,260 | — | |||||||||
Payments for shareholder loans | (137,948 | ) | — | — | ||||||||
Net cash provided by financing activities | 1,413,715 | 41,260 | 1,553,500 | |||||||||
Net increase (decrease) in cash | 812,789 | 13,897 | 833,427 | |||||||||
Cash, beginning of period | 20,638 | 9,503 | — | |||||||||
Cash, end of period | $ | 833,427 | $ | 23,400 | $ | 833,427 |
The accompanying notes to financial statements are an integral part of these consolidated financial statements
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Supplemental Disclosure of Cash Flow Information
(Unaudited)
Nine months ended February 28, 2010 | Nine months ended February 28, 2009 | July 15, 2005 (inception) through February 28, 2010 | ||||||||||
Cash paid for interest | $ | 8,037 | $ | — | $ | 8,037 |
Consolidated Supplemental Disclosure of Non-cash Investing and Financing Activities
(Unaudited)
Nine months ended February 28, 2010 | Nine months ended February 28, 2009 | July 15, 2005 (inception) through February 28, 2010 | ||||||||||
Common stock issued for property purchase payment | $ | 61,800 | $ | — | $ | 61,800 | ||||||
Note payable issued for property purchase payment | 471,934 | — | 471,934 |
The accompanying notes to financial statements are an integral part of these consolidated financial statements
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(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, 2009 audited financial statements and the accompanying notes included in the Company’s Form 10-K filed with the Commission. While management believes the procedures followed in pre paring 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, and are of a normal recurring nature.
Amounts shown for May 31, 2009 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 by SEC Industry Guide 7, and follows generally accepted accounting principles, where applicable. 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.
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
Exploration Costs and Mineral Property Right Acquisitions
The Company is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property acquisition costs are initially capitalized when incurred. The Company assesses the carrying costs for impairment under Accounting Standards 930 Extractive Activities – Mining (AS 930) at 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.
Consolidation of Financial Statements
These financial statements include the accounts of the Company and its subsidiary Nantawa Resources Inc., on a consolidated basis. All inter-company accounts have been eliminated.
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 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 February 28, 2010, common stock equivalents outstanding included 1,875,000 common share purchase warrants. These warrants were issued as part of a unit offering which was completed on February 10, 2010 and was comprised of 1,875,000 Units priced at US$0.80 per Unit. Each Unit consists of one share of common stock of Guinness (each, a "Share"); and one common share purchase warrant (each a “Warrant”) subject to adjustment for stock splits, or stock dividends. Each whole Warrant is non-transferable and entitles the holder to purchase one common share of Guinness (each, a “Warrant Share”), as presently constituted, for a period of twenty four months beginning February 10, 2010 at a price per Warrant Share of US$2.00. These Units are being issued pursuant to Regulation S of the Securities Act of 1933 , as amended (“Regulation S”) and Guinness did not engage in any general solicitation or advertising regarding this Unit offering.
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
Diluted and Basic weighted average shares are the same, as any inclusion of the common stock equivalents would be anti-dilutive.
Estimated 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 recognizes 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. Additionally, the Company has not recognized any amount for a tax position taken or expected to be taken on its tax return, or for any interest or penalties.
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 expenses the cost of start-up activities, including organizational costs, as those costs are incurred.
Foreign Currency
The books of the Company are maintained in United States dollars and this is the Company’s functional and reporting currency. Transactions denominated in other than the United States dollar are translated as follows with the related transaction gains and losses being recorded in the Statements of Operations:
(i) | Monetary items are recorded at the rate of exchange prevailing as at the balance sheet date; |
(ii) | Non-Monetary items including equity are recorded at the historical rate of exchange; and |
(iii) | Revenues and expenses are recorded at the period average in which the transaction occurred. |
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
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
Various accounting pronouncements have been issued during 2010, 2009 and 2008, none of which are expected to have a material effect on the financial statements of the Company.
Note 3 – 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 had a net loss for the nine month period ended February 28, 2010, of $(1,116,558). Additionally it 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 concern. The continuation of the Company is dependent upon the continuing financial support of investors and stockholders of the Company. As of February 28, 2010, we projected the Company would need additional cash resources to operate during the upcoming 12 months. 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 4 – Acquisition of Mineral Properties
On November 19, 2009, and as amended on February 4, 2010, the Company signed the Nantawa Agreement for purchase of a 65% ownership interest in two exploration properties in Yukon, Canada. The agreement also includes an option (the “Option”) for Guinness to increase its ownership in the properties by 35%. A copy of which agreement, and the February 4, 2010 Amendment (collectively the “Agreement”), are incorporated herein by reference. The terms of the Nantawa Agreement specify Guinness’ wholly owned Yukon subsidiary Nantawa Resources Inc. will receive a 65% interest in the Nantawa properties i n return for payment to Eagle Trail Properties Inc. (‘ETPI’) of US$1,005,668 (comprised of: US$943,868 cash (Cdn$1,000,000), plus 60,000,000 restricted common shares of Guinness valued at US$0.00103 per share for a total share value of US$61,800). These payments are to be made over a 12 month period in two equal installments of US$471,934; plus immediate issuance to ETPI of the 60 million restricted common shares. Subsequently, Guinness was required to make a deposit of US$951 (Cdn$1,000) to maintain the
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
Option and then incur exploration expenditures of Cdn$2 million over a two year period to earn an additional 35% interest. ETPI will retain a 3% Net Smelter Royalty. To confirm the cash payments owed by us to ETPI, we provided ETPI with a Promissory Note (the “Note”), stating our indebtedness to ETPI in the amount of Cdn$1,000.000. This Promissory Note was filed as Exhibit 10.3 with a Current Report on Form 8-K on April 9, 2010 and is incorporated herein by reference,
During the period ended February 28, 2010, the Company formalized its debt to ETPI by signing the Note. To account for this event, $1,005,668 was entered as a mineral property asset, with a corresponding note payable entry. As of February 28, 2010, the Company did not have sufficient geological evidence to establish a reserves estimate. Accordingly, the Company has recorded an impairment loss on the mineral property asset.
On December 29, 2009, to fulfill payment terms of the Nantawa Agreement, the Company issued 60,000,000 restricted shares of its common stock valued at US$0.00103 per share to ETPI and made payment of $951 to ETPI. Also, on February 12, 2010, the Company paid ETPI US$471,934.
The Company’s agreed payments under the Nantawa Agreement are as follows:
PART ONE – Monetary Consideration:
Item | Installments Required $ | Payments Made | Balance Due | Deadlines | ||||||||||||
Claims payment #1 to ETPI | 471,934 | 471,934 | Nil | - | ||||||||||||
Claims payment #2 to ETPI | 471,934 | - | 71,934 | November 30, 2010 | ||||||||||||
Sub-total | $ | 943,868 | $ | 471,934 | $ | 471,934 |
PART TWO – Share Consideration
Item | Share Installments Required | Payments Made | Balance Due | Deadlines | ||||||
Share issuance to ETPI | 60,000,000 Restricted common shares | 60,000,000 Restricted common shares | Nil | - | ||||||
Sub-total | 60,000,000 Restricted Common shares | 60,000,000 Restricted Common shares | Nil |
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
Note 5 – Promissory Note
To confirm the cash payments owed by us to ETPI under the Nantawa Agreement, we have provided ETPI with a Promissory Note, stating our indebtedness to ETPI in the amount of $943,868 (Cdn$1,000.000). To fulfill our first payment, on February 12, 2010 the Company paid to ETPI $471,934, which was prior to the first installment payment deadline of May 31, 2010. The second installment of $471,934 on the Note is due by November 30, 2010. The terms of the Note provide that interest on the unpaid balance of the aforesaid principal sum shall be paid at a rate equal to Eight percent (8%) per annum calculated annually, not in advance, computed from December 1, 2010, to be payable monthly on the first day of each and every month commencing January 1, 2011, so long as any principal sum remains outstanding.
Note 6 – Common Stock
On February 7, 2006, the Company issued 3,000,000 shares of its common stock to its President for cash. This transaction was valued at a board approved value of $0.001 per share for total proceeds of $3,000.
During the fiscal year ending May 31, 2006, the Company issued 2,525,000 shares of its common stock in a private offering at $0.02 per share for total proceeds of $50,500.
On May 26, 2008, the Company declared a 12 for 1 stock dividend. The Record date and Payment date for this stock dividend were June 4, 2008 and June 6, 2008 respectively. The Company instructed its Transfer Agent to round up to one for any fractional interest which resulted in the calculation of the dividend. This dividend had the effect of increasing the issued and outstanding share capital of the Company from 5,525,000 shares to 71,825,000 shares. All references in these financial statements to stock issued and stock outstanding have been retroactively adjusted as if the stock dividend had taken place on July 15, 2005 (inception).
On November 30, 2009, the Company submitted to a vote of the Company's security holders a proposal to increase the authorized common shares limit of the Company from 75,000,000 to 500,000,000 and add authorization for issuance of up to 100,000,000 preferred shares, par value $0.001, for which the Board of Directors may fix and determine the designations, rights, preferences or other variation to each class or series within each class of preferred shares. Shareholder approval for this change was received November 26, 2009 and a Definitive 14C was filed with the Securities Exchange Commission on December 9, 2009.
On December 29, 2009 to fulfill one of the payment terms of the Nantawa Agreement, the Company issued 60,000,000 restricted shares of its common stock valued at US$0.00103 per share to Eagle Trail Properties, Inc. representing aggregate proceeds of US$61,800. These shares were issued pursuant to Regulation S of the Securities Act of 1933, as amended and the Company did not engage in any general solicitation or advertising regarding these shares.
GUINNESS EXPLORATION, INC. AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
(Unaudited)
On February 10, 2010 Guinness completed a private placement which raised aggregate proceeds of US$1,500,000 and was comprised a unit (‘Unit’) sale by Guinness of 1,875,000 Units priced at US$0.80 per Unit. Each Unit consists of one common stock of Guinness (each, a "Share"); and one common share purchase warrant (each a “Warrant”) subject to adjustment for stock splits, or stock dividends. Each whole Warrant is non-transferable and entitles the holder to purchase one common share of Guinness (each, a “Warrant Share”), as presently constituted, for a period of twenty four months beginning February 10, 2010 at a price per Warrant Share of US$2.00. These Units are being issued pursuant to Regulation S of the Securities Act of 1933, as amended (“Regulation S”) and Guinness did not eng age in any general solicitation or advertising regarding this Unit offering.
Note 7 – Impairments on Mineral Properties
On July 17, 2008, the Company determined it should abandon the mineral property asset which consisted of 100% ownership of a uranium mineral property staked in Saskatchewan, Canada. An impairment loss of $15,985 is reflected in the attached statement of operations.
During the period ended February 28, 2010, the Company formalized its debt to ETPI by signing a promissory note in the amount of $943,868 plus share payments with a deemed value of $61,800. To account for this event, $1,005,668 was entered as a mineral property asset, with a corresponding note payable entry. As of February 28, 2010, the Company did not have sufficient geological evidence to establish a reserves estimate. Accordingly, the Company has recorded an impairment loss on the mineral property asset of $1,005,668.
Note 8 – Shareholder Loan
Prior to a shareholder loan payout on February 9, 2010, during the nine months ended February 28, 2010, our CEO Alastair Brown made additional shareholder loans to the Company totaling $51,663. These advances brought total shareholder loans owing to Mr. Brown prior to payout to $141,303. This total included $3,355 of accrued interest for the period from September 1, 2009 to February 8, 2010, plus prior accrued interest of $4,682, for total accrued interest of $8,037. On February 9, 2010, the Company paid $141,303 to Mr. Brown as full payment of all shareholder loans and accrued interest. As at February 28, 2010, the Company had no further shareholder loans outstanding.
Note 9 – Incorporation of Subsidiary
On November 6, 2009, the Company incorporated a wholly owned subsidiary named Nantawa Resources Inc., in Yukon, Canada.
Note 10 – Subsequent Events
The Company has evaluated subsequent events from the balance sheet date through April 12, 2010, which is the date these consolidated financial statements were issued.
ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
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. Certain information contained herein, including any information as to our strategy, plans or future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute "forward-looking statements.” All statements, other than statements of historical fact, are forward-looking statements. The words "believe," "expect," "will," "anticipate," "contemplate," "target," "plan," "continue,” "budget," "may," "intend," "estimate," “project” and similar expressions identify forward-lo oking statements. In this Form 10-Q the expressions: “In the coming quarter, we project professional fees will remain at current levels.”; “We expect administrative fees to increase substantially during the coming quarters as we implement our strategic plans.”; “We anticipate Investor Relations expenses will increase substantially during the coming quarters as we continue our efforts to raise further capital and keep current investors informed of Company developments.”; “The Company is currently undertaking geological analysis which it projects will allow capitalization of the property licenses within coming quarters and does not project that impairment charges will increase in the foreseeable future.” and “We project we will need to raise substantial additional funds during the coming twelve months to implement our strategic plans. To meet these requirements we expect we will need to complete shares issuances and/or negotiate debt arrangements. With resp ect to our basic operating requirements, we expect we will receive sufficient shareholder loans from our President to cover these expenses over the coming quarters.” are all forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited to, certain delays beyond the company's control with respect to mining operations, changes in the worldwide price of certain commodities; legislative, political or economic developments in the jurisdictions in which the Company carries on business; operating or technical difficulties in connection with mining or development activities; employee relations; contests over title to properties; and the risks involved in the exploration, development and mining business. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new infor mation, future events or otherwise, except as required by applicable law.
Overview
Guinness Exploration, Inc. (“Guinness”, “We”, the “Registrant”, or the “Company”) was incorporated in the State of Nevada on July 15, 2005 and incorporated its subsidiary, Nantawa Resources Inc., in Yukon, Canada on November 6, 2009. Guinness Exploration Inc. trades on the OTC-BB under the symbol GNXP.
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.
Recent Developments
December 10, 2009: Mr. John Hiner, B.Sc. (geology), M.Sc. (geology), was appointed to the positions of Chief Geologist, Vice President, and Secretary and Treasurer of the Company. Mr. Hiner has over 35 years of experience in resource exploration and management worldwide. He has managed successful exploration, acquisition, and development programs for metals and industrial minerals on four continents. His range of experience includes mineral and petroleum exploration, energy minerals, and geothermal energy development. Mr. Hiner has managed projects from a conceptual exploration stage to positive feasibility and finance level studies on proven deposits in South America, North America, and Africa. As both geologist and manager, Mr. Hiner has held positions of increa sing responsibility with a variety of companies, ranging in size from multinational Phillips Petroleum Company to both Canadian and American junior companies and has several years experience in running publicly traded companies. Mr. Hiner is involved in both the mining industry and the community. He belongs to several industry trade organizations comprising a spectrum of energy and mining groups, and is involved in local volunteer activities through church and benevolent organizations. Mr. Hiner has published through the auspices of the Nevada Bureau of Mines and Geology, the Northwest Mining Association, and various trade journals.
December 29, 2009: To fulfill one of the payment terms of the Nantawa Agreement, the Company issued 60,000,000 restricted shares of its common stock valued at US$0.00103 per share to Eagle Trail Properties, Inc. representing aggregate proceeds of US$61,800. These shares were issued pursuant to Regulation S of the Securities Act of 1933, as amended and the Company did not engage in any general solicitation or advertising regarding these shares.
January 13, 2010: Mr. Nigel Mattison was appointed as an additional member of the Board of Directors. Mr. Mattison has a wide background in the governance of national and community based organizations and a record of success in managing start up and existing operations. His breadth of skills includes company directorship, management, accounting and auditing, international sales and marketing, strategic planning, public relations and fund raising. Mr. Mattison’s employment background includes positions with: Conrad Properties (2005 to 2010); Kuranda Resort and Spa (2003 to 2005); Russley Hotel, Christchurch (1994 – 2000); Pan Pacific Hotels and Resorts, a subsidiary of the Tokyu Corporation, Japan (1998 to 1992); ITT Sheraton (1982 to 1988); Groote Eyla ndt Mining Company Australia (which is jointly owned by BHP Billiton and Anglo American Corporation) (1975); Lion Nathan Brewing (1970 to 1975); and property development projects, and communications and marketing consulting engagements (1975 to 2003). Mr. Mattison is a former Board Member of: the New Zealand Tourist Industry Federation (1991 to 1992); the New Zealand Convention Association (1986 to 1989); Tourism Auckland (1989 to 1992 ); New Zealand Football (1998 to 2005); Canterbury Football (1997 to 2000); and the Association of Consumers and Taxpayers New Zealand (1997 to 2001).
February 10, 2010: Guinness completes a private placement which raised sufficient capital for the first stage of the Nantawa Project. The financing raised aggregate proceeds of US$1,500,000 and was comprised a unit (‘Unit’) sale by Guinness of 1,875,000 Units priced at US$0.80 per Unit for one share of common stock in the capital of Guinness (each, a "Share"); and one common share purchase warrant (each a “Warrant”) subject to adjustment for stock splits, or stock dividends. Each whole Warrant is non-transferable and entitles the holder to purchase one common share of Guinness (each, a “Warrant Share”), as presently constituted, for a period of twenty four months beginning February 10, 2010 at a price per Warrant Share of US$2.0 0. These Units are being issued pursuant to Regulation S of the Securities Act of 1933, as amended and the Company did not engage in any general solicitation or advertising regarding this Unit offering.
March 3, 2010: Guinness completes the first of two US$471,934 (Cdn$500,000) payments required to acquire its initial 65% interest in the Nantawa Project. The first payment under the Nantawa Agreement was scheduled for May 30, 2010 and was completed ahead of schedule.
Exploration properties description and location
The Mount Nansen property and the Tawa property are located in the Whitehorse Mining District on NTS map sheet 105I-03 (Figures 1 and 3). The main claim block is highly irregular (Figure 3). The complete claim group includes 203 full or fractional quartz mineral claims (Table 1). Total size of the claim group is 3,136.43 square hectares. Most of the claims are contiguous except for the two medium size non-contiguous blocks that are called Tawa property (Figure 3). The central block of the contiguous claims, Mount Nansen Property (Figure 3), is some 185 km NNW of Whitehorse. The Mount Nansen claim group measure 8.7 km in the NS direction and 5.1 km in the EW direction. The approximate geographical location of the Mount Nansen claim block is shown in Table 2.
Figure 1: Location of the Mount Nansen Property and the Tawa Property
(Modified from Denhom, et. al., 2000)
Figure 2: Road access in the Mount Nansen and Tawa properties
(Modified from Eaton and Archer, 1989 and Stroshein, 2007a)
Figure 3: Mount Nansen property and Tawa property on Claim Blocks
(Red lines represent claim boundaries - Cyan square represents the boundary of the geophysical survey area)
Table 1: Claim list for Mount Nansen property and Tawa property
Claim | Grant Number | Expiry Date | Area (Ha) | Comments |
ROSE | 04241 | 09/10/2019 | 20.42 | Lease |
GOLDEN EAGLE | 04278 | 09/10/2019 | 20.96 | Lease |
WAR EAGLE | 04279 | 09/10/2019 | 20.77 | Lease |
SHAMROCK | 04354 | 09/10/2019 | 20.73 | Lease |
SPOT | 04361 | 09/10/2019 | 19.92 | Lease |
ARLEP | 04368 | 09/10/2019 | 14.48 | Lease |
PHYLLIS | 04369 | 09/10/2019 | 20.26 | Lease |
RUB | 55633 | 09/10/2019 | 1.84 | Lease |
PUB | 55663 | 09/10/2019 | 1.93 | Lease |
SUN DOG | 55665 | 09/10/2019 | 3.20 | Lease |
CUB | 55666 | 09/10/2019 | 1.29 | Lease |
JAM | 55890 | 09/10/2019 | 11.64 | Lease |
PAM | 55892 | 09/10/2019 | 2.64 | Lease |
DOME 1 | 73537 | 06/02/2014 | 15.10 | - |
DOME 2 | 73538 | 06/02/2014 | 15.51 | - |
DOME 3 | 73539 | 06/02/2014 | 17.29 | - |
DOME 4 | 73540 | 06/02/2014 | 17.98 | - |
DOME 6 | 73542 | 06/02/2014 | 17.32 | - |
DOME 7 | 73543 | 06/02/2014 | 25.34 | - |
DOME 8 | 73694 | 06/02/2014 | 12.47 | - |
DOME 14 | 73700 | 06/02/2014 | 21.07 | - |
DOME 16 | 73702 | 06/02/2014 | 20.61 | - |
DOME 17 | 73703 | 06/02/2014 | 18.41 | - |
DOME 18 | 73704 | 06/02/2014 | 18.56 | - |
DOME 19 | 73705 | 06/02/2014 | 16.73 | - |
DOME 20 | 73706 | 06/02/2014 | 13.42 | - |
JOANNE 1 | 74283 | 06/02/2014 | 19.79 | - |
JOANNE 2 | 74284 | 06/02/2014 | 19.51 | - |
JOANNE 3 | 74285 | 06/02/2014 | 20.36 | - |
JOANNE 4 | 74286 | 06/02/2014 | 14.78 | - |
JOANNE 5 | 74287 | 06/02/2014 | 19.83 | - |
JOANNE 6 | 74288 | 06/02/2014 | 19.69 | - |
DOME 25 | 77746 | 06/02/2014 | 15.19 | - |
DOME 26 | 77747 | 06/02/2014 | 22.54 | - |
DOME 27 | 77748 | 06/02/2014 | 20.32 | - |
DOME 28 | 77749 | 06/02/2014 | 21.74 | - |
DOME 33 | 77754 | 06/02/2014 | 25.50 | - |
DOME 34 | 77755 | 06/02/2014 | 23.29 | - |
DOME 35 | 77756 | 06/02/2014 | 22.39 | - |
DOME 36 | 77757 | 06/02/2014 | 23.97 | - |
DOME 37 | 77758 | 06/02/2014 | 14.23 | - |
DOME 38 | 77759 | 06/02/2014 | 18.48 | - |
DOME 39 | 77760 | 06/02/2014 | 14.95 | - |
DOME 40 | 77761 | 06/02/2014 | 20.51 | - |
DOME 41 | 77762 | 06/02/2014 | 20.76 | - |
(continued)
Claim | Grant Number | Expiry Date | Area (Ha) | Comments |
DOME 42 | 77763 | 06/02/2014 | 19.93 | - |
DOME 43 | 77764 | 06/02/2014 | 20.47 | - |
DOME 49 | 77770 | 06/02/2014 | 8.18 | - |
DOME 50 | 77771 | 06/02/2014 | 18.83 | - |
DOME 51 | 77772 | 06/02/2014 | 19.05 | - |
DOME 52 | 77773 | 06/02/2014 | 21.85 | - |
DOME 53 | 77774 | 06/02/2014 | 22.80 | - |
DOME 54 | 77775 | 06/02/2014 | 14.69 | - |
DOME 55 | 77776 | 06/02/2014 | 13.09 | - |
DOME 56 | 77777 | 06/02/2014 | 13.35 | - |
DOME 57 | 77778 | 06/02/2014 | 20.47 | - |
DOME 58 | 77779 | 06/02/2014 | 19.41 | - |
DOME 60 | 77781 | 06/02/2014 | 20.06 | - |
DOME 61 | 77782 | 06/02/2014 | 18.91 | - |
DOME 63 | 77784 | 06/02/2014 | 22.51 | - |
DOME 64 | 77785 | 06/02/2014 | 22.88 | - |
DOME 65 | 77786 | 06/02/2014 | 20.66 | - |
DOME 66 | 77787 | 06/02/2014 | 21.18 | - |
DOME 78 | 81842 | 06/02/2014 | 25.41 | - |
DOME 79 | 81843 | 06/02/2014 | 24.10 | - |
DOME 80 | 81844 | 06/02/2014 | 24.20 | - |
DOME 81 | 81845 | 06/02/2014 | 22.52 | - |
DOME 82 | 81846 | 06/02/2014 | 23.26 | - |
DOME 83 | 81847 | 06/02/2014 | 18.72 | - |
DOME 84 | 81848 | 06/02/2014 | 19.37 | - |
DOME 86 | 81850 | 06/02/2014 | 20.76 | - |
HIW 9 | YA23835 | 06/02/2014 | 19.44 | - |
HIW 10 | YA23836 | 06/02/2014 | 20.83 | Fractions |
HIW 11 | YA23837 | 06/02/2014 | 21.55 | Fractions |
HIW 12 | YA23838 | 06/02/2014 | 19.93 | Fractions |
HIW 13 | YA23839 | 06/02/2014 | 20.72 | - |
HIW 14 | YA23840 | 06/02/2014 | 19.55 | - |
HIW 15 | YA23841 | 06/02/2014 | 20.15 | - |
HIW 16 | YA23842 | 06/02/2014 | 19.86 | - |
HIW 17 | YA23843 | 06/02/2014 | 19.92 | - |
HIW 1 | YA24813 | 06/02/2014 | 4.74 | Fractions |
HIW 2 | YA24814 | 06/02/2014 | 5.15 | Fractions |
HIW 7 | YA24819 | 06/02/2014 | 3.01 | Fractions |
DD 1 | YA59596 | 06/02/2014 | 20.62 | - |
DD 2 | YA59597 | 06/02/2014 | 22.35 | - |
DD 15 | YA59610 | 06/02/2014 | 19.20 | - |
DD 16 | YA59611 | 06/02/2014 | 19.21 | - |
DD 17 | YA59612 | 06/02/2014 | 19.37 | - |
DD 18 | YA59613 | 06/02/2014 | 19.85 | - |
DD 19 | YA59614 | 06/02/2014 | 20.17 | - |
DD 20 | YA59615 | 06/02/2014 | 19.90 | - |
DD 21 | YA59616 | 06/02/2014 | 19.64 | - |
(continued)
Claim | Grant Number | Expiry Date | Area (Ha) | Comments |
DD 22 | YA59617 | 06/02/2014 | 19.17 | - |
DD 23 | YA59618 | 06/02/2014 | 18.69 | - |
DD 24 | YA59619 | 06/02/2014 | 18.30 | - |
DD 25 | YA59620 | 06/02/2014 | 18.18 | - |
DD 26 | YA59621 | 06/02/2014 | 17.65 | - |
DD 27 | YA59622 | 06/02/2014 | 19.49 | - |
DD 28 | YA59623 | 06/02/2014 | 18.71 | - |
TBR 1 | YA86690 | 06/02/2014 | 8.92 | - |
TBR 2 | YA86691 | 06/02/2014 | 20.16 | - |
TBR 3 | YA86692 | 06/02/2014 | 20.03 | - |
TBR 4 | YA86693 | 06/02/2014 | 20.84 | - |
TBR 5 | YA86694 | 06/02/2014 | 18.34 | - |
TBR 6 | YA86695 | 06/02/2014 | 20.92 | - |
TBR 7 | YA86696 | 06/02/2014 | 15.96 | - |
TBR 8 | YA86697 | 06/02/2014 | 21.79 | - |
ONT 38 | YA87204 | 06/02/2014 | 20.26 | - |
ONT 40 | YA87206 | 06/02/2014 | 18.34 | - |
ONT 42 | YA87208 | 06/02/2014 | 5.73 | - |
EEK 1 | YA87210 | 06/02/2014 | 21.07 | - |
EEK 2 | YA87211 | 06/02/2014 | 20.08 | - |
EEK 3 | YA87212 | 06/02/2014 | 20.70 | - |
EEK 4 | YA87213 | 06/02/2014 | 20.68 | - |
EEK 5 | YA87214 | 06/02/2014 | 20.80 | - |
EEK 6 | YA87215 | 06/02/2014 | 19.58 | - |
EEK 7 | YA87216 | 06/02/2014 | 19.97 | - |
EEK 8 | YA87217 | 06/02/2014 | 21.91 | - |
EEK 9 | YA87218 | 06/02/2014 | 22.64 | - |
EEK 14 | YA87223 | 06/02/2014 | 21.36 | - |
EEK 15 | YA87224 | 06/02/2014 | 21.22 | - |
EEK 16 | YA87225 | 06/02/2014 | 21.76 | - |
EEK 17 | YA87226 | 06/02/2014 | 20.01 | - |
EEK 18 | YA87227 | 06/02/2014 | 20.74 | - |
ONT 44 | YA92655 | 06/02/2014 | 16.80 | - |
ONT 45 | YA92656 | 06/02/2014 | 12.91 | - |
ONT 46 | YA92657 | 06/02/2014 | 18.48 | - |
ONT 47 | YA92658 | 06/02/2014 | 14.41 | - |
TAWA 25 | YA95051 | 03/01/2010 | 4.33 | Fractions |
TAWA 26 | YA95052 | 03/01/2010 | 5.95 | Fractions |
TAWA 27 | YA95151 | 03/01/2010 | 17.11 | - |
TAWA 28 | YA95152 | 03/01/2010 | 22.34 | - |
TAWA 29 | YA95153 | 03/01/2010 | 16.14 | - |
TAWA 30 | YA95154 | 03/01/2010 | 20.77 | - |
TAWA 31 | YA95155 | 03/01/2010 | 23.90 | - |
TAWA 32 | YA95156 | 03/01/2010 | 21.36 | - |
TAWA 33 | YA95157 | 03/01/2010 | 12.16 | - |
TAWA 34 | YA95158 | 03/01/2010 | 18.45 | - |
(continued)
Claim | Grant Number | Expiry Date | Area (Ha) | Comments |
TAWA 47 | YA95163 | 03/01/2010 | 7.01 | - |
TAWA 48 | YA95164 | 03/01/2010 | 8.00 | - |
TAWA 49 | YA95165 | 03/01/2010 | 21.93 | - |
TAWA 50 | YA95166 | 03/01/2010 | 23.59 | - |
TAWA 51 | YA95167 | 03/01/2010 | 23.22 | - |
TAWA 52 | YA95168 | 03/01/2010 | 23.93 | - |
TAWA 53 | YA95169 | 03/01/2010 | 15.03 | - |
TAWA 54 | YA95170 | 03/01/2010 | 22.93 | - |
TAWA 55 | YA95171 | 03/01/2010 | 5.90 | - |
TAWA 56 | YA95172 | 03/01/2010 | 13.37 | - |
TAWA 57 | YA95173 | 03/01/2010 | 14.12 | - |
TAWA 58 | YA95174 | 03/01/2010 | 16.15 | - |
TAWA 59 | YA95175 | 03/01/2010 | 13.35 | - |
TAWA 60 | YA95176 | 03/01/2010 | 16.19 | - |
TAWA 61 | YA95177 | 03/01/2010 | 12.44 | - |
TAWA 62 | YA95178 | 03/01/2010 | 11.28 | - |
TAWA 63 | YA95179 | 03/01/2010 | 8.41 | - |
TAWA 64 | YA95301 | 03/01/2010 | 18.96 | - |
TAWA 65 | YA95302 | 03/01/2010 | 15.20 | - |
TAWA 66 | YA95303 | 03/01/2010 | 21.82 | - |
TAWA 67 | YA95304 | 03/01/2010 | 22.03 | - |
TAWA 68 | YA95305 | 03/01/2010 | 20.61 | - |
TAWA 69 | YA95306 | 03/01/2010 | 19.68 | - |
TAWA 70 | YA95307 | 03/01/2010 | 19.61 | - |
TAWA 71 | YA95308 | 03/01/2010 | 18.94 | - |
TAWA 72 | YB06963 | 03/01/2010 | 19.15 | - |
TAWA 73 | YB06964 | 03/01/2010 | 18.69 | - |
TAWA 74 | YB06965 | 03/01/2010 | 19.02 | - |
TAWA 75 | YB06966 | 03/01/2010 | 18.61 | - |
TAWA 83 | YB06971 | 03/01/2010 | 19.28 | - |
TAWA 84 | YB06972 | 03/01/2010 | 6.48 | - |
TAWA 85 | YB06973 | 03/01/2010 | 20.10 | - |
TAWA 86 | YB06974 | 03/01/2010 | 21.08 | - |
TAWA 87 | YB06975 | 03/01/2010 | 19.83 | - |
TAWA 88 | YB06976 | 03/01/2010 | 20.96 | - |
TAWA 89 | YB06977 | 03/01/2010 | 19.91 | - |
TAWA 90 | YB06978 | 03/01/2010 | 20.97 | - |
Total | 3136.43 |
Table 2: Coordinates of the corners of the Mount Nansen claim block
Corner | N-S | E-W |
NW | 62o06.0’ N | 137o12.0’ W |
NE | 62o05.5’ N | 137o05.8’ W |
SE | 62o01.2’ N | 137o05.3’ W |
SW | 62o02.4’ N | 137o11.7’ W |
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The Mount Nansen property and the Tawa property are located approximately 180 km northwest of Whitehorse and 60 km west of the Village of Carmacks in the Yukon Territory (Figure 1). These two properties are accessible from Whitehorse via the Klondike highway to the town of Carmacks and then via an all weather gravel road. Carmacks is 170 km north of Whitehorse. Whitehorse is connected to Vancouver, Edmonton, and Calgary by air service. The Mount Nansen property is facilitated with an extensive network of gravel and dirt roads (Figure 2).
The Mount Nansen and Tawa properties lie northwest of the maximum advance of the Wisconsin ice sheet, and, consequently, are not affected by the Pleistocene continental glaciations (Figure 4; Eaton and Archer, 1989). This resulted in deep weathering in the properties reaching to depths of over 70 m from the topographic surface (Denholm et al, 2000; Roder, 1996). In mineralized zones, sulphides are commonly altered into limonite and other oxides (Denholm et al, 2000; Melling, 1995; Roder, 1996). The topography in the two properties is hilly with rounded ridges and shallow valleys. Local elevation ranges from 1030 m to 1560 m (Melling, 1995; Rodger, 1996).
Permafrost is widespread in the area and varies according to the amount of vegetation and slope facing direction (Stroshein, 2007b). In the north-facing slopes, permafrost is frozen all year around and in the south-facing slopes permafrost thaw to a depth of 1-2 m in the summer (Eaton and Archer, 1989; Roder, 1996).
The average precipitation in the Mount Nansen property is approximately 25 cm, most of which falls as rain in the summer months (Stroshein, 2007b). Snow fall is normally 30-40 cm deep in late winter. The average monthly temperature ranges from -25oC in January to 15oC in July (Stroshein, 2007b).
The Mount Nansen property is situated in the traditional Territory of the Little Salmon/Carmacks First Nation (Stroshein, 2007b). At the mine site, there is no infrastructure other than the mine plant and buildings. The village of Carmacks has been established since 1893 and has provided fuel for river steamboats, a roadhouse on the Whitehorse to Dawson stage run, and an area service center (Campbell, 1994). In the Village of Carmacks, there reside approximately 500 people. The village is also the main and administrative center of the Little Salmon Traditional Lands.
Additional information:
Full text of a Report completed by Robert S. Middleton, P.Eng on November 27, 2009 regarding the Mount Nansen and Tawa properties can be found at our website: www.guinnessexploration.com.
Figure 4: Glaciation, Dawson Range, Yukon Territory
Results of Operations for the Three and Nine Month Periods Ended February 28, 2010 and February 28, 2009 and the Exploration Stage Period from July 15, 2005 to February 28, 2010
Revenues
Since inception we have earned $nil in revenues.
Our operating expenses are classified into six categories:
- Exploration property purchases
- Exploration expenses
- Professional fees
- Administrative expenses
- Investor relations
- Impairment losses on mineral properties
Exploration property purchases
Exploration property purchases include costs for mineral property claims and/or license which have not been capitalized. Presently these include the purchase costs for the Nantawa Project. For the three and nine month periods ended February 28, 2010, exploration property purchases totaled $951 and $951 compared to $nil and $nil for the three and nine month periods ended February 28, 2009, respectively. During the period from July 15, 2005 (inception) to February 28, 2010 (the “Exploration Stage Period”), exploration property purchases totaled $951. We expect exploration property purchases expenses to increase substantially in the future as we implement our strategic plans.
Exploration Expenses
Exploration Expenses were $6,774 and $6,774 versus $nil and $nil respectively for the three and nine month periods ended February 28, 2010 versus February 28, 2009. Exploration expenses for the Exploration Stage totaled $6,774. During the three months ended February 28, 2010, exploration expenses related to geological consulting fees. We expect exploration expenses to increase substantially during the coming quarters as we implement our strategic plans.
Professional Fees
Professional fees were $48,463 and $62,214 for the three and nine month periods ended February 28, 2010, compared with $2,275 and $13,467 for the three and nine month periods ended February 28, 2009, respectively. During the Exploration Stage Period professional fees totaled $141,178. During the current period professional fees were composed of management fees for our CEO, director fees, legal, auditor and accounting fees. In the coming quarter, we project professional fees will remain at current levels.
Administrative Expenses
Administrative expenses were $8,244 and 11,066 for the three and nine month periods ended February 28, 2010, compared with $909 and $3,453 for the three and nine month periods ended February 28, 2009, respectively. During the Exploration Stage Period administrative expenses totaled $24,379. During the current period administrative fees were primarily composed of office expenses and filing fees related to our SEC filings. We expect administrative fees to increase substantially during the coming quarters as we implement our strategic plans.
Investor Relations
Investor Relations expenses comprise costs for press releases, maintenance of the Company’s website and other investor information initiatives. During the three and nine month periods ended February 28, 2010 versus February 28, 2009, these expenses totaled $25,100 and $26,530 compared with $nil and $nil respectively. For the Exploration Stage Period, Investor Relations expenses totaled $26,530. We anticipate Investor Relations expenses will increase substantially during the coming quarters as we continue our efforts to raise further capital and keep current investors informed of Company developments.
Impairment Losses on Mineral Properties
During the period ended February 28, 2010, the Company formalized its debt to ETPI by signing a promissory note in the amount of $943,868 plus share payments. To account for this event, $1,005,668 was entered as a mineral property asset, with a corresponding accounts payable entry. Additionally, to conform with the standards of SEC Industry Guide 7 pertaining to the classification of the mineral properties as assets, an impairment charge of $1,005,668 was entered against this asset because sufficient geological work had not yet been performed to meet the current Industry Guide 7 standards.
On April 6, 2006 we purchased a uranium property in Saskatchewan, Canada and on July 17, 2008 determined not to 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 and is included in the total loss for the Exploration Stage Period.
Net Loss
We incurred net losses of $(1,096,370) and $(1,116,558) for the three and nine month periods ended February 28, 2010 compared with net losses of $(4,137) and $(19,360) for the three and nine month periods ended February 28, 2009. During the Exploration Stage Period net losses totaled $(1,229,502).
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 cash of $1,553,500 though private placements of our common shares. As of February 28, 2010 we had cash on hand of $833,427 and prepaid expenses of $27,972. We project we will need to raise substantial additional funds during the coming twelve months to implement our strategic plans. To meet these requirements we expect we will need to complete shares issuances and/or negotiate debt arrangements. With respect to our basic operating requirements, we expect we have sufficient resources to meet our requirements over the coming twelve months.
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 most particularly the Canadian dollar. 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
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e). The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company's desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recogni zed that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company's certifying officer has concluded that the Company's disclosure controls and procedures are not effective in reaching that level of assurance.
As the end of the period being reported upon, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company's CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
As of February 28, 2010, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the criteria established by COSO management concluded that the Company's internal control over financial reporting was not effective as of February 28, 2010, as a result of the identification of the material weaknesses described below.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, management identified the following control deficiencies. (1) The Company has not properly segregated duties as one or two individuals initiate, authorize, and complete all transactions. The Company has not implemented measures that would prevent the individuals from overriding the internal control system. The Company does not believe that this control deficiency has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports. (2) The Company has installed accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and does not provide an adequate audit trail of entries made in the accounting software.
Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.
Changes in Internal Control over Financial Reporting
During the third quarter of the Company’s fiscal year ended May 31, 2010, no material changes were made to the Company’s internal control over financial reporting
Remediation Plan
Addition of staff
We have identified that additional staff will be required to properly segment the accounting duties of the Company. However, we do not currently have resources to fulfill this part of our plan and will be addressing this matter once sufficient resources are available.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no litigation pending or threatened by or against us.
ITEM 1A. RISK FACTORS
The following risk factors should be considered in connection with an evaluation of our business:
THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS PROSPECTS.
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. You should consider any purchase of the Company's shares in light of the risks, expenses and problems frequently encountered by all companies in the early stages of its corporate development.
LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
For the three months ended February 28, 2010, the Company had a Net Loss of $(1,096,370) and during the nine months ended February 28, 2010, the Net Loss of the Company totaled $(1,116,558). The Company may need to raise additional capital by way of an offering of equity securities, an offering of debt securities, or by obtaining financing through a bank or other entity. The Company has not established a limit as to the amount of debt it may incur nor has it adopted a ratio of its equity to debt allowance. If the Company needs to obtain additional financing, there is no assurance that financing will be available from any source, that it will be available on terms acceptable to us, or that any future offering of securities will be successful. If additional funds are raised through the issuance of equity securities, there may be a significa nt dilution in the value of the Company’s outstanding common stock. The Company could suffer adverse consequences if it is unable to obtain additional capital which would cast substantial doubt on its ability to continue its operations and growth.
THE VALUE AND TRANSFERABILITY OF THE COMPANY'S SHARES MAY BE ADVERSELY IMPACTED BY THE LIMITED TRADING MARKET FOR ITS SHARES AND THE PENNY STOCK RULES.
There is only a limited trading market for the Company's shares. The Company's common stock is traded in the over-the-counter market and "bid" and "asked" quotations regularly appear on the OTC Bulletin Board under the symbol "GNXP". There can be no assurance that the Company's common stock will trade at prices at or above its present level and an inactive or illiquid trading market may have an adverse impact on the market price. In addition, holders of the Company's common stock may experience substantial difficulty in selling their securities as a result of the "penny stock rules" which restrict the ability of brokers to sell certain securities of companies whose assets or revenues fall below the thresholds established by those rules.
FUTURE SALES OF SHARES MAY ADVERSELY IMPACT THE VALUE OF THE COMPANY'S STOCK.
If required, the Company may seek to raise additional capital through the sale of common stock. Future sales of shares by the Company or its stockholders could cause the market price of its common stock to decline.
MINERAL EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN NATURE.
Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals and environmental protect ion, the combination of which factors may result in the Company not receiving an adequate return of investment capital.
Substantial expenditures are required to establish ore reserves through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of new properties, to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities and grades to justify commercial operations or that funds required for development can be obtained on a timely basis. Estimates of reserves, mineral deposits and production costs can also be affected by such factors as environmental permitting regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of ore ultimately mined may differ from that indicated by drilling results. Short term factors relating to reserves, such as the need for orderly development of ore bodies or the processing of new or different grades, may also have an adverse effect on mining operations and on the results of operations. Material changes in ore reserves, grades, stripping ratios or recovery rates may affect the economic viability of any project.
THE COMPANY WILL BE SUBJECT TO OPERATING HAZARDS AND RISKS WHICH MAY ADVERSELY AFFECT THE COMPANY'S FINANCIAL CONDITION.
Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The Company's operations will be subject to all the hazards and risks normally incidental to exploration, development and production of metals, such as unusual or unexpected formations, cave-ins or pollution, all of which could result in work stoppages, damage to property and possible environmental damage. The Company does not have general liability insurance covering its operations and does not presently intend to obtain liability insurance as to such hazards and liabilities. Payment of any liabilities as a result could have a materially adverse effect upon the Company's financial condition
THE COMPANY'S ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY REGULATIONS WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION OF THE COMPANY.
The Company's activities are subject to environmental regulations promulgated by government agencies from time to time. Environmental legislation generally provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which would result in environmental pollution. A breach of such legislation may result in imposition of fines and penalties. In addition, certain types of operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in governmental regulations could have an adverse effect on the financial condition of the Company.
The operations of the Company include exploration and development activities and commencement of production on its properties, require permits from various federal, state, provincial and local governmental authorities and such operations are and will be governed by laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies engaged in the development and operation of mines and related facilities generally experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits.
Failure to comply with applicable laws, regulations, and permitting requirements may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations and, in particular, environmental laws.
COMPETITION MAY HAVE AN IMPACT ON THE COMPANY'S ABILITY TO ACQUIRE ATTRACTIVE PRECIOUS METALS PROPERTIES, WHICH MAY HAVE AN ADVERSE IMPACT ON THE COMPANY'S OPERATIONS.
Significant and increasing competition exists for the limited number of precious metals acquisition opportunities available. As a result of this competition, some of which is with large established mining companies with substantial capabilities and greater financial and technical resources than the Company, the Company may be unable to acquire attractive precious metals properties on terms it considers acceptable. Accordingly, there can be no assurance that any exploration program intended by the Company on properties it intends to acquire will yield any reserves or result in any commercial mining operation.
DOWNWARD FLUCTUATIONS IN METAL PRICES MAY SEVERELY REDUCE THE VALUE OF THE COMPANY.
The Company has no control over the fluctuations in the prices of the metals for which it is exploring. A significant decline in such prices would severely reduce the value of the Company.
THE COMPANY CURRENTLY RELIES ON CERTAIN KEY INDIVIDUALS AND THE LOSS OF ONE OF THESE CERTAIN KEY INDIVIDUALS COULD HAVE AN ADVERSE EFFECT ON THE COMPANY.
The Company's success depends to a certain degree upon certain key members of the management. These individuals are a significant factor in the Company's growth and success. The loss of the service of members of the management and advisory board could have a material adverse effect on the Company. In particular, the success of the Company is highly dependent upon the efforts of the President & CEO, CFO, PAO, Treasurer & Secretary, Chair & Director of the Company, the loss of whose services would have a material adverse effect on the success and development of the Company.
THE COMPANY DOES NOT MAINTAIN KEY MAN INSURANCE TO COMPENSATE THE COMPANY FOR THE LOSS OF CERTAIN KEY INDIVIDUALS.
The Company does not anticipate having key man insurance in place in respect of its senior officers or personnel, although the Board has discussed and investigated the prospect of obtaining key man insurance for our CEO.
WE ARE AN EXPLORATION STAGE COMPANY, AND THERE IS NO ASSURANCE THAT A COMMERCIALLY VIABLE DEPOSIT OR "RESERVE" EXISTS ON ANY PROPERTIES FOR WHICH THE COMPANY HAS, OR MIGHT OBTAIN, AN INTEREST.
The Company is an exploration stage company and cannot give assurance that a commercially viable deposit, or “reserve,” exists on any properties for which the Company currently has (through an option) or may have (through potential future joint venture agreements or acquisitions) an interest. Therefore, determination of the existence of a reserve depends on appropriate and sufficient exploration work and the evaluation of legal, economic, and environmental factors. If the Company fails to find a commercially viable deposit on any of its properties, its financial condition and results of operations will be materially adversely affected.
WE REQUIRE SUBSTANTIAL FUNDS MERELY TO DETERMINE WHETHER COMMERCIAL PRECIOUS METAL DEPOSITS EXIST ON OUR PROPERTIES.
Any potential development and production of the Company’s exploration properties depends upon the results of exploration programs and/or feasibility studies and the recommendations of duly qualified engineers and geologists. Such programs require substantial additional funds. Any decision to further expand the Company’s operations on these exploration properties is anticipated to involve consideration and evaluation of several significant factors including, but not limited to:
§ | Costs of bringing each property into production, including exploration work, preparation of production feasibility studies, and construction of production facilities; |
§ | Availability and costs of financing; |
§ | Ongoing costs of production; |
§ | Market prices for the precious metals to be produced; |
§ | Environmental compliance regulations and restraints; and |
§ | Political climate and/or governmental regulation and control. |
GENERAL MINING RISKS
Factors beyond our control may affect the marketability of any substances discovered from any resource properties the Company may acquire. Metal prices, in particular gold and silver prices, have fluctuated widely in recent years. Government regulations relating to price, royalties, and allowable production and importing and exporting of precious metals can adversely affect the Company. There can be no certainty that the Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and operations on any projects it may acquire and environmental concerns about mining in general continue to be a significant challenge for all mining companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 19, 2009, the Company entered a Mineral Claim Purchase and Sale Agreement (the ‘Nantawa Agreement’) with Eagle Trail Properties Inc. (‘ETPI’). The price for this property asset included payment of 60,000,000 restricted common shares of Guinness valued at US$0.00103 per share for a total share value of US$61,800. On December 24, 2009, 60,000,000 restricted common shares were issued and delivered to ETPI.
On February 10, 2010 Guinness completed a private placement which raised sufficient capital for the first stage of the Nantawa Project. The financing raised aggregate proceeds of US$1,500,000 and was comprised a unit (‘Unit’) sale by Guinness of 1,875,000 Units priced at US$0.80 per Unit for one share of common stock in the capital of Guinness (each, a "Share"); and one common share purchase warrant (each a “Warrant”) subject to adjustment. Each whole Warrant is non-transferable and entitles the holder to purchase one common share of Guinness (each, a “Warrant Share”), as presently constituted, for a period of twenty four months beginning February 10, 2010 at a price per Warrant Share of US$2.00. These Units are being issued pursuant to Regulation S of the Securities Act of 1933, as amended ( “Regulation S”) and Guinness did not engage in any general solicitation or advertising regarding this Unit offering.
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 prior quarter ended November 30, 2009, the Company submitted to a vote of the Company's security holders a proposal to increase the authorized common shares limit of the Company from 75,000,000 to 500,000,000 and add authorization for issuance of up to 100,000,000 preferred shares, par value $0.001, for which the Board of Directors may fix and determine the designations, rights, preferences or other variation to each class or series within each class of preferred shares. Shareholder approval for this change was received November 26, 2009 and a Definitive 14C was filed with the Securities Exchange Commission on December 9, 2009.
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(4) |
3.2 | Certificate of Amendment of Articles of Incorporation(4) |
3.3 | Bylaws(4) |
10.1 | Nantawa Material Definitive Agreement(2) |
10.2 | Amendment to the Nantawa Agreement dated February 4, 2010(3) |
10.3 | Promissory Note(3) |
14.1 | Code of Ethics(1) |
(1) Filed as an exhibit to our registration statement on Form SB-2 filed December 27, 2006 and incorporated herein by this reference
(2) Filed as an exhibit to a Current Report on Form 8-K filed November 20, 2009 and incorporated herein by this reference
(3) Filed as an exhibit to a Current Report on Form 8-K filed April 9, 2010 and incorporated herein by this reference
SIGNATURES
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/ Alastair Brown
Alastair Brown
President & CEO, CFO
Dated: April 12, 2010
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