-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CB/xtHFfIk+FlQFozRzFHAb/eugkrZZ5o9RW81/NnmBZuXYqhTSTrdyoxMTt0ndn 7j+UJUV9vcqqwGcJOaNeqQ== 0000891554-00-000871.txt : 20000331 0000891554-00-000871.hdr.sgml : 20000331 ACCESSION NUMBER: 0000891554-00-000871 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATAGONIA GOLD CORP /BC CENTRAL INDEX KEY: 0001049576 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 650401897 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-26531 FILM NUMBER: 586505 BUSINESS ADDRESS: STREET 1: 1060 ALBERNI STREET STREET 2: SUITE 1505 CITY: VANCOUVERBC STATE: A1 ZIP: V6C 2W2 BUSINESS PHONE: 6046874432 MAIL ADDRESS: STREET 1: SUITE 1505-1060 ALBERNI STREET CITY: VANCOUVER BC 10KSB 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 1999 Commission file number 0-26531 PATAGONIA GOLD CORPORATION (Exact name of small business issuer as specified in its charter) Florida 65-0401897 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 1505 - 1060 ALBERNI STREET, VANCOUVER B.C. CANADA V6E 4K2 (Address of principal executive offices) Registrant's telephone number, including area code 604-687-4432 Securities registered under Section 12(b) of the Securities Exchange Act of 1934: None Securities registered pursuant to Section 12 (g) of the Securities Exchange Act of 1934: Title of each class Name of each exchange on which registered - ----------------------- ------------------------ Common stock, par value $0.001 per share NASD OTC Bulletin Board - ---------------------------------------- ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Security Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part 111 of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] Revenue for the fiscal year ended December 31, 1999 was $Nil The aggregate market value of the Registrant's voting common Stock held by non-affiliates was $19,387,500 as of March 24, 2000. There were 13,000,000 shares of the registrant's Common Stock outstanding as of March 24, 2000. Documents incorporated by reference herein: None Transitional Small Business disclosure format (check one); YES [_] NO [ X ] PATAGONIA GOLD CORPORATION This annual report contains statements that plan for or anticipate the future and are not historical facts. In this Report these forward looking statements are generally identified by words such as "anticipate", "plan", "believe", "expect", "estimate", and the like. Because forward-looking statements involve future risks and uncertainties, these are factors that could cause actual results to differ materially from the estimated results. These risks and uncertainties are detailed in Item 1. "Business", Item 2. "Properties", Item 6. "Management's Discussion and Analysis of Financial Condition and Results of Operations" Item 7 "Financial Statements", Item 12 "Certain Relationships and Related Transactions". The Private Securities Litigation Reform Act of 1995, which provides a "safe harbor" for such statements, may not apply to this Report. ITEM 1. BUSINESS (A) GENERAL Patagonia Gold Corporation (the "Company" or "Patagonia") was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc." The Company was inactive until it redirected its business efforts in mid 1997 following a change of management, which occurred on June 25, 1997, to the acquisition, exploration and, if warranted, the development of mineral resource properties. The Company changed its name to Patagonia Gold Corporation on October 13, 1997 to more fully reflect its business activities. Since its redirection, the Company's activities have been limited primarily to the acquisition of rights to certain mineral properties and the implementation of preliminary exploration programs on these properties in which it has acquired an interest. See "Item 2. Description of Property." The Company is engaged in the location, acquisition, exploration and, if warranted, development of mineral resource properties. All of the mineral properties in which the Company has an interest or a right to acquire an interest in are currently in the exploration stage. None of the properties have a known body of Mineral Reserves. The Company's primary objective is to explore for gold, silver, base metals and industrial minerals and, if warranted, to develop those existing mineral properties. Its secondary objective is to locate, evaluate, and acquire other mineral properties, and to finance their exploration and development either through equity financing, by way of joint venture or option agreements or through a combination of both. Currently, the Company's activities are centered in Argentina and Guatemala During 1999, the Company conducted initial exploration programs for gold mineralization on its properties in Argentina and Guatemala. In Guatemala, the Company entered into a joint venture agreement with Aurora Gold Corporation in October 1999 to conduct initial mineral exploration on the San Diego Exploration Reconnaissance Licence. The licence was granted to Aurora Gold Corporation in September 1999. Initial exploration work begun in 1999 will continue into 2000. None of the Company's properties contain any known Mineral Reserves. The Company's common stock is traded on the NASD's OTC Bulletin Board. The Company has not declared or paid dividends on its shares since incorporation and does not anticipate doing so in the near future. 2 The Company's offices are located at 1505 - 1060 Alberni Street, Vancouver, British Columbia, Canada, V6E 4K2. (B) SIGNIFICANT DEVELOPMENTS IN FISCAL 1999 AND SUBSEQUENT EVENTS In June 1999 the Company voluntarily filed Form 10-SB with the Securities and Exchange Commission ("SEC") in the United States to register its common stock. The SEC requested the Company change its accounting policy with respect to the capitalization of exploration costs to comply with the Commission's interpretation of the accounting for exploration costs in the mining industry. The Company amended its policy concerning mineral exploration costs to record as an expense in the period incurred, costs relating to the Company's exploration activities. Previously the costs were capitalized until the properties were determined to be impaired based on the evaluation of management. The change in accounting policy was adopted prospectively. The Company's 1999 financial statements reflect the decrease in assets and the increase in net loss by $297,000 or $0.02 per share for the effect of the change. The change in accounting for mineral exploration costs means that exploration costs will be charged to income until such time that proven reserves are established. From that time forward, the Company will capitalize all costs to the extent that future cash flow from the reserves equals or exceeds the costs deferred. The Company will not capitalize, at that time, costs previously written off, as there is no supporting guidance in accounting principles. In October 1999 the Company entered into a joint venture with Aurora Gold Corporation for preliminary exploration of the San Diego reconnaissance license, which covers 800 square kilometers. An exploration program funded by Patagonia Gold Corporation commenced on the most prospective areas during the last quarter of 1999 and will continue in 2000. (C) EXPLORATION AND DEVELOPMENT The Company conducts exploration activities from its headquarters in Vancouver, Canada. The Company controls mineral exploration concessions in Argentina and Guatemala. The Company's strategy is to concentrate its investigations into: (1) Existing operations where an infrastructure already exists; (2) Properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (3) Grass-roots exploration opportunities. The Company is currently concentrating its exploration activities in Argentina and Guatemala. The Company is also examining other exploration properties in Cote D' Ivorie, Liberia, Mexico and Morocco. Exploration expenses on the San Diego Reconnaissance Concession in Guatemala totalled $23,117 during fiscal 1999 (1998 - $0) in addition to the $9,250 (1998 - $0) in mineral property acquisition costs. Exploration expenses in Argentina totalled $21,890 during fiscal 1999 (1998 - - $12,250). All of the Company's properties are in the exploration stages only and are without a known body of Mineral Reserves. Development of the properties will follow only if satisfactory exploration results are obtained. Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company's mineral exploration and development activities will result in any discoveries of commercially viable bodies of mineralization. The long-term profitability of the 3 Company's operations will be, in part, directly related to the cost and success of its exploration programs, which may be affected by a number of factors. (D) EMPLOYEES As of January 31, 2000 there were two (2) full time employees and two (2) part time employees. (E) REGULATION OF MINING ACTIVITY Patagonia's interests in its projects will be subject to various laws and regulations concerning development, production, taxes, labor standards, environmental protection, mine safety and other matters. In addition, new laws or regulations governing operations and activities could have a material adverse impact on Patagonia. (F) FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS Mineral exploration, development and mining activities on the Company's properties may be affected in varying degrees by political stability, and the policies of other nations. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Operations may be affected by government laws and regulations or the interpretations thereof, including those with respect to export controls, expropriation of property, employment, land use, water use, environmental legislation and mine safety. Operations may be also affected by political and economic instability, confiscatory taxation, restriction on currency conversions, imports and sources of supplies, the expropriation of private enterprises, economic or other sanctions imposed by other nations, terrorism, military repression, crime, and extreme fluctuations in currency exchange rates and high inflation and make it more difficult for the Company to raise funds for the development of its mineral interests in some countries. (G) COMPETITION Many companies are engaged in the exploration and development of mineral properties. The company encounters strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing gold, lead, zinc and industrial minerals. Many of these companies have substantially greater technical and financial resources than Patagonia and thus the company may be at a disadvantage with respect to some of its competitors. The marketing of minerals is affected by numerous factors, many of which are beyond the control of the company. Such factors include the price of the mineral in the marketplace, imports of minerals from other nations, the availability of adequate refining and processing facilities, the price of fuel, electricity, labor, supplies and reagents and the market price of competitive minerals. In addition, sale prices for many commodities are determined by world market forces or are subject to rapid and significant fluctuations that may not necessarily be related to supply or demand or competitive conditions that in the past have affected such prices. Significant price movements in mineral prices over short periods of time may be affected by numerous factors beyond the control of the Company, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the U.S. dollar relative to other currencies), interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The effect of these factors on the price of minerals and, therefore, the economic viability of any of the Company's projects cannot accurately be predicted. As the Company is in the development stage, the above factors have had no material impact on operations or income. 4 (H) ENVIRONMENTAL REGULATIONS All phases of the Company's operations in Argentina and Guatemala are subject to environmental regulations. Environmental legislation in all countries is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Although the Company believes it is in compliance with all applicable environmental legislation, there is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company's operations. (I) MINING RISKS AND INSURANCE Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Operations in which the Company has a direct or indirect interest will be subject to all type of hazards and risks or unexpected formations, cave-ins, pollution, all of which could result in work stoppages, damages to property, and possible environmental damages. The Company does not have general liability insurance covering its operations and does not presently intend to obtain liability insurance as to such hazards and liabilities. Payment of any liabilities therefore could have a materially adverse effect upon the Company's financial condition. ITEM 2. DESCRIPTION OF PROPERTY All of the Company's properties are in the preliminary exploration stage and do not contain any known body of ore. The Company's exploration activities are presently in Argentina and Guatemala. In addition to Argentina and Guatemala, primary regions under investigation by the Company include Cote D' Ivoire, Liberia, Mexico and Morocco. During 1998 and 1999 the Company applied for and later dropped mineral exploration permits in the Cote D' Ivorie and Liberia. The Company also evaluated mineral properties in Argentina, Guatemala, Mexico and Morocco for potential acquisition. (A) ARGENTINA The Company holds 100% interest in seven mineral exploration concessions in Argentina of which two are cateos and the remaining five are mineral discovery concessions. In Argentina, a cateo is a parcel of land to which an exclusive prospecting right has been granted to an individual or a corporation. The mineral rights in Argentina belong to the state. The government grants these rights to applicants on a first come first serve basis. Applications for cateos (concessions) can typically take a number of years for approval with the bureaucratic process there. The application process, however, is rigidly controlled such that the applicant has all the risks and rewards associated with legal ownership. During application stage, the applicant is permitted to explore the property and can transfer, assign or sell the application to other parties. Once the application/right has been granted by the Argentina government, the mineral exploration concession license/permit gives the Company an exclusive right over all mineral discoveries made within the areas concerned. Exploration rights are temporary. The title owner has a maximum of 1100 days (almost three years) to make discoveries. Portions of the area must be gradually discarded so that at the end of the 1100 days the whole area becomes free and can be petitioned by another 5 individual or company. The 1100-day term has not yet commenced. A change in the mining regulations of the La Rioja Provincial government requires all exploration concessions ("Cateos) to be re-oriented along north-south east-west grid lines. Patagonia's original cateos were placed along geographical lines other than those, to best cover areas of geological interest. New cateo boundaries have been submitted to the Rioja Provincial government and the company is awaiting formal approval (which has been assured by the provincial government) prior to the commencement of the 1100-day term. The commencement date is expected in the near future but no specific date has been supplied by the Rioja Provincial government. In Argentina, a Mineral Discovery license/permit is granted by the Argentina government under the following circumstances. An explorer that finds indications of the presence of a deposit may apply for an area/concession double the size of the maximum permitted. The "indications of the presence of a deposit" to support the application for the "mineral discovery license" is a legal concept of the Argentina Mining Law. It does not necessarily mean that an economically significant ore body has been discovered. It just means that the explorers have found sufficient indications in the ground to justify the continuation of the work after the end of the 1100 days, transforming the temporary exploration permit into a permanent mining right. The application for a maximum area/concession depends on the type of mineral found and the regulations in force in each province. Upon receipt of the application, the local authority checks the fulfillment of all corporate and legal conditions of the application and registers an exclusive zone of up to 3,000 or 6,000 hectares (a "Hectare" is a surface measurement of the metric system, equivalent to 2.471 acres). The text of the registration is published three times on three consecutive days in a local newspaper to give an opportunity to other prospectors to claim a better or prior right to the same area or to portions of the area. Quite often there are overlaps, so that the original diagram of the exclusive zone suffers amendments. The discoverer must reduce the exclusive zone to the actual size of the area that he intends to own. This depends on the exact location and distribution of the deposit in the ground. As the exclusive zone has double the size of the maximum permitted, the reduction will result in at least half the size. Once reduced, the applicant must stake the claim by putting poles in its angles. This is called the "Mensura" (measurement) and must be done by land surveyors. During Fiscal 1999, the Company continued its preliminary field assessment and sampling programs on the five exploration license areas ("ELAs" - "cateos"), Carmela IV, Carmela VI, Carmela VII, Carmela VIII and Carmela IX, held in the Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Each cateo consisted of 10,000 hectares for a total of 50,000 hectares. The exploration permits for the mineral exploration concessions were originally acquired by the Company in July 1997. Based on an analysis of geophysical data compiled from existing airborne geophysical surveys (magnetometer and radiometric surveys) carried out jointly by the Argentinean and Australian surveys and ground work completed by the Servicio Geologico Minero Argentino ("SEGMAR") the Company gradually reduced the size of the five cateos and reapplied for the most prospective areas of the cateos under the following exploration/mineral discovery permits. During 1998 and 1999 the Company conducted preliminary field assessments of the properties. This included reconnaissance, mapping and sampling of individual outcrops. No significant anomalous values have been returned to date, however, the area hosts quartz veins and structural features similar to precious and base metal mineralized bodies found throughout the general area. Recent sampling has returned significant gold and silver values from quartz veining and quartz stockwork material on ground immediately to the south of the company's concessions. The Sierra de las Minas area continues to be the focus of successful exploration and drilling of similar quartz vein bodies by such companies as Golden Peaks Resources in joint partnership with Mitsubishi Materials Corp. 6 The Company currently holds the following exploration/mineral discovery permits: Piloncho 1 Type of concession: Cateo (exploration permit) Number of hectares: 9,975 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Piloncho 2 Type of concession: Cateo (exploration permit) Number of hectares: 9,450 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Piloncho 20 Type of concession: Mineral Discovery Number of hectares: 3,500 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Piloncho 21 Type of concession: Mineral Discovery Number of hectares: 3,500 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Carmelita 16 Type of concession: Mineral Discovery Number of hectares: 3,000 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Carmelita 17 Type of concession: Mineral Discovery Number of hectares: 2,000 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government Carmelita 18 Type of concession: Mineral Discovery Number of hectares: 2,000 Location of claims: Province of La Rioja, Department of Rosario Vera Penaloza, District of Chepes. Current status: Application filed with the government The concessions are located in Sierra de Chepes in the extreme south end of the Province of La Rioja, 1,000 Kilometres Northwest of Buenos Aires, in the departments of Rosario Vera Penaloza and San Martin, immediately north of the town of Chepes. The concessions are readily accessible by paved road from the city of La Rioja situated 7 approximately 200 kilometres to the north. Provincial Highway 79 traverses the entire eastern boundary of the concessions in a north-south direction and Provincial Highway 29 parallels the western boundary. A number of dirt roads and trails from the major highways provide convenient access to may parts of the concessions. The Sierra de Chepes is composed principally of plutonic rocks resulting from a number of phases of magmatic activity in the area. Late Proterozoic tonalite and granodiorite (The Chepes Formation) with migmatitic and porphyroblastic facies are predominant rock types with the concessions in the Sierra de Chepes. The basement complex throughout the Sierra de Chepes and Sierra de las Minas consisting of a varied assemblage of metavolcanics, migmatites, tonalites and granodiorites with some mafic phases is cut by a series of north-south trending mylonite zones. A complex system of rectilinear faults and fractures intersects these mylonite zones and may be genetically or structurally related to the gold-bearing quartz veins and shear zones in the area. During the next 24 months the company intends to conduct further geological, geochemical and geophysical work on the Argentina properties. (B) GUATEMALA, CENTRAL AMERICA In Guatemala, the Company's rights are working interests in a mineral reconnaissance license. In Guatemala a mineral exploration concession license confers on the titleholder the exclusive right to locate, study, analyze and evaluate the deposits that have been granted, within the licenses' territorial limits and to unlimited depth in the subsoil. The mineral reconnaissance license confers to the titleholder the exclusive rights to identify and locate possible areas for exploration, within the license's territorial limits and to unlimited depth in the subsoil. The Company's concession is located within the South Volcanic Belt in Guatemala, which is considered to be the geological setting with the greatest mineral potential in the country. The Volcanic Province is represented by a Quaternary chain of active volcanoes to the south and Tertiary igneous rocks to the north. In the Tertiary area, ignimbrites and rhyolites crop out, as well as acidic tuffs and several intrusives. Gold-silver deposits are expected to be found in granites and in quartz veins within the tuffs. The epithermal type of precious and basic metallic deposits and the presence of lithofilic elements are associated with the geology of this area. In the eastern part of the volcanic province, the most common mineralogy is pyrite and arsenopyrite with chalcopyrite, covelite and native gold as associated minerals, and it is related to epithermal processes associated with intrusive igneous bodies. Important deposits of copper-lead-zinc-silver, gold-silver and lead-zinc mineralization occur in veins located in fractures within Tertiary volcanic rocks, typical features of epithermal deposits filling fissures that originated from tensional stresses. The mineralization consists mainly of zinc sulfides, lead-silver and copper with calcite and quartz as gangue minerals. Other deposits of economic importance are formed by a series of iron oxide bodies. It is important to note that most of this province has not yet been explored and evaluated, but it is one of the more important zones of interest due to its favorable geological environment for mineralization. In October 1999 the Company entered into a joint venture agreement with Aurora Gold Corporation ("Aurora") to carry out preliminary exploration within the San Diego license area. The San Diego mineral reconnaissance license was granted to Aurora Gold Corporation in September 1999. Under the terms of the joint venture Patagonia can earn a fifty percent (50%) interest in the San Diego mineral reconnaissance licence upon (a) payment of $9,250 (paid) Guatemala government fee for the acquisition of the San Diego mineral exploration reconnaissance licence and (b) the payment of $18,617 (paid) for a Phase 1 exploration program. 8 San Diego - Mineral Reconnaissance License San Diego is a mineral reconnaissance concession located in the Zacapa and Chiquimula departments in eastern Guatemala, some 150 kilometers east of Guatemala City. As a mineral reconnaissance concession, it covers a larger area than a mineral exploration concession, specifically 800 square kilometers. The main feature of the mineral reconnaissance concession is the fact that it completely surrounds the El Pato gold and silver mineral reserve, an exploration project funded by the United Nations which identified a Mineral Resource estimated to contain some 200,000 ounces of gold. Geologically, because of its size this mineral reconnaissance concession contains several geological settings. Most important is the presence of the Motagua Fault to the North and the Chiguimula Pluton (intrusive) on the eastern half of the concession. Following archival and other research, Aurora Gold Corporation, as operator for the joint venture with Patagonia, commenced work on prospective areas within the reconnaissance concession in November 1999. The work consists of sampling of outcrops, soils and stream sediments and mapping, the results of which are expected during the first quarter of 2000. The aim of the preliminary exploration work is to identify a number of highly prospective areas for which applications for mineral exploration licenses will be made, and subsequently undertake more comprehensive work. Exploration expenditures on the San Diego Reconnaissance Concession totalled $23,117 during fiscal 1999 (1998 - $0) in addition to the $9,250 (1998 - - $0) in mineral property acquisition costs. ITEM 3. LEGAL PROCEEDINGS The company is not party to any litigation, and has no knowledge of any pending or threatened litigation against it. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The Common Stock of the Company has been quoted on the OTC Bulletin Board since May 1, 1997. The following table sets forth the high and low bid prices for the Common Stock for the calendar quarters indicated as reported by the OTC bulletin Board for the last two years. These prices represent quotations between dealers without adjustment for retail markup, markdown or commission and may not represent actual transactions. --------------------------------------------------------------------------- First Quarter Second Quarter Third Quarter Fourth Quarter --------------------------------------------------------------------------- 1999 - High $2.125 $2.000 $2.750 $2.531 --------------------------------------------------------------------------- 1999 - Low 1.3750 1.625 2.000 1.750 --------------------------------------------------------------------------- 1998 - High 2.6875 2.500 2.125 2.125 --------------------------------------------------------------------------- 1998 - Low 1.812 1.500 0.750 1.437 --------------------------------------------------------------------------- 9 (b) As of March 24, 2000, there were 25 holders of record of the Common Stock. (c) There were no Common Stock cash dividends paid in 1999, 1998 or 1997. The amount and frequency of cash dividends are significantly influenced by metal prices, operating results and the Company's cash requirements. The Registrant has not issued any securities in 1999 with or without registration under the Securities Act of 1933, as amended (the "Act"). ITEM 6. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (A) GENERAL The Company is a mineral exploration company based in Vancouver, Canada engaged in the exploration of base, precious metals and industrial minerals worldwide. The Company was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc.". The Company conducts exploration activities from it headquarters in Vancouver, Canada. The Company controls mineral exploration concessions, in Argentina and Guatemala. In addition to Argentina and Guatemala, primary regions under investigation by the Company include Cote D' Ivoire, Liberia, Mexico and Morocco.The Company's strategy is to concentrate its investigations into: (1) Existing operations where an infrastructure already exists; (2) Properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (3) Grass-roots exploration opportunities. The Company is currently concentrating its exploration activities in Argentina and Guatemala. All of the Company's properties are in the preliminary exploration stage without any presently known Mineral Reserves. The Company had no revenues during fiscal 1999, 1998 and 1997. Income during fiscal 1999 1998 and 1997 was the result of interest earned on funds raised, as the Company has no mineral properties in production. Funds raised in fiscal 1999, 1998 and 1997 were used for exploration of the Company's properties and general administration. In June 1999 the Company voluntarily filed Form 10-SB with the Securities and Exchange Commission ("SEC") in the United States to register its common stock. During the next 12 months the Company needs to raise additional funds through equity offerings and/or debt borrowing to meet its administrative/general operating expenses, to conduct work on its exploration properties. The Company intends to move forward in the current low gold price environment by selectively developing its existing assets and to further develop the Company through the possible acquisition or joint venturing of additional mineral properties either in the exploration or development stage. Additional employees will be hired on a consulting basis as required by the exploration projects. 10 (B) FINANCING In Fiscal 1999, the Company raised $0 (1998 - $0, 1997 - $1,540,000) through the issuance of 0 (1998 - 0, 1997 - 9,000,000) common shares at prices ranging $0 (1998 - $0, 1997 - $0.10 to $1.00) per share. (C) FINANCIAL INFORMATION (a) Twelve Months Ended December 31, 1999 (Fiscal 1999) versus Twelve Months Ended December 31, 1998 For the year ended December 31, 1999 the Company recorded a loss of $460,883, or $0.03 per share, compared to a loss of $135,708 ($0.01 per share) in 1998 and a loss of $28,577 ($0.00 per share) in 1997. Professional fees - accounting and legal - For the year ended December 31, 1999 the Company recorded professional fees of $38,553, compared to $24,078 in 1998. The 1999 increase in fees was the result of costs associated with filing of the Company's Form 10-SB. Exploration expenditures - For the year ended December 31, 1999 the Company recorded exploration expenses of $32,236 compared to $94,295 in 1998. The reduction in expenditures was due to reduced spending on project research and evaluation. Write down of mineral property costs - In June 1999 the Company filed its registration statement on form 10-SB with the Securities and Exchange Commission ("SEC") of the United States. The SEC requested the Company change its accounting policy with respect to the capitalization of exploration costs to comply with the Commission's interpretation of the accounting for exploration costs in the mining industry. The Company amended its policy concerning mineral exploration costs to record as an expense in the period incurred, costs relating to the Company's exploration activities. Previously the costs were capitalized until the properties were determined to be impaired based on the evaluation of management. The change in accounting policy was adopted prospectively. The Company's 1999 financial statements reflect the decrease in assets and the increase in net loss by $297,000 or $0.02 per share for the effect of the change. The change in accounting for mineral exploration costs means that exploration costs will be charged to income until such time that proven reserves are established. From that time forward, the Company will capitalize all costs to the extent that future cash flow from the reserves equals or exceeds the costs deferred. The Company will not capitalize, at that time, costs previously written off, as there is no supporting guidance in accounting principles. (b) Twelve Months Ended December 31, 1998 (Fiscal 1998) versus twelve Months ended December 31, 1997 (Fiscal 1997): For the year ended December 31, 1998 the Company recorded a loss of $135,708, or $0.01 per share, compared to a loss of $28,577 ($0.00 per share) in 1997. General and administrative expenses - For the year ended December 31, 1998 the Company recorded general and administrative expenses of $19,158, compared to $5,338 in 1997. The increase in 1998 costs was due to the company having limited operations in 1997. 11 Professional fees - accounting and legal - For the year ended December 31, 1998 the Company recorded professional fees of $24,078, compared to $8,368 in 1997. The increase in 1998 costs was due to the company having limited operations in 1997. Salaries and consulting fees - For the year ended December 31, 1998 the Company recorded salaries and consulting fees of $33,053 compared to $0 in 1997. The increase in 1998 costs was due to the company having limited operations in 1997. Exploration expenditures - For the year ended December 31, 1998 the Company recorded exploration expenses of $94,295 compared to $24,755 in 1997. The increase in expenditures was due to increased spending on project research and evaluation. (D) FINANCIAL CONDITION AND LIQUIDITY At December 31, 1999, the Company had cash of $22,913 (1998 - $73,651) and working capital deficiency of $88,966 (1998 working capital - $57,798) respectively. Total liabilities as of December 31, 1999 were $111,879 as compared to $15,853 on December 31, 1998, an increase of $96,026. During 1999 financing activities consisted of the following, proceeds from notes and advances payable $76,879 (1998 - $0). In Fiscal 1999 investing activities consisted of additions to mineral properties $9,250 (1998 - $0), purchases of available-for-sale securities $352,485 (1998 - $1,603,921) and proceeds from the sale of available-for-sale securities $359,804 (1998 - $528,649). The Company recorded a loss of $18,837 (1998 - gain $16,962) on the sale of available-for-sale securities. For the year ended December 31, 1999 the Company recorded a loss from operations of $163,883 and after a $297,000 write down in the carrying value of its mining interests, a net loss of $460,883, or $0.03 per share compared to a loss of $135,708 ($0.01 per share) in 1998 and a loss of $28,577 ($0.00 per share) in 1997. The Company does not have sufficient working capital to (i) pay its administrative and general operating expenses through December 31, 2000 and (ii) to conduct its preliminary exploration programs. Without cash flow from operations, it may need to obtain additional funds (presumably through equity offerings and/or debt borrowing) in order, if warranted, to implement additional exploration programs on its properties. Failure to obtain such additional financing may result in a reduction of the Company's interest in certain properties or an actual foreclosure of its interest. The Company has no agreements or understandings with any person as to such additional financing. None of the Company's properties has commenced commercial production and the Company has no history of earnings or cash flow from its operations. While the Company may attempt to generate additional working capital through the operation, development, sale or possible joint venture development of its properties, there is no assurance that any such activity will generate funds that will be available for operations. The Company has not declared or paid dividends on its shares since incorporation and does not anticipate doing so in the foreseeable future. (E) YEAR 2000 ISSUES. The "Year 2000 problem", as it has come to be known, refers to the fact that many computer programs use only the last two digits to refer to a year, and therefore recognize a year that begins with "20" as instead beginning with "19". For example, the year 2000 would be read as being the year 1900. If not corrected, this problem could cause many computer applications to fail or create erroneous results. 12 The Company has modified and tested all the critical applications of its information technology ("IT"), the result of which is that all such critical applications are now Year 2000 compliant. The Company believes that virtually all of the non-critical applications of its IT are Year 2000 compliant. The Company is using independent consultants to oversee the Year 2000 project as well, as to perform certain remediation efforts. In addition, progress on the Year 2000 project is also monitored by senior management, and reported to the Board of Directors. The total amount of the payments made to date and to be made hereafter to such independent consultant are not expected to be material. New equipment and software was installed during the third and fourth quarters of 1999. Based on the Company's analysis to date, the Company believes that its material non-IT systems are either Year 2000 compliant, or do not need to be made Year 2000 compliant in order to continue to function in substantially the same manner in the Year 2000. The Company's Year 2000 compliance work has not caused, nor does the Company expect that it will cause, a deferral on the part of the Company of any material IT or non-IT projects. However, there can be no assurance that any of the Company's vendors or others, with whom it transacts business, will be Year 2000 compliant prior to such date. The company is unable to predict the ultimate effect that the Year 2000 problem may have upon the Company, in that there is no way to predict the impact that the problem will have nation-wide or world-wide and how the Company will in turn be affected, and, in addition, the company cannot predict the number and nature of its vendors and customers who will fail to become Year 2000 compliant prior to January 1, 2000. Significant Year 2000 difficulties on the part of vendors or customers could have a material adverse impact upon the Company. The Company intends to monitor the progress of its vendors and customers in becoming Year 2000 compliant. The Company has formulated a contingency plan to deal with the potential non-compliance of vendors and customers. As of March 24, 2000 the Company has not experienced any year 2000 problems nor has any of the Company's vendors or others with whom it transacts business. (F) NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities on the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition (i) the changes in the fair value of the hedged asset or the liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standards on January 1, 2001 to affect its financial statements. ITEM 7. FINANCIAL STATEMENTS See ITEM 13 of this Report for information with respect to the financial statements filed as a part hereof, including financial statements filed pursuant to the requirements of this ITEM 7. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS In February 2000, Patagonia Gold Corporation ("Patagonia") dismissed its prior certifying accountants, BDO Dunwoody LLP ("BDO Dunwoody") and retained as its new certifying 13 accountants Moore Stephens Ellis Foster Ltd. BDO Dunwoody's LLP report on Patagonia's financial statements during the most recent fiscal year contained no adverse opinion or a disclaimer of opinion, and was not qualified as to uncertainty, audit scope or accounting principles. The decision to change accountants was approved by Patagonia's Board of Directors. During the last two fiscal years and the subsequent interim period through February 7, 2000, there were no disagreements between Patagonia and BDO Dunwoody LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO Dunwoody LLP, would have caused it to make a reference to the subject matter of disagreements in connection with its report. PART III. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: The following table lists the names and positions of the executive officers and directors of the Company as of December 31, 1999 and March 24, 2000. All executive officers and directors have been elected and appointed to serve until their successors are elected and qualified. Additional information regarding the business experience, length of time served in each capacity and other matters relevant to each individual are set forth below the table. Name Position - ---- -------- David E. Jenkins Age 46, President and Director since June 1997. President of Patagonia Gold Corporation and Director of Eurasia Gold Fields, Inc. President of DataLogic Marketing Corporation, 1989 to current. Investment advisor for PaineWebber, Inc. and Blythe Eastman Dillon Inc., 1983 to 1989. Antonino G. Cacace Age 54, Director since June 1997. Engineer, Founder and current Managing Director of Stelax Industries in the United Kingdom. Between 1984 and 1995 he was managing director/chief executive officer of several Companies involved in development and operation of steel/bar rolling mills. Cosme M. Beccar Varela Age 39, Director since June 1997. Mr. Cosme M. Beccar Varela is a principal in the Law firm of C&C Beccar Varela and has been employed with them since 1993. A. Cameron Richardson Age 47, Controller since October 1997, & Secretary since January 1999. 1981 to 1997 held accounting positions with various Canadian resource companies. There are no family relationships between any of the executive officers. COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, OF THE EXCHANGE ACT OF 1934 Section 16 (a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange commission (the "SEC"). Officers, directors and greater than ten percent shareholders 14 are required by SEC regulation to furnish the Company with copies of all Section 16 (a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, the Company believes that during the fiscal year ended December 31, 1999 all filings requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. ITEM 10. EXECUTIVE COMPENSATION (A) General The following table sets forth information concerning the compensation of the named executive officers for each of the registrant's last three completed fiscal year:
- ------------------------------------------------------------------------------------------------------------------------------------ Annual Compensation Long-Term Compensation ---------------------------------------------------------------------------------------------- Awards Payments ------------------------------------------------------- Securities Other Under- All Annual Restricted Lying other Name And Compen- Stock Options/ LTIP Compen- Principal Position Year Salary Bonuses Sation Award(s) SARs Payouts sation ($) ($) ($) ($) (=) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ------------------------------------------------------------------------------------------------------------------------------------ David Jenkins 1999 12,000 -0- -0- None None None -0- -------------------------------------------------------------------------------------------------------- President and 1998 -0- -0- -0- None None None -0- -------------------------------------------------------------------------------------------------------- Director 1997 -0- -0- -0- None None None -0- - ------------------------------------------------------------------------------------------------------------------------------------ Cameron Richardson 1999 7,727 -0- -0- None None None -0- -------------------------------------------------------------------------------------------------------- Controller and 1998 8,577 -0- -0- None None None -0- -------------------------------------------------------------------------------------------------------- Secretary 1997 -0- -0- -0- None None None -0- - ------------------------------------------------------------------------------------------------------------------------------------
None of the Company's officers or directors was party to an employment agreement with the Company. Directors and/or officers receive expense reimbursement for expenses reasonably incurred on behalf of the Company. During the fiscal year ending December 31, 1999 the entire board of directors acted as the Company's compensation committee. (B) Options/SAR Grants Table No options have been awarded to David Jenkins, Antonino Cacace, Cosme M. Beccar Varela or Cameron Richardson. (C) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table No options have been awarded to David Jenkins, Antonino Cacace, Cosme M. Beccar Varela or Cameron Richardson. (D) Long-Term Incentive Plans ("LTIP") Awards Table The Company does not have a Long-term Incentive Plan. 15 (E) Compensation of Directors The Company does not pay a fee to its outside, non-officer directors. The Company reimburses its directors for reasonable expenses incurred by them in attending meetings of the Board of Directors. During fiscal 1999 non-officers directors received a total of $0 in consulting fees. ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of March 24, 2000 by (i) each person who is known by the Company to own beneficially more than five percent (5%) of the Company's outstanding Common Stock; (ii) each of the Company's directors and officers; and (iii) all directors and officers of the Company as a group. As at March 24, 2000, there were 13,000,000 shares of Common Stock issued and outstanding. Name of Shares of Common Beneficial Stock Beneficially Percentage Owner Owned Owned ----- ----- ----- Cede & Company (1) 3,271,698 25.2% PO Box 222 Bowling Green Station New York, NY 10274 Carrington International Limited (1) 3,000,000 23.1% STE 2402, Bank of America Tower 12 Harcourt Road, Central Hong Kong Dorothea Schnura (1) 1,000,000 7.7% Robert Kock Street 6 67259 Bemdershein, Germany Gregorio Becerro (1) 800,000 6.2% Plaza Mayor 7 Salamanca, Spain Viabilite et Establissement a.r.l. (1) 800,000 6.2% Broadcasring House, Rouge Bouillon St. Channel Island Antonino Jaramillo (1) 700,000 5.4% Raimund F Villacerde 45 2803 Madrid Spain Fernpark Investments Limited (1) 650,000 5.0% PO Box N-8318 Nassau, Bahamas 16 Officers and Directors David E. Jenkins 50,000 * 1505-1060 Alberni Street Vancouver, B.C. Canada V6E 4K2 Antonino G. Cacace 0 * Crud-y-Gloyat Carswell Bay Swansea Wales, U.K. Cosme M. Beccar Varela 25,000 * Reconquista 657 1373 Buenos Aires, Argentina Cameron Richardson 0 * 1505-1060 Alberni Street Vancouver, B.C. Canada V6E 4K2 Officers and Directors (4 persons) 75,000 * (1) To the best of the Company's knowledge, none of the above companies or individuals are affiliated to the officers and directors of the Company. * Less than 1%. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The proposed business of the Company raises potential conflicts of interests between the Company and certain of its officers and directors. Certain of the directors of the Company are directors of other mineral resource companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or Management, may have a conflict. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, involvement in a greater number of programs and reduction of the financial exposure with respect to any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. In determining whether the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which the Company may be exposed and its financial position at that time. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest. The Company is not aware of the existence of any conflict of interest as described herein. Directors and/or officers will receive expense reimbursement for expenses reasonably incurred on behalf of the Company. 17 Included in accounts payable at December 31, 1999 is $0 (1998 - $0) due to directors and a corporation controlled by a director in respect of salaries, consulting fees and reimbursement for operating expenses. The Company does not pay a fee to its outside, non-officer directors. The Company believes that consulting fees and reimbursement for operating expenses paid to corporations owned by directors are comparable to amounts that would have been paid to at arms length third party providers of such services. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (1) FINANCIAL STATEMENTS - Reference is made to the Financial Statements appearing on pages F-1, through F-19 (2) EXHIBITS 1.1 Article of Incorporation of Cayman Purchasing & Supply, Inc. * 1.2 Company By-laws for Cayman Purchasing & Supply, Inc. * 1.3 Notice of reinstatement for Cayman Purchasing & Supply, Inc. * 1.4 Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. * 1.5 Notice of filing of Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. * 1.6 Notice of filing of Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. changing its name to Patagonia Gold Corporation * 3.1 Agreement dated July 30, 1997 between The Company and Carrington International Limited * 4.0 Joint Venture Agreement between the Company and Aurora Gold Corporation 21.1 Subsidiaries of the Company 27.1 Financial Data Schedule - -------- * Previously Filed 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 thereunder duly authorized. Date: March 24, 2000 BY: /s/ David Jenkins -------------- -------------------------- David Jenkins Director and President Date: March 24, 2000 BY: /s/ Cosme M. Beccar Varela -------------- -------------------------- Cosme M. Beccar Varela Director 18 EXHIBIT (1) THE FOLLOWING FINANCIAL STATEMENTS REQUIRED TO BE INCLUDED IN ITEM 8 ARE LISTED BELOW INDEX TO FINANCIAL STATEMENTS Financial Statements Page -------------------- ---- Report of Independent Accountants F-2 and F3 Consolidated Balance Sheets F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statement of Operations F-6 Consolidated Statement of Cash Flows F-7 Summary of Significant Accounting Policies F-8 to F-12 Notes to Consolidated Financial Statements F-12 to F-15 Financial Statement Schedules * *Financial Statement Schedules have been omitted as not applicable 19 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) Index Report of Independent Accountants Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements F1 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.bc.ca - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders PATAGONIA GOLD CORPORATION (An exploration stage enterprise) We have audited the consolidated balance sheet of Patagonia Gold Corporation as at December 31, 1999 and the consolidated statements of stockholders' equity, operations and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and the results of its operations and cash flows for the year then ended in conformity with generally accepted accounting principles in the United States. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." March 4, 2000 Chartered Accountants F2 - -------------------------------------------------------------------------------- MS An independently owned and operated member of Moore Stephens North America Inc., Members in principal cities throughout North America. Moore Stephens North America, Inc. is a member of Moore Stephens International Limited, - members in principal cities throughout the world - -------------------------------------------------------------------------------- ================================================================================ Report of Independent Accountants - -------------------------------------------------------------------------------- To The Board of Directors and Stockholders Patagonia Gold Corporation We have audited the Consolidated Balance Sheet of Patagonia Gold Corporation as at December 31, 1998 and the Consolidated Statements of Stockholders' Equity, Operations and Cash Flows for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1998 and the results of its operations and its cash flows for the year ended December 31, 1998 in conformity with accounting principles generally accepted in the United States. /s/ BDO Dunwoody LLP Vancouver, Canada May 8, 1999 Chartered Accountants F3 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Balance Sheets December 31, 1999 and 1998 (Expressed in US Dollars)
- --------------------------------------------------------------------------------------------------------- 1999 1998 - --------------------------------------------------------------------------------------------------------- ASSETS Current Cash $ 22,913 $ 73,651 Receivables 7 220 Investments (Note 3) 921,332 1,567,456 - --------------------------------------------------------------------------------------------------------- 944,252 1,641,327 Mineral property costs (Note 4) 12,250 300,000 - --------------------------------------------------------------------------------------------------------- Total assets $ 956,502 $ 1,941,327 ========================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current Accounts payable and accrued liabilities $ 35,000 $ 15,853 Notes payable (Note 5) 76,879 -- - --------------------------------------------------------------------------------------------------------- Total liabilities 111,879 15,853 - --------------------------------------------------------------------------------------------------------- Stockholders' Equity Share capital (Note 6) Authorized: 50,000,000 common shares, with par value of $0.001 each Issued: 13,000,000 common shares 13,000 13,000 Additional paid-in capital 1,827,000 1,827,000 Accumulated deficit (625,168) (164,285) Accumulated other comprehensive income (loss), unrealized (loss) gains on securities available for sale (370,209) 249,759 - --------------------------------------------------------------------------------------------------------- Stockholders' equity 844,623 1,925,474 - --------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 956,502 $ 1,941,327 =========================================================================================================
The accompanying notes are an integral part of these financial statements. Approved by the Directors: ------------------------ ----------------------- Director Director F4 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Statements of Stockholders' Equity Years Ended December 31, 1999 and 1998 (Expressed in US Dollars)
- ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Compre- Other Total Common stock Additional hensive Compre- Stock- ---------------------- paid-in Income Accumulated hensive holders' Shares Amount capital (loss) Deficit Income (Loss) equity - ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 13,000,000 $13,000 $1,827,000 $ -- $(28,577) $151,673 $1,963,096 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss for the year -- -- -- (135,708) (135,708) -- (135,708) Change in unrealized gains -- -- -- 98,086 -- 98,086 98,086 - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive gain (loss) -- -- -- (37,622) (135,708) 98,086 (37,622) - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 13,000,000 13,000 1,827,000 (164,285) 249,759 1,925,474 - ---------------------------------------------------------------------------------------------------------------------------------- Net loss for the year -- -- -- (460,883) (460,883) -- (460,883) Change in unrealized loss -- -- -- (619,968) -- (619,968) (619,968) - ---------------------------------------------------------------------------------------------------------------------------------- Total comprehensive loss -- -- -- (1,080,851) (460,883) (619,968) (1,080,851) - -----------------------------------------------------------------------===============-------------------------------------------- Balance, December 31, 1999 13,000,000 $13,000 $1,827,000 $(625,168) $(370,209) $844,623 ======================================================================= ============================================
The accompanying notes are an integral part of these financial statements. F5 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Statement of Operations Years Ended December 31, 1999 and 1998 (Expressed in US Dollars)
- ----------------------------------------------------------------------------------------------------------------- March 31 Year Year 1993 (inception) Ended Ended to December 31 December 31 December 31 1999 1999 1998 - ----------------------------------------------------------------------------------------------------------------- General and administrative expenses Administrative and general $ 45,067 $ 19,974 $ 19,158 Professional fees - accounting and legal 70,404 38,553 24,078 Salaries and consulting fees 78,496 45,443 33,053 - ----------------------------------------------------------------------------------------------------------------- 193,967 103,970 76,289 Exploration expenses 151,284 32,236 94,295 Writedown of mineral property costs 297,000 297,000 -- - ----------------------------------------------------------------------------------------------------------------- 642,251 433,206 170,584 - ----------------------------------------------------------------------------------------------------------------- Less: Income (loss) Interest income 33,445 889 22,257 Dividend income 2,835 -- 2,835 Realized gain (loss) on sale of investments (1,875) (18,837) 16,962 Interest expense (14,672) (9,729) (4,528) Foreign exchange loss (2,650) -- (2,650) - ----------------------------------------------------------------------------------------------------------------- 17,083 (27,677) 34,876 - ----------------------------------------------------------------------------------------------------------------- Net loss for the period $ (625,168) $ (460,883) $ (135,708) ================================================================================================================= Loss per share $ (0.03) $ (0.01) ================================================================================================================== Weighted average shares outstanding 13,000,000 13,000,000 ==================================================================================================================
The accompanying notes are an integral part of these financial statements. F6 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Statement of Cash Flows Years Ended December 31, 1999 and 1998 (Expressed in US Dollars)
- ----------------------------------------------------------------------------------------------------------------- March 31 Year Year 1993 (inception) Ended Ended to December 31 December 31 December 31 1999 1999 1998 - ----------------------------------------------------------------------------------------------------------------- Cash flows from (used in) operating activities Net loss for the period $ (625,168) $ (460,883) $ (135,708) Adjustments to reconcile net loss to net cash used in operating activities: - realized loss (gain) on sale of investments (1,875) 18,837 (16,962) - writedown of mineral property costs 297,000 297,000 -- - ----------------------------------------------------------------------------------------------------------------- (330,043) (145,046) (152,670) Changes in assets and liabilities: - decrease (increase) in receivables (7) 213 1,458 - increase (decrease) in accounts payable 35,000 19,147 (1,030) - ----------------------------------------------------------------------------------------------------------------- (295,050) (125,686) (152,242) - ----------------------------------------------------------------------------------------------------------------- Cash flows from (used in) investing activities Purchase of available-for-sale securities (2,178,119) (352,485) (1,603,921) Proceeds from sale of available-for-sale securities 888,453 359,804 528,649 Mineral property costs (12,250) (9,250) -- - ----------------------------------------------------------------------------------------------------------------- (1,301,916) (1,931) (1,075,272) - ----------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from issuance of common stocks 1,540,000 -- -- Proceeds from notes payable 79,879 76,879 -- - ----------------------------------------------------------------------------------------------------------------- 1,619,879 76,879 -- - ----------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash for the period 22,913 (50,738) (1,227,514) Cash and cash equivalents, beginning of period -- 73,651 1,301,165 - ----------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 22,913 $ 22,913 $ 73,651 =================================================================================================================
The accompanying notes are an integral part of these financial statements. F7 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 1. Nature of Business and Going Concern The Company was incorporated under the laws of the State of Florida on March 31, 1993 and is in the business of exploration and development of mineral properties. On October 13, 1997, the Company changed its name to Patagonia Gold Corporation. The Company was inactive until June 30, 1997, when it entered into a share exchange agreement with the shareholders of Patagonia Gold Mines Ltd. ("PGM"), an inactive company incorporated in 1994 under the laws of Bermuda, whereby the Company acquired all issued and outstanding share of PGM in exchange for 5,500,000 common shares of the Company. There were no operations of the companies prior to June 30, 1997. At the conclusion of the transaction, the former shareholders of PGM controlled the Company and, thus, the transaction has been accounted for as a reverse acquisition of the Company by PGM. Consistent with accounting principles governing the accounting for reverse acquisitions, these consolidated financial statements are accounted for as a continuation of the legal subsidiary. The acquisition was recorded using the purchase method. As the net book value of the Company at the date of the acquisition was $Nil, a nominal value has been assigned to shares issued pursuant to the share exchange agreement. Also on July 30, 1997, the Company acquired mineral properties in Argentina in exchange for the issuance of 3,000,000 common shares. The mineral properties were valued at $300,000. During the year ended December 31, 1999, the Company determined that the carrying value of the Argentinean mineral properties exceeded the future projected cash flows from the mineral properties. Consequently, the mineral properties were written down to their estimated fair value of $3,000. The recovery of the amounts shown for interests in mineral properties is dependent upon the discovery of economically recoverable reserves or proceeds from the disposition thereof, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain financing to complete development of the properties and on future profitable operations. 2. Significant Accounting Policies (a) Basis of Consolidation These consolidated financial statements, prepared in accordance with accounting principles generally accepted in the United States, include the accounts of the Company and its wholly-owned subsidiary, Patagonia Gold Mines Ltd., a company incorporated in 1994 under the laws of Bermuda. Significant inter-company accounts and transactions have been eliminated. F8 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 2. Significant Accounting Policies (continued) (b) Cash and Cash Equivalents Cash equivalents are comprised of certain highly liquid instruments with a maturity of three months or less when purchased. There were no cash equivalents as of December 31, 1999. (c) Mineral Properties and Exploration Expenses Exploration costs are charged to operations as incurred as are normal development costs until such time that proven reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. As at December 31, 1999 and 1998, the Company did not have proven reserves. Cost of initial acquisition of mineral rights and concessions are capitalized until the properties are abandoned or the right expires. Exploration activities conducted jointly with others are reflected at the Company's proportionate interest in such activities. Costs related to site restoration programs are accrued over the life of the project. (d) Investments Available-for-sale securities are carried at fair market value with unrealized holding gains and losses included in stockholders' equity. Realized gains and losses are determined on an average cost basis when securities are sold. (e) Concentration of Credit Risk The Company places its cash and cash equivalents with high credit quality financial institutions. The Company routinely maintains balances in a financial institution beyond the insured amount. As of December 31, 1999 the Company had $ nil in a bank beyond insured limits. (f) Foreign Currency Transactions Foreign currency accounts are translated into U.S. dollars as follows: At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into U.S. dollars by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. F9 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 2. Significant Accounting Policies (continued) (g) Advertising Expenses The Company expenses advertising costs as incurred. Total advertising costs charged to expenses for the years ended December 31, 1999 and 1998 were $Nil and $Nil, respectively. (h) Impairment Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. (i) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. (j) Fair Value of Financial Instruments The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, receivables, investments and accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments, except where noted, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. Management is of the opinion that the Company is not exposed to significant interest, credit or currency risks arising from these financial instruments. F10 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 2. Significant Accounting Policies (continued) (k) Income Taxes The Company has adopted Statement of Financial Accounting Standards (SFAS") No. 109, "Accounting for Income Taxes", which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. (l) Loss Per Share Loss per share is computed using the weighted average number of shares outstanding during the year. Effective for the year ended December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share". (m) Comprehensive Income In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. Comprehensive income comprises equity except those resulting from investments by owners and distributions to owners. SFAS No. 130 did not change the current accounting treatments for components of comprehensive income. (n) New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. F11 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 2. Significant Accounting Policies (continued) (n) New Accounting Pronouncements (continued) Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standards on January 1, 2000 to affect its financial statements. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start-up Activities", ("SOP 98-5") which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-activities and organization costs to be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 15, 1998 with initial adoption reported as the cumulative effect of a change in accounting principle. Adoption of this standard has no material effect on the financial statements. 3. Investments Investments consist of available-for-sale securities and are summarized as follows:
Gross Gross unrealized unrealized Market Cost gains losses value --------------------------------------------------------------------------------------- December 31, 1999 Equity securities $1,291,541 $ 22,434 $ 392,643 $ 921,332 --------------------------------------------------------------------------------------- December 31, 1998 Equity securities $1,317,697 $ 375,229 $ 125,470 $1,567,456 ---------------------------------------------------------------------------------------
Unrealized gains totalling $7,949 (1998 - $174,043) relate to investments held by the Company's Bermuda subsidiary and are not subject to income tax. F12 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 4. Mineral Property Costs (a) Argentina Mineral concessions in the Province of La Rioja, Argentina, are as follows: o Piloncho 1, Sierra de Chepes o Piloncho 2, Sierra de Chepes o Piloncho 20, Sierra de Chepes o Piloncho 21, Sierra de Chepes o Carmelita 16, Sierra de Chepes o Carmelita 17, Sierra de Chepes o Carmelita 18, Sierra de Chepes (b) Guatamala On October 1, 1999, the Company entered into an agreement that gives the Company the right to earn a 50% interest in the San Diego Mineral Exploration Reconnaissance Licence by paying: o a $9,250 acquisition fee (paid); and o $18,617 towards the Phase I exploration program. 5. Notes Payable Loans payable are unsecured, non-interest bearing and are due on demand. 6. Share Capital On April 9, 1997, the Company amended its Articles of Incorporation to provide for the authorization of 50,000,000 common shares at $0.001 par value. Previously, the authorized capital was 200 common shares of no par value. Also, on April 9, 1997, the Company forward split its common stock 5,000:1, thus increasing the number of issued and outstanding common shares from 200 shares to 1,000,000 shares. This split has been reflected retroactively in these financial statements. F13 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 7. Supplemental Cash Flow Information The non-cash transaction listed as interest paid in the amount of $Nil (1998 - $3,567) has not been included in the Statement of Cash Flows. 8. Income Taxes (a) The Company has estimated net losses for tax purposes to December 31, 1999, totalling approximately $614,000, which may be applied against future taxable income. Accordingly, there is no tax expense charged to the Statement of Operations for the years ended December 31, 1999 and 1998. The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations. When circumstances change and this causes a change in management's judgement about the realizability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income. The right to claim these losses is expected to expire as follows: 2008 $10,000 2012 16,000 2018 128,000 2019 460,000 ---------------------------------- $614,000 ================================== (b) The tax effects of temporary differences that give rise to the Company's deferred tax asset (liability) are as follows: 1999 1998 ---------------------------------------------------------------------- Tax loss carryforwards $ 157,000 $ 52,000 Valuation allowance (157,000) (52,000) ---------------------------------------------------------------------- $ -- $ -- ====================================================================== No tax effect has been recorded on the accumulated other comprehensive income unrealized gains on securities available-for-sale due to the existence of U.S. tax loss carryforwards. F14 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 1999 and 1998 (Expressed in US Dollars) ================================================================================ 9. Comparative Figures Certain 1998 comparative figures have been reclassified to conform with the financial statement presentation adopted for 1999. 10. Related Party Transactions Related party transactions not disclosed elsewhere in these financial statements for the year ended December 31, 1999, include salaries of $12,000 (1998 - $Nil) which were paid to a director of the Company and were charged to operations in 1999. F15 EX-4.0 2 JOINT VENTURE AGREEMENT Aurora Gold Corporation Suite 1505 - 1060 Alberni Street, Vancouver, B.C. Canada E 4K2 Telephone: (604) 687-4432 Facsimile: (604) 687-4709 October 1, 1999 Patagonia Gold Corporation Suite 1505- 1060 Alberni Street, Vancouver, B.C. Canada V6E 4K2 Attention: David Jenkins, Dear Sirs: Re: Aurora Gold Corporation (the "Company") Letter of Intent: San Diego Exploration Reconnaissance Concession Joint Venture Guatemala, Central America This letter is intended to document our mutual understanding prior to a commitment of funds from Patagonia Gold Corporation and/or associated companies for the acquisition of the San Diego mineral exploration reconnaissance licence and the exploration of the San Diego mineral exploration reconnaissance concession, Guatemala Central America. Aurora Gold Corporation has been awarded exclusive title to the San Diego mineral exploration reconnaissance licence by the government of Guatemala. The mineral exploration reconnaissance license confers on the titleholder the exclusive rights to identify and locate possible areas for exploration, within the licenses territorial limits and to unlimited depth in the subsoil. The license was awarded to Aurora Gold Corporation in September 1999. Patagonia Gold Corporation and/or associated companies shall have the right to earn a fifty percent (50%) interest in the San Diego mineral exploration reconnaissance licence upon payment of the following amounts: 1. The payment of USD Nine Thousand Two Hundred and Fifty (USD 9,250) Guatemala government fee for the acquisition of the San Diego mineral exploration reconnaissance license and 1 2. The payment of USD Eighteen Thousand Six Hundred Seventeen and 25/100 (USD 18,617.25) for a Phase 1 exploration program to be conducted between November 1, 1999 and March 31, 2000 on the San Diego mineral exploration reconnaissance concession. The work program shall consist of geological reconnaissance, sampling of rock outcrops and stream sediment sampling. Yours truly, Aurora Gold Corporation /s/ Cameron Richardson October 1, 1999 - ---------------------------------- Cameron Richardson Controller and Corporate Secretary (Authorized Representative) Acceptance of these terms by Patagonia Gold Corporation For and on behalf of Patagonia Gold Corporation /s/ David Jenkins October 1, 1999 - ---------------------------------- David Jenkins President Patagonia Gold Corporation (Authorized Representative) 2 EX-21.1 3 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY SUBSIDIARIES OF THE COMPANY Percentage of Voting Name Jurisdiction of Incorporation Securities Owned - ---- ----------------------------- ---------------- Patagonia Gold Mines Bermuda 100 (a) (a) Included in the consolidated financial statements filed herein. 20 EX-27 4 FDS --
5 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 22,913 921,332 7 0 0 944,252 12,250 0 956,502 111,879 0 0 0 13,000 831,623 956,502 0 0 0 0 (460,883) 0 0 (460,883) 0 (460,883) 0 0 0 (460,883) (0.03) (0.03)
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