10QSB 1 d23917_10-qsb.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [_] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT For the transition period from _ _ _ _ _ _ _ _ _ _ to _ _ _ _ _ _ _ _ _ _ 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 of (IRS Employer Identification No.) incorporation or organization) 1505 - 1060 ALBERNI STREET, VANCOUVER B.C. CANADA V6E 4K2 (Address of principal executive offices) (604) 687-4432 (Issuer's Telephone Number) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act 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 [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check, whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by court. YES [ ] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 13,000,000 shares of Common Stock were outstanding as of September 30, 2000. Transitional Small Business Disclosure Format (check one); YES [ ] NO [X] PATAGONIA GOLD CORPORATION This quarterly 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 Part 1 - Financial Information - Item 1. "Financial Statements", Item 2. "Management's Discussion and Analysis or Plan of Operation". The Private Securities Litigation Reform Act of 1995, which provides a "safe harbor" for such statements, may not apply to this Report. PATAGONIA GOLD CORPORATION INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- 3 September 30, 2000 and December 31, 1999 Consolidated Statements of Operations -- 4 Six Months Ended September 30, 2000 Consolidated Statements of cash Flows -- 5 Six Months Ended September 30, 2000 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. Other Information Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to A Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 Financial Data Schedule 13 2 -------------------------------------------------------------------------------- PATAGONIA GOLD CORPORATION (An exploration stage enterprise)
Consolidated Balance Sheets - (unaudited) September 30, 2000 and December 31, 1999 September 30, December 31, (Expressed in U.S. Dollars) 2000 1999 ------------------------------------------------------------------------------------------- Assets Current Cash $ 26,670 $ 22,913 Receivables 7,382 7 Investments 589,802 921,332 -------------------------- 623,854 944,252 Mineral property costs 12,250 12,250 -------------------------- $ 636,104 $ 956,502 ------------------------------------------------------------------------------------------- Liabilities and Stockholders' Deficiency Liabilities Current Accounts payable and accrued liabilities $ 44,866 $ 35,000 Notes payable -- 76,879 -------------------------- 44,866 111,879 -------------------------- Stockholders' deficiency, Share capital, Authorized 50,000,000 common shares, par value $0.001 Issued 13,000,000 common shares 13,000 13,000 Additional paid in capital 1,827,000 1,827,000 Deficit accumulated during the development stage (649,950) (625,168) Accumulated other comprehensive income Unrealized gains/(losses) on securities available for sale (598,812) (370,209) -------------------------- 591,238 844,623 -------------------------- $ 636,104 $ 956,502 -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 3 PATAGONIA GOLD CORPORATION (An exploration stage enterprise) Consolidated Statements of Operations (Unaudited) For the nine months ended September 30, 2000 and 1999 (Expressed in U.S. Dollars)
-------------------------------------------------------------------------------------------- March 31 1993 Nine Months Nine Months (inception) to ended ended September 30 September 30, September 30, 2000 2000 1999 -------------------------------------------------------------------------------------------- General and administrative expenses Administrative and general $ 66,884 $ 21,817 $ 20,346 Professional fees - accounting and legal 77,164 6,760 18,004 Salaries and consulting fees 105,474 26,978 37,867 -------------------------------------------------------------------------------------------- 249,522 55,555 76,217 Exploration expenses 152,419 1,135 8,083 Writedown of mineral property costs 297,000 -- 297,000 -------------------------------------------------------------------------------------------- 698,941 56,690 381,300 -------------------------------------------------------------------------------------------- Less : Income (loss) Interest income 33,585 140 839 Dividend income 2,835 -- -- Realized gain (loss) on sale of investments 29,965 31,840 -- Interest expense (14,977) (305) (2,277) Foreign exchange gain (loss) (2,417) 233 (253) -------------------------------------------------------------------------------------------- 48,991 31,908 (1,691) -------------------------------------------------------------------------------------------- Net loss for the period $ 649,950 $ 24,782 $ 382,991 ============================================================================================ Loss per share $ 0.00 $ 0.03 ============================================================================================ Weighted average common shares outstanding 13,000,000 13,000,000 ============================================================================================
The accompanying notes are an integral part of these financial statements. 4 PATAGONIA GOLD CORPORATION (An exploration stage company)
Consolidated Statements of Cash Flows (Unaudited) Nine Months ended September 30, 2000 and 1999 (Expressed in U.S. Dollars) ---------------------------------------------------------------------------------------------------------------- March 31, 1993 Nine Months Nine Months (inception) to ended ended September 30, September 30, September 30, 2000 2000 1999 (cumulative) ---------------------------------------------------------------------------------------------------------------- Cash flows from (used in) operating activities Net loss for the period $ (649,950) $ (24,782) $ (382,991) Adjustments to reconcile net loss to net cash used in operating activities : Realized loss (gain) on sale of investments (33,715) (31,840) -- Expenses satisfied with common stock 3,000 -- -- Write-down of mineral properties 297,000 -- 297,000 ---------------------------------------------------------------------------------------------------------------- (383,665) (56,622) (85,991) Changes in assets and liabilities Decrease (increase) in accounts receivable (7,382) (7,375) (7) Increase(decrease) in accounts payable 44,866 9,866 23,224 ---------------------------------------------------------------------------------------------------------------- (346,181) (54,131) (62,774) ---------------------------------------------------------------------------------------------------------------- Cash flows from (used in) investing activities Purchase of available for sale securities (2,178,119) -- (163,352) Proceeds on sale of available-for-sale securities 1,023,220 134,767 -- Mineral property costs (12,250) -- -- ---------------------------------------------------------------------------------------------------------------- (1,167,149) 134,767 (163,352) ---------------------------------------------------------------------------------------------------------------- Cash flows from (used in) financing activities Proceeds from issuance of common stock 1,540,000 -- -- Proceeds from notes payable -- (76,879) 154,831 ---------------------------------------------------------------------------------------------------------------- 1,540,000 (76,879) 154,831 ---------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash for the period 26,670 3,757 (71,295) Cash and cash equivalents, beginning of period -- 22,913 73,974 ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 26,670 $ 26,670 $ 2,679 ================================================================================================================
The accompanying notes are an integral part of these financial statements. 5 Notes to Interim Consolidated Financial Statements (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. 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. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from audited financial statements at that date. The consolidated financial statements and footnotes thereto included in Patagonia Gold Corporation. Annual Report on Form 10-KSB for the year ended December 31, 1999 should be reviewed in connection with these condensed consolidated financial statements. The continued operations of the Company is dependent upon the discovery of economically recoverable reserves or proceeds from the dispositions thereof, the ability of the Company to obtain financing to complete development of the properties and on future profitable operations. All dollar amounts are in United States dollars unless otherwise indicated. 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. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash 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. 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. In September 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 6 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 September 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, 2000 to affect its financial statements. 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 September 30, 2000 and December 31, 1999, 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. 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 September 30, 2000 Company had $ nil in a bank beyond insured limits The Company expenses advertising costs as incurred. Total advertising costs charged to expenses for the nine-months ended September 30, 2000 and 1999 were $Nil and $Nil, respectively. 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. 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. 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". Basic loss per share is calculated by dividing the net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in earnings of an entity. In loss periods, dilutive common equivalent shares are excluded, as the effect would be anti-dilutive. Basic and diluted earnings per share are the same for the periods presented. 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. 7 2. Nature of Business and Going Concern The Company was formed on March 31, 1993 under the laws of the State of Florida and is in the business of location, acquisition, exploration and, if warranted, development of mineral properties. The Company has not yet determined whether its properties contain mineral reserves that may be economically recoverable. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The general business strategy of the Company is to acquire mineral properties either directly or through the acquisition of operating entities. The continued operations of the Company and the recoverability of mineral property costs is dependent upon the existence of economically recoverable mineral reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development and upon future profitable production. The Company has incurred recurring operating losses and requires additional funds to meet its obligations and maintain its operations. Management's plans in this regard are to raise equity financing as required. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty. 3. Available-for-sale Securities Investments consist of available-for-sale securities and are summarized as follows:
Gross Gross unrealized unrealized Market Cost gains losses value ----------------------------------------------------------------------------------- June 30, 2000 Equity securities $1,188,569 $46,346 $645,113 $589,802 =================================================================================== December 31, 1999 Equity securities $1,291,541 $22,434 $392,643 $921,332 ===================================================================================
Unrealised losses totalling $299,726 (December 31, 1999 - $7,949) relate to investments held by the Company's Bermuda subsidiary and are not subject to income tax. 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: 8 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. Comparative Figures Certain 1999 comparative figures have been reclassified to conform to the financial statement presentation adopted for 2000. 7. Related Party Transactions Related party transactions not disclosed elsewhere in these financial statements for the nine-months ended September 30, 2000, include salaries of $0 (1999 - $Nil), which were paid to a director of the Company and were charged to operations in 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS (A) General The Company is a mineral exploration company based in Vancouver, Canada and is engaged in the exploration for precious metals. The Company was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc." On October 13, 1997 the Company changed its name to Patagonia Gold Corporation and is an exploration stage enterprise. The Company was inactive between March 31, 1993 and June 30, 1997. This document contains numerous forward-looking statements relating to the Company's business. The United States Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Operating, exploration and financial data, and other statements in this document are based on information the company believes reasonable, but involve significant uncertainties as to future gold and silver prices, costs, ore grades, estimation of gold and silver reserves, mining and processing conditions, changes that could result from the Company's future acquisition of new mining properties or businesses, the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), regulatory and permitting matters, and risks inherent in the ownership and operation of, or investment in, mining properties or businesses in foreign countries. Actual results and timetables could vary significantly from the estimates presented. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. None of the Company's properties contain any known Mineral Reserves. The Company's common stock is traded on the OTC Bulletin Board. (B) Plan of Operation for 20000 and significant developments during the nine-months ended September 30, 2000 The Company is currently conducting an exploration program on its property located in Guatemala. The 2000 exploration program consists of: 1. Completion of data compilation work started in 1999 to be able to calculate a quality resource estimate. 2. Extending existing trench sample profiles in selected areas of veins. 9 3. Structural mapping of trenches and mineralized showings and their immediate area in the various shear zones. 4. Detailed geology mapping. (C) Financial Information Nine-Month Period Ended September 30, 2000 versus Nine-Month Period Ended September 30, 1999 Net Loss: For the nine-month period ended September 30, 2000 the Company recorded a loss of $24,782 or $0.00 per share, compared to a loss of $382,991 or $0.03 per share in 1999. Revenues: The Company had no operating revenues for the nine-month period ended September 30, 2000 (1999 - $0). Costs and Expenses: General and administrative expenses - For the nine-month period ended September 30, 2000 the Company recorded general and administrative expenses of $21,817, compared to $20,346 in 1999. Total fees paid to the Accountant General of Bermuda for the nine-months ended September 30, 2000 were $7,120 (1999 - $7,120). Professional fees - accounting and legal - For the nine-month period ended September 30, 2000 the Company recorded accounting fees of $1,505 (1999 -$5,299) and legal fees of $5,255 (1999 - $12,705). Exploration expenditures - For the nine-month period ended September 30, 2000 the Company recorded exploration expenses of $1,135 (1999 - $8,083). (D) Financial Condition and liquidity At September 30, 2000, the Company had cash of $26,670 (1999 - $2,679) and working capital of $578,988 (1999 - $1,262,363) respectively. Total liabilities as of September 30, 2000 were $44,866 (1999 - $193,908). Net cash used in operating activities in the nine-month period ended September 30, 2000 was $54,131 compared to $62,774 in the nine-month period ended September 30, 1999. Net cash used in investing activities in the nine-month period ended September 30, 2000 was $0 compared to net cash used in investing activities of $163,352 in the prior year's comparable period. Proceeds from the sale of securities in the nine-month period ended September 30, 2000 were $134,767 (1999 - $0). Net cash received from financing activities in the nine-month period ended September 30, 2000 was $0 compared to net cash received from financing activities of $154,831 in the prior year's comparable period. Net cash used in the repayment of notes payable in the nine-month period ended September 30, 2000 was $76,879 (1999 - $0). The Company has sufficient working capital to (i) pay its administrative and general operating expenses through December 31, 2000 and (ii) to conduct preliminary exploration programs. However, 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 10 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" passed without incident at any of the Company's properties. The Year 2000 (YK2) issue is the result of computerized systems using two digits rather than four digits to identify an applicable year. Date-sensitive systems may recognize a date using "00" as the year 1900 rather that the year 2000. This could result in a system failure or miscalculation causing disruption to business operations. In 1999, the Company completed a review of its computer-based information systems and, where needed, Y2K compliant upgrades for the Company's core financial systems were installed and tested. To date, no Y2K problems have been encountered by the Company or the Company's vendors or others with whom it transacts business and none are expected. The Company's management and operations staff will again monitor critical operations during the December 31, 2000 - January 1, 2001 Y2K rollover dates. PART 11. OTHER INFORMATION ITEM 1. Legal Proceedings The Company is not party to any litigation, and has no knowledge of any pending or threatened litigation against it. ITEM 2. Changes in Securities Not Applicable ITEM 3. Defaults Upon Senior Securities Not Applicable ITEM 4. Submission of Matters to a Vote of Security Holders Not Applicable ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 Article of Incorporation of Cayman Purchasing & Supply, Inc. * 3.2 Company By-laws for Cayman Purchasing & Supply, Inc. * 11 3.3 Notice of reinstatement for Cayman Purchasing & Supply, Inc. * 3.4 Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. * 3.5 Notice of filing of Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. * 3.6 Notice of filing of Amendment to the Articles of Incorporation of Cayman Purchasing & Supply, Inc. changing its name to Patagonia Gold Corporation * 10.1 Agreement dated July 30, 1997 between The Company and Carrington International Limited * 10.2 Joint Venture Agreement between the Company and Aurora Gold Corporation * 27.1 Financial Data Schedule -------- * Previously Filed (b) Reports on Form 8-K 1. Change in registrant's certifying accountants (filed February 7, 2000) * -------- * 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: October 15, 2000 BY: /s/ David Jenkins ---------------- ----------------- David Jenkins Director and President Date: October 15, 2000 BY: /s/ Cosme M. Beccar Varela ---------------- -------------------------- Cosme M. Beccar Varela Director 12