UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549




FORM 10-Q




(Mark One)




x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended   September 30, 2010 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from  to




Commission File Number:  000-49725


Constitution Mining Corp.


(Exact name of registrant as specified in its charter)




Delaware
88-0455809(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)




Pasaje Mártir Olaya 129, Oficina 1203, Centro Empresarial José Pardo Torre A, Miraflores, Lima, Perú(Address of principal executive offices)+51-1-446-6807(Registrant’s telephone number, including area code)_________________________________________________________________(Former name, former address and former fiscal year, if changed since last report)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes   ̈ No




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   ý Yes    ̈ No




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “a smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large accelerated filer  ̈                                                                                                            Accelerated filer  ̈


Non-accelerated filer    ̈(Do not check if a smaller reporting company)                          Smaller reporting company ý




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ̈Yes  ý No




Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:




Class

Outstanding at November 10, 2010Common Stock, $0.001 par value

88,158,118






Table of Contents










FORM 10-Q

CONSTITUTION MINING CORP.

SEPTEMBER 30, 2010

TABLE OF CONTENTS
PagePART I – FINANCIAL INFORMATIONItem 1.
Financial Statements.
3Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
4Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
19Item 4.
Controls and Procedures.
19PART II – OTHER INFORMATIONItem 1.
Legal Proceedings.
20Item 1A.
Risk Factors.
20Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
20Item 3.
Defaults Upon Senior Securities.
21Item 4.
(Removed and Reserved).
21Item 5.
Other Information.
21Item 6.
Exhibits.
21SignaturesExhibitsCertifications








- 2 -
 Table of Contents


PART I - FINANCIAL INFORMATION




Item 1.    Financial Statements.




Our unaudited consolidated financial statements included in this Form 10-Q are as follows:F-1
Unaudited Consolidated Balance Sheet as of September 30, 2010.F-2
Unaudited Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended September 30, 2010 and 2009 and from inception on March 6, 2000 to September 30, 2010.F-3
Unaudited Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2010 and 2009 and from inception on March 6, 2000 to September 30, 2010.F-4
Unaudited Consolidated Statement of Changes in Stockholders' Equity (Deficiency) from inception on March 6, 2000 to September 30, 2010.F-6
Notes to Unaudited Consolidated Financial Statements.




These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included.  Operating results for the interim period ended September 30, 2010 are not necessarily indicative of the results that can be expected for the full year.











- 3 -
 Table of Contents








Constitution Mining Corp.


(An Exploration Stage Company)


Consolidated Balance Sheets
 (Expressed in U.S. Dollars)
 (Unaudited)




As at

30 September

2010

As at

31 December

2009

(Audited)$


$AssetsCurrentCash and cash equivalents


38,886


205,125Amounts receivable (Note 4)


117,206


125,352Prepaid expense


17,627


22,724173,719


353,201Property and equipment(Note 5)


170,387


150,758Website development cost(Note 6)


9,671


25,731Mineral property costs(Note 7)


16,828,733


19,900,36817,182,510


20,430,058LiabilitiesCurrentAccounts payable and accrued liabilities (Note 8)


1,016,477


867,027Current portion of convertible promissory note (Note 13)


402,740


-Loan payable (Note 14)


382,265


-Due to related parties (Note 9)


1,147,939


966,9042,949,421


1,833,931Convertible promissory note(Note 13)


7,000,000


-Future income tax liabilities(Note 15)


-


752,2209,949,421


2,586,151Stockholders’ equityCapital stock (Note 11)Authorized300,000,000 common shares, par value $0.001 and50,000,000 preferred shares, par value $0.001Issued and outstanding31 December 2009 – 78,055,985 common shares, par value $0.00130 September 2010 – 88,158,118 common shares, par value $0.001


88,158


78,056Share subscriptions received in advance(Note 11)


-


70,000Additional paid in capital


28,816,778


25,336,424Warrants(Note 11)


3,801,542


3,572,255Deficit, accumulated during the exploration stage


(25,473,389
)

(16,622,828
)7,233,089


12,433,907Non-controlling interest


-


5,410,0007,233,089


17,843,90717,182,510


20,430,058


Nature, Basis of Presentation and Continuance of Operations(Note 1), Commitments(Note 17) and Subsequent Event (Note 18)




The accompanying notes are an integral part of these consolidated financial statements.





F - 1
 Table of Contents








Constitution Mining Corp.


(An Exploration Stage Company)


Consolidated Statements of Loss and Comprehensive Loss
 (Expressed in U.S. Dollars)
 (Unaudited)




For the period from the date of inception on 6 March 2000 to 30 September 2010


For the three month period ended 30 September 2010


For the three month period ended 30 September 2009


For the nine month period ended 30 September 2010


For the nine month period ended 30

September 2009$



$



$



$



$Operating expensesAmortization expense (Notes 5 and 6)


334,573



21,547



21,077



59,524



63,314Default on oil and gas deposit


25,000



-



-



-



-Exploration costs


6,087,403



569,556



715,769



2,351,946



1,592,817Interest (Notes 13 and 14)


2,712,332



231,991



-



2,547,005



-Investor relations


2,476,272



176,218



340,949



381,175



955,401Management fees (Note 10)


1,066,418



82,628



71,412



283,968



232,470Office and miscellaneous


518,088



40,930



230,433



83,705



397,625Professional fees


2,768,455



169,167



248,368



576,530



605,578Rent (Note 10)


186,156



11,284



19,201



20,826



61,244Stock-based compensation (Note 12)


9,806,833



814,172



-



2,686,353



2,271,494Travel and entertainment


557,106



24,911



46,313



117,670



107,447Write down of mineral property acquisition costs (Note 7)


4,869,833



527,260



4,054,260



527,260



4,054,260Write down of property and equipment


26,611



-



-



-



-Net operating loss before other items and income tax


(31,431,837
)


(2,669,664
)


(5,747,782
)


(9,635,962
)


(10,341,650
)Other itemsForeign exchange gain


59,468



5,705



68,907



33,181



75,762Gain on sale of oil and gas property


307,115



-



-



-



-Interest income


12,795



-



4



-



4Recovery of project management fees


60,000



-



-



-



-Provision for potential legal claims (Note 8)


(65,000
)


-



-



-



135,000374,378



5,705



68,911



33,181



210,766Net operating loss before income tax


(31,057,459
)


(2,663,959
)


(5,678,871
)


(9,602,781
)


(10,130,884
)Future income tax recovery(Note 15)


5,584,070



-



-



752,220



-Net operating loss and comprehensive loss

for the period


(25,473,389
)


(2,663,959
)


(5,678,871
)


(8,850,561
)


(10,130,884
)Basic and diluted loss per common share



(0.032
)


(0.089
)


(0.109
)


(0.164
)Weighted average number of common shares

used in per share calculations



83,066,713



64,027,326



81,232,639



61,633,618




The accompanying notes are an integral part of these consolidated financial statements.





F - 2
 Table of Contents








Constitution Mining Corp.


(An Exploration Stage Company)


Consolidated Statements of Cash Flows


(Expressed in U.S. Dollars)
 (Unaudited)




For the period from the date of inception on 6 March 2000 to 30 September 2010


For the three month period ended 30 September 2010


For the three month period ended 30 September 2009


For the

nine month period ended 30 September 2010


For the

nine month period ended 30 September 2009$



$



$



$



$Cash flows used in operating activitiesLoss for the period


(25,473,389
)


(2,663,959
)


(5,678,871
)


(8,850,561
)


(10,130,884
)Adjustments to reconcile loss to net cash used by operating activitiesAccrued interest (Notes 13 and 14)


2,673,530



231,991



-



2,547,005



-Amortization (Notes 5 and 6)


334,573



21,547



21,077



59,524



63,314Contributions to capital by related party – expenses (Notes 10 and 16)


15,000



-



-



-



-Future income tax recovery (Note 15)


(5,584,070
)


-



-



(752,220
)


-Common shares issued for services (Note 11)


24,199



-



,-



-



-Warrant issued for services


25,252



-



-



-



-Gain on sale of oil and gas property


(307,115
)


-



-



-



-Stock-based compensation (Note 12)


9,806,833



814,172



-



2,686,353



2,271,494Mineral property acquisitioncosts (Note 7)


5,783,225



527,260



4,054,260



1,443,895



4,054,260Write-down of property and equipment


26,611



-



-



-



-Changes in operating assets and liabilities(Increase) decrease in deposit and prepaid expenses


(17,627
)


30,377



1,756



5,097



267,192(Increase) decrease in amounts receivable


(82,929
)


(28,117
)


(62,000
)


8,146



(32,000
)Increase (decrease) in accounts payable and accrued liabilities


533,431



(121,190
)


690,992



149,450



851,555Increase in due to related parties


444,901



6,404



-



181,034



-(11,797,575
)


(1,181,515
)


(972,786
)


(2,522,277
)


(2,655,069
),Cash flows used in investing activitiesAcquisition of mineral property interests (Note 7)


(887,842
)


(327,260
)


-



(327,260
)


(25,000
)Business acquisition, net of cash received (Note 7)


(2,499,908
)


-



-



(1,000,000
)


-Purchase of equipment (Note 5)


(277,683
)


(306
)


-



(63,093
)


(85,258
)Website development costs


(64,693
)


-



-



-



-Purchase of oil and gas property


(642,006
)


-



-



-



-(4,372,132
)


(327,566
)


-



(1,390,353
)


(110,258
)Cash flows from financing activitiesCommon shares issued for cash, net of share costs (Note 11)


8,129,252



2,864,141



1,000,477



3,478,391



1,146,286Increase in due to related parties


27,304



-



47,678



-



224,492Issuance of warrants, net issuance costs (Note 11)


7,049,037



-



768,097



-



782,288Convertible debentures


665,000



-



-



-



-Loan payable (Note 14)


338,000



(462,000
)


-



338,000



-Share subscriptions received in advance (Note 11)


-



(1,127,000
)


192,373



(70,000
)


1,699,35016,208,593



1,275,141



2,008,625



3,746,391



3,852,416Increase (decrease) in cash and cash equivalents


38,886



(233,940
)


1,035,839



(166,239
)


1,087,089Cash and cash equivalents, beginning of period


-



272,826



117,830



205,125



66,580Cash and cash equivalents, end of period


38,886



38,886



1,153,669



38,886



1,153,669
 
 Supplemental Disclosures with Respect of Cash Flows(Note 16)


The accompanying notes are an integral part of these consolidated financial statements.





F - 3
 Table of Contents








Constitution Mining Corp.


(An Exploration Stage Company)


Consolidated Statements of Changes in Stockholders’ Equity


(Expressed in U.S. Dollars)


(Unaudited)


Number of

shares issued
Capital

stock
Additional

paid-in

capital
Share

subscriptions

received in

advance
Warrants
Deficit,

accumulated

during the

exploration

stage
Non-

controlling

interest
Total

stockholders’

equity$

$

$
$

$

$

$Balance at 6 March 2000 (inception)Common shares issued – cash

2,000,000

2,000

1,000
-
-

-

-

3,000Net loss for the period

-

-

-

-

-

(2,291)

-

(2,291)Balance at 31 December 2000

2,000,000

2,000

1,000
-
-

(2,291)

-

709Common shares issued – cash

5,000,000

5,000

42,000
-
-

-

-

47,000Net loss for the year

-

-

-

-

-

(10,571)

-

(10,571)Balance at 31 December 2001

7,000,000

7,000

43,000

-

(12,862)

-

37,138Net loss for the year

-

-

-

-

-

(12,097)

-

(12,097)Balance at 31 December 2002

7,000,000

7,000

43,000
-
-

(24,959)

-

25,041Net loss for the year

-

-

-

-

-

(11,019)

-

(11,019)Balance at 31 December 2003

7,000,000

7,000

43,000
-
-

(35,978)

-

14,0223 for 1 forward split

14,000,000

14,000

(14,000)
-
-

-

-

-Net loss for the year

-

-

-

-

-

(6,451)

-

(6,451)Balance at 31 December 2004

21,000,000

21,000

29,000
-
-

(42,429)

-

7,5712 for 1 forward split

21,000,000

21,000

(21,000)
-
-

-

-

-Net loss for the year

-

-

-

-

-

(18,338)

-

(18,338)Balance at 31 December 2005

42,000,000

42,000

8,000
-
-

(60,767)

-

(10,767)Common shares issued –  cash

4,000,000

4,000

76,000
-
-

-

-

80,000Contributions to capital by related

party – expenses

-

-

14,400
-
-

-

-

14,400Net loss for the year

-

-

-

-

-

(289,343)

-

(289,343)Balance at 31 December 2006

46,000,000

46,000

98,400
-
-

(350,110)

-

(205,710)Contributions to capital by related

party – expenses

-

-

600
-
-

-

-

600Common shares issued –  debt
1,145,300

1,145

21,761
-
-

-

-

22,906Common shares issued –  cash
1,437,000

1,437

501,513
-
-

-

-

502,950Stock-based compensation
-

-

625,035
-
-

-

-

625,035Net loss for the year

-

-

-

-

-

(1,218,721)

-

(1,218,721)Balance at 31 December 2007

48,582,300

48,582

1,247,309
-
-

(1,568,831)

-

(272,940)Common shares issued –  mineral

properties(Notes 7, 11 and 16)
3,800,000

3,800

4,166,200
-
-

-

-

4,170,000Common shares issued –  cash (Note 11)
6,016,511

6,016

4,706,272
-
-

-

-

4,712,288Common shares issued –  services

(Notes 11 and 16)

70,645

71

49,380
-
-

-

-

49,451Value assigned to warrants (Note 11)
-

-

(3,739,570)
-
3,739,570

-

-

-Share issuance costs

-

-

(517,702)
-
237,293

-

-

(280,409)Stock-based compensation (Note 12)
-

-

2,033,607
-
-

-

-

2,033,607Net loss for the year

-

-

-

-

-

(5,304,833)

-

(5,304,833)Balance at 31 December 2008

58,469,456

58,469

7,945,496

-

3,976,863

(6,873,664)

-

5,107,164


The accompanying notes are an integral part of these consolidated financial statements.





F - 4
 Table of Contents








Constitution Mining Corp.


(An Exploration Stage Company)


Consolidated Statements of Changes in Stockholders’ Equity


(Expressed in U.S. Dollars)


(Unaudited)


Number of

shares issued
Capital stock
Additional

paid–in

capital
Share

subscriptions

received in

advance
Warrants
Deficit

accumulated

during the

exploration

stage
Non-

controlling

interest
Total

stockholders’

equity$

$
$
$

$

$

$Balance at 31 December 2008

58,469,456

58,469

7,945,496
-
3,976,863

(6,873,664)

-

5,107,164Common shares issued –

mineralproperties

(Notes 7, 11 and 16)

2,300,000

2,300

1,676,700
-
-

-

-

1,679,000Common shares issued –  cash

(Note 11)
12,786,529

12,787

6,812,536
-
-

-

-

6,825,323Value assigned to warrants

(Note 11)
-

-

(3,309,467)
-
3,309,467



-

-Warrants expired (Note 11)

-

-

3,739,570
-
(3,739,570)

-

-

-Agent compensation warrants

expired(Note 11)
-

-

237,293
-
(237,293)

-

-

-Share issuance costs
-

-

(473,042)
-
262,788

-

-

(210,254)Share subscription received in

advance(Note 11)
-

-

-
70,000
-

-

-

70,000Business acquisition (Notes 7,

11 and 16)
4,500,000

4,500

4,245,500
-
-

-

5,410,000

9,660,000Stock-based compensation

(Note 12)
-

-

4,461,838
-
-

-

-

4,461,838Net loss for the year

-

-

-

-

-

(9,749,164)

-

(9,749,164)Balance at 31 December 2009

78,055,985

78,056

25,336,424

70,000

3,572,255

(16,622,828)

5,410,000

17,843,907Common shares issued –

mineral properties

(Notes 7, 11 and 16)

4,500,000

4,500

4,600,500

-

-

-

-

4,605,000Common shares issued –  cash

(Note 11)

5,141,421

5,141

3,336,776

(70,000)

-

-

-

3,271,917Value assigned to warrants

(Note 11)
-

-

(297,325)

-

297,325

-

-

-Warrants expired (Note 11)
-

-

24,629

-

(24,629)

-

-

-Share issuance costs
-

-

(191,438)

-

5,413

-

-

(186,025)Warrants exercised (Note 11)

460,712

461

370,859

-

(48,822)

-

-

322,498Business acquisition

(Notes 7, 11 and 16)
-

-

(9,150,000)

-

-

-

(5,410,000)

(14,560,000)Stock-based compensation

(Note 12)
-

-

2,686,353

-

-

-

-

2,686,353Intrinsic value of beneficial

conversion feature (Note 13)
-

-

2,100,000

-

-

-

-

2,100,000Net loss for the period

-

-

-

-

-

(8,850,561)

-

(8,850,561)Balance at 30 September 2010

88,158,118

88,158

28,816,778

-

3,801,542

(25,473,389)

-

7,233,089





The accompanying notes are an integral part of these consolidated financial statements.





F - 5
 Table of Contents





Constitution Mining Corp.


(An Exploration Stage Company)


Notes to Consolidated Financial Statements


(Expressed in U.S. Dollars)


(Unaudited)


30 September 2010




1. Nature, Basis of Presentation and Continuance of Operations




Constitution Mining Corp. (the “Company”) was incorporated in the State of Nevada under the name “Crafty Admiral Enterprises, Ltd.” on 6 March 2000. On 9 March 2007, the Company changed their name to “Nordic Nickel Ltd.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Crafty Admiral Enterprises, Ltd.) and its wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change. On 15 November 2007, the Company changed its name to “Constitution Mining Corp.”. The Company changed their name pursuant to a parent/subsidiary merger between the Company (as Nordic Nickel Ltd.) and its wholly-owned non-operating subsidiary, Constitution Mining Corp., which was established for the purpose of giving effect to this name change. On 21 October 2009, the Company reincorporated in the State of Delaware. The Company is in the exploration stage as its operations principally involve the examination and investigation of land that may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.




The Company is an exploration stage enterprise, as defined in Accounting Standards Codification (the “Codification” or “ASC”) 915-10, “Development Stage Entities”. The Company is devoting all of its present efforts in securing and establishing a new business, and its planned principle operations have not commenced, and, accordingly, no revenue has been derived during the organization period.




The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) applicable to exploration stage enterprises, and are expressed in U.S. dollars.  The Company’s fiscal year end is 31 December.




The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, Constitution Mining Argentina SA, a company incorporated under the laws of Argentina, and Bacon Hill Invest Inc. (“Bacon Hill”), a company incorporated under the laws of Panama.




The Company’s consolidated financial statements as at 30 September 2010 and for the nine month period then ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Company had a loss of $8,850,561 for the nine month period ended 30 September 2010 (30 September 2009 – $10,130,884, cumulative - $25,473,389) and has working capital deficit of $2,775,702 at 30 September 2010 (31 December 2009 - $1,480,730).




Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital.  Management believes that the Company’s capital resources should be adequate to continue operating and maintaining its business strategy during the fiscal year ending 31 December 2010.  However, if the Company is unable to raise additional capital in the near future, due to the Company’s liquidity problems, management expects that the Company will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.  These consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.







F - 6
 Table of Contents


Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


On 27 June 2006, the Company acquired a 100% interest in an oil and gas property lease located in St. Francis County, Arkansas (the “Tombaugh Lease”) for cash payment of $642,006.   In 2007, the Company shifted its focus from oil and gas sector to mineral exploration.




Although management is currently implementing its business plan, and seeking additional sources of equity or debt financing and or a partner, there is no assurance these activities will be successful.  This raises substantial doubt about the ability of the Company to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.




2. Changes in Accounting Policies




In February 2010, the FASB issued ASU No. 2010-11, “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives”.  ASU No. 2010-11 clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. The amendments in ASU No. 2010-11 are effective for each reporting entity at the beginning of its first fiscal quarter beginning after 15 June 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after 5 March 2010. The adoption of ASU No. 2010-11 did not have a material impact on the Company’s consolidated financial statements.




In January 2010, FASB issued ASU No. 2010-02,“Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification”. ASU No. 2010-02 addresses implementation issues related to the changes in ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of the FASB ASC, originally issued as Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. Subtopic 810-10 establishes the accounting and reporting guidance for noncontrolling interests and changes in ownership interests of a subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. The gain or loss includes any gain or loss associated with the difference between the fair value of the retained investment in the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. ASU No. 2010-02 was effective for the Company starting 1 January 2010. The Company’s adoption of ASU No. 2010-02 did not have a material impact on the Company's consolidated financial statements.







F - 7
 Table of Contents






Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


In January 2010, the FASB issued ASU No. 2010-01, “Equity (ASC Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash”, which clarifies that the stock portion of a distribution to shareholders that allow them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and ASC Topic 260. ASU No. 2010-01 was effective for the Company starting 1 January 2010. The adoption of the ASU No. 2010-01 did not have a material impact on the Company’s consolidated financial statements.




In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”.  SFAS No. 167, which amends ASC 810-10, “Consolidation”, prescribes a qualitative model for identifying whether a company has a controlling financial interest in a variable interest entity (“VIE”) and eliminates the quantitative model.  The new model identifies two primary characteristics of a controlling financial interest: (1) provides a company with the power to direct significant activities of the VIE, and (2) obligates a company to absorb losses of and/or provides rights to receive benefits from the VIE.  SFAS No. 167 requires a company to reassess on an ongoing basis whether it holds a controlling financial interest in a VIE.  A company that holds a controlling financial interest is deemed to be the primary beneficiary of the VIE and is required to consolidate the VIE.  SFAS No. 167, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative.  SFAS No. 167 was effective 1 January 2010.  The adoption of SFAS No. 167 did not have a material impact on the Company’s consolidated financial statements.




In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfer of Financial Assets – an amendment of FASB Statement”.  SFAS No. 166 removes the concept of a qualifying special-purpose entity from ASC 860-10, “Transfers and Servicing”, and removes the exception from applying ASC 810-10, “Consolidation”. This statements also clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting.  SFAS No. 166, which is referenced in ASC 105-10-65, has not yet been adopted into the Codification and remains authoritative.  This statement was effective 1 January 2010.  The adoption of SFAS No. 166 did not have a material impact on the Company’s consolidated financial statements.




In August 2009, the FASB issued ASU No. 2009-05, “Fair Value Measurement and Disclosure (Topic 820) – Measuring Liabilities at Fair Value”, which provides valuation techniques to measure fair value in circumstances in which a quoted price in an active market for the identical liability is not available.  The guidance provided in this update was effective 1 January 2010.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.




3. Significant Accounting Policies




The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements.




Principles of consolidation




All inter-company balances and transactions have been eliminated in these consolidated financial statements.




Cash and cash equivalents




Cash and cash equivalents include highly liquid investments with original maturities of three months or less.






F - 8
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Financial instruments




The carrying value of cash and cash equivalents, amounts receivable, accounts payable, amounts due to related parties, loan payable and convertible promissory note approximates their fair value because of the short maturity of these instruments.  The Company’s operations are in the U.S. and Peru and virtually all of its assets and liabilities are giving rise to significant exposure to market risks from changes in foreign currency rates.  The Company’s financial risk is the risk that arises from fluctuations in foreign exchange rates and the degree of volatility of these rates.  Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.




Derivative financial instruments




The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.




Income taxes




Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes in accordance with ASC 740, “Income Taxes”, which requires the use of the asset/liability method of accounting for income taxes.  Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax losses and credit carry-forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The Company provides for deferred taxes for the estimated future tax effects attributable to temporary differences and carry-forwards when realization is more likely than not.




Basic and diluted net income (loss) per share




The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”.  ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement.  Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.  Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method.  In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.  Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.




Comprehensive loss




ASC 220, “Comprehensive Income”, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.  As at 30 September 2010, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the consolidated financial statements.






F - 9
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010




Mineral property costs




Mineral property acquisition costs are initially capitalized as tangible assets when purchased. At the end of each fiscal quarter end, the Company assesses the carrying costs for impairment.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.




Mineral property exploration costs are expensed as incurred.




Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.




As of the date of these consolidated financial statements, the Company has not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.




Although the Company has taken steps to verify title to mineral properties in which it has an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company’s title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.




Property and Equipment




Property and equipment is recorded at cost and amortization is provided over its estimated economic life at 30% or on a straight line basis over its economic life.




Website development costs




The costs of computer software developed or obtained for internal use, during the preliminary project phase, as defined under ASC 350-40, “Internal-Use Software”, will be expensed as incurred.  The costs of website development during the planning stage, as defined under ASC 350-50, “Website Development Costs”, will also be expensed as incurred.




Computer software, website development incurred during the application and infrastructure development stage, including external direct costs of materials and services consumed in developing the software and creating graphics and website content, will be capitalized and amortized over the estimated useful life, beginning when the software is ready for use and after all substantial testing is completed and the website is operational.







F - 10
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Segments of an enterprise and related information




ASC 280, “Segment Reporting”establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas and major customers.  ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  The Company has evaluated this Codification and does not believe it is applicable at this time.




Start-up expenses




ASC 720-15, “Start-Up Costs”, requires that costs associated with start-up activities be expensed as incurred.  Accordingly, start-up costs associated with the Company’s formation have been included in the Company’s expenses for the period from the date of inception on 6 March 2000 to 30 September 2010.




Foreign currency translation




The Company’s functional and reporting currency is U.S. dollars.  The consolidated financial statements of the Company are translated to U.S. dollars in accordance with ASC 830, “Foreign Currency Matters”.  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.  Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.  The Company has not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.




Use of estimates




The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period.  Actual results could differ from these estimates.




Comparative figures




Certain comparative figures have been adjusted to conform to the current period’s presentation.







F - 11
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Stock-based compensation




Effective 1 January 2006, the Company adopted the provisions of ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). The Company adopted ASC 718 using the modified prospective method, which requires the Company to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, financial statements for the periods prior to 1 January 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  The adoption of ASC 718 does not change the way the Company accounts for share-based payments to non-employees, with guidance provided by ASC 505-50, “Equity-Based Payments to Non-Employees”.




Convertible debt




In May 2008, the FASB issued new guidance for accounting for convertible debt instruments that may be settled in cash.  The new guidance, which is now part of ASC 470-20, “Debt with Conversion and Other Options” requires the liability and equity components to be separately accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate.  The Company will allocate a portion of the proceeds received from the issuance of convertible notes between a liability and equity component by determining the fair value of the liability component using the Company’s nonconvertible debt borrowing rate.  The difference between the proceeds of the notes and the fair value of the liability component will be recorded as a discount on the debt with a corresponding offset to paid-in capital.  The resulting discount will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes using the effective interest rate method.  The new guidance was to be applied retrospectively to all periods presented upon those fiscal years.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.




Recent accounting pronouncements




In February 2010, the  FASB issued ASU No. 2010-09, “Amendments to Certain Recognition and Disclosure Requirements”, which eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events.  ASU No. 2010-09 is effective for its fiscal quarter beginning after 15 December 2010.  The adoption of ASU No. 2010-09 is not expected to have a material impact on the Company’s consolidated financial statements




In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurement and Disclosures (Topic 820): Improving Disclosure and Fair Value Measurements”, which requires that purchases, sales, issuances, and settlements for Level 3 measurements be disclosed.  ASU No. 2010-06 is effective for its fiscal quarter beginning after 15 December 2010.  The adoption of ASU No. 2010-06 is not expected to have a material impact on the Company’s consolidated financial statements.






F - 12
 Table of Contents






Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010




4. Amounts Receivable




Amounts receivable are non-interest bearing, unsecured and have settlement dates within one year.




5. Property and Equipment




Net Book ValueCost


Accumulated

amortization


30 September

2010


31 December 2009

(Audited)$



$



$



$Equipment


279,549



109,162



170,387



150,758




During the nine month period ended 30 September 2010, total additions to property and equipment were  $63,093 (30 September 2009 - $85,258).




6. Website Development Cost




Net Book ValueCost


Accumulated

amortization


30 September

2010


31 December 2009

(Audited)$



$



$



$Website development


64,693



55,022



9,671



25,731




During the nine month period ended 30 September 2010, total additions to website development were $Nil (30 September 2009 - $Nil).




7. Mineral Property Costs




Peruvian Gold Sands – Minera Maranon S.A.C




On 29 September 2008, the Company entered into a Mineral Right option agreement with Temasek Investments Inc. (“Temasek”) to acquire mining properties totalling 382 km2 in Northeastern Peru (the “Peruvian Agreement”).  Pursuant to this Peruvian Agreement, the Company acquired four separate options from Temasek, each providing for the acquisition of a 25% interest in certain mining properties (the “Peruvian Gold Sands”).  The Peruvian Gold Sands are owned by Minera Maranon S.A.C (“Maranon”).  Bacon Hill, a wholly-owned subsidiary of Temasek, owns 999 shares of 1,000 shares of Maranon that are issued and outstanding.  Temasek owns the single remaining share of Maranon.  The acquisition of each 25% interest in the Peruvian Gold Sands will occur through the transfer to the Company of 25% of the outstanding shares of Bacon Hill.







F - 13
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


The Company may exercise the initial 25% option by fulfilling the following conditions:




a. Pay a non-refundable $375,000 on the date the Peruvian Agreement is executed (paid);
 b . Issue 2,000,000 common shares within 5 business days (issued and valued at $1.01 per common share) (Notes 11 and 16); and
 c. Pay an additional $375,000 prior to 28 December 2008 (paid).




The Company entered into an amending agreement dated 12 May 2009 (the “Peruvian Amendment”) and a second amending agreement dated 29 October 2009 (the “Second Peruvian Amendment”) with Temasek.  Under the Second Peruvian Amendment, the Company may now exercise the second 25% option resulting in the acquisition of a 50% interest in the Mineral Rights by fulfilling the following conditions as set out in the Second Peruvian Amendment:




a. Exercise and complete the initial 25% option by 29 March 2009 (completed);
 b. Issue an additional 2,000,000 common shares by 29 March 2009 (issued and valued at $0.65 per common  share) (Notes 11 and 16);
 c. Pay an additional $750,000 by 29 October 2009 or as soon as practicable thereafter (paid); and
 d. Issue an additional 500,000 common shares by 29 October 2009 or as soon as practicable thereafter (issued
 and valued at $1.18 per common share) (Notes 11 and 16).




The Company entered into a third amending agreement dated 8 April 2010 (the “Third Peruvian Amendment”) with Temasek.  Under the Third Peruvian Amendment, the Company may now exercise the third and fourth 25% options resulting in the acquisition of a 100% interest in the Mineral Rights by fulfilling the following conditions as set out in the Third Peruvian Amendment:




a. Pay $1,000,000 (paid on 22 April 2010);
 b. Issue an additional 6,000,000 common shares (2,000,000 issued and valued at $1.18 per common share and 4,000,000 issued and
 valued at $1.05 per common share (Notes 11 and 16)); and


c. Issue a convertible note in the principal amount of $7,000,000 maturing on 8 April 2013 and bearing   interest at a rate of 12% per annum, payable annually, with principal payable upon maturity (the “Convertible Note”).  Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit (issued 8 April 2010) (Notes 13 and 16).




The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.0% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 25% option (Note 17).




During the nine month period ended 30 September 2010, the Company expensed mineral property costs of $2,351,946 related to the Minera Maranon property (Note 16).







F - 14
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Peruvian Gold Sands – Minera Saramiriza




On 25 January 2010 (the “Effective Date”), the Company entered into an assignment agreement with Temasek (the “Minera Saramiriza Agreement”), to acquire a 100% interest in the mineral rights that are the property and title of Minera Saramiriza S.A.C. In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the property, the Company must issue, within 30 business days from the Effective Date, 500,000 common shares of the Company (issued and valued at $0.81 per common share) to the order and direction of Temasek, which will be included in the initial 33% option payment as defined below (Notes 11 and 16).




The Company may exercise the initial 33% option by fulfilling the following conditions within 12 months of the Effective Date:




a.          Issue the initial 500,000 common shares (issued);


b.          Pay $250,000; and


c.          Issue an additional 1,000,000 common shares.




The Company may exercise the second 33% option by fulfilling the following conditions within 24 months of the Effective Date:




a.          Exercise and complete the initial 33% option;


b.          Pay an additional $1,000,000; and


c.          Issue an additional 1,000,000 common shares.




The Company may exercise the final 34% option by fulfilling the following conditions within 36 months of the Effective Date:




a.          Exercise and complete the initial and second 33% options;


b.          Pay an additional $2,000,000; and


c.          Issue an additional 2,000,000 common shares.




The property is subject to a 2.5% net returns royalty that the Company can reduce to 1.0% upon payment of a further $2,000,000 within 90 days of the exercise and completion of the final 34% option (Note 17).




Seabridge Gold Claims




Effective 2 December 2009, the Company entered into a written Letter of Intent with Seabridge Gold Inc. (“Seabridge”) for the exclusive option to acquire a 100% interest in certain mining claims and leasehold interests in Nevada (the “Seabridge Claims”). The Company has until 15 March 2010 to conduct its due diligence (completed) and then, to proceed to enter into a more formal option agreement with Seabridge. Until then, the Letter of Intent remains binding between the parties (Note 17).




Under the terms of the Letter of Intent, in order to exercise the Seabridge Claims, the Company, upon signing of the Letter of Intent, must pay Seabridge $200,000 (paid), which will be credited against the $1,000,000 payable as defined below.






F - 15
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Upon completion of the transfer of title to the Seabridge Claims scheduled for 31 March 2010 (the “Closing Date”) or as soon as possible thereafter, the Company must:




a. Pay $1,000,000, against which the $200,000 (paid) delivered upon signing the Letter of Intent will be credited,
 and the remaining $800,000 will be paid (paid $25,000);
 b. Issue 1,000,000 restricted common shares of the Company;
 c. Issue a secured promissory note  in the principal amount of $1,000,000 bearing interest at 8% per annum,
 payable in full on or before the first anniversary of the Closing Date and secured by the Seabridge Claims; and
 d. Issue a transferable convertible secured debenture in the principal amount of $1,000,000 maturing on the second
 anniversary of the Closing Date and bearing interest at a rate of 8% per year, payable quarterly, with principal and
 accrued interest convertible by Seabridge within 30 days of maturity into one share of common stock at $1.00 per share,
 redeemable in full, not in part, by the Company at any time upon payment of 125% of the principal and accrued interest
 outstanding at the time of security redemption.




Further, under the terms of the Letter of Intent, the Company must pay $1,000,000 and issue 2,000,000 restricted common shares, which will be held in escrow and released 36 months following issuance on or before 30 April 2010.




If the payment of $1,000,000 and the issuance of 2,000,000 restricted common shares of the Company, required on or before 30 April 2010, is not completed by 1 May 2010, the Company will then have to transfer all the Seabridge Claims back to Seabridge.




On 1 April 2010, the Company entered into an asset purchase agreement with Seabridge (the “Seabridge Agreement”). This Seabridge Agreement replaces the Letter of Intent. The completion is expected to close on 20 May 2010.  On 13 July 2010, the Company entered into an amending asset purchase agreement with Seabridge (the “Seabridge Amendment Agreement”) to the Seabridge Agreement dated 1 April 2010. Pursuant to the Seabridge Amendment Agreement, the Company agreed to pay Seabridge $302,260 (paid) for Bureau of Land Management fees and to reimburse Seabridge for all costs of maintaining the mineral properties until the closing date of the Seabridge Agreement.  The transaction is now scheduled to close on or before 30 September 2010.




The Company has not conducted exploration activities during the nine month period ended 30 September 2010 on this property.




During the nine month period ended 30 September 2010, the Company announced that it entered into a mutual agreement to terminate with Seabridge and would allocate its resources exclusively to pursue the exploration and development of its property interests in the Peruvian Gold Sands.




During the nine month period ended 30 September 2010, the Company recorded a provision for write-down of mineral property costs of $527,260 related to the Seabridge Gold Claims (Note 16).






F - 16
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Atena Gold Project




On 12 December 2007, the Company entered into an assignment agreement (the “Atena Agreement”) to acquire the right to explore and option to purchase the 3,676 hectare Atena Gold Project located in the Salta Province of Argentina.   Pursuant to the Atena Agreement, the Company was required to issue 500,000 common shares (issued and valued at $0.70 per common share) and pay $60,000 (paid). The Company could have acquired 100% of the option if it incurred a minimum of $3,740,000 in work commitment expenditures on the property and issue 7,000,000 common shares according to the following schedule (Notes 11 and 16):




a. $240,000 in expenditures (incurred) plus a further issuance of 1,000,000 common shares (issued and
 valued at $1.59 per common share) on or before 15 March 2008;
 b. a further $500,000 in expenditures plus a further issuance of 2,000,000 common  shares on or before 15
 March 2009 (issued and valued at $0.73 per common share);
 c. a further $1,000,000 in expenditures plus a further issuance of 4,000,000 common shares on or before 15
 March 2010; and
 d. a further $2,000,000 in expenditures on or before 15 March 2011.




The Company entered into an amending agreement dated 5 May 2009 (the “Atena Amendment”) with Proyectos Mineros S.A. (“PMSA”).  Under the Atena Amendment, the $500,000 in expenditures originally required to be made by the Company on the Atena Gold Project property by 15 March 2009 was waived upon the issuance of the 2,000,000 common shares (issued) of the Company as required under the Atena Agreement. The option is subject to a 1% net smelter returns royalty.




During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Atena Gold Project and would allocate its resources exclusively to pursue the exploration and development of their property interests in Northeastern Peru, the Peruvian Agreement.




During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $3,530,260 related to the Atena property (Note 16).




Cerro Amarillo Property




On 8 January 2008, the Company entered into an assignment agreement with  PMSA.  Under the assignment agreement,  PMSA assigned to the Company PMSA’s right to explore and option to purchase a 100% interest in Cerro Amarillo Property located in the Province of Mendoza, Argentina.  Pursuant to the terms of the assignment agreement, the Company issued 300,000 common shares (issued and valued at $0.70 per common share) and pay $10,000 (paid).  The Company could have acquired a 100% of the option if it incurred a minimum of $450,000 in work commitment expenditures on the property and issue 2,100,000 common shares according to the following schedule (Notes 11 and 16):




a. $200,000 in expenditures plus a further issuance of 300,000 common shares on or before 8 January 2009
 (issued and valued at $0.73 per common share);
 b. a further $250,000 in expenditures plus a further issuance of 600,000 common shares on or before 8
 January 2010;
 c . a further issuance of 600,000 common shares on or before 8 January 2011; and
 d. a further issuance of 600,000 common shares on or before 8 January 2012.








F - 17
 Table of Contents







Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


The Company entered into an amending agreement dated 5 May 2009 (the “Cerro Amarillo Amendment”) with PMSA.  Under the Cerro Amarillo Amendment, the $200,000 in expenditures originally required to be made by the Company on the Cerro Amarillo property by 8 January 2009 was waived upon the issuance of the 300,000 common shares (issued and valued at $0.73 per common share) of the Company as required under the Cerro Amarillo Agreement.




To exercise the option the Company was required to issue a further 3,000,000 common shares.  The option was subject to a 1% net smelter returns royalty.




The Company was also responsible for certain payments under the agreement between the underlying titleholder of the mineral property rights and  PMSA (the “Cerro Amarillo Agreement”).  In order for the Company to keep its interest in good standing and to exercise the option to acquire a 100% interest in the Cerro Amarillo property, the Company had to make the following payments to the underlying titleholder and incur a minimum of $250,000 in work commitment expenditures on the property, as set forth in the Cerro Amarillo Agreement:




a. Pay $20,000 by 28 February 2008 (paid);
 b. Pay additional $40,000 by 1 June 2008 (paid);
 c. Pay additional $50,000 by 1 December 2008 (paid $25,000; $25,000 accrued as at 31 December 2009);
 d. Pay additional $60,000 by 1 June 2009 (accrued as at 31 December 2009);
 e. Pay additional $100,000 by 1 December 2009;
 f. Pay additional $150,000 by 1 December 2010;
 g. Pay additional $200,000 by 1 December 2011;
 h. Pay additional $250,000 by 1 June 2012;
 i. Incur $50,000 in exploration expenditures on or before 1 December 2008 (incurred); and
 j. Incur additional $200,000 in exploration expenditures on or before 1 December 2009 (incurred; $125,070 included in accounts payable).




During the year ended 31 December 2009, the Company announced that it was terminating their exploration program on the Cerro Amarillo property and would allocate its resources exclusively to pursue the exploration and development of its property interests in northeastern Peru, the Peruvian Agreement.




During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $734,070 related to the Cerro Amarillo property (Note 16).




Amira, Amira Norte and Esparta II




On 17 March 2008, the Company entered into an assignment agreement with PMSA (the “Amira Agreement”), a company related to the Company by way of a director and shareholder in common. Under the assignment agreement,  PMSA assigned to the Company PMSA’s right to explore and option to purchase a 90% interest in three mining properties referred to as “Amira”, “Amira Norte” and “Esparta II” (collectively, the “Properties”), which are located in the Province of Salta, Argentina. In order for the Company to keep its interest in good standing and to exercise the option to acquire a 90% interest in the Properties, the Company had to make the following payments to the underlying titleholder, as set forth in the Amira Agreement:







F - 18
 Table of Contents






Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010 
 
 a.         $75,000 by 19 January 2009;


b.         a further $150,000 by 19 January 2010;


c.         a further $200,000 by 19 January 2011; and


d.         a further $1,000,000 by 19 January 2012, by means of which final payment the Option to acquire a 90%


interest in the Properties will have been automatically exercised.




The Company entered into an amending  assignment agreement dated 5 May 2009 (the “Amira Amendment”)  with the owner of the Properties, whereby the payment originally due on 19 January 2009 under the Amira Agreement was due as follows:





a. $25,000 on or by the end on 30 June 2009 (accrued as at 31 December 2009); and


b. $50,000 on or before by the end of 30 September 2009 (accrued as at 31 December 2009).




During the year ended 31 December 2009, the Company announced that it was terminating its exploration program on the Properties and would allocate its resources exclusively to pursue the exploration and development of its property interests in Northeastern Peru, the Peruvian Agreement.





During the year ended 31 December 2009, the Company recorded a provision for write-down of mineral property costs of $75,000 related to the Amira Agreement (Note 16).




8. Accounts Payable and Accrued Liabilities




Accounts payable and accrued liabilities are non-interest bearing, unsecured and have settlement dates within one year.




Included in accounts payable and accrued liabilities at 30 September 2010 are $45,000 and $20,000 (31 December 2009 - $45,000 and $20,000) related to settlement of potential legal claims on incidents arising from the mineral property interests and the related legal fees, respectively.




9. Due to Related Parties




As at 30 September 2010, the amount due to related parties consists of $174,578 (31 December 2009 - $27,304) payable to directors and former directors of the Company and $973,361 (31 December 2009 - $939,600) payable to companies controlled by shareholders and directors of Maranon.  This balance is non-interest bearing, unsecured and has no fixed terms of repayment.




10. Related Party Transactions




During the nine month period ended 30 September 2010, the Company paid or accrued management fees of $283,968 (30 September 2009 - $232,470, cumulative – $1,333,604) to directors and officers of the Company and companies controlled by directors and officer.




During the nine month period ended 30 September 2010, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (30 September 2009 - $Nil, cumulative - $12,000) and $Nil (30 September 2009 - $Nil, cumulative - $3,000), respectively.  These amounts have been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 16).






F - 19
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010




11. Capital Stock




Authorized




The total authorized capital consists of:




·
300,000,000 of common shares with par value of $0.001


·
50,000,000 of preferred shares with par value of $0.001




Issued and outstanding




As at 30 September 2010, the total issued and outstanding capital stock is 88,158,118 common shares with a par value of $0.001 per common share.




On 29 September 2010, the Company issued 5,141,421 units at a price of $0.65 per unit for total proceeds of $3,155,892, net of issue cost of $186,025. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.80 up to 29 September 2011, commencing 29 March 2011. As at 30 September 2010, all share purchase warrants in this series remain outstanding.




On 29 September 2010, the Company issued 208,676 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $0.80 up to 29 September 2010, commencing 29 March 2011. As at 30 September 2010, all share purchase warrants in this series remain outstanding (Note 16).




On 3 August 2010, the Company issued 15,000 common shares at a price of $0.70 per share for total proceeds of $10,500 pursuant to warrants issued on 9 July 2009.




On 7 June 2010, the Company issued 54,285 common shares at a price of $0.70 per share for total proceeds of $38,000 pursuant to warrants issued on 9 July 2009.




On 17 April 2010, a total of 200,000 previously outstanding share purchase warrants expired.




On 13 April 2010, the Company issued 4,000,000 common shares valued at $1.05 per common share pursuant to the Minera Maranon Agreement (Notes 7 and 16).




On 19 March 2010, the Company issued 500,000 common shares valued at $0.81 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 16).




On 16 March 2010, the Company issued 391,427 common shares at a price of $0.70 per share for total proceeds of $273,999 pursuant to warrants issued on 9 July 2009.









F - 20
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


On 1 December 2009, the Company issued 7,533,462 units at a price of $0.65 per unit for total proceeds of $4,686,496, net of issue costs of $210,254. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $1.00 up to 1 December 2010, commencing 1 June 2010. As at 30 September 2010, all share purchase warrants in this series remain outstanding.




On 1 December 2009, the Company issued 315,775 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $1.00 up to 1 December 2010, commencing 1 June 2010. As at 30 September 2010, all share purchase warrants in this series remain outstanding (Note 16).




On 2 November 2009, the Company issued 2,500,000 common shares valued at $1.18 per common share pursuant to the Peruvian Agreement (Notes 7 and 16).




On 2 September 2009, the Company issued 923,428 units at a price of $0.35 per unit for total proceeds of $323,200. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 2 September 2011, commencing 2 March 2010. As at 30 September 2010, all share purchase warrants in this series remain outstanding.




On 14 August 2009, a total of 5,007,300 previously outstanding share purchase warrants expired.




On 14 August 2009, a total of 350,511 previously outstanding agent compensation warrants expired.




On 9 July 2009, the Company issued 4,129,639 units at a price of $0.35 per unit for total proceeds of $1,445,373. Each unit consist of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at the price of $0.70 up to 9 July 2011, commencing 9 January 2010. As at 30 September 2010, 3,668,927 share purchase warrants in this series remain outstanding.




On 29 June 2009, the Company issued 2,000,000 common shares valued at $0.65 per common share pursuant to the Peruvian Agreement (Notes 7 and 16).




On 2 June 2009, the Company issued 2,000,000 common shares valued at $0.73 per common share pursuant to the Atena Agreement (Notes 7 and 16).




On 2 June 2009, the Company issued 300,000 common shares valued at $0.73 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 16).




On 17 April 2009, the Company issued 200,000 units at a price of $0.80 per unit for proceeds of $160,000. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $0.70 up to 17 April 2010, commencing 17 October 2009.  As at 30 September 2010, none of the share purchase warrants in this series remain outstanding.


On 7 April 2009, a total of 1,009,211 previously outstanding share purchase warrants were cancelled.




On 7 April 2009, a total of 70,645 previously outstanding agent compensation warrants were cancelled.






F - 21
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


During the year ended 31 December 2008, the company issued 2,000,000 common shares valued at $1.01 per common share in pursuant to the Peruvian Agreement (Notes 7 and 16).




During the year ended 31 December 2008, the Company issued 350,511 agent compensation warrants for services rendered by a private placement agent.  Each share purchase warrant entitles the holder to purchase one common share at a price of $1.40 up to 19 August 2009, commencing 19 February 2009 (Note 16).




During the year ended 31 December 2008, the Company issued 5,007,300 units at a price of $0.80 per unit for proceeds of $3,725,431, net of issue costs of $280,409.  Each unit consists of one common share and one share purchase warrant.  Each share purchase warrant entitles the holder to purchase an additional common share at a price of $1.40 up to 19 August 2009, commencing 19 February 2009.




During the year ended 31 December 2008, the Company issued 1,000,000 common shares valued at $1.59 per common share pursuant to the Atena Agreement (Notes 7 and 16).




During the year ended 31 December 2008, the Company issued an additional 70,645 units at a price of $0.70 per unit for services rendered by a private placement agent. Each unit consists of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase an additional common share at a price of $1.40 up to 7 April 2009, commencing 7 October 2008 (Note 16).




During the year ended 31 December 2008, the Company issued 1,009,211 units at a price of $0.70 per unit.  Each unit consists of one common share and one share purchase warrant.  Each share purchase warrant entitles the holder to purchase an additional common share at a price of $1.40 up to 7 April 2009, commencing 7 October 2008.




During the year ended 31 December 2008, the Company issued 300,000 common shares valued at $0.70 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 16).




During the year ended 31 December 2008, the Company issued 500,000 common shares valued at $0.70 per common share pursuant to the Atena Agreement (Notes 7 and 16).







F - 22
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Share Purchase Warrants




The following share purchase warrants were outstanding at 30 September 2010:




Exercise price


Number

of warrants


Remaining

contractual life (years)$Agent compensation warrants


1.00



315,775



0.17Warrants


1.00



7,533,462



0.17Warrants


0.70



3,668,927



0.77Warrants


0.70



923,428



0.92Agent compensation warrants


0.80



208,676



1.00Warrants


0.80



5,141,421



1.0017,791,689




The following is a summary of warrant activities during the year ended 31 December 2009 and the nine month period ended 30 September 2010:




Number of warrants


Weighted average exercise price$Outstanding and exercisable at 1 January 2009


6,437,667



1.40Granted


13,102,304



0.88Exercised


-



-Cancelled


(1,079,856
)


1.40Expired


(5,357,811
)


1.40Outstanding and exercisable at 31 December 2009


13,102,304



0.88Weighted average fair value of warrants granted during the year






0.55







F - 23
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


Number of warrants

Weighted average exercise price$Outstanding and exercisable at 1 January 2010
13,102,304

0.88Granted
5,350,097

0.80Exercised
(460,712)

0.70Cancelled
-

-Expired
(200,000)

0.70Outstanding and exercisable at 30 September 2010
17,791,689

0.86Weighted average fair value of warrants granted during the period


0.057




The weighted average grant date fair value of warrants issued during the nine month period ended 30 September 2010, amounted to $0.057 per warrant (31 December 2009 - $0.55). The fair value of each warrant granted was determined using the Black-Scholes warrant pricing model and the following weighted average assumptions:




2010


2009Risk free interest rate


0.27%



0.52%Expected life

1.00 years


1.40 yearsAnnualized volatility


101.18%



107.96%Expected dividends


-



-




Stock Options




The following incentive stock options were outstanding at 30 September 2010:




Exercise

price

Number

of options
Remaining

contractual life

(years)$Options
1.00

410,000
7.35Options
1.05

1,425,000
8.11Options
0.70

2,640,000
8.64Options
1.10

2,740,000
9.32Options
0.72

160,000
9.787,375,000











F - 24
 Table of Contents





Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


The following is a summary of stock option activities during the year ended 31 December 2009 and the nine month period ended 30 September 2010:




Number of options


Weighted average exercise price$Outstanding and exercisable at 1 January 2009


4,835,000



1.02Granted


5,440,000



0.70Exercised


-



-Cancelled


(4,200,000
)


0.84Outstanding and exercisable at 31 December 2009


6,075,000



0.85Weighted average fair value of options vested during the year






0.73Outstanding and exercisable at 1 January 2010


6,075,000



0.85Granted


3,450,000



1.08Exercised


-



-Cancelled


(2,150,000
)


0.93Outstanding and exercisable at 30 September 2010


7,375,000



0.93Weighted average fair value of options vested during the period






0.97




Share Subscriptions Received in Advance




Share subscriptions received in advance consists of $Nil (31 December 2009 - $70,000) cash received by the Company for Nil common shares (31 December 2009 – 200,000) that have not yet been issued as at 30 September 2010.




12. Stock-Based Compensation




During the nine month period ended 30 September 2010, the Company granted 3,240,000 stock options to employees, directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $1.10 per common share expiring 22 January 2020, of which 2,490,000 were granted to employees and 750,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the period, estimated using Black-Scholes model, was $1,902,213.  This amount has been expensed as stock-based compensation.







F - 25
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


During the nine month period ended 30 September 2010, the Company granted 210,000 stock options to employees directors and consultants of the Company, entitling the holders to purchase common shares of the Company for proceeds of $0.72 per common share expiring 7 July 2020, of which Nil were granted to employees and 210,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the period, estimated using Black-Scholes model, was $Nil




During the year ended 31 December 2009, the Company granted 5,440,000 stock options to employees, directors and consultants of the Company entitling the holders to purchase common shares of the Company for proceeds of $0.70 per common share expiring 20 May 2019 of which 3,240,000 were granted to employees and 2,200,000 were granted to non-employees of the Company.  The fair value of the portion of the options which vested in the period, estimated using Black-Scholes model, was $784,140.  This amount has been expensed as stock-based compensation.




A total of 2,150,000 of the previously granted outstanding stock options of the Company were cancelled during the nine month period ended 30 September 2010 (31 December 2009 – 4,200,000) (Note 11).




The fair value of each option was estimated on the date of grant using Black-Scholes option pricing model. The assumptions about stock-price volatility have been based exclusively on the implied volatilities of publicly traded options to buy the Company’s stock with contractual terms closest to the expected life of options granted to employees, directors or consultants.




The following assumptions were used for the Black-Scholes valuation of stock options granted/vested:




2010


2009Risk free interest rate


3.50%



3.21%Expected life

9.71 years


9.9 yearsAnnualized volatility


117.62%



120%Expected dividends


-



-




13. Convertible Promissory Note




On 8 April 2010, the Company entered into a convertible promissory note agreement (the “Convertible Promissory Note Agreement”) with Temasek valued at $7,000,000 pursuant to the Minera Maranon Agreement.  The principal balance bears interest at a rate of 12% per annum payable annually, with principal payable upon maturity.  All unpaid principal, together with any unpaid and accrued interest is due and payable on the date of maturity of 8 April 2013. Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one share of the Company's common stock and one warrant to purchase one share of the Company's common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit (Notes 7 and 16).




During the nine month period ended 30 September 2010, the Company accrued $2,502,740 (30 September 2009 - $Nil) of which $2,100,000 is related to amortization of debt discount.  The balance as at 30 September 2010 consists of principal and accrued interest of $7,000,000 (31 December 2009 - $Nil) and $402,740 (30 September 2009 - $Nil), respectively.






F - 26
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


14. Loan payable




On 1 April 2010 (the “Execution Date”), the Company entered into a loan agreement (the “Loan Agreement”) with St. Lawrence Alluvial Services and Logistics Corp. for $800,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Execution Date.




On 30 June 2010 (the “Second Execution Date”), the Company entered into a loan agreement (the “Second Loan Agreement”) with St. Lawrence Alluvial Services and Logistics Corp. for $320,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Second Execution Date. The Company is in the process of renegotiating the terms of terms Loan Agreement.




On 20 September 2010 (the “Third Execution Date”), the Company entered into a loan agreement (the “Third Loan Agreement”) with Quarry Capital LLC for $50,000 cash.  The principal balance bears interest at a rate of 12% per annum, with interest and principal payable 90 days after the Third Execution Date.




The balance as at 30 September 2010 consists of principal and accrued interest of $370,000 (31 December 2009 - $Nil) and $12,265 (30 September 2009 - $Nil), respectively.




15. Income Taxes




The Company has losses carried forward for income tax purposes to 30 September 2010.  The Company has fully reserved for any benefits of these losses.  The deferred tax consequences of temporary differences in reporting items for consolidated financial statement and income tax purposes are recognized, as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.  Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes.




The provision for refundable federal income tax consists of the following:




For the nine month period ended 30 September 2010


For the nine month period ended 30 September 2009$



$Deferred tax asset attributable to:Current operations


3,130,961



3,449,412Amortization


(19,970
)


(21,614
)Stock based compensation


(913,360
)


(772,308
)Provision for potential legal claims


-



45,900Change in valuation allowance


(1,445,411
)


(2,701,390
)Future income tax recovery


752,220



-







F - 27
 Table of Contents






Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010
 The composition of the Company’s deferred tax assets as at 30 September 2010and 31 December 2009 is as follows:


As at 30

September

2010


As at 31 December

2009

(Audited)$



$Net income tax operating loss carryforward


21,046,304



14,189,400Statutory federal income tax rate


33.40
%


34.05
%Effective income tax rate


0.00
%


0.00
%Future income tax assets (liabilities)Tax loss carryforward


7,029,481



4,831,850Mineral property costs


(5,584,070
)


(5,584,070
)Less: Valuation allowance


(1,445,411
)


-Future income tax assets (liabilities)


-



(752,220
)




The potential income tax benefit of these losses has been offset by a full valuation allowance.




As at 30 September 2010, the Company has an unused net operating loss carryforward balance of approximately $21,046,304 that is available to offset future taxable income.  This unused net operating loss carryforward balance for income tax purposes expires between the years 2020 to 2030.




16. Supplemental Disclosures with Respect to Cash Flows




For the period from the date of inception on 6 March 2000 to 30 September 2010


For

the three month period ended 30 September

2010


For

the three

month period ended 30 September

2009


For

the nine month period ended 30 September

2010

For

the nine month period ended 30 September

2009$



$



$



$


$Supplemental cash flows informationInterest expense


38,802



-



-



-


-Foreign exchange (gain) loss


-



-



-



-


-




During the nine month period ended 30 September 2010, director and shareholder of the Company made contributions to capital for management fees and rent of $Nil (30 September 2009 - $Nil, cumulative - $12,000) and $Nil (30 September 2009 - $Nil, cumulative - $3,000), respectively.  These amounts have been recorded as an increase in expenditures and an increase in additional paid-in capital (Note 10).








F - 28
 Table of Contents





Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


During the nine month period ended 30 September 2010, the Company recorded non-cash mineral property costs in the amount of $1,443,895 (Note 7).




On 29 September 2010, the Company issued 208,676 agent compensation warrants valued at $5,412 for agent services rendered (Note 11)




On 13 April 2010, the Company issued 4,000,000 common shares valued at $1.05 per common share pursuant to the Minera Maranon Agreement (Notes 7 and 11).




On 8 April 2010, the Company issued a convertible promissory note valued at $7,000,000 pursuant to the Minera Maranon Agreement. During the nine month period ended 30 September 2010, the Company accrued $2,502,740 (30 September 2009 - $Nil) of which $2,100,000 is related to amortization of debt discount (Notes 7 and 13).




On 19 March 2010, the Company issued 500,000 common shares valued at $0.81 per common share pursuant to the Minera Saramiriza Agreement (Notes 7 and 11).




During the year ended 31 December 2009, the Company recorded a total write-down of mineral property expenditures in the amount of $4,339,330 related to the Atena, Cerro Amarillo and Amira properties (Note 7).




During the year ended 31 December 2009, the Company recorded a total write-down of property and equipment in the amount of $26,611 (Note 5).




During the year ended 31 December 2009, the Company issued 315,775 agent compensation warrants valued at $262,788 for agent services rendered (Note 11).




During the year ended 31 December 2009, the Company issued 2,500,000 common shares valued at $1.18 per common share pursuant to the Peruvian Agreement (Notes 7 and 11).




During the year ended 31 December 2009, the Company issued 2,000,000 common shares valued at $0.65 per common share pursuant to the Peruvian Agreement (Notes 7 and 11).




During the year ended 31 December 2009, the Company issued 2,000,000 common shares valued at $0.73 per common share pursuant to the Atena Agreement (Notes 7 and 11).




During the year ended 31 December 2009, the Company issued 300,000 common shares valued at $0.73 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 11).




During the year ended 31 December 2008, the Company issued 500,000 common shares valued at $0.70 per common share in pursuant to the Atena Agreement (Notes 7 and 11).




During the year ended 31 December 2008, the Company issued 2,000,000 common shares valued at $1.01 per common share in pursuant to the Peruvian Agreement (Notes 7 and 11).






F - 29
 Table of Contents




Constitution Mining Corp.
 (An Exploration Stage Company)
 Notes to Consolidated Financial Statements
 (Expressed in U.S. Dollars)
 (Unaudited)
 30 September 2010


During the year ended 31 December 2008, the Company issued 300,000 common shares valued at $0.70 per common share pursuant to the Cerro Amarillo Agreement (Notes 7 and 11).




During the year ended 31 December 2008, the Company issued 70,645 common shares valued at $49,252 and 70,645 warrants valued at $25,252 for agent services rendered (Note 11).




During the year ended 31 December 2008, the Company issued 1,000,000 common shares valued at $1.59 per common share pursuant to the Atena Agreement (Notes 7 and 11).




During the year ended 31 December 2008, the Company issued 350,511 agent compensation warrants valued at $237,293 for agent services rendered (Note 11).




By agreements effective 18 January 2008, the Company assigned all of its rights, title and interest in the Tombaugh Lease with a book value of $481,504 to a purchaser in consideration for the purchaser assuming the Company’s outstanding payment obligations of $788,619 related to its convertible debentures. The Company recorded a gain of $307,115 upon completion of the transaction.




During the year ended 31 December 2008, the Company issued $Nil common shares (31 December 2007 – 1,145,300) for convertible debentures of $Nil (31 December 2007 - $22,906).




During the year ended 31 December 2008 the Company accrued interest of $Nil (31 December 2007 - $74,770, cumulative – $126,525) on convertible debentures.




17. Commitments




The Company is subject to certain outstanding and future commitments related to its mineral property interests (Note 7).




18. Subsequent Event




Subsequent to the nine month period ended 30 September 2010 to the date the consolidated financial statements were available to be issued on 16 November 2010, the following event occurred:




a)
On 19 October 2010, a total of 350,000 previously outstanding stock options were cancelled.







F - 30
 Table of Contents







Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.




This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements.  These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control.  Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs.  There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.




Important factors that may cause the actual results to differ from the forward-looking statements, projections or other expectations include, but are not limited to, the following:




●
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration and development projects;




●
risk that we fail to fulfill the payment obligations set forth in the agreement we entered into with Temasek Investments Inc. (“Temasek”), a company incorporated under the laws of Panama, under which we acquired three separate options, each providing for the acquisition of an approximately one-third interest in certain mineral rights to certain properties in Peru that abut the other property interests we acquired, which could result in the loss of our right to exercise the options to acquire the mineral and mining rights underlying these properties;




●
risk that we cannot attract, retain and motivate qualified personnel, particularly employees, consultants and contractors for our operations in Peru;




●
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of mineral deposits;




●
results of initial feasibility, pre-feasibility and feasibility studies, and the possibility that future exploration, development or mining results will not be consistent with our expectations;




●
mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;




●
the potential for delays in exploration or development activities or the completion of feasibility studies;




●
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;




●
risks related to commodity price fluctuations;




●
the uncertainty of profitability based upon our history of losses;




●
risks related to environmental regulation and liability;




●
risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;




●
risks related to tax assessments;




●
political and regulatory risks associated with mining development and exploration; and






- 4 -
 Table of Contents






·
other risks and uncertainties related to our prospects, properties and business strategy.




The forgoing list is not an exhaustive list of the factors that may affect any of our forward-looking statements.  These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.




As used in this Quarterly Report, the terms “we,” “us,” “our,” and “Constitution Mining” mean Constitution Mining Corp. and our subsidiaries, unless otherwise indicated.




Overview




We were incorporated in the state of Nevada under the name Crafty Admiral Enterprises, Ltd. on March 6, 2000.  Our original business plan was to sell classic auto parts to classic auto owners all over the world through an Internet site and online store; however, we were unsuccessful in implementing the online store and were unable to afford the cost of purchasing, warehousing and shipping the initial inventory required to get the business started.  As a result, we ceased operations in approximately July 2002.




During our fiscal year ended December 31, 2006, we reorganized our operations to pursue the exploration, development, acquisition and operation of oil and gas properties.  On June 27, 2006, we acquired a leasehold interest in a mineral, oil and gas property located in St. Francis County, Arkansas for a cash payment of $642,006, pursuant to an oil and gas agreement we entered into on April 29, 2006 (the “Tombaugh Lease”).  Shortly after acquiring the Tombaugh Lease, we suspended our exploration efforts on the property covered by the Tombaugh Lease in order to pursue business opportunities developing nickel deposits in Finland, Norway and Western Russia.  On January 18, 2008, we assigned all of our right, title and interest in and to the Tombaugh Lease to Fayetteville Oil and Gas, Inc., which agreed to assume all of our outstanding payment obligations on the Tombaugh Lease as consideration for the assignment.  On March 9, 2007, we changed our name to better reflect our business to “Nordic Nickel Ltd.” pursuant to a parent/subsidiary merger with our wholly-owned non-operating subsidiary, Nordic Nickel Ltd., which was established for the purpose of giving effect to this name change.  We were not successful pursuing business opportunities developing nickel deposits in Finland, Norway and Western Russia and again sought to reorganize our operations in November 2007.




In November 2007, we reorganized our operations and changed our name to “Constitution Mining Corp.” to better reflect our current focus which is the acquisition, exploration, and potential development of mining properties.  Since November 2007, we entered into agreements to secure options to acquire the mineral and mining rights underlying properties located in the Salta and Mendoza provinces of Argentina (the "Argentinean Properties") and in northeastern Peru.  In 2009, we determined that it was in our best interest to no longer pursue the exploration and development of the Argentinean Properties and terminated our option agreements to acquire the mineral and mining rights underlying these properties.  We are now exclusively pursuing the exploration and development of our property interests in Peru.




On October 21, 2009, we completed a reincorporation merger from the State of Nevada to the State of Delaware.




We are considered an exploration or exploratory stage company because we are involved in the examination and investigation of land that we believe may contain valuable minerals, for the purpose of discovering the presence of ore, if any, and its extent.  There is no assurance that a commercially viable mineral deposit exists on any of the properties underlying our mineral property interests, and a great deal of further exploration will be required before a final evaluation as to the economic and legal feasibility for our future exploration is determined.  We have no known reserves of any type of mineral.  To date, we have not discovered an economically viable mineral deposit on any of the properties underlying our mineral property interests, and there is no assurance that we will discover one.  If we cannot acquire or locate mineral deposits, or if it is not economical to recover any mineral deposits that we do find, our business and operations will be materially and adversely affected.






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Our current business plan calls for investing any surplus operating capital resulting from retained earnings into bullion accounts and does not include holding retained earnings, if any, in cash or cash equivalents.  In the event that commercially exploitable reserves of minerals exist on any of our property interests and we are able to make a profit, our business plan is to sell enough mineral reserves to satisfy all of our expenses and invest all retained mineral reserves in bullion accounts established in Zurich, Switzerland.  The price of precious and base metals such as gold and silver has fluctuated widely in recent years, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods.  The effect of these factors on the price of base and precious metals, and, therefore, the change in the value of our retained earnings, if any, held in bullion accounts cannot accurately be predicted and is subject to significant fluctuation.  There can be no assurance that the value of any bullion accounts established by us in the future to hold retained mineral reserves, if any, will not be adversely impacted by fluctuations in the price of base and precious metals resulting in significant losses.




The Peru Property




Our property interests located in Peru are in the exploration stage and we refer to these properties as the "Peru Property".  These properties are without known reserves and the proposed plan of exploration detailed below is exploratory in nature.  These properties are described below.




We entered into a Mineral Right Option Agreement with Temasek Investments Inc. (“Temasek”), a company incorporated under the laws of Panama, on September 29, 2008 (the “Effective Date”), as amended and supplemented by Amendment No. 1, dated May 12, 2009 (“Amendment No. 1”), Amendment No. 2, dated October 29, 2009 (“Amendment No. 2”), and Amendment No. 3, dated April 8, 2010 (“Amendment No. 3” and collectively, the “Option Agreement”), in order to acquire four separate options from Temasek, each providing for the acquisition of a twenty-five percent interest in certain mineral rights (the “Mineral Rights”) in certain properties in Peru, that after each of the options were exercised would result in our acquisition of an aggregate one hundred percent of the Mineral Rights.




A description of the Mineral Rights is set forth below:




Name
Area

(hectares)
Dept.
Province
District
ObservationAixa 2
1000
Loreto
Datem del Marañon
MansericheAlana 10
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 11
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 12
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 13
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 14
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 15
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 16
800
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 17
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 18
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 19
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 4
900
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 5
700
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 6
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 7
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 8
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPAlana 9
1000
Loreto
Datem del Marañon
Manseriche
Fully overlap Zona de Amortiguamiento ANPBianka 5
1000
Loreto
Datem del Marañon
Manseriche
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   Castalia 1
1000
Loreto
Datem del Marañon
MansericheCastalia 2
1000
Loreto
Datem del Marañon
MansericheCastalia 3
500
Loreto
Datem del Marañon
MansericheDelfina 1
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 2
900
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 3
1000
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 4
700
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPDelfina 5
1000
Amazonas
Condorcanqui
Nieva
Partially overlap Zona de Amortiguamiento ANPMika 1
600
Loreto
Datem del Marañon
MansericheMika 10
900
Loreto
Datem del Marañon
Manseriche
Partially overlap Zona de Amortiguamiento ANPMika 2
1000
Loreto
Datem del Marañon
MansericheMika 3
900
Loreto
Datem del Marañon
MansericheMika 4
1000
Loreto
Datem del Marañon
MansericheMika 5
1000
Loreto
Datem del Marañon
MansericheMika 6
1000
Loreto
Datem del Marañon
MansericheMika 7
900
Loreto
Datem del Marañon
MansericheMika 8
1000
Loreto
Datem del Marañon
Manseriche
Partially overlap Zona de Amortiguamiento ANPMika 9
1000
Loreto
Datem del Marañon
MansericheRosalba 1
900
Loreto
Datem del Marañon
MansericheRosalba 2
900
Loreto
Datem del Marañon
MansericheRosalba 3
1000
Loreto
Datem del Marañon
MansericheRosalba 4
1000
Loreto
Datem del Marañon
MansericheRosalba 5
1000
Loreto
Datem del Marañon
Manseriche - Barranca




We exercised the initial twenty-five percent option, which provided for the acquisition of a twenty-five percent interest in the Mineral Rights, by paying Temasek a total of $750,000 and issuing 2,000,000 shares of our common stock to Temasek, on or about October 23, 2008 in accordance with the terms of the Option Agreement.




We exercised the second twenty-five percent option, resulting in our acquisition of an aggregate of a fifty percent interest in the Mineral Rights, by paying Temasek an additional $750,000 and issuing an additional 2,500,000 shares of our common stock to Temasek, on or about November 2, 2009 in accordance with the terms of the Option Agreement.




On April 23, 2010, we announced that we completed the exercise of the third and fourth twenty-five percent options, resulting in our acquisition of an aggregate 100% interest in the Mineral Rights, by fulfilling the following conditions:




·
Payment to Temasek of US$1,000,000;




·
Issuance to Temasek of a total of 6,000,000 shares of our common stock (of which Temasek acknowledged that 2,000,000 shares were previously issued to Temasek in November 2009); and




·
Issuance of a convertible note for US$7,000,000 (the “Convertible Note”) payable to the order and the direction of Temasek.




The Convertible Note has a term of three years and accrues interest at a rate of 12% per annum.  Interest under the Convertible Note is payable annually and the principal is payable upon maturity.  Any interest and principal due under the Convertible Note is convertible (at Temasek's option) into units which consist of one (1) share of our common stock and one (1) warrant to purchase one (1) share of our common stock at an exercise price of $1.10 per share.  The conversion price per unit is fixed at $0.80 per unit.




In connection with our acquisition of an aggregate 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty related to the Mineral Rights.






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The Mineral Rights are owned by Compañía Minera Marañón S.A.C. (“Minera Marañón”).  Bacon Hill Invest Inc. (“Bacon Hill”), a corporation incorporated under the laws of Panama, owns 999 shares of the 1,000 shares of Minera Marañón that are issued and outstanding.  The single remaining share of Minera Marañón by Temasek as nominee and on trust for our exclusive and sole benefit and interest.  Temasek is obligated at all times to exercise all rights in respect of the share of Minera Marañón it holds strictly in accordance with our instructions.  The acquisition of 100% interest in the Mineral Rights occurred through the transfer by Temasek to us of all of the outstanding shares of Bacon Hill.




Expansion of Peru Property




On January 25, 2010 (the “Effective Date”), we entered into a Mineral Rights Option Agreement (the “Option Agreement”) with Temasek.  Pursuant to the Option Agreement, we acquired three separate options from Temasek, each providing for the acquisition of an approximately one-third interest in certain mineral rights (the “Mineral Rights”), in certain properties in Peru that abut the other property interests we own in Peru described above.  Pursuant to the Option Agreement, the exercise of all three options would result in our acquisition of one hundred percent of the Mineral Rights.  The Mineral Rights are currently owned by Minera Saramiriza S.A.C. (“Minera Saramiriza”), a corporation incorporated under the laws of Peru.  Woodburn Investments, Inc. (“Woodburn”), a wholly-owned subsidiary of Temasek, owns 999 shares of the 1,000 shares of Minera Saramiriza that are issued and outstanding.  Temasek owns the single remaining share of Woodburn.  Our acquisition of each thirty-three percent interest in the Mineral Rights is structured to occur through the transfer to us of thirty-three percent of the outstanding shares of Woodburn upon the exercise of each of the three options.




A description of the Mineral Rights is set forth below:




Name
Area (ha)
Department
Province
District
ObservationAixa 1
1000
Loreto
Datem del Marañon
MansericheAlana 1
600
Loreto
Datem del Marañon
Manseriche-Morona
Overlaps

010188704,

010188604,

010188504Alana 2
600
Loreto
Datem del Marañon
Manseriche- MoronaAlana 3
800
Loreto
Datem del Marañon
Manseriche
Overlaps

010045107Casandra 1
1000
Loreto
Datem del Marañon
Barranca-MansericheCasandra 2
1000
Loreto
Datem del Marañon
Barranca- MoronaCasandra 3
900
Loreto
Datem del Marañon
Barranca- MoronaCasandra 4
1000
Loreto
Datem del Marañon
BarrancaCasandra 5
1000
Loreto
Datem del Marañon
Barranca




We may exercise the initial option to acquire a thirty-three percent interest in the Mineral Rights by fulfilling the following conditions:




· Issuance of 500,000 shares of our common stock to Temasek within thirty (30) days from the Effective Date
 (issued March 19, 2010);
  · Payment of $250,000 to Temasek within twelve months of the Effective Date (January 25, 2011); and
  · Issuance of 1,000,000 shares of our common stock to Temasek or its designee within twelve months of the
 Effective Date (January 25, 2011).






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We may exercise the second option to acquire the second, thirty-three percent interest in the Mineral Rights, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, by fulfilling the following conditions:




· Exercise of the initial option to acquire a thirty-three percent interest in the Mineral Rights;
  · Payment of an additional $1,000,000 to Temasek within twenty-four months of the Effective Date
 (January 25, 2012); and
  · Issuance of an additional 1,000,000 shares of our common stock to Temasek or its designee within
 twenty-four months from the Effective Date (January 25, 2012).




We may exercise the third option to acquire the final, thirty-four percent interest in the Mineral Rights, resulting in the acquisition of a one-hundred percent interest in the Mineral Rights, by fulfilling the following conditions:




· Exercise of the first and  second options to acquire an aggregate sixty-six percent interest in
 the Mineral Rights;
  · Payment of an additional $2,000,000 to Temasek within thirty-six months of the Effective Date
 (January 25, 2013); and
  · Issuance of an additional 2,000,000 shares of our common stock to Temasek or its designee
 within thirty-six months from the Effective Date (January 25, 2013).




Upon our acquisition of a 100% interest in the Mineral Rights, Temasek is entitled to an annual 2.5% net returns royalty.  However, if we pay Temasek an additional $2,000,000 within ninety (90) days of its acquisition of a 100% interest in the Mineral Rights, Temasek will only be entitled to an annual 1.0% net returns royalty from us.




If we exercise the second, thirty-three percent option, resulting in the acquisition of a sixty-six percent interest in the Mineral Rights, but fail to exercise the final option and fail to acquire a 100% interest in the Mineral Rights, we and Temasek will form a joint venture in which we will be wholly responsible for developing a feasible mining project and all necessary facilities and Temasek shall retain a carried free interest in the mining rights.  If we do not develop a feasible mining project within three years of the Effective Date, we will be required to pay Temasek an advance minimum mining royalty of $500,000 per year, which will be deducted from Temasek's net return royalty.




Exploration Program




Shortly after our initial acquisition of property interests in Peru in September 2008, we commenced the initial stages of our exploration and development program and carried out the following activities:




· Completed an initial social base line study to document all surface rights owners and people
 resident in the project area;
  · Implemented a community relations program to inform local communities of the project and
 what potential opportunities that may exist for community involvement in the implementation
 phases of the development program;
  · Submitted a Declaración de Impacto Ambiental to the Ministry of Mines and Energy in Peru and
 received approval to start the exploration;
  · Completed the field work for the Evaluación de Impacto Ambiental semidetallado which, if approved
 by the Peruvian Ministry of Mines & Energy, will allow us to undertake extensive drilling and bulk
 sampling programs;
  · Acquired churn drilling equipment for further evaluation and development of resources;






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· Set-up an operational base in the project area in the town of Saramiriza to continuously review the
 exploration program and prior experiences gained operating in this difficult terrain;
  · Contracted various consulting firms and experienced and knowledgeable individuals with specific
 skills in the exploration of alluvial deposits to assist us with the exploration and development of the
 Peru property; and
  · Commissioned and subsequently received a preliminary master plan which indicated the size and
 scope of our projected operations and areas where more information is required.




The principle objective of our planned exploration and development program is to bring a dredge and appropriately matched floating plant onto the property to assist us in conducting trial mining tests which requires that we undertake the following actions:




· Drill an area on the property where known mineralization exists at closely-spaced centers in accordance
 with mining industry standards;
  · Extend the resource though a wider-spaced program of reconnaissance drilling so as to indicate the
 potential size of the deposit;
  · Perform additional geotechnical and metallurgical studies to complement existing information in order
 to prepare the optimum processing route to be adopted in the exploitation phase; and
  · Prepare scoping, prefeasibility, and full feasibility studies.




In the first quarter of 2009, a churn drill and ancillary equipment were purchased in the United States and shipped to Peru.  The equipment cost approximately $85,000 and we acquired such funds through the issuance of securities in private equity offerings.  After the process of importation and transport to site, the initial phase of the drilling program on the project commenced in late July 2009.  Drilling capabilities were increased by the purchase of a second-hand bangka drilling rig at a cost of $15,000.




Gold bearing gravels were intersected in virtually all of the twenty six (26) holes drilled as part of this initial drilling program with the better mineralized horizons returning values in the 60 to 200 mg/m3range (generally, grades in excess of 60 mg/m3 are considered economically viable) with reconnaissance holes up to 15 km apart indicating the widespread distribution of gold throughout the Marañón basin.




Concurrent with the drilling, pitting was carried out at locations where significant gold mineralization was encountered in drilling.  Pitting on the same site as one of the bangka holes gave comparable gold values for the bulk sample from the pit and the bangka drill sample, 213 mg/m3 and 208 mg/m3 respectively, indicating that bangka drilling appears to be an effective evaluation method.  In addition, river bank gravel outcrops and artisanal mine workings have been channel sampled and sedimentological studies have been carried out.  Again, virtually all samples taken in these programs have contained some level of gold.  Channel sampling of exposures in artisanal workings in paleo channels indicate average grades in the range of 120 to 350 mg/m3with local accumulations of gold up to 550 mg/m3.




In the fourth quarter of 2009, we retained the services of an internationally recognized alluvial expert to direct and monitor the on-going exploration program, review results and ensure procedures conform to industry standards.




Detailed processing of the heavy mineral concentrates from the samples indicated a relationship between gold values and magnetite content, the two minerals being deposited together in “alluvial traps” (paleo channels) within the Marañón’s immense braided river system.  The association of the gold with magnetic minerals provides a potential means of locating concentrations of mineralization.  During the first quarter of 2010, we completed ground magnetic surveys over areas where mineralized gravels have been identified in order to obtain a “magnetic fingerprint”.






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Based on the results from the initial phase of the drilling program and the ground magnetic surveys, we planned a Phase II drilling campaign that commenced in April 2010 and was recently completed in October 2010.  In preparation for commencing this second phase of drilling activity, we further increased our drilling capabilities by purchasing two additional bangka drills that were manufactured and delivered to the property site in April 2010.  The objective of this drilling was to determine if we can define reserves of sufficient size to sustain a fleet of high capacity dredges and floating plants in the future.  The Phase II drilling campaign cost approximately US$500,000to complete.  The Phase II 100-hole program consisted of definition drilling within a 2.5 square kilometer grid “GSDG1”situated over a large paleo channel that was successfully drilled during the 26-hole initial phase of the drilling program referenced above.  The grid was comprised of 4 lines, equally spaced at 250 meters apart.  Along each line, holes were drilled every 100 meters to depths of up to 15 meters.  Bulk samples collected by excavating small pits and shafts were used for metallurgical testing as well as to confirm drill results.




As a result of the Phase II drilling campaign, we have been able to identify three large, variable-grade systems of mineralization.  These systems lie near the surface and are at least 100 meters wide, an average of 2.5 meters deep and no less than 600 meters in length.  The first system of gold mineralization, which we refer to as “HBD-33”, was discovered near the mid-point of GSDG1. Five holes were drilled using hand Banka drills at 20-meter spacing. The drilling yielded average gold grades of 159.3mg/cubic meter (within a range of 101.1 to 216.0 mg/cubic meter).  The width of the potential pay horizons averages 3.07 meters (10.07 feet) with a range of 2.2 meters to 4.70 meters. The gold is contained in volcanic-quartz type fluvial gravels beneath an average of only 2.73 meters (8.95 feet) of sandy overburden.  The second system of gold mineralization, which we refer to as “HBD-XX” trends northeast-southwest through GSDG1. Drilling, at 30-meter spacing, during the Phase II program outlined an average grade of 86 mg/cubic meter along a linear 110 meter (361 feet) channel with an average width of 40 meters (131 feet).  The third system of gold mineralization returned values as high as 286.5 mg/m3 over a width of 60m and a thickness of 2.0 meters.




Based on these results, we are working on structuring a feasibility plan to determine whether it is economic viable at this stage to implement a pilot dredging and processing operation as a preliminary step towards full-scale production.  Significant additional drilling is required to better quantify the boundaries of the alluvial gold mineralization and identify concentrations associated with paleo channels.  We caution that results we received from the Phase II drilling campaign do not in any way indicate the presence of a commercially viable mineral deposit.  Our exploration program is building data in order to compile an estimate of probable reserves and make a later determination as to whether a commercially viable mineral deposit exists on the properties underlying our mineral property interests in Perú.  A great deal of further exploration is required before a final evaluation as to the economic and legal feasibility of future exploration is determined.





Our intention is to implement a small-scale test mining operation on the 2.5 square kilometer grid that was the subject of our  Phase II drilling campaign.  This pilot operation should deliver important data that reflects on the potential dredging and gold separation possibilities of this project.  A small-scale test mining operation will also be helpful to determine if the proposed gold separation equipment is viable in the project's environment and if the recoverable grades of gold are sufficient to sustain such an operation.


We also plan to design a Phase III drilling campaign to expand the Phase II drill program beyond the initial 2.5 square kilometer exploration area to other areas of suspected high mineralization within the Peru Property consisting of a total of 461 square kilometers in order to further define the resource and potential of the project.  However, the implementation of a small-scale test mining operation and any further drilling activity is dependent on our ability to a secure additional financing.  If we are unable to secure additional financing for these activities, we will be forced to suspend all exploration work until such time that we are able to secure sufficient financing.


In addition to the foregoing drilling program, we intend to carry out the geophysical evaluation of the property and plan to continue drilling and test pitting for a period of at least 18 months.  We are also conducting mine development planning, process design, and other engineering studies with a view toward completing a feasibility study within a twenty-four month period.  Permitting is anticipated to be initiated as early in the exploration and development cycle as possible, so that trial or pilot dredging can be started as soon as feasibility has been established.
  
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In May 2010, we initiated the process for expanding our drill permits and also are concluding the Environmental Impact permit, which will allow us to explore the entire area that comprises the Peru Property and allow for drilling of up to 428 additional holes.
  Our current cash on hand is insufficient to complete any of the activities set forth in our planned exploration program.  While we have commenced our planned exploration program, we must secure additional financing in the near future in order to implement a small-scale test mining operation and be able to sustain any drilling activity or we will be forced to cease our exploration and development program.  Provided that we are able to secure additional financing, we anticipate that we will incur the following costs for the next twelve months:




Activity

$USDPROJECT COSTS:Property-related costs


148,800Environmental/Social permits


200,000Exploration


1,015,094Field costs


263,708Travel expenses


154,160Community Relations


211,429Administration on site


69,857Personnel


439,674ADMINISTRATION


268,480EQUIPMENT PURCHASE


1,834,000TOTAL

$
4,605,202




Termination of Agreement Relating to Possible Acquisition of Nevada Mineral Claims and Leasehold Interests




On September 27, 2010, we announced the mutual termination of the previously announced Asset Purchase Agreement, dated as of April 1, 2010, as amended by Amendment No. 1 thereto dated as of July 13, 2010 (collectively, the “Purchase Agreement”), with Seabridge Gold Corporation, a Nevada corporation (“Seabridge”), Pacific Intermountain Gold Corporation, a Nevada corporation (“PIGC”), and Seabridge Gold Inc., a Canadian corporation (“SEA”) (collectively, Seabridge, PIGC and SEA are referred to as “Seabridge”).  The Purchase Agreement set forth the terms under which we were to have purchased all of Seabridge’s interests in certain exploration properties located in Nevada, along with certain data and contracts related thereto.  The parties agreement to terminate the Purchase Agreement was effective as of September 23, 2010.  Under the terms of the Purchase Agreement, we are not entitled to recover our $302,260 payment to Seabridge for property fees due to the Bureau of Land Management in July 2010, our $200,000 payment to Seabridge made in exchange for a no-shop provision in the letter of intent entered into between the parties and our $25,000 payment made on August 20, 2010.




Results of Operations for the Three Months Ended September 30, 2010 and 2009




Revenues




We have not generated any revenues from operations since our inception.  We do not expect to generate any revenues until such time that we are able, if at all, to locate a commercially exploitable mineral deposit and either enter into commercial production or sell our mineral properties.







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Operating Expenses


We incurred operating expenses in the amount of $2,669,664 for the three months ended September 30, 2010, as compared to operating expenses of $5,747,782 for the three months ended September 30, 2009.  The decrease in our operating expenses for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, is primarily attributable to fewer write-downs of mineral property acquisition costs during the reporting period.  We recorded write down of mineral property acquisition costs in the amount of $527,260 for the three months ended September 30, 2010, as compared to write down of mineral property acquisition costs of $4,054,260 for the three months ended September 30, 2009.  The write down of mineral property acquisition costs during the three months ended September 30, 2010 related to the mutual termination of the asset purchase agreement entered into with Seabridge Gold Corporation ("Seabridge") under which it was contemplated that we would have  purchased all of Seabridge’s interests in certain exploration properties located in Nevada, along with certain data and contracts related thereto. The write down of mineral property acquisition costs during the three months ended September 30, 2009 related to our decision to dispose of our interest to acquire the mineral rights to certain properties located in Argentina.
  The decrease in our operating expenses for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, was also attributable to lower exploration costs, investor relations expenditures and professional fees incurred during the reporting period.  These cost reductions were attainable due to the company’s focus on the completion of the Phase II 100 hole drill program.
  This decrease in our operating expenses for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, was partially offset by increases in stock-based compensation and interest expense during the reporting period.  We recorded stock-based compensation in the amount of $814,172 for the three months ended September 30, 2010, as compared to stock-based compensation of $0 for the three months ended September 30, 2009.  We recorded interest expense in the amount of $231,991 for the three months ended September 30, 2010, as compared to interest expense of $0 for the three months ended September 30, 2009.  The increase in interest expense is attributable to loans that were received by us in 2010.
  Other Items
  We reported other income of $5,705 for the three months ended September 30, 2010, as compared to other income of $68,911 for the three months ended September 30, 2009, which resulted from a foreign exchange gain.  The decrease in foreign exchange gain for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, is attributable to currency rate fluctuations during the reporting period.




Net Loss




As a result of the above, for the three months ended September 30, 2010 we reported a net loss of $2,663,959, as compared to a net loss of $5,678,871 for the three months ended September 30, 2009.  This decrease in our net loss was primarily attributable to decreased operating expenses.




Basic and Diluted Loss per Share




As a result of the above, the basic and diluted loss per common share was $0.032 and $0.089 for the three months ended September 30, 2010 and 2009, respectively.







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Results of Operations for the Nine Months Ended September 30, 2010 and 2009




Revenues




We have not generated any revenues from operations since our inception.  We do not expect to generate any revenues until such time that we are able, if at all, to locate a commercially exploitable mineral deposit and either enter into commercial production or sell our mineral properties.




Operating Expenses


We incurred operating expenses in the amount of $9,635,962 for the nine months ended September 30, 2010, as compared to operating expenses of $10,341,650 for the nine months ended September 30, 2009.  The decrease in our operating expenses for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily attributable to fewer write-downs of mineral property acquisition costs and reduced investor relations and office and miscellaneous expenditures during the reporting period, which was offset by a significant increase in interest expense.
  We recorded write down of mineral property acquisition costs in the amount of $527,260 for the nine months ended September 30, 2010, as compared to write down of mineral property acquisition costs of $4,054,260 for the nine months ended September 30, 2009.  The write down of mineral property acquisition costs during the nine months ended September 30, 2010 related to the mutual termination of the aforementioned asset purchase agreement entered into with Seabridge.  The write down of mineral property acquisition costs during the three months ended September 30, 2009 related to our decision to dispose of our interest to acquire the mineral rights to certain properties located in Argentina.
  We incurred investor relations expenditures in the amount of $381,175 for the nine months ended September 30, 2010, as compared to investor relations expenditures of $955,401 for the nine months ended September 30, 2009.   The decrease in our investor relations expenditures for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily attributable to focus on more cost effective investor relations in the nine months ended September30, 2010.
  We incurred office and other miscellaneous expenditures in the amount of $83,705 for the nine months ended September 30, 2010, as compared to office and other miscellaneous expenditures of $397,625 for the nine months ended September 30, 2009.   The decrease in our office and other miscellaneous expenditures for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, is primarily attributable to the closing of the company’s office in Buenos Aries, Argentina.
  This decrease is our operating expenses for the nine months ended September 30, 2010, as compared to the nine months ended September 30, 2009, was partially offset by a significant increase in interest expense and exploration costs during the reporting period.  We recorded interest expense in the amount of $2,547,005 for the nine months ended September 30, 2010, as compared to interest expense of $0 for the nine months ended September 30, 2009.  A substantial portion of interest expenditures incurred during the nine months ended September 30, 2010 was attributable to a charge of $2,100,000related to amortization of debt discount that was attributable to the beneficial conversion feature included in the $7,000,000 convertible note issued to Temasek in connection with our acquisition of 100% of the interest in certain properties in Peru.  We incurred exploration costs in the amount of $2,351,946 for the nine months ended September 30, 2010, as compared to exploration costs of $1,592,817 for the nine months ended September 30, 2009.  The increase in exploration costs was attributable toincreased exploration on the Perú property for the nine months ended September 30, 2010.






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Other Items
  We reported other income of $33,181 during the nine months ended September 30, 2010, as compared to other income of $210,776 for the nine months ended September 30, 2009.  Other income reported during the nine months ended September 30, 2010 relates to a foreign exchange gain and other income reported during the nine months ended September 30, 2009 relates primarily to a foreign exchange gain of $75,762 and provision amount for potential legal claims of $135,000 .  The provision for legal potential legal claims during the nine months ended September 30, 2009 is attributable to us entering into a settlement agreement of potential legal claims in an amount which was $135,000 less than the provision amount for potential legal claims of $200,000 which we recorded in a prior reporting period.  The decrease in foreign exchange gain for the three months ended September 30, 2010, as compared to the three months ended September 30, 2009, is attributable to currency rate fluctuations during the reporting period.




Net Loss




As a result of the above, we reported a net loss of $8,850,561 for the nine months ended September 30, 2010, as compared to a net loss of $10,130,884 for the nine months ended September 30, 2009.  This decrease in our net loss was primarily attributable to decreased operating expenses and future income tax recovery of $752,220 for the nine months ended September 30, 2010.The future income tax recovery resulted from recognizing the benefit of tax losses to offset the future income tax liability.




Basic and Diluted Loss per Share




The basic and diluted loss per common share was $0.109 and $0.164 for the nine months ended September 30, 2010 and 2009, respectively.




Liquidity and Capital Resources




At September 30, 2010, we had cash and cash equivalents of $38,886 (December 31, 2009 - $205,125) and a working capital deficit of $2,775,702 (December 31, 2009 - $1,480,730).




During the foreseeable period following the date of this report, we anticipate that we will not generate any revenue.  Our proposed plan of exploration anticipates that we will incur exploration related expenditures of approximately $4,600,000 over the next twelve months.  We anticipate spending approximately $200,000 in ongoing general and administrative expenses per month for the next twelve months, for a total anticipated general and administrative expenditures of $2,400,000 over the next twelve months.  The general and administrative expenses for the year will consist primarily of professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as transfer agent fees and general office expenses.  Over the next twelve months, we anticipate paying $250,000 in acquisition costs relating to our options on certain properties in Peru.  Despite recent sales of our equity securities in a private placement, our current cash on hand is insufficient to be able to make our planned exploration expenditures, acquisition expenditures and to pay for our general administrative expenses over the next twelve months.  Accordingly, we must obtain additional financing in order to continue our plan of operations during and beyond the next twelve months.  In order to provide us with cash to meet our short-term obligations, we entered into two loan agreements with St. Lawrence Alluvial Services and Logistics Corp. (the “Lender”).  Under the terms of the First Loan Agreement, dated April 1, 2010,  the Lender loaned us eight hundred thousand dollars ($800,000) (the “First Loan”) and we agreed to repay the First Loan within a maximum term of ninety days from the execution of the First Loan Agreement together with interest at a rate of twelve percent per year.  Under the terms of the Second Loan Agreement, dated June 30, 2010, the Lender loaned us three hundred twenty thousand dollars ($320,000) (the "Second Loan" and, collectively with the First Loan, the "Loans") and we agreed to repay the Second Loan within a maximum term of ninety days from the execution of the Second Loan Agreement together with interest at a rate of twelve percent per year.  The Loans were used to finance expenditures on mining pediments in Peru.






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During the reporting period, we repaid the $800,000 principal amount of the First Loan together with interest of $32,000 and have no further obligations under the First Loan.  As a result of our limited financial resources, we were not able to repay any portion of the interest or principal payable underthe Second Loan and are presently in default of the Second Loan Agreement.




We believe that long-term debt financing will not be an alternative for funding additional phases of exploration as we do not have limited tangible assets to secure any debt financing.  We anticipate that additional funding will be in the form of equity financing from the sale of our common stock.  We are currently seeking additional funding in the form of equity financing from the sale of our common stock, but cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our complete exploration program.  In the absence of such financing, we will not be able to pursue our exploration program and/or maintain our mineral property interests in good standing.  We also may be forced to abandon our mineral property interests.   If we are unable to raise additional capital in the near future, we will continue to experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures.  We may consider entering into a joint venture arrangement to provide the required funding to explore the properties underlying our mineral property interests.  We have not undertaken any efforts to locate a joint venture participant.  Even if we determine to pursue a joint venture participant, there is no assurance that any third party would enter into a joint venture agreement with us in order to fund exploration of the properties underlying our mineral property interests.  If we enter into a joint venture arrangement, we would likely have to assign a percentage of our interest in our mineral property interests to the joint venture participant.




Cash Used in Operating Activities




Cash flows used in operating activities for the nine months ended September 30, 2010 were $2,522,277, as compared to cash flows used in operating activities of $2,655,069 for the nine months ended September 30, 2009.  Our net loss of $8,850,561 for nine months ended September 30, 2010 was the primary reason for our negative operating cash flow, as compared to our net loss of $10,130,848 for the nine months ended September 30, 2009.




Cash Used in Investing Activities




For the nine months ended September 30, 2010, we used $1,390,353 in investing activities, as compared to $110,258 used in investing activities for the nine months ended September 30, 2009.  For the nine months ended September 30, 2010, we purchased $63,093 in equipment, expended $327,260 in connection with the acquisition of mineral property interests and paid $1,000,000 in connection with our acquisition of 100% of the interest in certain properties in Peru, as compared to the nine months ended September 30, 2009, in which we purchased $85,258 in equipment and expended $25,000 in connection with the acquisition of mineral property interests.




Cash from Financing Activities




As we have had no revenues since inception, we have financed our operations primarily by using existing capital reserves and through private placements of our common stock.  Net cash flows provided by financing activities for the nine months ended September 30, 2010 was $3,746,391, as compared to $3,852,416 for the nine months ended September 30, 2009.




Off Balance Sheet Arrangements




We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.






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Going Concern




We have incurred net losses for the period from inception on March 6, 2000 to September 30, 2010 of $25,473,389 and have no source of revenue.  The continuity of our future operations is dependent on our ability to obtain financing and upon future acquisition, exploration and development of profitable operations from our mineral properties.  These conditions raise substantial doubt about our ability to continue as a going concern.




Critical Accounting Policies




In December 2001, the SEC requested that all registrants list their most "critical accounting polices" in the Management Discussion and Analysis.  The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:




Mineral property costs




Mineral property acquisition costs are initially capitalized as tangible assets when purchased.  At the end of each fiscal quarter end, we assess the carrying costs for impairment.  If proven and probable reserves are established for a property and it has been determined that a mineral property can be economically developed, costs will be amortized using the units-of-production method over the estimated life of the probable reserve.




Mineral property exploration costs are expensed as incurred.




Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.  Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards.  Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.




As of the date of these interim consolidated financial statements, we have not established any proven or probable reserves on its mineral properties and incurred only acquisition and exploration costs.




Although we have taken steps to verify title to mineral properties in which we have an interest, according to the usual industry standards for the stage of exploration of such properties, these procedures do not guarantee the Company's title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.




Equipment




Equipment is recorded at cost and amortization is provided over its estimated economic life at 30% or on a straight line basis over its economic life.




Website development costs




The costs of computer software developed or obtained for internal use, during the preliminary project phase, as defined under ASC 350-40, "Internal-Use Software", will be expensed as incurred.  The costs of website development during the planning stage, as defined under ASC 350-50, "Website Development Costs", will also be expensed as incurred.






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Computer software, website development incurred during the application and infrastructure development stage, including external direct costs of materials and services consumed in developing the software and creating graphics and website content, will be capitalized and amortized over the estimated useful life, beginning when the software is ready for use and after all substantial testing is completed and the website is operational.




Segments of an enterprise and related information




ASC 280, "Segment Reporting" establishes guidance for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public.  It also establishes standards for disclosures regarding products and services, geographic areas and major customers.  ASC 280 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.  We have evaluated this Codification and do not believe it is applicable at this time.




Start-up expenses




We have adopted ASC 720-15, "Start-Up Costs", which requires that costs associated with start-up activities be expensed as incurred.  Accordingly, start-up costs associated with our formation have been included in our expenses for the period from the date of inception on March 6, 2000 to September30, 2010.




Stock-Based Compensation




Effective January 1, 2006, we adopted the provisions of ASC 718, "Compensation - Stock Compensation", which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees' requisite service period (generally the vesting period of the equity grant).  We adopted ASC 718 using the modified prospective method, which requires us to record compensation expense over the vesting period for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  Accordingly, financial statements for the periods prior to January 1, 2006 have not been restated to reflect the fair value method of expensing share-based compensation.  Adoption of ASC 718 does not change the way we account for share-based payments to non-employees, with guidance provided by ASC 505-50, "Equity-Based Payments to Non-Employees".




Foreign Currency Translation




Our functional and reporting currency is U.S. dollars.  Our consolidated financial statements are translated to U.S. dollars in accordance with ASC 830, "Foreign Currency Matters".  Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.  Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.  We have not, to the date of these consolidated financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.




Use of Estimates




The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenditures during the reporting period.  Actual results could differ from these estimates.







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Comparative figures




Certain comparative figures have been adjusted to conform to the current year's presentation.




Item 3.   Quantitative and Qualitative Disclosures About Market Risk




Not Applicable.




Item 4.      Controls and Procedures




Evaluation of Disclosure Controls and Procedures




We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2010.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Dr. Michael Stocker, and our Chief Financial Officer, Mr. Peter Wiget.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure controls and procedures are effective.




Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.




Limitations on the Effectiveness of Internal Controls




Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.




Changes in Internal Control Over Financial Reporting




There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2010 that have materially affected or are reasonably likely to materially affect such controls.







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PART II – OTHER INFORMATION




Item 1.       Legal Proceedings.




During the three months ended September 30, 2010, there have been no material developments in the legal proceedings discussed in our Quarterly Report on Form 10-Q for the period ended March 31, 2010.




Item 1A.    Risk Factors.




Not Applicable.




Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.




During the reporting period, we completed a third and final closing of a private placement (the “Private Placement”) of units (the “Units”) to 11 accredited investors (the “Investors”), pursuant to which we sold to the Investors an aggregate of 362,620 units (the “Units”) at a purchase price of $0.65 per Unit (the “Unit Price”).  The aggregate purchase price we received from the sale of these Units was $235,703.  Each unit is comprised of one (1) share of common stock, par value $0.001, and one (1) common stock purchase warrant (the “Warrant”) to purchase one (1) share of our common stock, exercisable commencing six months from the closing date of the offering and terminating one year from the closing date of the offering.  The exercise price for the Warrant is priced at $0.80 per share.  As a result, we sold in third and final closing of the Private Placement during the reporting period a total of 362,620 shares of common stock and warrants to purchase 362,620 shares of common stock.  No registration rights were granted to any of the investors who purchased Units.





In consideration for services rendered by R. F. Lafferty & Co., Inc., as the placement agent (the “Placement Agent”) in the Private Placement, we paid the Placement Agent during the reporting period cash commissions of $14,142, which represents 6% of the gross proceeds of the third closing of the Private Placement and issued to the Placement Agent Warrants to purchase 21,757 shares of the our common stock, which is equal to 6% of the Units sold in the third closing of the Private Placement.  The Warrants issued to the Placement Agent have the same terms and conditions as the Warrants sold to Investors in the Private Placement.




The Units offered and sold in connection with this Private Placement were in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), or Regulation D promulgated thereunder.  In connection with this Private Placement, we relied on each Investors’ written representations.  Sales were made only to Investors who represented that they were “accredited investors” as that term is defined in Rule 501(a) under the Securities Act.   Each Investor represented that they were acquiring the securities for investment only and not with a view toward resale or distribution. Each Investor was given adequate access to sufficient information about us to make an informed investment decision.  Neither we nor anyone acting on our behalf offered or sold these Units by any form of general solicitation or general advertising.




During the reporting period, we completed a private placement of units (the “Units”) to 8 non-U.S. persons, as that term in defined in Regulation S promulgated under the Securities Act (the “Investors”), pursuant to which we sold to the Investors an aggregate of 1,663,460 units (the “Units”) at a purchase price of $0.65 per Unit (the “Unit Price”).  The aggregate purchase price we received from the sale of these Units was $1,081,249.  Each unit is comprised of one (1) share of common stock, par value $0.001, and one (1) common stock purchase warrant (the “Warrant”) to purchase one (1) share of our common stock, exercisable commencing six months from the closing date of the offering and terminating one year from the closing date of the offering.  The exercise price for the Warrant is priced at $0.80 per share.  As a result, we sold in this private placement during the reporting period a total of 1,663,460 shares of common stock and warrants to purchase 1,663,460 shares of common stock.  The Units were not sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.  No registration rights were granted to any of the investors who purchased Units.






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The securities offered and sold in connection with this private placement were in reliance on the exemption from registration under Regulation S promulgated under the Securities Act.  In connection with this private placement, we relied on each of the investors' written representations.  Sales were made to persons who represented that they were not a "U.S. person" as that term is defined in Rule 902(k) of Regulation S under the Securities Act.  Each investor represented that they were acquiring the securities for investment only and not with a view toward resale or distribution. We requested our stock transfer agent to affix appropriate restricted legends to the stock certificate issued to each investor.  Each investor was given adequate access to sufficient information about us to make an informed investment decision.  Neither we nor anyone acting on our behalf offered or sold these Units by any form of general solicitation or general advertising.




During the reporting period, we issued 15,000 shares of our common stock to 1 accredited investors who exercised warrants to purchase shares of our common stock that were issued in a prior private placement.  These warrants had an exercise price of $0.70 and the aggregate purchase price we received from the exercise of these warrants and the sale of the underlying shares of common stock was $10,500. These shares were offered and sold in a private transaction and issued in reliance on the exemption provided by Section 4(2) of the Securities Act.  We did not engage in any general solicitation or advertising in relation to the issuance of these shares.




Item 3.     Defaults upon Senior Securities.




None.




Item 4.     (Removed and Reserved).




Item 5.       Other Information.




None.




Item 6.       Exhibits.




See the Exhibit Index following the signatures page of this report, which is incorporated herein by reference.







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SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




Constitution Mining Corp.Date:
November 16, 2010By: /s/ Michael Stocker

Michael Stocker

Title:Chief Executive Officer and DirectorDate:
November 16, 2010By: /s/ Peter Wiget

Peter Wiget

Title:Chief Financial Officer and Director















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CONSTITUTION MINING CORP.


(the “Registrant”)


(Commission File No. 000-49725)


Exhibit Index


to Quarterly Report on Form 10-Q


for the Quarter Ended September 30, 2010






Exhibit

No.

Description

Incorporated Herein

by Reference to

Filed

Herewith3.1

Certificate of Incorporation

Exhibit 2.1 of Form 8-K filed on October 23, 20093.2

Bylaws

Exhibit 2.1 of Form 8-K filed on October 23, 200910.1

Mineral Right Option Agreement, dated September 29, 2008, between Temasek Investments Inc. and Constitution Mining Corp.

Exhibit 10.1 of Form 8-K filed on September 29, 200810.2

Amendment No. 1 to Mineral Right Option Agreement, dated September 29, 2008, between Temasek Investments Inc. and Constitution Mining Corp.

Exhibit 10.1 of Form 10-Q filed on May 15, 200910.3

Second Amendment to Mineral Right Option Agreement, dated September 29, 2008, between Temasek Investments Inc. and Constitution Mining Corp.

Exhibit 10.1 of Form 8-K filed on November 3, 200910.4

Third Amendment to Mineral Right Option Agreement, dated September 29, 2008, between Temasek Investments Inc. and Constitution Mining Corp.

Exhibit 10.4 of Form 8-K filed on April 13, 201010.5

Mineral Right Option Agreement with Temasek Investments, Inc., dated January 5, 2010.

Exhibit 10.1 of From 8-K filed on July 15, 201031.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



X31.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



X32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



X









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