UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-SB Post Effective Amendment No. 1
General Form For Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
Patagonia Gold Corporation
(Name of Small Business Issuer in its Charter)
Florida 65-0401897
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1505-1060 Alberni Street, Vancouver, B.C., Canada V6E 4K2
(Address of principal executive offices) Zip Code
(604) 687-4432
(Issuer's Telephone Number)
Securities to be Registered under Section 12(b) of the Act: None
Securities to be Registered under Section 12(g) of the Act: Common stock, $.001
par value per share
Page 1 of 66.
Index to exhibits is on Page 29.
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Patagonia Gold Corporation
Registration Statement on Form 10-SB
Part I
Page
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Item 1. Description of Business 3
A. General 3
B. Risk Factors Related to the Company's Business 4
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Item 3. Description of Property 14
Item 4. Security Ownership of Certain Beneficial Owners and Management 18
Item 5. Directors, Executive Officers, Promoters and Control Persons 19
Item 6. Executive Compensation 20
Item 7. Certain Relationships and Related Transactions 21
Item 8. Description of Securities 22
Part II
Item 1. Market Price and Dividends on the Registrants' Common Equity
and other Shareholder Matters 22
Item 2. Legal Proceedings 23
Item 3. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosures 23
Item 4. Recent Sales of Unregistered Securities 23
Item 5. Indemnification of Directors and Officers 24
Part F/S
Item 1. Index to Exhibits 28
Part III
Item 1. Index to Exhibits 29
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ITEM 1. DESCRIPTION OF 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 development of exploration
projects that have the potential to become low cost mining operations. The
Company changed its name to Patagonia Gold Corporation on October 13, 1997 to
more fully reflect its business activities.
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.
Since its redirection, the Company's activities have been focused primarily
on the examination of prospective mineral properties, the acquisition of rights
to certain mineral properties and the implementation of preliminary exploration
programs on those properties in which it has acquired an interest. 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 Canada, Cote D' Ivoire,
Liberia, Mexico and Morocco. See "Item 3. Description of Property."
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 contain any known reserves. The Company's primary objective is to
explore for gold, silver and base metals and to develop those existing
exploration projects that have the potential to become low cost mining
operations. 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.
The Company is in the exploration stage and has a limited operating
history. No representation is made, nor is any intended, that the Company will
be able to carry on its activities profitably. Moreover, the likelihood of the
success of the Company must be considered in the light of the expenses,
difficulties, and delays frequently encountered in connection with mineral
resource exploration and development and with the formation of a new business.
The Company encounters strong competition from other exploration and mining
companies in connection with the acquisition of properties producing, or capable
of producing, gold, silver and base minerals. The Company also competes with
other companies both within and outside the mining industry in connection with
the recruiting and retention of qualified employees knowledgeable in mining
operations. Precious and base metals are worldwide commodities and, accordingly,
the Company will sell its future production at world market prices.
All of the Company's exploration activities in Argentina are subject to
regulation by governmental agencies under one or more of the various
environmental laws. These laws address emissions to the air, discharges to
water, management of wastes, management of hazardous substances, protection of
natural resources, protection of antiquities and reclamation of lands which are
disturbed. The Company believes that it is in substantial compliance with
applicable
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environmental regulations. Argentina environmental laws and regulations
presently have no material adverse impact on the Company's results of operations
or financial condition and the Company believes that it is substantially in
compliance with the regulations, promulgated by Argentina legislation. Many of
the regulations also require permits to be obtained for the Company's
activities; these permits are normally subject to public review processes
resulting in public approval of the activity. The review of applications for
exploration permits in the province of La Rioja, where all of the Company's
properties are located, is usually one year. While these laws and regulations
govern how the Company conducts many aspects of its business, management of the
Company does not believe that they have a material adverse effect on its results
of operations or financial condition at this time. The Company's projects are
evaluated considering the cost and impact of environmental regulation on the
proposed activity. New laws and regulations are evaluated, as they develop to
determine the impact on, and changes necessary to, the Company's operations. It
is possible that future changes in these laws or regulations could have a
significant impact on some portion of the Company's business, causing those
activities to be economically re-evaluated at that time.
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 does not currently file reports with the Securities and
Exchange Commission.
As of September 27, 1999, there were four full-time and two part-time
employees.
The Company's Registered offices are located at Law Offices of Eric P.
Littman, P.A. 7695 S.W. 104th Street, Offices at Pinecrest, suite 210, Miami
Florida 33156. The Corporate offices are located at 1505 - 1060 Alberni Street,
Vancouver, British Columbia Canada V6E 4K2.
B. RISK FACTORS RELATED TO THE COMPANY'S BUSINESS
1. General Risks
A. Recently Organized Company
The Company was only recently organized and has no operating
history. The Company is faced with the following financial and
operating difficulties (1) obtaining financing, either through debt or
equity, (2) attracting experienced management, (3) not only the
acquiring of rights to prospective mineral properties, but the
eventual development of mineral properties (4) developing cash flow
(5) lack of revenues. The Company, therefore, must be considered
promotional and in its early formative years and in the exploration
stage. Prospective investors should be aware of the difficulties
normally encountered by a new enterprise. There is nothing at this
time upon which to base an assumption that the Company's business plan
will prove successful, and there is no assurance that the Company will
be able to operate profitably. The Company has limited assets and has
had no revenues to date.
B. Experience of Management
Although the Company's management ("Management") has general
business experience, prospective investors should be aware that
Management has limited experience in the mining industry and in
particular with respect to the
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acquisition, exploration and development of mineral resource
properties. See "Directors and Officers."
C. Potential future 144 Sales
Of the 50,000,000 shares of the Company's Common stock
authorized, there are presently issued and outstanding 13,000,000, all
but approximately 3,625,000 shares are "restricted securities" as that
term is defined under the Act, and in the future may be sold in
compliance with Rule 144 of the Act, pursuant to a registration
statement filed under the Act, or other applicable exemptions from
registration thereunder. Currently there are 9,375,000 restricted
shares. The shares are held by non-affiliates of the Company and will
be freely tradable without volume restrictions after said shares have
been held by the holders for two years. Of the 9,375,000 restricted
shares, non-affiliates own 9,375,000 shares, which will become freely
tradable after November 1999. Rule 144 provides, in essence, that a
person holding restricted securities for a period of one (1) year may
sell those securities in unsolicited brokerage transactions or in
transactions with a market maker, in an amount equal to one percent
(1%) of the Company's outstanding Common stock every three (3) months.
Additionally, Rule 144 requires that an issuer of securities make
available adequate current public information with respect to the
issuer. Such information is deemed available if the issuer satisfies
the reporting requirements of Section 13 or 15(d) of the Exchange Act
and of Rule 15c2-11 thereunder. Rule 144 also permits, under certain
circumstances, the sale over a period without any quantity limitation
and whether or not there is adequate current public information
available. Investors should be aware that sales under Rule 144, or
pursuant to a registration statement filed under the Act, may have a
depressive effect on the market price of the Company's securities in
any market that may develop for such shares.
Holders of the Company's common stock do not have pre-emptive
rights. Investors should be aware of the fact that issuance of new
shares by the Company will lead to the dilution of existing
shareholder's interest.
D. Penny Stock Rules
The Company's common stock is a "penny stock". Under Rule 15g-9
under the Exchange Act, a broker or dealer may not sell a "penny
stock" (as defined in Rule 3a51-1) to or affect the purchase of a
penny stock by any person unless:
(1) Such sale or purchase is exempt from Rule 15g-9; or
(2) Prior to the transaction the broker or dealer has (a) approved
the person's account for transaction in penny stocks in
accordance with Rule 15g-9 and (b) received from the person a
written agreement to the transaction setting forth the identity
and quantity of the penny stock to be purchased.
The Commission adopted regulations that generally define a penny
stock to be any equity security other than a security excluded from
such definition by Rule 3a51-1. Such exemptions include, but are not
limited to (a) an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in
continuous operations for at least three years, (ii) net tangible
assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years, or (iii) average revenue of at
least $6,000,000, for the preceding
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three years; (b) except for purposes of Section 7(b) of the Exchange
Act and Rule 419, any security that has a price of $5.00 or more; and
(c) a security that is authorized or approved for authorization upon
notice of issuance for quotation on the NASDAQ Stock Market, Inc.'s
Automated Quotation System.
It is likely that the Company's Common stock will be subject to
the regulations on penny stocks; consequently, the market liquidity
for the Company's Common stock may be adversely affected by such
regulations limiting the ability of broker/dealers to sell the
Company's Common stock and the ability of purchasers in the offering
to sell their securities in the secondary market.
2. Risk Factors of the Company's Mining Business
Resource exploration and development is a speculative business,
characterised by a number of significant risks including, among other
things, unprofitable efforts resulting not only from the failure to
discover mineral deposits, but from finding mineral deposits which, though
present, are insufficient in quantity and quality to return a profit from
production. The marketability of minerals acquired or discovered by the
Company may be affected by numerous factors which are beyond the control of
the Company and which cannot be accurately predicted, such as market
fluctuations, the proximity and capacity of mining facilities, mineral
markets and processing equipment, and such other factors as government
regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals, and environmental
protection; any combination of these factors may result in the Company not
receiving an adequate return of investment capital.
A. Exploration and Development Risks
All of the Company's properties are in the exploration stages
only and are without a known body of commercial ore. Development of
these properties will only follow if satisfactory exploration results
are obtained. Mineral exploration and development involves a high
degree of risk and few properties which 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 commercial bodies of ore. 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.
Substantial expenditures are required to establish ore reserves
through drilling, to develop metallurgical processes to extract the
metal from the ore and, in the case of new properties, to develop the
mining and processing facilities and infrastructure at any site chosen
for mining. Although substantial benefits may be derived from the
discovery of a major mineralised deposit, no assurance can be given
that minerals will be discovered in sufficient quantities and grades
to justify commercial operations or that the funds required for
development can be obtained on a timely basis. Estimates of reserves,
mineral deposits and production costs can also be affected by such
factors as environmental permitting regulations and requirements,
weather, environmental factors, unforeseen technical difficulties,
unusual or unexpected geological formations and work interruptions. In
additions, the grade of ore ultimately mined may differ from that
indicated by drilling results. Short term factors relating to the
reserves, such as the need for orderly development of ore bodies or
the processing of new or different grades, may also have and adverse
effect on mining operations and on the results of operations. Material
changes in ore reserves, grades, stripping ratios or recovery rates
may affect the
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economic viability of any project. Reserves are reported as general
indicators of mine life. Reserves should not be interpreted as
assurances of mine life or of the profitability of current or future
operations.
B. Operating Hazards and Risks
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 the 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 as a
result could have a materially adverse effect upon the Company's
financial condition.
C. Lack of Cash Flow and Additional Funding Requirements
None of the Company's properties has commenced commercial
production and the Company has no history of earnings or cash flow
from its operations. The Company feels that its current cash position
is strong enough to fund its 1999 capital requirements. The further
exploration and the potential development of any ore deposits found on
the Company's exploration license depends upon the Company's ability
to obtain financing through any or all of the joint venturing of
properties, debt financing, equity financing or other means. There is
no assurance that the Company will be successful in obtaining the
required financing. Failure to obtain additional financing on a timely
basis could cause the Company to forfeit its interest in such
properties and reduce or terminate its operations. The Company has no
understanding or agreements with any person regarding such additional
funding requirements. Even if the results of exploration are
encouraging, the Company may not have sufficient funds to conduct the
further exploration that may be necessary to determine whether or not
a commercially mineable deposit exists on any property. 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.
D. Dividends
The Company has not declared or paid dividends on its shares
since incorporation and does not anticipate doing so in the
foreseeable future. As a result, the Company will no be attractive to
investors who are interested in earning dividends.
E. Title Risks
The Company has not obtained an opinion of counsel as to title to
its properties nor has it obtained title insurance. Any of the
Company's properties may be subject to prior unregistered agreements
of transfer.
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F. Conflicts of Interest
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. David Jenkins is also president and a director of
Aurora Gold Corporation and a director of Eurasia GoldFields, Inc.
Cosme M. Beccar Varela is also president and a director of La Plata
Gold Corporation. 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 participating in larger
programs, permitting involvement in a greater number of programs and
reducing 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.
G. Competition and Agreements with Other Parties
The mineral resources industry is intensely competitive and the
Company competes with many companies that have greater financial
resources and technical facilities than itself. Significant
competition exists for the limited number of mineral acquisition
opportunities available in the Company's sphere of operations. As a
result of this competition, the Company's ability to acquire
additional attractive gold mining properties, on terms it considers
acceptable, may be adversely affected.
The Company may be unable in the future to meet its share of
costs incurred under agreements to which it is a party and the Company
may have its interests in the properties subject to such agreements
reduced as a result. Furthermore, if other parties to such agreements
do not meet their share of such costs, the Company may be unable to
finance the costs required to complete the recommended programs.
H. Fluctuating Mineral Prices
The mining industry in general is intensely competitive and there
is no assurance that, even if commercial quantities of mineral
resources are developed, a profitable market will exist for the sale
of such minerals. Factors beyond the control of the Company may affect
the marketability of any minerals discovered. Moreover, 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
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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 exploration stage, the above factors have had no material
impact on operations or income.
I. Environmental Regulation
All phases of the Company's operations in Argentina are subject
to environmental regulations. Environmental legislation in Argentina
is evolving in a manner which will require stricter standards and
enforcement, increased fines and penalties of 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.
J. Adequate Labour and Dependence Upon Key Personnel
The Company will depend upon recruiting and maintaining qualified
personnel to staff its operations. The Company believes that such
personnel are currently available at reasonable salaries and wages in
the geographic areas in which the Company intends to operate. There
can be no assurance, however, that such personnel will always be
available in the future. In addition, it cannot be predicted whether
the labour staffing at any of the Company's projects will be
unionised. The success of the operations and activities of the Company
is dependent to a significant extent on the efforts and abilities of
its Management. The loss of services of any of its Management could
have a material adverse effect on the Company.
K. No Employment Agreements with Management
The Company currently has no employment agreements with
Management and does not maintain, nor does it intend to obtain, key
man life insurance on any member of its Management.
L. Political Risks
There are significant political risks involving the Company's
investment in Argentina. These risks include political, economic and
social uncertainties. A change in policies by the government of
Argentina could adversely affect the Company's interest by, among
other things, change in laws, regulations, or the interpretations
thereof, confiscatory taxation, restriction on currency conversions,
imports and sources of supplies, or the expropriation of private
enterprises. Although management of the Company does not believe that
the political factors described above have affected the Company's
activities to date, these factors may make it more difficult for the
Company to raise funds for the development of its mineral interests in
such developing countries.
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M. Year 2000 Risks
Currently the Company does not rely on any computer programs that
will materially impact the operations of the Company in the event of a
Year 2000 disruption. However, like any other Company, advances and
changes in available technology can significantly impact its business
and operation. Consequently, although the Company has not identified
any specific year 2000 issue, the "Year 2000" problem creates risk for
the Company from unforeseen problems in its own computer systems and
from third parties, including but not limited to financial
institutions, with whom it transacts business. Such failures of the
Company and/or third parties computer systems could have a material
impact on the Company's ability to conduct its business. See "Item 2.
Management's Discussion and Analysis or Plan of Operation."
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
Canada, Cote D' Ivoire, 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 and 1998. 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
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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 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 FINANCING
In Fiscal 1997, the Company raised $1,540,000 and issued 9,000,000
shares as follows:
Patagonia Gold Mines:
In July 1997 Patagonia Gold Mines issued 5,500,000 shares at a price
of $0.10 per share for an aggregate consideration of $550,000,
Patagonia Gold Corporation:
(a) In August 1997, the Company issued 2,000,000 shares at a price of
$0.12 per share for an aggregate consideration of $240,000 pursuant to Rule
504 of Regulation D, (b) in September 1997 the Company issued 1,000,000
shares at a price of $0.25 per share for an aggregate consideration of
$250,000 pursuant to Rule 504 of Regulation D, (c) in October 1997 the
Company issued 500,000 shares at a price of $1.00 per share for an
aggregate consideration of $500,000 pursuant to Rule 504 of Regulation D.
On July 30, 1997, the Company exchanged 5,500,000 common shares of
Patagonia Gold Corporation for 100% of the issued and outstanding common
shares of Patagonia Gold Mines, Ltd., ("PGM") a Bermuda corporation. 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.
Also on July 30, 1997 the Company issued 3,000,000 restricted common shares
valued at $300,000 upon acquiring five mineral exploration permits in
Argentina.
No funds were raised in Fiscal 1998.
Funds raised in 1997 were used in the exploration and development of
the Company's properties in fiscal 1997 and 1998 and the purchase of
short-term available-for-sale equity securities.
C FINANCIAL INFORMATION
(a) Three Months Ended March 31, 1999 (Fiscal 1999) versus Three Months
Ended March 31, 1998 (Fiscal 1998).
Net loss for the three months ended March 31, 1999 increased by
$19,491 to $29,763 (March 31, 1998 - $10,272), due to (a) interest
earned on cash deposits during the three months ended March 31, 1999
of $397 (March 31, 1998 - $13,349), (cash on hand March 31, 1999 -
$44,959, December 31, 1998 - $73,651, March 31, 1998 - $989,648,
December 31, 1997 - $1,301,165) and (b) realised gain
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on sale of investments for the three months ended March 31, 1999 of
$Nil (March 31, 1998 - $6,613).
Exploration expenditures increased by $3,735 to $5,142 (March 31,
1998, - $1,407)
(b) Twelve Months Ended December 31, 1998 (Fiscal 1998) versus Twelve
Months Ended December 31, 1997 (Fiscal 1997).
Net loss for the twelve months ended December 31, 1998 increased
by $107,131 to $135,708 (December 31, 1997 - $28,577), due primarily
to the Company having limited operations in fiscal 1997.
Exploration expenditures increased by $69,540 to $94,295
(December 31, 1997 - $24,755)
(c) Twelve Months Ended December 31, 1997 ("Fiscal 1997") versus Twelve
Months Ended December 31, 1996 ("Fiscal 1996").
Net loss in Fiscal 1997 increased by $28,577 (December 31, 1996 -
$0), due primarily to the Company being inactive in 1996.
(d) March 31, 1993 (inception) to December 31, 1996.
Between March 15, 1993 and December 31, 1996 the company had
limited financial activity other than as related to organizational
expenses of $10,000.
D FINANCIAL CONDITION AND LIQUIDITY
For the three months ended March 31, 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 March 31, 1999, the Company had cash of $44,959 (December 31, 1998
- $73,651, December 31, 1997 - $1,301,165); investments consisting of
available-for-sale equity securities of $1,462,337 (December 31, 1998 -
$1,597,456, December 31, 1997 - $377,136); and working capital of
$1,490,622 (December 31, 1998 - $1,625,474, December 31, 1997 -
$1,663,096). Total liabilities at March 31, 1999 were $17,037 (December 31,
1998 - $15,853, December 31, 1997 - $16,883). During the three months ended
March 31, 1999 the Company purchased no 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 three months ended March 31,
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
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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 commenced commercial production
and the Company has no history of earnings or cash flow from its
operations. While the Company may attempt to generate additional working
capital through the operation, development, sale or possible joint venture
development of its properties, there is no assurance that any such activity
will generate funds that will be available for operations.
The Company has not declared or paid dividends on its shares since
incorporation and does not anticipate doing so in the foreseeable future.
E YEAR 2000 ISSUES.
The 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 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
13
<PAGE>
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.
Contingency plans for the Year 2000 related business interruptions are
being developed and will include, but not be limited to, the development of
emergency backup recovery procedures, replacing automated processes with
manual processes, 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 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 incurred. SOP
98-5 is effective for fiscal years beginning after December 15, 1998 with
initial adoption reported as the cumulative effect of a change in
accounting principle. Adoption of this standard will not have a material
effect on the financial statements.
Item 3. DESCRIPTION OF PROPERTY
All of the Company's properties are in the preliminary exploration
stage and do not contain any known body of ore.
A 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
Canada, Cote D' Ivoire, Liberia, Mexico and Morocco.
14
<PAGE>
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. 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 days term of the two exploration permits (or "Cateos") of the
Company have not started to run yet. This is due to a change in the rules
applicable to the shape of exploration permits whereby from now on the
boarders must follow the geographic coordinates. The problem is that the
boarders of the surrounding properties, which were granted before the
change of the rules, are diagonals. For that reason the areas had to be
reshaped a few times until they adopted an acceptable format. The 1100 days
of exploration will start to run after their last format is reviewed.
Needless to say the Company is already exploring the areas.
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
fulfilment of all corporate and legal conditions of the application and
registers an exclusive zone of up to 3,000 or 6,000 hectares (a "Hectare"
is a surface measurement of the metric system, equivalent to 2.471 acres).
The text of the registration is published three times on three consecutive
days in a local newspaper to give an opportunity to other prospectors to
claim a better or prior right to the same area or to portions of the area.
Quite often there are overlaps, so that the original diagram of the
exclusive zone suffers amendments. The discoverer must reduce the exclusive
zone to the actual size of the area that he intends to own. This depends on
the exact location and distribution of the deposit in the ground. As the
exclusive zone has double the size of the maximum permitted, the reduction
will result in at least half the size. Once reduced, the applicant must
stake the claim by putting poles in its angles. This is called the
"Mensura" (measurement) and must be done by land surveyors.
During Fiscal 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. Guided by the results obtained from the 1997 and 1998 exploration
work programs which included a sampling program and analysis of geophysical
data compiled from existing data and work carried out by the Servicio
Geologico Minero Argentino ("SEGEMAR"), the Company gradually
15
<PAGE>
reduced the size of the five cateos and reapplied for the most prospective
areas of the cateos under the following exploration/mineral discovery
permits.
Piloncho 1
Type of concession: Cateo (exploration permit)
Number of hectares: 9,975
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Piloncho 2
Type of concession: Cateo (exploration permit)
Number of hectares: 9,450
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Piloncho 20
Type of concession: Mineral Discovery
Number of hectares: 3,500
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Piloncho 21
Type of concession: Mineral Discovery
Number of hectares: 3,500
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Carmelita 16
Type of concession: Mineral Discovery
Number of hectares: 3,000
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Carmelita 17
Type of concession: Mineral Discovery
Number of hectares: 2,000
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
Carmelita 18
Type of concession: Mineral Discovery
Number of hectares: 2,000
Location of claims: Province of La Rioja, Department of Rosario Vera
Penaloza, District of Chepes.
Current status: Application filed with the government
16
<PAGE>
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.
B Exploration Activities and Anticipated Capital Expenditures
The Company has been conducting preliminary exploration work on all of
its properties since August 1997.
The Company has retained the services of Gregory G. Crowe, M.Sc.,
P.Geo, P.Geol; and Ian Kearsley, B.Sc, M.Sc Geology, to evaluate the
mineral and reconnaissance concessions on the Company's behalf. There are
no long-term agreements or understandings regarding the continuation of
these consulting relationships and all such arrangements may be terminated
by either party thereto upon one month's prior notice. Ian Kearsley is
compensated at the rate of $250 per day.
The Company will retain independent mineral consultants on an as when
needed basis.
Consultants and advisors will be employed by the Company based on
their technical expertise, familiarity with the subject matter, ability to
speak the language of the country in which the Company's property interests
are located; knowledge of local mining laws, ordinances and geology.
The Company estimates that approximately $100,000 will be required
from May 1999 through December 31, 1999 in order to complete its
preliminary assessment of its properties.
The Company feels that its current cash position is strong enough to
fund all 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. No assurance can be given that such
financing will be available when required by the Company. The amount of
funds that may be available to the Company may be less than that required
by the Company and will be affected by factors, such as general market and
17
<PAGE>
economic conditions that are beyond the Company's control. The Company has
no (1) understandings or agreements with any person regarding such
financing and (2) present intentions to effectuate a merger or other
business combination
Notwithstanding the foregoing, if an appropriate opportunity presents
itself to joint venture the continual exploration and if warranted, the
development of its properties the Company intends to fully explore the
viability of any such opportunities.
C Office Facilities
As of September 27, 1999 there are no long term agreements or
commitments with respect to the Company's offices located at 1505 - 1060
Alberni Street, Vancouver, British Columbia Canada V6E 4K2. The office is
rented on a month-to-month basis at a cost of $900 per month. The Company
is required to give 30 days notice prior to vacancy.
Item 4. 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 April 22, 1999 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 April 22, 1999 there were 13,000,000
shares of common stock issued and outstanding.
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 , Central Hong Kong
Amalia Jaramillo 1,330,000 10.2%
Sextante 32
18003 Madrid, Spain
Dorothea Schnura 1,000,000 7.7%
Robert Kock Street 6
67259 Bemdershein, Germany
Gregorio Becerro 800,000 6.2%
Plaza Mayor 7
Salamanca, Spain
Viabilite et Establissement a.r.l. (1) 800,000 6.2%
Broadcasring House,
Rouge Bouillon St.
Channel Island
18
<PAGE>
Amenagement a.r.l. (1) 662,500 5.1%
PO Box 544
One Britannie Place Street
Jersey, Channel Island
Fernpark Investments Limited (1) 650,000 5.0%
PO Box N-8318
Nassau, Bahamas
Officers and Directors
David E. Jenkins 50,000 *
1505-1060 Alberni Street
Vancouver, B.C. Canada V6E 4K2
Antonino G. Cacace 0 *
Crud-y-Gloyat
Carswell Bay
Swansea Wales, U.K.
Cosme M. Beccar Varela 25,000 *
Reconquista 657
1373 Buenos Aires, Argentina
Officers and Directors (3 persons) 75,000 *
(1) To the best of the Company's knowledge, none of the above companies are
affiliated to the officers and directors of the Company.
* Less than 1%.
Item 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following persons are the directors and executive officers of the
Company:
Name Age Position
---- --- --------
David E. Jenkins 45 President and Director since June 25, 1997
Antonino Cacace 53 Director since June 25, 1997
Cosme M. Beccar Varela 38 Director and Secretary since June 25, 1997
All directors and officers of the Company are elected annually to
serve for one year or until their successors are duly elected and
qualified.
19
<PAGE>
Management's business experience during the past five years is as
follows:
David E. Jenkins, Director & President
Mr. Jenkins is also the president of Aurora Gold Corporation a mineral
exploration company. He is also President of a private business-consulting
firm, specialising in venture capital.
Antonino G. Cacace, Director
Mr. Cacace is a founder and current Managing Director of Stelax
Industries, a medium-sized steel and stainless steel mill facility in the
United Kingdom.
Cosme M. Beccar Varela, Director and Secretary
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
Item 6. 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:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------ -----------------------------------------------------
Annual Compensation Long-Term Compensation
-------------------------------------- -----------------------------------------------------
Awards Payments
--------------------------- -------------------------
Securities
Other Under- All
Annual Restricted Lying Other
Name And Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonuses Sation Award(s) SARs Payouts Sation
($) ($) ($) ($) (=) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------- ----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Jenkins 1998 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
1997 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
1996 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
- --------------------------- ----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
Antonino Cacace 1998 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
1997 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
1996 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
- --------------------------- ----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
Cosme M. Beccar 1998 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
Varela 1997 -0- -0- -0- None None None -0-
----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
1996 -0- -0- -0- None None None -0-
- --------------------------- ----------- ----------- ------------- ------------ ------------- ------------- ------------ ------------
</TABLE>
20
<PAGE>
None of the Company's officers and directors is currently party to an
employment agreement with the Company. As of September 27, 1999 $0 salary
has been paid or is owing to David Jenkins, Antonino Cacace or Cosme M.
Beccar Varela. Directors and/or officers will receive expense reimbursement
for expenses reasonably incurred on behalf of the Company. As the Company
is in the exploration stage, no value has been input for donated services.
(B) Options/SAR Grants Table
No options have been awarded to David Jenkins, Antonino Cacace or Cosme M.
Beccar Varela to September 27, 1999. Stock options will be awarded during
the last quarter of 1999.
(C) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
No options have been awarded to David Jenkins, Antonino Cacace or Cosme M.
Beccar Varela to September 27, 1999. Stock options will be awarded during
the last quarter of 1999.
(D) Long-Term Incentive Plan ("LTIP") Awards Table
The Company does not have a Long-term Incentive Plan.
Item 7. 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.
During the three months ended March 31, 1999 salaries and wages
aggregating, $0, the fiscal year ended December 31, 1998 $0 (December 31,
1997 - $0, December 31, 1996 - $0) were paid or are payable to directors or
corporations controlled by directors in
21
<PAGE>
connection with managerial, engineering and administrative services
provided. The Company intends to pay a salary of $7,000 per month to David
Jenkins and $3,000 per month to Cosme M. Beccar Varela commencing in the
second quarter of 1999.
In addition, directors and/or officers will receive expense
reimbursement for expenses reasonably incurred on behalf of the Company.
The Company believes that had amounts been paid they would be
comparable to amounts that would have been paid to at arms length third
party providers of such services.
Item 8. DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of common stock,
of which 13,000,000 shares were issued and outstanding as of the date of
this Registration Statement. Each outstanding share of common stock
entitles the holder to one vote, either in person or by proxy, on all
matters that may be voted upon by the owners thereof at meetings of the
stockholders.
The holders of common stock (i) have equal rights to dividends from
funds legally available therefor, when, and if, declared by the Board of
Directors of the Company; (ii) are entitled to share rateably in all of the
assets of the Company available for distribution to the holders of common
stock upon liquidation, dissolution or winding up of the affairs of the
Company; (iii) do not have pre-emptive, subscription or conversion rights,
and (iv) are entitled to one non-cumulative vote per share on all matters
on which stockholders may vote at all meetings of stockholders.
The holders of shares of common stock of the Company do not have
cumulative voting rights, which means that the holders of more than 50% of
such outstanding shares, voting for the election of directors, can elect
all directors of the Company if they so choose and, in such event, the
holders of the remaining shares will not be able to elect any of the
Company's directors. The present officers and directors of the Company own
less than 1% of the outstanding shares of the Company.
PART II
Item 1. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
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 high and low
bid prices for the common stock for the calendar quarters indicated as
reported by the OTC Bulletin Board from May 1, 1997 through September
27, 1999. These prices represent quotations between dealers without
adjustment for retail mark-up, markdown or commission and may not
represent actual transactions.
22
<PAGE>
<TABLE>
<CAPTION>
- ------------------- ------------------ ----------------------- ------------------ -------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
- ------------------- ------------------ ----------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
1999 - High $2.1250 $2.0625 $2.7500 N/A
- ------------------- ------------------ ----------------------- ------------------ -------------------
1999 - Low $1.3750 $1.625 $2.0000 N/A
- ------------------- ------------------ ----------------------- ------------------ -------------------
1998 - High $2.6875 $2.5000 $2.1250 $2.1250
- ------------------- ------------------ ----------------------- ------------------ -------------------
1998 - Low $1.8125 $1.7500 $0.7500 $1.4375
- ------------------- ------------------ ----------------------- ------------------ -------------------
1997 - High N/A N/A $0.5000 $2.5000
- ------------------- ------------------ ----------------------- ------------------ -------------------
1997 - Low N/A N/A $0.1000 $0.7500
- ------------------- ------------------ ----------------------- ------------------ -------------------
</TABLE>
(b) As of April 22, 1999, there were 29 holders of record of the common
stock.
(c) The Company has not declared any dividends since inception, and has no
present intention of paying any cash dividends on its common stock in
the foreseeable future. The payment by the Company of dividends, if
any, in the future, rests within the discretion of its Board of
Directors and will depend, among other things, upon the Company's
earnings, its capital requirements and its financial condition, as
well as other relevant factors.
(d) No matters were submitted to a Vote of the shareholders during the
last fiscal quarter.
Item 2. LEGAL PROCEEDINGS
The Company is not a party to any litigation, and has no knowledge of
any pending or threatened litigation against it.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES
In the last two years the Company issued the following securities
without registration under the Securities Act of 1933, as Amended (the
"Act").
(1) In July 1997, the Company issued 5,500,000 shares of its common
stock in exchange for the assets of Patagonia Gold Mines Ltd. The
issuance of the stock was an exempt transaction pursuant to
Section 4(2) of the Act.
(2) In addition, in July 1997 the Company issued 3,000,000 shares in
connection with the acquisition of certain mining property
exploration licence-permits in Argentina. This transaction was
also exempt pursuant to Section 4(2) of the Act.
The issuance of the stock pursuant to 4(2) were to private
entities in exchange for assets. Pursuant Section 4(2), as the
number of shareholders was to a limited group of sophisticated
investors, issuance of the stock to them in private exchange was
an exempt transaction not involving a public underwriting.
23
<PAGE>
From August 1997 - October 1997 the Company issued a total of
3,500,000 of its common stock pursuant to Section 3(b) Regulation
D Rule 504 of the Act. These securities were sold as follows:
(1) In August 1997, the Company issued 2,000,000 shares at a price of
$0.12 per share for an aggregate consideration of $240,000
pursuant to Rule 504 of Regulation D. The securities were issued
as follows: Emergent Mineres a.r.l. (Sark channel Islands), C.
Morais (Spain). H. Schleicher (Germany), D. Schnura (Germany), G.
Schnura (Spain).
(2) In September 1997, the Company issued 1,000,000 shares at a price
of $0.25 per share for an aggregate consideration of $250,000
pursuant to Rule 504 of Regulation D. The securities were issued
as follows: Birchwood Holdings Ltd. (Nassau Bahamas), Mrs A.
Jaramillo (Spain), Mr. A. Jaramillo (Spain), C. Morais (Spain),
and G. Schnura (Spain).
(3) In October 1997, the Company issued 500,000 shares at a price of
$1.00 per share for an aggregate consideration of $500,000
pursuant to Rule 504 of Regulation D. The securities were issued
as follows: D. Garthe (Germany), R. Graf (Germany), G. Luitz
(Germany), H. Thome (Germany), H. Verheyen (Germany).
Except for 3,500,000 shares issued pursuant to Rule 504, such shares
are "restricted securities," as that term is defined in the rules and
regulations promulgated under the Securities Act of 1933, as amended,
subject to certain restrictions regarding resale. Certificates evidencing
all of the above-referenced securities have been stamped with a restrictive
legend and will be subject to stop transfer orders.
The Registrant believes that each of the above-referenced transaction
was exempt from registration under the Act, pursuant to Section 4(2) of the
Act and the rules and regulations promulgated thereunder as a transaction
by an issuer not involving any public offering.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as hereinafter set forth there is no charter provision, bylaw,
contract, arrangement or statute under which any officer or director of the
Registrant is insured or indemnified in any manner against any liability
which he may incur in his capacity as such.
Statutory indemnification of Directors and Officers
The Company's Bylaws provide for the indemnification of officers and
directors. Each director and officer of the Corporation shall be
indemnified by the Corporation against all costs and expenses actually and
necessarily incurred by him or her in connection with the defense of any
action, suit or proceeding in which he or she may be involved or to which
he or she may be made party by reason of his or her being or having been
such director or officer, except in relation to matters as to which he or
she shall be finally adjudged in such action, suit or proceeding to be
liable for negligence or misconduct in the performance of duty.
24
<PAGE>
Section 607.0850 of the Florida Business Corporations Act, provides
for the indemnification of the Company's directors, officers, employees or
agents under certain circumstances as follows:
Indemnification of Officers, Directors, Employee and Agents; Insurance
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fee),
judgements, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding, by judgement, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgement in its favour by reason of the fact that he if or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defence
or settlement of such action or suit if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the
circumstances of the case, such person if fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defence
of any action, suit or proceeding referred to in subsections (a) and
(b) of this section, or in defence of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section. Such
25
<PAGE>
determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of the directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even, if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in written opinion,
or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of any undertaking by or on behalf of such
director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses including attorneys' fees
incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification
or advancement expenses may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation including (any constituent of a constituent) absorbed in a
consolidation or merger which, if separate existence had continued,
would have had power and authority to indemnify its directors,
officers and employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the
corporation" shall include any services as a director, officer,
employee or agent of the corporation which imposes duties on, or
involve services by, such director, officer, employee, or agent with
respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have
acted in a
26
<PAGE>
manner "not opposed to the best interests of the corporation" as
referred to in this section.
The Securities and Exchange Commission's Policy on Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to any provisions contained
in its Certificate of Incorporation, or by-laws, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defence of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
27
<PAGE>
PART F/S
FINANCIAL STATEMENTS
PATAGONIA GOLD CORPORATION
Audited financial statements: F-1
Report of the Independent Accountants F-3
Consolidated Balance Sheets as at March 31, 1999,
December 31, 1998 and 1997 F-4
Statement of Stockholders' equity for the three-month periods ended
March 31, 1999, (unaudited) and for the years ended December
31, 1998 and 1997 F-5
Statement of Operations for the three-month periods ended March 31,
1999, March 31, 1998 (unaudited) and
for the years ended December 31, 1998 and 199 F-6
Statements of Cash Flows for the three-month periods ended March 31,
1999, March 31, 1998 (unaudited) and
for the years ended December 31, 1998 and 1997 F-7
Summary of Significant Accounting Policies F-8
Notes to the Consolidated financial Statements F-12
28
<PAGE>
Patagonia Gold Corporation
Consolidated Financial Statements
For the three month period ended March 31, 1999 and
for the years ended December 31, 1998 and 1997
(Expressed in U.S. Dollars)
F-1
<PAGE>
================================================================================
Patagonia Gold Corporation
- --------------------------------------------------------------------------------
Table of Contents
Report of Independent Accountants
Consolidated Financial Statements
Balance Sheets
Statements of Stockholders' Equity
Statements of Operations
Statements of Cash Flows
Summary of Significant Accounting Policies
Notes to the Consolidated Financial Statements
F-2
<PAGE>
================================================================================
Report of Independent Accountants
- --------------------------------------------------------------------------------
To The Board of Directors and Stockholders
Patagonia Gold Corporation
We have audited the Consolidated Balance Sheets of Patagonia Gold Corporation as
at March 31, 1999 and December 31, 1998 and 1997 and the Consolidated Statements
of Stockholders' Equity, Operations and Cash Flows for the three month period
ended March 31, 1999 and for the years ended December 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our 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 March 31, 1999
and December 31, 1998 and 1997 and the results of its operations and its cash
flows for the three month period ended March 31, 1999 and for each of the years
ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles in the United States.
"BDO Dunwoody LLP"
Vancouver, Canada
May 8, 1999 Chartered Accountants
F-3
<PAGE>
================================================================================
Patagonia Gold Corporation
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
December 31
March 31 ---------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current
Cash $ 44,959 $ 73,651 $ 1,301,165
Receivables 333 220 1,678
Investments (Note 2) 1,462,367 1,567,456 377,136
----------- ----------- -----------
1,507,659 1,641,327 1,679,979
Mineral property costs (Note 3) 300,000 300,000 300,000
----------- ----------- -----------
Total Assets $ 1,807,659 $ 1,941,327 $ 1,979,979
================================================================================================
Liabilities and Stockholders' Equity
Liabilities
Current
Accounts payable and accrued liabilities $ 17,037 $ 15,853 $ 16,883
----------- ----------- -----------
Stockholders' equity
Share capital (Note 4) Authorized
50,000,000 common shares, par value $0.001
Issued 13,000,000 common shares 13,000 13,000 13,000
Additional paid-in capital 1,827,000 1,827,000 1,827,000
Accumulated deficit (194,048) (164,285) (28,577)
Accumulated other comprehensive income -
unrealized gains on securities available for
sale 144,670 249,759 151,673
----------- ----------- -----------
Total stockholders' equity 1,790,622 1,925,474 1,963,096
----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 1,807,659 $ 1,941,327 $ 1,979,979
================================================================================================
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
Approved by the Board:
____________________ Director ______________________ Director
F-4
<PAGE>
================================================================================
Patagonia Gold Corporation
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Total
------------------------- Paid-In Accumulated Unrealized Stockholders'
Shares Amount Capital Deficit Gains Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1 $ -- $ -- $ -- $ -- $ --
Issuance of common stock in July 1997 at
$0.10 per share 5,500,000 550,000 -- -- -- 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)
Change in unrealized gains -- 151,673 151,673
----------------------------------------
Total comprehensive income (28,577) 151,673 123,096
Issuance of common stock
For cash
- in August 1997 at $0.12 per share 2,000,000 2,000 238,000 -- -- 240,000
- in September 1997 at $0.25 per share 1,000,000 1,000 249,000 -- -- 250,000
- in October 1997 at $1.00 per share 500,000 500 499,500 -- -- 500,000
For mineral properties (Note 1) 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 year (135,708) -- (135,708)
Change in unrealized gains -- 98,086 98,086
----------------------------------------
Total comprehensive loss (135,708) 98,086 (37,622)
------------------------------------------------------------------------------------
Balance, December 31, 1998 13,000,000 13,000 1,827,000 (164,285) 249,759 1,925,474
----------------------------------------
Net loss for the period (29,763) -- (29,763)
Change in unrealized gains -- (105,089) (105,089)
----------------------------------------
Total comprehensive loss (29,763) (105,089) (134,852)
------------------------------------------------------------------------------------
Balance, March 31, 1999 13,000,000 $ 13,000 $ 1,827,000 $ (194,048) $ 144,670 $ 1,790,622
====================================================================================================================================
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-5
<PAGE>
================================================================================
Patagonia Gold Corporation
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 December 31
---------------------------- ----------------------------
1999 1998 1998 1997
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
General and administrative expenses
Consultants $ 6,000 $ 6,000 $ 24,000 $ --
Office and miscellaneous 2,227 5,835 11,547 595
Professional fees - legal 8,375 8,051 7,975 7,773
- accounting 845 6,000 16,103 --
Rent and other 832 103 2,710 761
Salaries and wages 5,767 1,760 9,053 --
Shareholder relations, advertising and
promotion 46 28 197 --
Telephone 260 -- 2,098 772
Transfer agent, listing and filing fees 480 749 2,606 3,805
------------------------------------------------------------
24,832 28,526 76,289 13,706
------------------------------------------------------------
Less:
Interest and other income 397 13,349 25,092 10,299
Realized gain on sale of investments -- 6,613 16,962 --
Interest expense and foreign exchange (186) (301) (7,178) (415)
------------------------------------------------------------
211 19,661 34,876 9,884
------------------------------------------------------------
(24,621) (8,865) (41,413) (3,822)
Exploration expenses 5,142 1,407 94,295 24,755
------------------------------------------------------------
Net loss for the period $ (29,763) $ (10,272) $ (135,708) $ (28,577)
========================================================================================================
Loss per share $ -- $ -- $ (0.01) $ --
============================================================
Weighted average shares outstanding 13,000,000 13,000,000 13,000,000 6,916,667
========================================================================================================
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-6
<PAGE>
================================================================================
Patagonia Gold Corporation
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
March 31 December 31
--------------------------------------------------------
1999 1998 1998 1997
- -------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash provided by (used in):
Cash flows from operating activities
Net loss for the period $ (29,763) $ (10,272) $ (135,708) $ (28,577)
Adjustments to reconcile net loss to net
cash used in operating activities
Realized gain on sale of investments -- (6,613) (16,962) --
Changes in assets and liabilities
Decrease (increase) in receivables (113) 1,678 1,458 (1,678)
(Decrease) increase in accounts
payable 1,184 (4,883) (1,030) 16,883
--------------------------------------------------------
(28,692) (20,090) (152,242) (13,372)
--------------------------------------------------------
Cash flows used in investing activities
Purchases of available-for-sale securities -- (329,259) (1,603,921) (225,463)
Proceeds on sale of available-for-sale
securities -- 37,832 528,649 --
--------------------------------------------------------
-- (291,427) (1,075,272) (225,463)
--------------------------------------------------------
Cash flows used in financing activities
Proceeds from the issuance of common
stock -- -- -- 1,540,000
--------------------------------------------------------
Increase (decrease) in cash for the
period $ (28,692) (311,517) (1,227,514) 1,301,165
Cash, beginning of period 73,651 1,301,165 1,301,165 --
--------------------------------------------------------
Cash, end of period $ 44,959 $ 989,648 $ 73,651 $ 1,301,165
=======================================================================================================
</TABLE>
The accompanying summary of significant accounting policies and notes form an
integral part of these financial statements.
F-7
<PAGE>
================================================================================
Patagonia Gold Corporation
Summary of Significant Accounting Policies
(Expressed in U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
Basis of Consolidation
These consolidated financial statements, prepared in accordance with accounting
principles generally accepted in the United States, include the accounts of the
Company and its wholly-owned subsidiary, Patagonia Gold Mines Ltd. Significant
intercompany accounts and transactions have been eliminated.
Unaudited Interim Consolidated Financial Statements
In the opinion of the Company's management, the consolidated statements of
operations and cash flows for the three-months ended March 31, 1998 contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the information set forth therein.
Mineral Properties and Exploration Expenses
Exploration costs are charged to operations as incurred until such time that
proven reserves are discovered. At March 31, 1999 and December 31, 1998 and
1997, the Company did not have proven reserves. Costs of initial acquisition of
mineral rights and concessions are capitalized until the properties are
abandoned or the right expires.
Exploration activities conducted jointly with others are reflected at the
Company's proportionate interest in such activities.
Costs related to site restoration programs are accrued over the life of the
project.
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.
F-8
<PAGE>
================================================================================
Patagonia Gold Corporation
Summary of Significant Accounting Policies - Continued
(Expressed in U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
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.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates and assumptions.
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.
F-9
<PAGE>
================================================================================
Patagonia Gold Corporation
Summary of Significant Accounting Policies - Continued
(Expressed in U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
Income Taxes
The Company follows the provisions of 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 periods in which the
differences are expected to reverse.
Loss Per Share
Loss per share is computed using the weighted average number of shares
outstanding during the period. Effective for the year ended December 31, 1997,
the Company adopted SFAS No. 128, "Earnings Per Share".
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 is
comprised of net income (loss) and all changes to stockholders' 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.
F-10
<PAGE>
================================================================================
Patagonia Gold Corporation
Summary of Significant Accounting Policies - Continued
(Expressed in U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivatives contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 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 incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998 with initial adoption reported as the
cumulative effect of a change in accounting principle. Adoption of this standard
will not have a material effect on the financial statements.
F-11
<PAGE>
================================================================================
Patagonia Gold Corporation
Notes to the Consolidated Financial Statements
(Expressed In U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
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 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.
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.
F-12
<PAGE>
================================================================================
Patagonia Gold Corporation
Notes to the Consolidated Financial Statements
(Expressed In U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
2. Investments
Investments consist of available-for-sale equity securities and are
summarized as follows:
Gross Gross
Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------
March 31, 1999
Equity securities $1,317,697 $ 278,877 $ 134,207 $1,462,367
===================================================
December 31, 1998
Equity securities $1,317,697 $ 375,229 $ 125,470 $1,567,456
===================================================
December 31, 1997
Equity securities $ 225,463 $ 151,673 $ -- $ 377,136
===================================================
Unrealized gains totalling $176,617 (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 Property Costs
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
F-13
<PAGE>
================================================================================
Patagonia Gold Corporation
Notes to the Consolidated Financial Statements
(Expressed In U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
4. 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.
- --------------------------------------------------------------------------------
5. Supplemental Cash Flow Information
Non-Cash Transactions
The non-cash transactions listed below have not been included in the
Statement of Cash Flows.
a) On July 30, 1997, the Company exchanged 5,500,000 common shares for
100% of the issued and outstanding shares of Patagonia Gold Mines
Ltd., a Bermuda corporation. The transaction was recorded at $Nil.
b) On July 30, 1997, the Company issued 3,000,000 common shares in
exchange for the mineral properties described in Note 3. This
transaction was recorded at $300,000.
Other
<TABLE>
<CAPTION>
Three Months Years Ended
Ended March 31 December 31
------------------------------------ ------------------------------------
1999 1998 1998 1997
------------------ ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
c) Interest paid $ -- $ -- $ 3,567 $ --
</TABLE>
F-14
<PAGE>
================================================================================
Patagonia Gold Corporation
Notes to the Consolidated Financial Statements
(Expressed In U.S. Dollars)
Information related to the three month period ended
March 31, 1998 is unaudited
- --------------------------------------------------------------------------------
6. Income Taxes
(a) The Company has estimated net losses for tax purposes to March 31,
1999 totalling approximately $175,000 which may be applied against
future taxable income. Accordingly, there is no tax expense charged to
the Statement of Operations for the three month periods ended March
31, 1999 and 1998 or for the years ended December 31, 1998 and 1997.
The potential tax benefits arising from these losses have not been
recorded in the financial statements. The Company evaluates its
valuation allowance requirements on an annual basis based on projected
future operations. When circumstances change and this causes a change
in management's judgement about the realizability of deferred tax
assets, the impact of the change on the valuation allowance is
generally reflected in current income.
The right to claim these losses is expected to expire as follows:
2008 $10,000
2012 16,000
2018 128,000
2019 21,000
-----------------
$175,000
=================
(b) The tax effects of temporary differences that give rise to the
Company's deferred tax asset (liability) are as follows:
December 31
March 31 ----------------------
1999 1998 1997
------------------------------------
Tax loss carryforwards $ 59,000 $ 52,000 $ 9,000
Valuation allowance (59,000) (52,000) (9,000)
------------------------------------
$ -- $ -- $ --
-------- -------- --------
No tax effect has been recorded on the accumulated other comprehensive
income-unrealized gains on securities available-for-sale due to the
existence of US tax loss carryforwards.
F-15
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS Page
1.1 Article of Incorporation of Cayman Purchasing & Supply, Inc. 31
1.2 Company By-laws for Cayman Purchasing & Supply, Inc. 33
1.3 Notice of reinstatement for Cayman Purchasing & Supply, Inc. 39
1.4 Amendment to the Articles of Incorporation of Cayman
Purchasing & Supply, Inc. 40
1.5 Notice of filing of Amendment to the Articles of
Incorporation of Cayman Purchasing & Supply, Inc. 41
1.6 Notice of filing of Amendment to the Articles of Incorporation
of Cayman Purchasing & Supply, Inc. changing its name
to Patagonia Gold Corporation 42
3.1 Agreement dated July 30, 1997 between The Company and Carrington
International Limited 43
21.1 Subsidiaries of the Company 50
27.1 Financial Data Schedule 51
29
<PAGE>
SIGNATURES
In accordance with Section 12 of the securities exchange Act of 1934, the
registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 30, 1999
Patagonia Gold Corporation
By: /s/ David Jenkins
----------------------------------
David Jenkins, President
30
ARTICLE OF INCORPORATION
OF
CAYMAN PURCHASING & SUPPLY, INC.
ARTICLE ONE
The name of the corporation is Cayman Purchasing & Supply, Inc. The principle
address of the Corporation is: 1876 N. University Drive, Suite 101-G,
Plantation, Florida 332
ARTICLE TWO
The period of its duration is perpetual
ARTICLE THREE
The purpose for which the corporation is organised is the transaction of any or
all lawful business for which corporations may be incorporated under the Florida
Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the corporation shall have authority to
issue is two hundred (200) of no par value.
ARTICLE FIVE
The corporation will not commence business until it has received for the
issuance of shares consideration of the value of $1,000.00 consisting of money,
labour done or property actually received.
ARTICLE SIX
The street address of its initial registered office is 1876 N. University Drive,
Suite 101-G, Plantation, Florida 33322 and the name of its initial registered
agent at such address is Lawrence Schwartz.
I hereby am familiar with and accept the duties and responsibilities as
registered agent for said corporation.
ARTICLE SEVEN
The number of directors constituting the initial board of directs is one, and
the name and address of the person or persons who are to serve as directors
until the first annual meeting of the shareholders or until their successors are
elected and qualified are:
Name Mailing Address
Lawrence Schwartz 4329 N. Reflections Blvd., Unite 103, Sunrise,
Florida 33351
31
<PAGE>
ARTICLE EIGHT
The Board of Directors is empowered to make, alter or repeal the Bylaws of the
corporation without restriction of their powers conferred by statue.
ARTICLE NINE
The name and address of each incorporator is:
Name Mailing Address
Lawrence Schwartz 4329 N. Reflections Blvd., Unite 103, Sunrise
Florida 33351
/s/ Lawrence Schwartz
-----------------------------------
Incorporator
ARTICLE TEN
The powers of the incorporators cease upon filing of the Articles of
Incorporation.
32
BY-LAWS
of
CAYMAN PURCHASING & SUPPLY, INC.
ARTICLE 1. MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting
The annual meeting of the shareholders of this corporation shall be held on the
30th day of June of each year or at such other time and place designated by the
Board of Directors of the corporation. Business transacted at the annual meeting
shall include the election of directors of the corporation. If the designated
day shall fall on a Sunday or legal holiday, then the meeting shall be held on
the first business day thereafter.
Section 2. Special Meeting
Special meetings of the shareholders shall be held when directed by the
President or the Board of Directors, or when requested in writing by the holders
of not less than 10% of all the shares entitled to vote at the meeting. A
meeting requested by shareholders shall be called for a date not less than 3 nor
more than 30 days after the request is made, unless the shareholders requesting
the meeting designate a later date. The call for the meeting shall be issued by
the Secretary, unless the President, Board of Directors, or shareholders
requesting the meeting shall designate another person to do so.
Section 3. Place
Meetings of shareholders shall be held at the principal place of business of the
corporation or at such other place as may be designated by the Board of
Directors.
Section 4. Notice
Written notice stating the place, day and hour of the meeting and in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than 3 nor more than 30 days before the meeting,
either personally or by first class mail, or by the direction of the President,
the Secretary or the officer or persons calling the meeting to each shareholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid.
Section 5. Notice of Adjourned Meeting
When a meeting is adjourned to another time or place, it shall not be necessary
to give any notice of the adjourned meeting if the time and place to which the
meeting is adjourned are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted on the original date of the meeting. If, however, after the
adjournment the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given as provided in this
Article to each shareholder of record on a new record date entitled to vote at
such meeting.
Section 6. Shareholder Quorum and Voting
A majority of the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of shareholders. If a quorum is present,
the affirmative vote of a majority of
33
<PAGE>
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders unless otherwise provided by law.
Section 7. Voting of Shares
Each outstanding share shall be entitled to one vote on each matter submitted to
a vote at a meeting of shareholders.
Section 8. Proxies
A shareholder may vote either in person or by proxy executed in writing by the
shareholder or his duly authorized attorney-in-fact. No proxy shall be valid
after the duration of 11 months from the date thereof unless otherwise provided
in the proxy.
Section 9. Action by Shareholders Without a Meeting
Any action required by law or authorized by these by-laws or the Articles of
Incorporation of this corporation or taken or to be taken at any annual or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorise or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted.
ARTICLE II. DIRECTORS
Section 1. Function
All corporate powers shall be exercised by or under the authority of, and the
business and affairs of the corporation shall be managed under the direction of,
the Board of Directors.
Section 2. Qualification
Directors need not be residents of this state or shareholders of this
corporation.
Section 3. Compensation
The Board of Directors shall have authority to fix the compensation of
directors.
Section 4. Presumption of Assent
A director of the corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless he votes against such action or
abstains from voting in respect thereto because of an asserted conflict of
interest.
Section 5. Number
This corporation shall have a minimum of 1 director but no more than 7.
34
<PAGE>
Section 6. Election and Term
Each person named in the Articles of Incorporation as a member of the initial
Board of Directors shall hold office until the first annual meeting of
shareholders, and until his successor shall have been elected and qualified or
until his earlier resignation, removal from office or death. At the first annual
meeting of shareholders and at each annual meeting thereafter the shareholders
shall elect directors to hold office until the next succeeding annual meeting.
Each director shall hold office for a term for which he is elected and until his
successor shall have been elected and qualified or until his earlier
resignation, removal from office or death.
Section 7. Vacancies
Any vacancy occurring in the Board of Directors, including any vacancy created
by reason of an increase in the number of Directors, may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall
hold office only until the next election of directors by the shareholders.
Section 8. -Removal of Directors
At a meeting of shareholders called expressly for that purpose, any director or
the entire Board of Directors may be removed, with or without cause, by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors.
Section 9. Quorum and Voting
A majority of the number of directors fixed by these by-laws shall constitute a
quorum for the transaction of business. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 10. Executive and Other Committees
The Board of Directors, by resolution adopted by a majority of the full Board of
Directors, may designate from among its members an executive committee and one
or more other committees each of which, to the extent provided in such
resolution shall have and may exercise all the authority of the Board of
Directors, except as is provided by law.
Section 11. Place of Meeting
Regular and special meetings of the Board of Directors shall be held at the
principal place of business of the corporation or as otherwise determined by the
Directors.
Section 12. Time, Notice and Call of Meetings
Regular meetings of the Board of Directors shall be held without notice on the
first Monday of the calendar month two (2) months following the end of the
corporation's fiscal, or if the said first Monday is a legal holiday, then on
the next business day. Written notice of the time and place of special meetings
of the Board of Directors shall be given to each director by either personal
delivery, telegram or cablegram at least three (3) days before the meeting or by
notice mailed to the director at least 3 days before the meeting.
Notice of a meeting of the Board of Directors need not be given to any director
who signs a waiver of notice either before or after the meeting. Attendance of a
director at a meeting shall constitute a waiver of notice of such meeting and
waiver of any and all objections to the place of the meeting,
35
<PAGE>
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting, any objection to
the transaction of business because the meeting is not lawfully called or
convened.
Neither the business to be transacted at, nor the purpose, of any regular or
special meeting of the Board of Directors need be specified in the notice of
waiver of notice of such meeting. A majority of the directors present, whether
or not a quorum exists may adjourn any meeting of the Board of Directors to
another time and place. Notice of any such adjourned meeting shall be given to
the directors who were not present at the time of the adjournment, and unless
the time and place of adjourned meeting are announced at the time of the
adjournment, to the other directors. Meetings of the Board of Directors may be
called by the chairman of the board, by the president of the corporation or by
any two directors.
Members of the Board of Directors may participate in a meeting of such board by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other at the same
time. Participation by such means shall constitute presence in person at a
meeting.
Section 13. Action Without a Meeting
Any action, required to be taken at a meeting of the Board of Directors, or any
action which may be taken at a meeting of the Board of Directors or a committee
thereof, may be taken without a meeting if a consent in writing, setting forth
the action so to be taken, is signed by such number of the directors, or such
number of the members of the committee, as the case may be, as would constitute
the requisite majority thereof for the taking of such actions, is filed in the
minutes of the proceedings of the board or of the committee. Such actions shall
then be deemed taken with the same force and effect as though taken at a meeting
of such board or committee whereat all members were present and voting
throughout and those who signed such action shall have voted in the affirmative
and all others shall have voted in the negative. For informational purposes, a
copy of such signed actions shall be mailed to all members of the board or
committee who did not sign said action, provided however, that the failure to
mail said notices shall in no way prejudice the actions of the board or
committee.
ARTICLE Ill. OFFICERS
Section 1. Officers
The officers of this corporation shall consist of a president, a secretary and a
treasurer, each of whom shall be elected by the Board of Directors. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors from time to time. Any two or
more offices may be held by the same person.
Section 2. Duties
The officers of this corporation shall have the following duties:
(1) The President shall be the chief executive officer of the corporation, shall
have general and active management of the business and affairs of the
corporation subject to the directions of the Board of Directors, and shall
preside at all meetings of the shareholders and Board of Directors.
(2) The Secretary shall have custody of, and maintain, all of the corporate
records except the financial records; shall record the minutes of all meetings
of the shareholders and Board of
36
<PAGE>
directors, send all notices of all meetings and perform such other duties as may
be prescribed by the Board of Directors or the President.
(3) The Treasurer shall have custody of all corporate funds and financial
records, shall keep full and accurate accounts of receipts and disbursements and
render accounts thereof at the annual meetings of shareholders and whenever else
required by the Board of Directors or the President, and shall perform such
other duties as may be prescribed by the Board of Directors or the President.
Section 3. Removal of Officers
An officer or agent elected or appointed by the Board of Directors may be
removed by the board whenever in its judgement the best interests of the
corporation will be served thereby. Any vacancy in any office may be filed by
the Board of Directors.
ARTICLE IV. STOCK CERTIFICATES
Section 1. Issuance
Every holder of shares in this corporation shall be entitled to have a
certificate representing all shares to which he is entitled. No certificate
shall be issued for any share until such share is fully paid.
Section 2. Form
Certificates representing shares in this corporation shall be signed by the
President or Vice President and the Secretary or an Assistant Secretary and may
be sealed with the seal of this corporation or a facsimile thereof.
Section 3. Transfer of Stock
The corporation shall register a stock certificate presented to it for transfer
if the certificate is properly endorsed by the holder of record or by his duly
authorized attorney.
Section 4. Lost, Stolen or Destroyed Certificates
If the shareholder shall claim to have lost or destroyed a certificate of shares
issued by the corporation, a new certificate shall be issued upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed, and, at the discretion of the Board of Directors,
upon the deposit of a bond or other indemnity in such amount and with such
sureties, if any, as the board may reasonably require.
ARTICLE V. BOOKS AND RECORDS
Section 1. Books and Records
This corporation shall keep correct and complete books and records of account
and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committee of directors.
This corporation shall keep at its registered office or principal place of
business a record of its shareholders, giving the names and addresses of all
shareholders and the number of the shares held by each.
37
<PAGE>
Any books, records and minutes may be in written form or in any other form
capable of being converted into written form within a reasonable time.
Section 2. Shareholders' Inspection Rights
Any person who shall have been a holder of record of shares of voting trust
certificates therefor at least six months immediately preceding his demand or
shall be the holder of record of, or the holder of record of voting trust
certificates for, at least five percent of the outstanding shares of the
corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose its relevant books and records of accounts,
minutes and records of shareholders and to make extracts therefrom.
Section 3. Financial Information
Not later than four months after the close of each fiscal year, this corporation
shall prepare a balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and a profit
and loss statement showing the results of the operations of the corporation
during the fiscal year.
Upon the written request of any shareholder or holder of voting trust
certificates for shares of the corporation, the corporation shall mail to each
shareholder or holder of voting trust certificates a copy of the most recent
such balance sheet and profit and loss statement. The balance sheets and profit
and loss statements shall be filed in the registered office of the corporation
in this state, shall be kept for at least five years, and shall be subject to
inspection during business hours by any shareholder or holder of voting trust
certificates, in person or by agent.
ARTICLE VI. DIVIDENDS
The Board of Directors of this corporation may, from time to time, declare and
the corporation may pay dividends on its shares in cash, property or its own
shares, except when the corporation is insolvent or when the payment thereof
would render the corporation insolvent subject to the provisions of the Florida
Statutes.
ARTICLE VII. CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be in circular
form.
ARTICLE VIII. AMENDMENT
These by-laws may be altered, amended or repealed, and new by-laws may be
adopted by a majority vote of the directors of the corporation.
ARTICLE IX. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Each director and officer of the Corporation shall be indemnified by the
Corporation against all costs and expenses actually and necessarily incurred by
him or her in connection with the defense of any action, suit or proceeding in
which he or she may be involved or to which he or she may be made party by
reason of his or her being or having been such director or officer, except in
relation to matters as to which he or she shall be finally adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty.
38
Notice of reinstatement for Cayman Purchasing & Supply
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
November 25, 1996
CAYMAN PURCHASING & SUPPLY, INC.
5860 FRENCH PLUM LANE
TAMARAC, FL 33321
Re: Document Number P93000024134
This will acknowledge your reinstatement for CAYMAN PURCHASING & SUPPLY, INC., a
Florida Corporation, which was filed on November 25, 1996.
Should you have any questions regarding this matter, please telephone (904)
487-6059.
Stacy Prather
Document Specialist
Division of Corporations Letter Number: 796A00053326
Division of Corporations - P.O. BOX 6327 -Tallahassee, Florida 32314
39
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
Cayman Purchasing & Supply, Inc.
THE UNDERSIGNED, being the sole director of Cayman Purchasing & Supply, Inc.
does hereby amend the Articles of Incorporation of the Company as follows:
ARTICLE IV
SHARES
The capital stock of this corporation shall consist of 50,000,000 shares,
$.001 par value of common stock.
I hereby certify that the following was adopted by a majority vote of the
shareholders and directors of the corporation on March 31, 1997 and that the
number of votes cast was sufficient for approval.
IN WITNESS WHEREOF, I have hereunto subscribed to and executed this Amendment to
Articles of Incorporation this on April 2, 1997.
/s/ Lawrence Schwartz
- --------------------------------------------
Lawrence Schwartz, President & Sole Director
The foregoing instrument was acknowledged before me on April 2, 1997 by
Lawrence Schwartz, who is personally known to me, or who has produced Drivers
License as identification.
/s/ Richard Leon Newberg
------------------------
Richard Leon Newberg
Notary Public
My commission expires: RICHARD LEON NEWBERG
COMMISSION # CC 425858
EXPIRES DEC 12, 1998
BONDED THRU ATLANTIC BONDING C0, INC
40
Notice of filing of Amendment to the Articles of Incorporation of Cayman
Purchasing & Supply, Inc.
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
April 9,1997
CAPITAL CONNECTION
TALLAHASSEE, FL
Re: Document Number P93000024134
The Articles of Amendment to the Articles of Incorporation of CAYMAN PURCHASING
& SUPPLY, INC., a Florida corporation, were filed on April 9,1997.
Should you have any questions regarding this matter, please telephone (904)
487-6050, the Amendment Filing Section.
Joy Moon-French
Corporate Specialist
Division of Corporations Letter Number: 097A00017858
Division of Corporations - P.O. BOX 6327 -Tallahassee, Florida 32314
41
Notice of filing of Amendment to the Articles of Incorporation of Cayman
Purchasing & Supply, Inc. changing its name to Patagonia Gold Corporation
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
October 13, 1997
Capital Connection, Inc.
417 E. Virginia Street
Suite 1
Tallahassee, FL 32302
Re: Document Number P93000024134
The Articles of Amendment to the Articles of Incorporation of CAYMAN PURCHASING
& SUPPLY, INC. which changed its name to PATAGONIA GOLD CORPORATION, a Florida
corporation, were filed on October 13,1997.
Should you have any questions regarding this matter, please telephone (850)
487-6050, the Amendment Filing Section.
Annette Hogan
Corporate Specialist
Division of Corporations Letter Number: 897A00050020
Division of Corporations - P.O. BOX 6327 -Tallahassee, Florida 32314
42
THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"), NOR REGISTERED UNDER ANY
STATE SECURITIES LAW, AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE 1933
ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
ASSET PURCHASE AGREEMENT
AGREEMENT made this 30th day of July, 1997 by and between CAYMAN PURCHASING &
SUPPLY, INC., a Florida corporation, (the "ISSUER") and CARRINGTON INTERNATIONAL
LIMITED, a Hong Kong corporation, ("SELLER")
In consideration of the mutual promises, convenants, and representations
contained herein and other good and valuable consideration,
THE PARTIES HERETO AGREE AS FOLLOWS:
1. ASSETS PURCHASED; LIABILITIES ASSUMED; PURCHASE PRICE. SELLER agrees to
sell to ISSUER and ISSUER agrees to purchase from SELLER, on the terms and
conditions set forth in this Agreement, all of SELLER'S Argentina mineral
properties, all of which are set forth in Schedule 1 hereto (the "Assets").
The purchase price for the Assets shall be 3,000,000 shares of ISSUER'S
common stock, par value $.001 (the "Shares").
2. REPRESENTATIONS AND WARRANTIES.
ISSUER represents and warrants to SELLER the following:
i Organization.
ISSUER is a corporation duly organised, validly existing, and in good
standing under the laws of Florida, and has all necessary corporate
powers to own properties and carry on a business, and is duly
qualified to do business and is in good standing in Florida. All
actions taken by the Incorporators, directors and shareholders of
ISSUER have been valid and in accordance with the laws of the State of
Florida.
ii Capital.
The authorized capital stock of ISSUER consists of 50,000,000 shares
of common stock, $.001 par value, of which 1,000,000 are issued and
outstanding. All outstanding shares are fully paid and non-assessable,
free of liens, encumbrances, options, restrictions and legal or
equitable rights of others not a party to this Agreement. At closing,
there will be no outstanding subscriptions, options, rights, warrants,
convertible securities, or other agreements or commitments obligating
ISSUER to issue or to transfer from treasury any additional shares of
its capital stock. None of the outstanding shares of ISSUER are
subject to any stock restriction agreements. All of the shareholders
of ISSUER have valid title to such shares and acquired their shares in
a lawful transaction and in accordance with the laws of Florida.
43
<PAGE>
iii Financial Statements.
ISSUER has delivered to SELLER the balance sheet of ISSUER as of April
15, 1997, and the related statements of income and retained earnings
for the period then ended. The financial statements have been prepared
in accordance with generally accepted accounting principles
consistently followed by ISSUER throughout the periods indicated, and
fairly present the financial position of ISSUER as of the date of the
balance sheet in the financial statements, and the results of its
operations for the periods indicated.
iv Absence of Changes.
Since the date of the financial statements, there has not been any
change in the financial condition or operations of ISSUER, except
changes in the ordinary course of business, which changes have not in
the aggregate been materially adverse.
v Liabilities.
ISSUER does not have any debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due
or to become due, that is not reflected on the ISSUER'S financial
statement. ISSUER is not aware of any pending, threatened or asserted
claims, lawsuits or contingencies involving ISSUER or its common
stock. There is no dispute of any kind between ISSUER and any third
party; and no such dispute will exist at the closing of this
Agreement. At closing, ISSUER will be free from any and all
liabilities, liens, claims and/or commitments.
vi Ability to Carry Out Obligations.
ISSUER has the right, power, and authority to enter into and perform
its obligations under this Agreement. The execution and delivery of
this Agreement by ISSUER and the performance by ISSUER of its
obligations hereunder will not cause, constitute, or conflict with or
result in (a) any breach of violation or any of the provisions of or
constitute a default under any license, indenture, mortgage, charter,
instrument, articles of incorporation, bylaw, or other agreement or
instrument to which ISSUER or its shareholders are a party, or by
which they may be bound, nor will any consents or authorisations of
any party other than those hereto be required, (b) an event that would
cause ISSUER to be liable to any part, or (c) an event that would
result in the creation or imposition or any lien, charge or
encumbrance on any asset of ISSUER or upon the securities or ISSUER to
be acquired by SHAREHOLDERS.
vii Full Disclosure.
None of the representations and warranties made by the ISSUER, or in
any certificate or memorandum furnished or to be furnished by the
ISSUER, contains or will contain any untrue statement of a material
fact, or omit any material fact the omission of which would be
misleading.
viii Contract and leases.
ISSUER is not currently carrying on any business and is not a party to
any contract, agreement or lease. No person holds a power of attorney
from ISSUER.
44
<PAGE>
ix Compliance with Laws.
ISSUER has complied with, and is not in violation of any federal,
state, or local statute, law, and/or regulation pertaining to ISSUER.
ISSUER has complied with all federal and state securities laws in
connection with the issuance, sale and distribution of its securities.
x Litigation.
ISSUER is not (and has not been) a party to any suit, action,
arbitration, or legal, administrative, or other proceeding, or pending
governmental investigation. To the best knowledge of the ISSUER, there
is no basis for any such action or proceeding and no such action or
proceeding is threatened against ISSUER and ISSUER is not subject to
or in default with respect to any order, writ, injunction, or decree
of any federal, state, local, or foreign court, department, agency, or
instrumentality.
xi Conduct of Business.
Prior to the closing, ISSUER shall conduct its business in the normal
course, and shall not (1) sell, pledge, or assign any assets (2) amend
its Articles of Incorporation or Bylaws, (3) declare dividends, redeem
or sell stock or other securities, (4) incur any liabilities, (5)
acquire or dispose of any assets, enter into any contract, guarantee
obligations of any third part, or (6) enter into any other
transaction.
(1) Documents. All minutes, consents or other documents pertaining to
ISSUER to be delivered at closing shall be valid and in
accordance with the laws of Florida.
xii Title.
The Shares to be issued to SELLER will be, at closing, free and clear
of all liens, security interest, pledges, charges, claims encumbrances
and restrictions of any kind. None of such Shares are or will be
subject to any voting trust or agreement. No person holds or has the
right to receive any proxy or similar instrument with respect to such
shares, except as provided in this Agreement. The ISSUER is not a
party to any agreement, which offers or grants to any person the right
to purchase or acquire any of the securities to be issued to SELLER.
There is no applicable local, state or federal law, rule, regulation,
or decree, which would, as a result of the issuance of the Shares to
SELLER impair, restrict or delay SELLER'S voting rights with respect
to the Shares.
3. SELLER represents and warrant to ISSUER the following:
i Organization.
SELLER is a corporation duly organised, validly existing, and in good
standing under the laws of Hong Kong, has all necessary corporate
powers to own properties and carry on business, and is duly qualified
to do business and is in good standing in Hong Kong. All actions taken
by the Incorporators, directors and shareholders of SELLER have been
valid and in accordance with the laws of Hong Kong.
ii Title to Assets.
SELLER is the owner of the Assets, free and clear of all liens or
other encumbrances. There is no impediment to SELLER'S conveyance of
the Assets, in accordance with the terms of this Agreement.
45
<PAGE>
iii Counsel.
SELLER represents and warrants that prior to Closing, it has been
represented by independent counsel or to have had the opportunity to
retain independent counsel to represent it in this transaction and
that prior to Closing, the law offices of Eric P. Litman, P.A. has
acted as exclusive counsel to the ISSUER and has not represented
SELLER in any manner whatsoever.
4. INVESTMENT INTENT.
The Shares being issued pursuant to this Agreement may be sold, pledged,
assigned, hypothecate or otherwise transferred, with or without
consideration (a "Transfer"), only pursuant to an effective registration
statement under the Act, or pursuant to any exception from registration
under the Act, the availability of which is to be established to the
satisfaction of ISSUER.
5. CLOSING.
The closing of this transaction shall take place at the law offices of Eric
P. Litman, 1428 Brickell Avenue, 8th Floor, Miami, Florida. Unless the
closing of this transaction takes place on or before August 1, 1997, then
either part may terminate this Agreement.
6. DOCUMENTS TO BE DELIVERED AT CLOSING.
i By the ISSUER
(1) Board of Directors Minutes authorising the issuance of
certificates for 3,000,000 Shares, registered in the name of
SELLER.
(2) Such other minutes of ISSUER'S shareholders or directors as may
reasonably be required by SELLER.
(3) An Opinion Letter from ISSUER'S Attorney attesting to the
validity and condition of the ISSUER.
ii By SELLER:
(1) Delivery to the ISSUER of a Bill of Sale of the Assets.
(2) A certificate from a duly authorized officer and director of
SELLER, certifying the due authorization and execution of this
Agreement by SELLER and all shareholders of SELLER.
7. REMEDIES.
i Arbitration.
Any controversy or claim arising out of, or relating to, this
Agreement, or the making, performance, or interpretation thereof,
shall be settled by arbitration in Miami, Dade County, Florida in
accordance with the Rules of the American Arbitration Association then
existing, and judgement on the arbitration award may by entered in any
court having jurisdiction over the subject matter of the controversy.
46
<PAGE>
8. MISCELLANEOUS.
i Captions and Headings.
The Article and paragraph headings throughout this Agreement are for
convenience and reference only, and shall in no way be deemed to
define, limit, or add to the meaning or any provision of this
Agreement.
ii No oral Change
This Agreement and any provision hereof, may not be waived, changed
modified, or discharged orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought.
iii Non Waiver.
Except as otherwise expressly provided herein, no waiver of any
convenant, condition, or provision of this Agreement shall be deemed
to have been made unless expressed in writing and signed by the party
against whom such waiver is charged; and (i) the failure of any party
to insist in any one or more cases upon the performance of any of the
provisions, convenants, or conditions of this Agreement or to exercise
any option herein contained shall not be construed as a waiver or
relinquishment for the future of any such provision, convenants, or
conditions, (ii) the acceptance of performance of anything required by
this Agreement to be performed with knowledge of the breach or failure
of a covenant, conditions, or provisions hereof shall not be deemed a
waiver of such breach or failure, and (iii) no waiver by any party of
one breach by another party shall be construed as a waiver with
respect to any other or subsequent breach.
iv Time of Essence
Time is of the essence of this Agreement and each and every provision
hereof.
v Entire Agreement.
This Agreement contains the entire Agreement and understanding between
the parties hereto, and supersedes all prior agreements and
understandings.
vi Counterparts.
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
vii Notices.
All notices, requests, demands, and other communications under this
Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom
notice is to be give, or on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail,
registered or certified, postage prepaid, and properly addressed, and
by fax, as follows:
47
<PAGE>
ISSUER: CAYMAN PURCHASING & SUPPLY, INC.
5860 French Plum Lane
Tamarac, Florida 33321
Copy to: Eric P. Littman, Esquire
1428 Brickell Avenue
8th Floor
Miami, Florida 33131
SELLER: CARRINGTON INTERNATIONAL LIMITED
Suite 2402
Bank of America Tower
12 Harcourt Road, Central
Hong Kong
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 30th day of
July 1997.
CAYMAN PURCHASING & SUPPLY, INC. CARRINGTON INTERNATIONAL LIMITED
By: /s/ David Jenkins By: /s/ Georg Schnura
--------------------------- --------------------------------
David Jenkins, Director Georg Schnura
48
<PAGE>
SCHEDULE 1
5 cateos (in Argentina, a cateo is a parcel of land to which an exclusive
prospecting right has been granted to an individual or a corporation) which, in
aggregate, encompass an area of 50,000 hectares. A description of the subject
properties is as follows:
- ---------------------------- ---------------------- ----------------------------
Cateo Name Area in Hectares Location
- ---------------------------- ---------------------- ----------------------------
Carmela IV 10,000 Sierra de Chepes
- ---------------------------- ---------------------- ----------------------------
Carmela VI 10,000 Sierra de Chepes
- ---------------------------- ---------------------- ----------------------------
Carmela VII 10,000 Sierra de Chepes
- ---------------------------- ---------------------- ----------------------------
Carmela VIII 10,000 Sierra de Chepes
- ---------------------------- ---------------------- ----------------------------
Carmela IX 10,000 Sierra de Chepes
- ---------------------------- ---------------------- ----------------------------
49
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Percentage of Voting
Name Jurisdiction of Incorporation Securities Owned
---- ----------------------------- ----------------
<S> <C> <C>
Patagonia Gold Mines Limited Bermuda 100 (a)
</TABLE>
(a) Included in the consolidated financial statements filed herein.
50
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 44,959 73,651
<SECURITIES> 1,462,337 1,567,456
<RECEIVABLES> 333 220
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,507,659 1,641,327
<PP&E> 300,000 300,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,807,659 1,941,327
<CURRENT-LIABILITIES> 17,037 15,853
<BONDS> 0 0
0 0
0 0
<COMMON> 13,000 13,000
<OTHER-SE> 1,777,622 1,912,474
<TOTAL-LIABILITY-AND-EQUITY> 1,807,659 1,941,327
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 29,976 135,708
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (29,976) (135,708)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (29,976) (135,708)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (29,976) (135,708)
<EPS-BASIC> (0.00) (0.01)
<EPS-DILUTED> (0.00) (0.01)
</TABLE>
