-----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, QW486vSu4TtYGizJuw+3PO1UwpzNgu9OdUxwUk+jySJ1LDwLf+Itx2WJXzSN/LCC D3twdMhrRPc0IT/ZGfNGHA== 0001015402-02-000947.txt : 20020415 0001015402-02-000947.hdr.sgml : 20020415 ACCESSION NUMBER: 0001015402-02-000947 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATAGONIA GOLD CORP 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: 1934 Act SEC FILE NUMBER: 000-26531 FILM NUMBER: 02589624 BUSINESS ADDRESS: STREET 1: PO BOX 48525, 595 BURRARD STREET STREET 2: VANCOUVER, BC CANADA CITY: V7X 1A2 STATE: A1 ZIP: 00000 BUSINESS PHONE: 604-687-4432 MAIL ADDRESS: STREET 1: PO BOX 48525, 595 BURRARD STREET STREET 2: VANCOUVER, BC CANADA CITY: V7X 1A2 STATE: A1 ZIP: 00000 10KSB 1 doc1.txt 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, 2001 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.) PO Box 48525, 595 Burrard Street, Vancouver, BC Canada V7X 1A2 (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, 2001 was $Nil The aggregate market value of the Registrant's voting common Stock held by non-affiliates was $7,785,000 as of March 15, 2002. There were 13,000,000 shares of the registrant's Common Stock outstanding as of March 15, 2002. 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. None of the Company's properties contain any known Mineral Reserves. The Company's common stock is traded on the NASD 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. The Company's mailing address is PO Box 48525, 595 Burrard Street, Vancouver, BC Canada V7X 1A2. 2 (B) SIGNIFICANT DEVELOPMENTS IN FISCAL 2001 AND SUBSEQUENT EVENTS During fiscal year 2001, the Company wound up its wholly-owned subsidiary Patagonia Gold Mines Ltd. and recognized $Nil gains or losses upon the wind up. (C) EXPLORATION AND DEVELOPMENT The Company conducts exploration activities from its headquarters in Vancouver, Canada. The Company controls mineral exploration concessions in Argentina. The Company's strategy is to concentrate its investigations into: (i) Existing operations where an infrastructure already exists; (ii) Properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (iii) Grass-roots exploration opportunities. The Company is currently concentrating its exploration activities in Argentina. The Company is also examining data relating to the potential acquisition of exploration properties in Mexico. During fiscal 2001 the Company did not renew the mineral reconnaissance licence for its Guatemala mineral reconnaissance concession. During Fiscal 2001, the Company continued its preliminary field assessment of its Argentina properties. The Company's exploration work program in 2002 will entail surface mapping of geology, sampling of soils on a grid basis to delineate geochemical anomalies, stream sediment sampling and geophysical surveying. The data assembled from this work will be used to determine whether: (i) further exploration is warranted; or (ii) whether mineral exploration concession licenses should be surrendered. 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 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 March 15, 2002 there were two full time employees and two part time employees. (E) REGULATION OF MINING ACTIVITY The Company'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 the Company. (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 3 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, sliver, 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. (H) ENVIRONMENTAL REGULATIONS All phases of the Company's operations in Argentina 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. 4 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. All of the Company's exploration activities are presently in Argentina. The Company holds 100% interest in seven mineral exploration concessions in Argentina of which two are cateos, Piloncho 1 and Piloncho 2 and the remaining five, Piloncho 20, Piloncho 21, Carmelita 16, Carmelita 17 and Carmelita 18 are mineral discovery concessions 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 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 12 months the Company intends to conduct further geological, geochemical and geophysical work on the Argentina properties. 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. 5
First Quarter Second Quarter Third Quarter Fourth Quarter -------------- --------------- -------------- --------------- 2001 - High $ 1.000 $ 0.900 $ 0.900 $ 0.690 - ----------- -------------- --------------- -------------- --------------- 2001 - Low $ 0.690 $ 0.550 $ 0.500 $ 0.350 - ----------- -------------- --------------- -------------- --------------- 2000 - High $ 2.500 $ 1.750 $ 1.625 $ 1.375 - ----------- -------------- --------------- -------------- --------------- 2000 - Low $ 1.125 $ 0.812 $ 1.125 $ 0.500 - ----------- -------------- --------------- -------------- ---------------
(b) As of March 11, 2002, there were 20 holders of record of the Common Stock. (c) There were no Common Stock cash dividends paid in 2001, 2000, 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 Company has not issued any securities in 2001 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 owns or controls mineral exploration concessions in Argentina. The Company's strategy is to concentrate its investigations into: (i) Existing operations where an infrastructure already exists; (ii) Properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (iii) Grass-roots exploration opportunities. The Company is currently concentrating its exploration activities in Argentina. The Company is also examining data relating to the potential acquisition of exploration properties in Mexico. 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 2001 and 2000. No funds were raised in fiscal 2001 or 2000. 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. (B) FINANCING During fiscal 2001 and fiscal 2000 the Company did not raise any funds through the issuance of common stock. 6 (C) FINANCIAL INFORMATION (a) Twelve Months Ended December 31, 2001 (Fiscal 2001) versus Twelve Months Ended December 31, 2000 (Fiscal 2000) For the year ended December 31, 2001 the Company recorded a loss of $244,423, or $0.02 per share, compared to a loss of $65,515 ($0.01 per share) in 2000. Professional fees - accounting and legal - For the year ended December 31, 2001 the Company recorded professional fees of $9,714, compared to $8,975 in 2000. Sale of investments - For the year ended December 31, 2001 the Company realized a loss of $145,901 on the sale of its investments compared to a gain of $31,840 on the sale of its investments during the year ended December 31, 2000. Exploration expenditures - For the year ended December 31, 2001 the Company recorded exploration expenses of $0 compared to $1,135 in 2000. (b) Twelve Months Ended December 31, 2000 (Fiscal 2000) versus Twelve Months Ended December 31, 1999 (Fiscal 1999) For the year ended December 31, 2000 the Company recorded a loss of $65,515, or $0.01 per share, compared to a loss of $460,883 ($0.03 per share) in 1999. Professional fees - accounting and legal - For the year ended December 31, 2000 the Company recorded professional fees of $8,975, compared to $38,553 in 1999. The 1999 increase in fees was the result of costs associated with filing of the Company's Form 10-SB. Sale of investments - For the year ended December 31, 2000 the Company realized a gain of $31,840 on the sale of its investments compared to a loss of $18,837 on the sale of its investments during the year ended December 31, 1999. Exploration expenditures - For the year ended December 31, 2000 the Company recorded exploration expenses of $1,135 compared to $32,236 in 1999. (D) FINANCIAL CONDITION AND LIQUIDITY At December 31, 2001, the Company had cash of $11 (2000 - $1,352) and working capital of $681,283 (2000 working capital - $640,936) respectively. Total liabilities as of December 31, 2001 were $120,730 as compared to $54,576 on December 31, 2000, an increase of $66,154. During 2001 financing activities consisted of the following, proceeds from notes payable $21,0470 (2000 - $0), repayment of notes and advances payable $0 (2000 - $75,949). In Fiscal 2001 investing activities consisted of additions to mineral properties $0 (2000 - $0), purchases of available-for-sale securities $291,001 (2000 - $1,622) and proceeds from the sale of available-for-sale securities $349,658 (2000 - $134,771). The Company recorded a loss of $145,901 (2000 - gain of $31,840) on the sale of available-for-sale securities. For the year ended December 31, 2001 the Company recorded a loss of $244,423, or $0.02 per share compared to a loss of $65,515 ($0.01 per share) in 2000. The Company does not have sufficient working capital to (i) pay its administrative and general operating expenses through December 31, 2002 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. 7 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. PLANS FOR YEAR 2002 General The Company intends to concentrate its exploration activities on its Argentina exploration/mineral discovery permits. The Company also intends to examine data relating to the potential acquisition of other exploration properties in Mexico. The Company's exploration work program in 2002 on its Argentina exploration/mineral discovery permits will entail surface mapping of geology, sampling of soils on a grid basis to delineate geochemical anomalies, stream sediment sampling and geophysical surveying. The data assembled from this work will be used to determine whether: (i) further exploration and diamond core drilling is warranted and if so the sites for initial holes; or (ii) whether certain claim blocks should be surrendered. (E) NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations. SFAS 141 applies to all business combinations initiated after June 30, 2001. The SFAS 141 applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The adoption of SFAS 141 will not have an impact on the Company's financial statements. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001 with earlier application permitted for entities with fiscal years beginning after March 15, 2001 provided that the first interim financial statements have not been previously issued. The Statement is required to be applied at the beginning of the entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements to that date. The adoption of SFAS 142 will not have an impact on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (SFAS 143), Asset Retirement Obligations. SFAS 143 establishes accounting standards for recognition and measurement of a liability for the costs of assets retirement obligations. Under SFAS 143, the costs of retiring an asset will be recorded as a liability when the retirement obligation arises and will be amortized to expense over the life of the asset. The adoption of SFAS 143 will not have an impact on the Company's financial statements. In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-lived Assets. SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be 8 Disposed Of, and APB Opinion 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 will not have an impact on the Company's 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 None 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, 2001 and March 15, 2002. 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 - ---- -------- Terry Longair Age 48, President and Director since May 2001. Manager Budget Analysis and Planning Langara College 1993 to present. Antonino G. Cacace Age 56, Director since June 1997. Director of Aurora Gold Corporation since October 1995. Engineer, Founder and current Managing Director of Stelax Industries in the United Kingdom. Cosme M. Beccar Varela Age 41, 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 49, Controller since October 1997, & Secretary since January 1999. President and Director of Aurora Gold Corporation since May 2001 and Secretary since April 1998. Director of Aurora Metals (BVI) Limited since May 2000. 1981 to 1997 held accounting positions with various Canadian resource companies. There are no family relationships between any of the executive officers. 9 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 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, 2001 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 years:
- ---------------------------------------------------------------------------------------------------------- Annual Compensation Long-Term Compensation -------------------------------- -------------------------------------------- Awards Payments ------------------------ ------------------ Securities Under- All Other Annual Restricted Lying other Name And Compen- Stock Options/ LTIP Compen- Principal Position Year Salary Bonuses Sation Award(s) SARs Payouts sation (Note 1.) ($) ($) ($) ($) (=) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ---------------------------------------------------------------------------------------------------------- David Jenkins 2001 -0- -0- -0- None None None -0- President and 2000 -0- -0- -0- None None None -0- Director (Note 2) 1999 12,000 -0- -0- None None None -0- - ---------------------------------------------------------------------------------------------------------- Terry Longair 2001 -0- -0- -0- None None None -0- President and 2000 -0- -0- -0- None None None -0- Director (Note 2) 1999 -0- -0- -0- None None None -0- - ---------------------------------------------------------------------------------------------------------- Cameron Richardson 2001 7,662 -0- -0- None None None -0- Controller and 2000 6,748 -0- -0- None None None -0- Secretary 1999 7,727 -0- -0- None None None -0- ==========================================================================================================
Note 1. 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, 2001 the entire board of directors acted as the Company's compensation committee. 10 Note 2. On May 4, 2001 Mr. David Jenkins resigned from the Board of Directors and as President of the Company to pursue other interests. On May 4, 2001 Mr. Terry Longair was appointed to the Board of Directors of the Corporation and President of the Company. (B) Options/SAR Grants Table No options have been awarded to David Jenkins, Antonino Cacace, Terry Longair, Cosme M. Beccar Varela or Cameron Richardson. On May 4, 2001 Mr. David Jenkins resigned from the Board of Directors and as President of the Company to pursue other interests. On May 4, 2001 Mr. Terry Longair was appointed to the Board of Directors of the Corporation and President of the Company. (C) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table No options have been awarded to David Jenkins, Antonino Cacace, Terry Longair, Cosme M. Beccar Varela or Cameron Richardson. On May 4, 2001 Mr. David Jenkins resigned from the Board of Directors and as President of the Company to pursue other interests. On May 4, 2001 Mr. Terry Longair was appointed to the Board of Directors of the Corporation and President of the Company. (D) Long-Term Incentive Plans ("LTIP") Awards Table The Company does not have a Long-term Incentive Plan. (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 2001 non-officer 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 11, 2002 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 11, 2002, there were 13,000,000 shares of Common Stock issued and outstanding. 11
Name of Shares of Common Beneficial Stock Beneficially Percentage Owner Owned Owned - ------------------------------------ ------------------ ----------- 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 - ------------------------------------ ------------------ ----------- Boavista Securities Limited (1) 800,000 6.2% 12 Harcourt Road Hong Kong Officers and Directors - ------------------------------------ ------------------ ----------- Cosme M. Beccar Varela 25,000 * Reconquista 657 1373 Buenos Aires, Argentina - ------------------------------------ ------------------ ----------- Officers and Directors (1 person) 25,000 * - ------------------------------------ ------------------ ----------- (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. 12 Directors and/or officers will receive expense reimbursement for expenses reasonably incurred on behalf of the Company. Included in accounts payable at December 31, 2001 is $0 (2000 - $0) due to directors 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 * - ------ * 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 22,2002 BY: /s/ Terry Longair ------------- ------------------------------ Terry Longair Director and President Date: March 22,2002 BY: /s/ Cosme M. Beccar Varela ------------- ------------------------------ Cosme M. Beccar Varela Director 13 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 Consolidated Balance Sheets F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statement of Operations F-5 Consolidated Statement of Cash Flows F-6 Summary of Significant Accounting Policies F-7 to F-12 Notes to Consolidated Financial Statements F-12 to F-14 Financial Statement Schedules * * Financial Statement Schedules have been omitted as not applicable 14 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Consolidated Financial Statements (EXPRESSED IN U.S. DOLLARS) December 31, 2001 and 2000 INDEX ----- Report of Independent Accountants Consolidated Balance Sheets Consolidated Statement of Stockholders' Equity Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements MOORE STEPHENS ELLIS FOSTER LTD. 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.com ---------------------------- Website: www.ellisfoster.com - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) We have audited the consolidated balance sheets of PATAGONIA GOLD CORPORATION AND SUBSIDIARIES ("the Company") as at December 31, 2001 and 2000 and the consolidated statements of stockholders' equity, operations and cash flows for the years then ended and cumulative data from June 30, 1997 to December 31, 2001. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 audits 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, 2001 and 2000 and the results of their operations and their cash flows for the years then ended and cumulative data from June 30, 1997 to December 31, 2001 in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." March 7, 2002 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.
PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Consolidated Balance Sheets December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ===================================================================================== 2001 2000 - ------------------------------------------------------------------------------------- ASSETS CURRENT Cash $ 11 $ 1,352 Receivables 118 59 Investments (Note 3) 801,884 693,171 - ------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 802,013 694,582 NOTES RECEIVABLE (Note 4) 39,821 - MINERAL PROPERTY COSTS (Note 5) - 12,250 - ------------------------------------------------------------------------------------- TOTAL ASSETS $ 841,834 $ 706,832 ===================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT Accounts payable and accrued liabilities $ 98,753 $ 53,646 Note payable, non-interest bearing 21,977 - - ------------------------------------------------------------------------------------- 120,730 53,646 NOTES PAYABLE (Note 6) - 930 - ------------------------------------------------------------------------------------- TOTAL LIABILITIES 120,730 54,576 - ------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY SHARE CAPITAL (Note 7) 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 (935,106) (690,683) ACCUMULATED OTHER COMPREHENSIVE (LOSS), unrealized (loss) on securities available for sale (183,790) (497,061) - ------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 721,104 652,256 - ------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 841,834 $ 706,832 ===================================================================================== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Consolidated Statement of Stockholders' Equity Years Ended December 31, 2001 and 2000 (EXPRESSED IN U.S. 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, 2000 13,000,000 $ 13,000 $1,827,000 $ $(625,168) $ (370,209) $ 844,623 NET (LOSS) FOR THE YEAR - - - (65,515) (65,515) - (65,515) CHANGE IN UNREALIZED INVESTMENT (LOSSES) - - - (126,852) - (126,852) (126,852) - ----------------------------------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE (LOSSES) - - - (192,367) (65,515) (126,852) (192,367) - ----------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2000 13,000,000 13,000 1,827,000 (690,683) (497,061) 652,256 - ------------------------------------------------------------------ --------------------------------------- NET (LOSS) FOR THE YEAR - - - (244,423) (244,423) - (244,423) CHANGE IN UNREALIZED INVESTMENT (LOSSES) - - - 313,271 - 313,271 313,271 - ----------------------------------------------------------------------------------------------------------------------- TOTAL COMPREHENSIVE (LOSSES) - - - $ 68,848 (244,423) 313,271 68,848 - ----------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2001 13,000,000 $ 13,000 $1,827,000 $(935,106) $ (183,790) $ 721,104 ================================================================ ====================================== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Consolidated Statement of Operations Years Ended December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ====================================================================================== Cumulative June 30 Year Year 1997 to Ended Ended December 31 December 31 December 31 2001 2001 2000 - -------------------------------------------------------------------------------------- GENERAL AND ADMINISTRATIVE EXPENSES Administrative and general $ 113,888 $ 35,501 $ 33,320 Professional fees - accounting and legal 89,093 9,714 8,975 Salaries and consulting fees 162,808 31,662 52,650 - -------------------------------------------------------------------------------------- 365,789 76,877 94,945 EXPLORATION EXPENSES 152,419 - 1,135 WRITEOFF OF MINERAL PROPERTY COSTS 309,250 12,250 - - -------------------------------------------------------------------------------------- 827,458 89,127 96,080 - -------------------------------------------------------------------------------------- LESS: INCOME (LOSS) Interest income 34,593 892 256 Dividend income 2,835 - - Realized gain (loss) on sale of investments (115,936) (145,901) 31,840 Interest expense (15,653) (519) (462) Foreign exchange loss (13,487) (9,768) (1,069) - -------------------------------------------------------------------------------------- (107,648) (155,296) 30,565 - -------------------------------------------------------------------------------------- NET (LOSS) FOR THE PERIOD $ (935,106) $ (244,423) $ (65,515) ====================================================================================== (LOSS) PER SHARE $ (0.02) $ (0.01) ====================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 13,000,000 13,000,000 ====================================================================================== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
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PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Consolidated Statement of Cash Flows Years Ended December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ======================================================================================= Cumulative June 30 Year Year 1997 to Ended Ended Ended December 31 December 31 December 31 2001 2001 2000 - --------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net (loss) for the period $ (935,106) $ (244,423) $ (65,515) Adjustments to reconcile net loss to net cash used in operating activities: - realized loss (gain) on sale of investments 112,186 145,901 (31,840) - expenses satisfied with common stocks 3,000 - - - writeoff of mineral property costs 309,250 12,250 - - --------------------------------------------------------------------------------------- (510,670) (86,272) (97,355) Changes in assets and liabilities: - decrease (increase) in receivables (39,939) (39,880) (52) - increase in accounts payable 98,753 45,107 18,646 - --------------------------------------------------------------------------------------- (451,856) (81,045) (78,761) - --------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Purchase of available-for-sale securities (2,470,742) (291,001) (1,622) Proceeds from sale of available-for-sale securities 1,372,882 349,658 134,771 Mineral property costs (12,250) - - - --------------------------------------------------------------------------------------- (1,110,110) 58,657 133,149 - --------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from issuance of common stocks 1,540,000 - - Proceeds from notes payable 21,977 21,047 (75,949) - --------------------------------------------------------------------------------------- 1,561,977 21,047 (75,949) - --------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH FOR THE PERIOD 11 (1,341) (21,561) CASH AND CASH EQUIVALENTS, beginning of period - 1,352 22,913 - --------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of period $ 11 $ 11 $ 1,352 ======================================================================================= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MOORE STEPHENS ELLIS FOSTER LTD. F6 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. 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 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. 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 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. The Company has not generated any operating revenues to date. MOORE STEPHENS ELLIS FOSTER LTD. F7 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (a) These financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, 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. During fiscal year 2001, the Company wound up its wholly-owned subsidiary Patagonia Gold Mines Ltd. (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, 2001 and 2000. (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, 2001 and 2000, 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 rights expire. 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, 2001 and 2000 the Company had $ nil in a bank beyond insured limits. MOORE STEPHENS ELLIS FOSTER LTD. F8 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (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. (g) Advertising Expenses The Company expenses advertising costs as incurred. There were no advertising costs charged to expenses for the years ended December 31, 2001 and 2000. (h) Long-lived Assets 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 in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. MOORE STEPHENS ELLIS FOSTER LTD. F9 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (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. (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. MOORE STEPHENS ELLIS FOSTER LTD. F10 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Accounting for Derivative Instruments and Hedging Activities The Company has adopted the Statement of Financial Accounting Standards SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which 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. The adoption of SFAS 133 has no impact on the Company's financial statements. (o) New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations. SFAS 141 applies to all business combinations initiated after June 30, 2001. The SFAS 141 applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. The adoption of SFAS 141 will not have an impact on the Company's financial statements. In June, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. The provisions of SFAS 142 are required to be applied starting with fiscal years beginning after December 15, 2001 with earlier application permitted for entities with fiscal years beginning after March 15, 2001 provided that the first interim financial statements have not been previously issued. The Statement is required to be applied at the beginning of the entity's fiscal year and to be applied to all goodwill and other intangible assets recognized in its financial statements to that date. The adoption of SFAS 142 will not have an impact on the Company's financial statements. In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 (SFAS 143), Asset Retirement Obligations. SFAS 143 establishes accounting standards for recognition and measurement of a liability for the costs of assets retirement obligations. Under SFAS 143, the costs of retiring an asset will be recorded as a liability when the retirement obligation arises, and will be amortized to expense over the life of the asset. The adoption of SFAS 143 will not have an impact on the Company's financial statements. MOORE STEPHENS ELLIS FOSTER LTD. F11 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (o) New Accounting Pronouncements (continued) In October, 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-lived Assets. SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of, and APB Opinion 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 will not have an impact on the Company's financial statements. 3. INVESTMENTS Investments consist of available-for-sale securities and are summarized as follows:
- --------------------------------------------------------------------------------------------- Gross Gross Accumulated unrealized unrealized unrealized Market Cost gains losses gains (losses) value - --------------------------------------------------------------------------------------------- January 1, 1997 Equity securities $ - $ - $ - $ - $ - Change during the year 225,463 151,673 - 151,673 377,136 - --------------------------------------------------------------------------------------------- December 31, 1997 225,463 151,673 - 151,673 377,136 Equity securities Change during the year 1,092,234 223,556 125,470 98,086 1,190,320 - --------------------------------------------------------------------------------------------- December 31, 1998 Equity securities 1,317,697 375,229 125,470 249,759 1,567,456 Change during the year (26,156) (352,795) 267,173 (619,968) (646,124) - --------------------------------------------------------------------------------------------- December 31, 1999 Equity securities 1,291,541 22,434 392,643 (370,209) 921,332 Change during the year (101,309) 148,788 275,640 (126,852) (228,161) - --------------------------------------------------------------------------------------------- December 31, 2000 Equity securities 1,190,232 171,222 668,283 (497,061) 693,171 Change during the year (204,558) 163,871 (149,400) 313,271 108,713 - --------------------------------------------------------------------------------------------- December 31, 2001 Equity securities $ 985,674 $ 335,093 $ 518,883 $ (183,790) $ 801,884 =============================================================================================
MOORE STEPHENS ELLIS FOSTER LTD. F12 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 4. NOTES RECEIVABLE Notes receivable are unsecured, non-interest bearing and due on demand. 5. MINERAL PROPERTY COSTS (a) Argentina Mineral concessions in the Province of La Rioja, Argentina, are as follows: - Piloncho 1, Sierra de Chepes - Piloncho 2, Sierra de Chepes - Piloncho 20, Sierra de Chepes - Piloncho 21, Sierra de Chepes - Carmelita 16, Sierra de Chepes - Carmelita 17, Sierra de Chepes - Carmelita 18, Sierra de Chepes During fiscal year 2001, there were no proven mineral reserves discovered and the Company continuously operates with a working capital deficiency. These conditions raised substantial doubt regarding the recoverability of the capitalized acquisition cost. Therefore, 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"' the Company wrote off the capitalized acquisition cost of $3,000 to operations. (b) Guatamala Pursuant to an agreement dated October 1, 1999, the Company paid $9,250 of acquisition cost, spent $18,617 towards the required exploration program and earned a 50% interest in the San Diego Mineral Exploration Reconnaissance License. During fiscal year 2001, the Company failed to make the annual fee payment and submit technical reports of activities carried out on the reconnaissance concession and, therefore, the mineral reconnaissance licence was forfeited. The Company wrote off the capitalized acquisition cost of $9,250 to operations. 6. NOTES PAYABLE Notes payable are unsecured, non-interest bearing and are due on demand. MOORE STEPHENS ELLIS FOSTER LTD. F13 PATAGONIA GOLD CORPORATION AND SUBSIDIARIES (An exploration stage enterprise) Notes to Consolidated Financial Statements December 31, 2001 and 2000 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 7. 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. 8. INCOME TAXES (a) The Company has estimated net losses for tax purposes to December 31, 2001, totalling approximately $891,000, 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, 2001 and 2000. 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: ----------------------- 2012 $ 16,000 2018 128,000 2019 460,000 2020 66,000 2021 221,000 ----------------------- $ 891,000 ======================= (b) The tax effects of temporary differences that give rise to the Company's deferred tax asset (liability) are as follows: ----------------------------------------------------------- 2001 2000 ----------------------------------------------------------- Tax loss carryforwards $ 312,000 $ 238,000 Valuation allowance (312,000) (238,000) ----------------------------------------------------------- $ - $ - =========================================================== No tax effect has been recorded on the accumulated other comprehensive loss on unrealized loss on securities available-for-sale due to the existence of U.S. tax loss carryforwards. MOORE STEPHENS ELLIS FOSTER LTD. F14 -----END PRIVACY-ENHANCED MESSAGE-----