UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 0-24393
PATAGONIA GOLD CORPORATION
(Exact name of small business issuer as specified in its charter)
Florida 65-0401897
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1505 - 1060 ALBERNI STREET, VANCOUVER B.C. CANADA V6E 4K2
(Address of principal executive offices)
(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, 1999.
Transitional Small Business Disclosure Format (check one);
YES [ ] NO [X]
<PAGE>
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.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
Consolidated Balance Sheet 3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Operations 5
Consolidated Statement of Cash Flows 6
Notes to Financial Statements 7-8
2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PATAGONIA GOLD CORPORATION
Consolidated Balance Sheets - (unaudited)
(Expressed in U.S. Dollars)
September 30, December 31
For the Periods Ended 1999 1998
- -------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current
Cash $ 2,679 $ 73,974
Receivables 226 220
Investments 1,453,366 1,597,133
--------------------------
1,456,271 1,671,327
Mineral property costs 3,000 300,000
--------------------------
$ 1,459,271 $ 1,971,327
- -------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficiency
Liabilities
Current
Accounts payable and accrued liabilities $ 39,077 $ 15,853
Notes payable 154,831 --
--------------------------
193,908 15,853
--------------------------
Stockholders' deficiency,
Share capital,
Authorized
50,000,000 common shares, par value $0.001
Issued
13,000,000 (1997 - 13,000,000) 13,000 13,000
Additional paid in capital 1,827,000 1,827,000
Deficit accumulated during the development stage (547,274) (164,285)
Accumulated other comprehensive income
Unrealized gains/(losses) on securities available for sale (27,363) 279,759
--------------------------
1,265,363 1,955,474
--------------------------
$ 1,459,271 $ 1,971,327
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
APPROVED BY THE DIRECTORS
/s/ DAVID JENKINS Director /s/ COSME M. BECCAR VARELA Director
- ---------------------------- ------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Patagonia Gold Corporation
Statements of Stockholder's Equity
(Expressed in U.S. Dollars)
(Unaudited)
For the period ended September 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Unrealized
Common Stock Additional Gain Total
------------------------------------ Paid-In Accumulated (Loss) on Stockholder's
Shares Amount Capital Deficit Investments Equity
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1 $ -- $ -- $ -- $ -- $ --
Issuance of common stock 550,000 5,500,000 -- -- -- 550,000
Recapitalization to effect
the issuance of shares on
reverse acquisition 999,999 (543,500) 543,500 -- --
----------------------------------------------------------------------------------------------
6,500,000 6,500 543,500 -- -- 550,000
-------------------------------------------
Net loss for the year -- -- -- (28,577) -- (28,577)
Net change in unrealized gain
(loss) on investments -- -- -- -- 151,673 151,673
-------------------------------------------
Total comprehensive income (28,577) 151,673 123,096
Issuance of common stock
For cash
3,500,000 3,500 986,500 -- -- 990,000
For mineral properties
3,000,000 3,000 297,000 -- -- 300,000
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 13,000,000 13,000 1,827,000 (28,577) 151,673 1,963,096
-------------------------------------------
Net loss for the period -- -- -- (135,708) -- (135,708)
Net change in unrealized gain
(loss) on investments -- -- -- -- 128,086 128,086
-------------------------------------------
Total comprehensive income (135,708) 128,086 (7,622)
----------------------------------------------------------------------------------------------
Balance, December 31, 1998 13,000,000 13,000 1,827,000 (164,285) 279,759 1,955,474
Net loss for the period -- -- -- (382,991) -- (382,991)
Net change in unrealized gain
(loss) on investments -- -- -- -- (307,122) (307,122)
-------------------------------------------
Total comprehensive income (382,991) (307,122) (690,113)
----------------------------------------------------------------------------------------------
Balance, September 30, 1999 $ 13,000,000 $ 13,000 $ 1,827,000 $ (547,274) $ (27,363) $ 1,265,363
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PATAGONIA GOLD CORPORATION
Consolidated Statements of Operations
(Expressed in U.S. Dollars) March 31,
1993 Nine months ended
(inception) to September 30,
September 30, ----------------------------------
1999 1999 1998
(cumulative) (Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General and administrative expenses
Consultants $ 54,000 $ 30,000 --
Depreciation and amortization -- -- --
Interest, bank charges and foreign exchange 9,870 2,277 6,417
Office and miscellaneous, net of recoveries 16,954 4,812 6,920
Professional fees - legal 28,853 19,825 8,202
- accounting 21,402 5,299 10,000
Rent and other 5,093 1,622 1,427
Salaries and wages 16,920 7,867 4,543
Shareholder relations, advertising and
Promotion 4,162 3,965 113
Transfer agents, listing and filing fees 15,176 2,045 818
Travel -- -- 22
Telephone 3,651 781 1,378
------------------------------------------------------
176,082 78,494 39,840
--
Less - interest income 36,230 839 19,598
- realized gain on sale of investments -- 6,613
------------------------------------------------------
122,890 77,655 13,629
Exploration expenses 127,386 8,336 17,082
Write-down of mineral property costs 297,000 297,000 --
------------------------------------------------------
Net loss for the period $ 547,276 $ 382,991 $ 30,711
- --------------------------------------------------------------------------------------------------------------
Loss per share $ (0.03) $ (0.00)
- --------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 13,000,000 13,000,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PATAGONIA GOLD CORPORATION
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
1993
(inception) to September 30,
September 30, ----------------------------
1999 1999 1998
(cumulative) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash provided (used) by:
<S> <C> <C> <C>
Cash flows from operating activities
Net loss for the period $ (547,276) $ (382,991) $ (30,711)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization -- -- --
Realized gain on sale of investments (16,962) -- (6,613)
Purchase mineral properties with common stock 300,000 -- --
Write-down of mineral properties 297,000 297,000 --
Changes in assets and liabilities
Decrease (increase) in accounts receivable (227) (7) 1,409
Increase (decrease) in accounts payable 39,077 23,224 11,175
---------------------------------------------
71,612 (62,774) (24,740)
---------------------------------------------
Investing activities
Deposits on mineral properties -- -- (61,000)
Mineral property costs (300,000) -- --
Purchase of available for sale securities (1,992,413) (163,352) (1,095,419)
Proceeds on sale of available-for-sale securities 528,649 -- 30,357
---------------------------------------------
(1,763,764) (163,352) (1,126,062)
---------------------------------------------
Financing activities
Proceeds from issuance of common stock 1,540,000 -- --
Proceeds from notes payable 154,831 154,831 --
---------------------------------------------
1,694,831 154,831 --
---------------------------------------------
Increase (decrease) in cash for the period 2,679 (71,295) (1,150,802)
Cash, beginning of period -- 73,974 1,301,165
---------------------------------------------
Cash, end of period $ 2,679 $ 2,679 $ 150,363
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Notes to Interim Consolidated Financial Statements (Unaudited)
Basis of Presentation
In the opinion of management, the accompanying interim financial statements
contain all material adjustments consisting only of normal recurring adjustments
necessary to present fairly the financial position, the results of operations
and cash flows of the Company and its consolidated subsidiaries for the interim
period. Users of the financial information produced for the interim periods are
encouraged to refer to the footnotes contained in the Annual Report when
reviewing interim financial results.
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary Patagonia Gold Mines Ltd. All inter-company
transactions and balances have been eliminated.
Exploration costs are charged to operations as incurred as are normal
development costs until such time that proven mineral reserves are discovered.
At September 30, 1999 and 1998, the Company did not have proven mineral
reserves. Costs of initial acquisition of mineral rights and concessions are
capitalized until the properties are abandoned or the right expires. The
recoverability of the capitalized acquisition costs is monitored for indicators
of impairment under SFAS 121, with appropriate impairment charges taken when
warranted.
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 July 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 shares of
PGM in exchange for 5,500,000 common shares of the Company. There were no
operations of the companies prior to July 30, 1997. At the conclusion of
the transaction, the former shareholders of PGM controlled the Company and,
thus, the transaction has been accounted for as a reverse acquisition of
the Company by PGM. Consistent with accounting principles governing the
accounting for reverse acquisitions, these consolidated financial
statements are accounted for as a continuation of then legal subsidiary.
The acquisition was recorded using the purchase method. As the net book
value of the Company at the date of 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.
The recovery of the amounts shown for interests in mineral properties is
dependent upon the discovery of economically recoverable reserves or
proceeds from the disposition thereof, confirmation of the Company's
interest in the underlying mineral claims, the ability of the Company to
obtain financing to complete development of the properties and on future
profitable operations.
7
<PAGE>
2. Investments
Investments consist of available-for-sale equity securities and are
summarized as follows:
<TABLE>
<CAPTION>
Cost Net Unrealized Market Value
Gains (Losses)
----------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1999 $1,480,729 $(27,363) $1,453,366
Equity securities
==================================================================================
December 31, 1998 $1,317,697 $279,436 $1,597,133
Equity securities
==================================================================================
December 31, 1997 $225,463 $151,673 $377,136
Equity securities
==================================================================================
</TABLE>
Unrealized losses totaling $3,167 (December 31, 1998 - $174,043; 1997 -
$151,673) relate to investments held by the Company's Bermuda subsidiary and are
not subject to income tax.
3. Mineral Properties and Exploration Expenses
Applications for mineral concessions in the Province of La Rioja filed
with the Argentina Director of Mines arising from the mineral
properties acquired as disclosed in Note 1 are as Follows:
a) Piloncho 1, Sierra de Chepes
b) Piloncho 2, Sierra de Chepes
c) Piloncho 20, Sierra de Chepes
d) Piloncho 21, Sierra de Chepes
e) Carmelita 16, Sierra de Chepes
f) Carmelita 17, Sierra de Chepes
g) Carmelita 18, Sierra de Chepes
4. Related Party Transactions
Related party transactions not disclosed elsewhere in these financial
statements include:
a) Included in accounts payable is $0 (December 30, 1998 - $0) due
to directors and a law firm in which a director is a principle,
in respect of salaries, consulting fees and reimbursement for
operating expenses.
b) During the period, consulting fees, salaries and wages of $0
(December 31, 1998 - $0) were paid or are payable to directors or
a law firm in which a director is a principle.
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A General
The Company is a mineral exploration company based in Vancouver,
Canada and is engaged in the exploration of 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 in the
exploration stage.
On July 30, 1997 the Company entered into a share exchange transaction
with the shareholders of Patagonia Gold Mines Ltd. ("PGM"), a company
incorporated in 1994 under the laws of Bermuda, whereby the Company
acquired all the issued and outstanding shares of PGM in exchange for
5,500,000 common shares of the Company. The assets of PGM at the date of
acquisition consisted of investments (available-for-sale equity securities)
of $225,463 and cash of $324,417.
The Company was inactive for the years ended December 31, 1993, 1994,
1995 and 1996.
Since commencement of its exploration operations in 1997, the Company
has undertaken a review of its mining properties in Argentina. In addition
to Argentina, primary regions under investigation by the Company include
Argentina, Canada, Cote D' Ivorie, Guatemala, Liberia, Mexico and Morocco.
The management of the Company has developed the following exploration
objectives: to acquire properties with large scale potential, to minimize
capital costs on leases or concessions, to acquire properties adjacent or
in close proximity to recent discoveries of large scale mineral reserves,
to be the first-in staking where possible, to secure repatriation on
mineral rights and royalties and to establish joint ventures and/or
partnerships with established companies that possess the resources to
complete mine development. All of the Company's properties are in the
preliminary exploration stage without any presently known body of ore.
The Company had no material revenues during fiscal 1993, 1994, 1995,
1996, 1997, 1998 and 1999. Income during fiscal 1998 and 1997 was the
result of interest earned on funds raised during fiscal 1997, as the
Company has no mineral properties in production. Funds raised in fiscal
1997 were used in the exploration and development of the Company's
properties and the purchase of short-term available-for-sale equity
securities.
The Company believes that for the current fiscal year ended December
31, 1999 and the fiscal year ended December 31, 2000 all capital
requirements necessary to develop existing properties and to further
develop the Company through the possible acquisition or joint venturing of
additional mineral properties either in the exploration or development
stage will be funded with present cash, cash equivalents and investments.
Additional employees will be hired on a consulting basis as required by the
exploration projects.
B Exploration
All of the Company's properties are in the preliminary exploration
stage and do not contain a commercially viable mineral deposit.
9
<PAGE>
Acquisition of Property Interests or Options to acquire Property Interests
Since commencement of its exploration operations in 1997, the Company
has undertaken a review of its mining properties in Argentina. In addition
to Argentina, primary regions under investigation by the Company include
Argentina, Bolivia, Canada, Cote D' Ivorie, Guatemala, Liberia, Mexico and
Morocco.
The Company holds 100% interest in seven mineral exploration
concessions in Argentina of which two are cateos and the remaining five are
mineral discovery concessions.
In Argentina, a cateo is a parcel of land to which an exclusive
prospecting right has been granted to an individual or a corporation. The
mineral rights in Argentina belong to the state. The government grants
these rights to applicants on a first come first serve basis. Applications
for cateos (concessions) can typically take a number of years for approval
with the bureaucratic process there. The application process, however, is
rigidly controlled such that the applicant has all the risks and rewards
associated with legal ownership. During application stage, the applicant is
permitted to explore the property and can transfer, assign or sell the
application to other parties. Once the application/right has been granted
by the Argentina government, the mineral exploration concession
license/permit gives the Company an exclusive right over all mineral
discoveries made within the areas concerned. Exploration rights are
temporary. The title owner has a maximum of 1100 days (almost three years)
to make discoveries. Portions of the area must be gradually discarded so
that at the end of the 1100 days the whole area becomes free and can be
petitioned by another individual or company. The 1100-day term has not yet
commenced. A change in the mining regulations of the La Rioja Provincial
government requires all exploration concessions ("Cateos) to be re-oriented
along north-south east-west grid lines. Patagonia's original cateos were
placed along geographical lines other than those, to best cover areas of
geological interest. New cateo boundaries have been submitted to the Rioja
Provincial government and the company is awaiting formal approval (which
has been assured by the provincial government) prior to the commencement of
the 1100-day term. The commencement date is expected in the near future but
no specific date has been supplied by the Rioja Provincial government.
In Argentina, a Mineral Discovery license/permit is granted by the
Argentina government under the following circumstances. An explorer that
finds indications of the presence of a deposit may apply for an
area/concession double the size of the maximum permitted. The "indications
of the presence of a deposit" to support the application for the "mineral
discovery license" is a legal concept of the Argentina Mining Law. It does
not necessarily mean that an economically significant ore body has been
discovered. It just means that the explorers have found sufficient
indications in the ground to justify the continuation of the work after the
end of the 1100 days, transforming the temporary exploration permit into a
permanent mining right. The application for a maximum area/concession
depends on the type of mineral found and the regulations in force in each
province. Upon receipt of the application, the local authority checks the
fulfillment of all corporate and legal conditions of the application and
registers an exclusive zone of up to 3,000 or 6,000 hectares (a "Hectare"
is a surface measurement of the metric system, equivalent to 2.471 acres).
The text of the registration is published three times on three consecutive
days in a local newspaper to give an opportunity to other prospectors to
claim a better or prior right to the same area or to portions of the area.
Quite often there are overlaps, so that the original diagram of the
exclusive zone suffers amendments. The discoverer must reduce the exclusive
zone to the actual size of the area that he intends to own. This depends on
the exact location and distribution of the deposit in the ground. As the
exclusive zone has double the size of the maximum permitted, the reduction
will result in at least half the size. Once reduced, the applicant must
stake the claim by putting poles in its angles. This is called the
"Mensura" (measurement) and must be done by land surveyors.
10
<PAGE>
During Fiscal 1998, the Company continued its preliminary field
assessment and sampling programs on the five exploration license areas
("ELAs" - "cateos"), Carmela IV, Carmela VI, Carmela VII, Carmela VIII and
Carmela IX, held in the Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes. Each cateo consisted of 10,000 hectares for a
total of 50,000 hectares. The exploration permits for the mineral
exploration concessions were originally acquired by the Company in July
1997. Based on an analysis of geophysical data compiled from existing
airborne geophysical surveys (magnetometer and radiometric surveys) carried
out jointly by the Argentinean and Australian surveys and ground work
completed by the Servicio Geologico Minero Argentino ("SEGMAR") the Company
gradually reduced the size of the five cateos and reapplied for the most
prospective areas of the cateos under the following exploration/mineral
discovery permits.
During 1998 and 1999 the Company conducted preliminary field
assessments of the properties. This included reconnaissance, mapping and
sampling of individual outcrops. No significant anomalous values have been
returned to date, however, the area hosts quartz veins and structural
features similar to precious and base metal mineralized bodies found
throughout the general area. Recent sampling has returned significant gold
and silver values from quartz veining and quartz stockwork material on
ground immediately to the south of the companies concessions. The Sierra de
las Minas area continues to be the focus of successful exploration and
drilling of similar quartz vein bodies by such companies as Golden Peaks
Resources in joint partnership with Mitsubishi Materials Corp.
The Company currently holds the following exploration/mineral discovery
permits:
Piloncho 1
Type of concession: Cateo (exploration permit)
Number of hectares: 9,975
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
Piloncho 2
Type of concession: Cateo (exploration permit)
Number of hectares: 9,450
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
Piloncho 20
Type of concession: Mineral Discovery
Number of hectares: 3,500
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
Piloncho 21
Type of concession: Mineral Discovery
Number of hectares: 3,500
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
11
<PAGE>
Carmelita 16
Type of concession: Mineral Discovery
Number of hectares: 3,000
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
Carmelita 17
Type of concession: Mineral Discovery
Number of hectares: 2,000
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
Carmelita 18
Type of concession: Mineral Discovery
Number of hectares: 2,000
Location of claims: Province of La Rioja,
Department of Rosario Vera Penaloza,
District of Chepes.
Current status: Application filed with the government
The concessions are located in Sierra de Chepes in the extreme south
end of the Province of La Rioja, 1,000 Kilometers 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 kilometers to the north. Provincial Highway 79 traverses the entire
eastern boundary of the concessions in a north-south direction and
Provincial Highway 29 parallels the western boundary. A number of dirt
roads and trails from the major highways provide convenient access to may
parts of the concessions.
The Sierra de Chepes is composed principally of plutonic rocks
resulting from a number of phases of magmatic activity in the area. Late
Proterozoic tonalite and granodiorite (The Chepes Formation) with
migmatitic and porphyroblastic facies are predominant rock types with the
concessions in the Sierra de Chepes.
The basement complex throughout the Sierra de Chepes and Sierra de las
Minas consisting of a varied assemblage of metavolcanics, migmatites,
tonalites and granodiorites with some mafic phases is cut by a series of
north-south trending mylonite zones. A complex system of rectilinear faults
and fractures intersects these mylonite zones and may be genetically or
structurally related to the gold-bearing quartz veins and shear zones in
the area.
During the next 24 months the company intends to conduct further
geological, geochemical and geophysical work on the Argentina properties.
C Financial Information
(a) Nine (9) Months Ended September 30, 1999 (Fiscal 1999) versus Nine (9)
Months Ended September 30, 1998 (Fiscal 1998).
Net loss for the nine (9) months ended September 30, 1999
increased by $352,280 to $382,991 (September 30, 1998 - $30,711), due
to (a) Consultants increased by $30,000 to $30,000 (September 30, 1998
- $0), (b) Professional Fees - legal and accounting increased $6,922
to $25,124 (September 30, 1998 - $18,202), (c) office and
miscellaneous expenses decreased $2,108 to $4,812 (September 30,
12
<PAGE>
1998- $6,920), (d) interest income decreased $18,759 to $839
(September 30, 1998 - $19,598) (e) exploration expenses decreased
$8,746 to $8,336 (September 30, 1998 - $17,082) and write-down of
mineral properties $297,000 (September 30, 1998 - $0).
D Financial Condition
For the nine (9) months ended September 30, 1999 and the fiscal years
ended December 31, 1998 and 1997, the Company met its capital requirements
through proceeds of the sale of common stock of the Company.
At September 30, 1999, the Company had cash of $2,679 (December 31,
1998 - $73,651, December 31, 1997 - $1,301,165); investments consisting of
available-for-sale equity securities of $1,453,366 (December 31, 1998 -
$1,597,456, December 31, 1997 - $377,136); and working capital of
$1,262,363 (December 31, 1998 - $1,655,474, December 31, 1997 -
$1,663,096). Total liabilities at September 30, 1999 were $193,908
(December 31, 1998 - $15,853, December 31, 1997 - $16,883). During the nine
(9) months ended September 30, 1999 the Company purchased $163,354
additional investments of available-for-sale equity securities (twelve
months ended, December 31, 1998 - $1,603,921, December 31, 1997 -
$225,463). Proceeds from the sale of available-for-sale equity securities
for the nine (9) months ended September 30, 1999 were $0 (twelve months
ended, December 31, 1998 - $528,649, December 31, 1997 - $0).
The Company feels that its current cash position is strong enough to
fund capital requirements in fiscal 1999 and 2000. In the event that a
production decision is made on one of the properties or the Company
acquires additional mineral properties either directly, through joint
ventures, or through the acquisition of operating entities, it is the
Company's intention to raise additional capital either through equity
offerings and/or debt borrowings.
Management of the Company is committed 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.
None of the Company's properties has warranted development and the
Company has no history of earnings or cash flow from its operations. While
the Company may attempt to generate additional working capital through the
operation, development, sale or possible joint venture development of its
properties, there is no assurance that any such activity will generate
funds that will be available for operations.
The Company has not declared or paid dividends on its shares since
incorporation and does not anticipate doing so in the foreseeable future.
E YEAR 2000 ISSUES.
The company utilizes software and related technologies in its business
that will be affected by the "Year 2000 computer problem", which is common
to many corporations and governmental entities. This problem concerns the
inability of information systems, primarily computer software programs and
certain hardware, to properly recognize and process date-sensitive
information as the Year 2000 approaches. Absent corrective actions,
computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than 2000. This could result in system
failure or miscalculation causing disruptions to various activities and
organizations.
The Company has modified and tested all the critical applications
along with all non-critical applications of its information technology
("IT"), the result of which is that all
13
<PAGE>
such applications have been either modified or replaced and are now Year
2000 compliant. The Company used an independent consultant to oversee the
Year 2000 project as well, as to perform certain remediation efforts.
In-addition, progress on the Year 2000 project is also monitored by senior
management, and reported to the Board of Directors. The total amount of the
payments made to-date and to be made hereafter to such independent
consultant are not expected to be material. Based on the Company's analysis
to date, the Company believes that its material non-IT systems are either
Year 2000 compliant, or do not need to be made Year 2000 compliant in order
to continue to function in substantially the same manner in the Year 2000.
Contingency plans are being developed for all major components in case of
system failures surrounding the Year 2000. The Company's Year 2000
compliance work has not caused, nor does the Company expect that it will
cause, a deferral on the part of the Company of any material IT or non-IT
projects.
The Company has identified critical suppliers, as well as other
essential service providers, and has surveyed their Year 2000 compliancy.
Based on expected compliance dates expressed by some of these critical
suppliers and other service providers, additional follow-up will be
required to fully assess their state of readiness for the Year 2000. These
follow-up activities will occur throughout 1999. For other suppliers and
service providers, risk assessments and contingency plans, where necessary
were developed. The Company has taken the above steps to address issues
surrounding suppliers and service providers; however the Company has no
direct ability to influence other parties' compliance actions. The Company
believes it has taken the necessary actions to mitigate the effect of the
Year 2000 risks, however, there can be no assurance that any of the
Company's vendors or others, with whom it transacts business, will be Year
2000 compliant prior to such date. The company is unable to predict the
ultimate effect that the Year 2000 problem may have upon the Company, in
that there is no way to predict the impact that the problem will have
nation-wide or world-wide and how the Company will in turn be affected,
and, in addition, the company cannot predict the number and nature of its
vendors and customers who will fail to become Year 2000 compliant prior to
January 1, 2000. Significant Year 2000 difficulties on the part of vendors
or customers could have a material adverse impact upon the Company's
operating results and financial condition.
The Company's most likely potential risk is a temporary inability of
third party assay labs to correctly assay the mineral content of the rock
and soil samples sent to them for analysis. The Company has prepared a list
of alternative labs to use should the assay lab currently used not be able
to correctly assay the material.
Contingency plans for the Year 2000 related business interruption are
being developed and are expected to be completed by mid November 1999 and
will include, but not be limited to, the development of emergency backup
recovery procedures, replacing automated processes with manual processes
and identification of alternative suppliers. The Company's Year 2000
efforts are ongoing and its overall plan, as well as the consideration of
contingency plans, will continue to evolve as new information becomes
available. While the Company is taking steps it believes to be necessary to
prevent any major interruption to its business activities that will depend
in part, upon the ability of third parties to be Year 2000 compliant.
F NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires companies to recognize all derivative 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 object 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 of (ii) the earnings
14
<PAGE>
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 quarters
of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly,
the Company does not expect adoption of the new standards on January 1,
2000 to affect its financial statements.
In April 1998, the American Institute of Certified Public accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
activities", ("SOP 98-5") which provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incu ed. 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 will not have a material
effect on the financial statements.
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:
None.
(b) Reports on Form 8-K
None.
15
<PAGE>
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: November 15, 1999 BY: /s/ David Jenkins
----------------- -----------------
David Jenkins
Director and President
Date: November 15, 1999 BY: /s/ John A.A. James
----------------- -------------------
John A.A. James
Director and Vice-President
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,679
<SECURITIES> 1,453,366
<RECEIVABLES> 226
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,456,271
<PP&E> 3,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,459,271
<CURRENT-LIABILITIES> 193,908
<BONDS> 0
0
0
<COMMON> 13,000
<OTHER-SE> 1,252,366
<TOTAL-LIABILITY-AND-EQUITY> 1,459,271
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 382,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (382,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (382,991)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,991)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
