UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------- --------
Commission File Number: 0-26531
SOIL BIOGENICS LIMITED
(Exact name of Registrant as specified in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
P.O. Box 48525, 595 Burrard Street, Vancouver, B.C., Canada V7X 1A2
(Address of Principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of exchange on which registered
Common Shares NASD OTC Bulletin Board
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
December 31, 2002 12,912,500 Common Shares
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark which financial statement item the Registrant has elected
to follow:
[X] Item 17 [ ] Item 18
Page 1 of 24
SOIL BIOGENICS LIMITED
TABLE OF CONTENTS
Forward-looking Statements 3
Currency and Metric Equivalents 3
PART 1
Item 1. Identity of Directors, Senior Managers and Advisors - Not Applicable 3
Item 2. Offer Statistics and Expected Timetable - NOT APPLICABLE 3
Item 3. Key Information
Selected Financial Data 4
Risk Factors 5
Item 4. Information on the Company
History and Development of the Company 7
Business Overview 8
Organizational Structure 9
Employees 9
Item 5. Operating and Financial Review and Prospects
Management's Discussion and Analysis 9
Item 6. Directors, Senior Management and Employees
Directors and Senior Management 11
Compensation 11
Corporate Governance 14
Employees 15
Share Ownership by Directors and Management 15
Item 7. Major Shareholders and Related Party Transactions 16
Item 8. Financial Information 17
Legal Proceedings 18
Dividend Record and Policy 18
Significant Changes 18
Item 9. The Offer and Listing 18
Item 10. Additional Information
Memorandum and Articles of Incorporation 19
Material Contracts 19
Exchange Controls 19
Taxation 20
Item 11. Quantitative and Qualitative Disclosures about Market Risk 21
Item 12. Description of Securities Other Than Equity Securities - NOT APPLICABLE 21
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies 21
Material Modification to the Right of Security Holders and Use of Proceeds
Item 14. -- NONE 21
Item 15. Controls and Procedures 21
Item 16A. Audit Committee financial Expert 21
Item 16B. Code of Ethics 22
Item 16C. Principal Accountant Fees and Services 22
PART III
Item 17. Financial Statements 22
Item 18. Financial Statements 22
Item 19. Item 19. Financial Statements and Exhibits 22
Signatures 23
Certifications 23
Page 2 of 24
(A) Pursuant to General Instruction G(b) of Form 20-F, this annual report
includes the information specified in Parts I,II,III
(B) Pursuant to General Instruction (G)(c) of Form 20-F, the registrant has elected
to provide the financial statements and related information specified in Item 17.
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
We make statements in this Report and the documents we incorporate by
reference that are considered forward-looking within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934 . Sometimes these
statements will contain the words such as "believes," "expects," "intends,"
"plans" and other similar words. We intend those forward-looking statements to
be covered by the safe harbour provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995 and are
including this statement for the purposes of complying with the safe harbour
provisions. These forward-looking statements reflect our current views which are
based on the information currently available to us and on assumptions we have
made. Although we believe that our plans, intentions and expectations as
reflected in or suggested by those forward-looking statements are reasonable we
can give no assurance that the plans, intentions or expectations will be
achieved. Such forward-looking statements concern the Corporation's operations,
economic performance and financial condition. Such statements involve known and
unknown risks, uncertainties and other factors, including those identified under
the "Risk Factors" section in Item 3 and elsewhere in this report, that may
cause the actual results, performance or achievements of the Corporation, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to: differences between
estimated and actual mineral and resources reserves and recovery rates; failure
of plant, equipment or processes to operate in accordance with expectations and
specifications; changes to exploration, development and mining plans due to
prudent reaction of management to ongoing exploration results, engineering and
financial concerns; environmental costs; and fluctuations in gold price which
affect the profitability and ore reserves of the Corporation. These risks and
uncertainties are the normal risks involved in mining. Readers are cautioned not
to put undue reliance on forward-looking statements. See "Risk Factors" in Item
3, "Management's Discussion and Analysis" in Item 5, and elsewhere in Item 4.
The forward-looking statements are made as of the date of this report, and the
Corporation assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
CURRENCY AND METRIC EQUIVALENTS
Unless otherwise indicated, all dollar amounts herein are expressed in
United States dollars ("US$").
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS - Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE - Not Applicable.
Page 3 of 24
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(expressed in U.S. dollars unless otherwise indicated)
2002 2001 2000 1999 1998
$ $ $ $ $
- ---------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Loss from operations (185,317) (244,423) (65,515) (460,883) (135,708)
Net Loss (185,317) (244,423) (65,515) (460,883) (135,708)
Cash flow from (used in)
operations (13,659) (81,045) (78,761) (125,686) (152,242)
Capital expenditures N/A N/A N/A (9,250) N/A
FINANCIAL POSITION
Cash and short-term deposits 176 11 1,352 22,913 73,651
Investments 913,003 801,884 693,171 921,332 1,567,456
Total assets 913,179 841,834 706,832 956,502 1,941,327
Long-term debt N/A N/A 930 76,879 N/A
Capital stock 2,015,000 1,840,000 1,840,000 1,840,000 1,840,000
Shareholders' equity 903,800 721,104 652,256 844,623 1,925,474
PER SHARE DATA
Net loss per share (0.01) (0.02) (0.01) (0.03) (0.01)
SHARE OUTSTANDING
At year end 12,912,500 13,000,000 13,000,000 13,000,000 13,000,000
Weighted average during year 12,991,849 13,000,000 13,000,000 13,000,000 13,000,000
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
YEAR ENDED DECEMBER 31, 2002 $ $ $ $
LOSS FROM OPERATIONS (11,362) (25,167) (7,793) (140,995)
NET LOSS (11,362) (25,167) (7,793) (140,995)
NET LOSS PER SHARE (0.00) (0.00) (0.00) (0.01)
YEAR ENDED DECEMBER 31, 2001
Income (Loss) from operations 51,923 38,760 (19,831) (315,275)
Net loss 51,923 38,760 (19,831) (315,275)
Net income/(loss) per share 0.00 0.00 (0.00) (0.02)
Page 4 of 24
RISK FACTORS
MINING RISKS
The Corporation is subject to the risks typical in the mining business
including uncertainty of success in exploration and development; operational
risks including unusual and unexpected geological formations, rock bursts,
particularly as mining moves into deeper levels, cave-ins, flooding and other
conditions involved in the drilling and removal of material as well as
environmental damage and other hazards; risks that intended production schedules
or estimated costs will not be achieved; and risks of fluctuations in the price
of precious and base metals and currency exchange rates.
Gold prices are subject to volatile price movements over short periods of
time and are affected by numerous factors, all of which are beyond the
Corporation's control, including expectations for inflation, levels of interest
rates, sales of gold by central banks, the demand for gold, global or regional
political, economic and banking crises and production rates in major gold
producing regions. The aggregate effect of these factors is impossible to
predict with any degree of certainty. The Corporation does not currently engage
in hedging to protect against a portion of the volatility and is not currently
protected against gold price movements. Any hedging and other activities
involving financial instruments may be subject to margin requirements.
The Corporation has no mines in operation. Commercial production of a mining
operation will be dependent on the successful adoption of the operating
assumptions and completion of the exploration and development work. Mining
operations will also be dependent on metal prices, the US dollar in relation to
the currency of the jurisdiction where the mining operations occur and the
ability of the mine to generate cash flow.
The Corporation has no mineral reserves and resources and no assurance can
be given that once the Corporation develops mineral reserves and resources that
the anticipated tonnages and grades will be achieved or the indicated level of
recovery realized. In addition, no assurance can be given that the gold price on
which these estimates are based can be achieved. As well, lead times required
for underground stope preparation and development in mining operations can
affect production decisions and schedules. Gold price fluctuations may render
mineral reserves containing relatively lower grades of mineralization
uneconomic. Moreover, short-term operating factors relating to the mineral
reserves, such as the need for orderly development of ore bodies or the
processing of new or different ore grades may cause the Corporation to be
unprofitable in any particular accounting period.
The Corporation doe not carry insurance to protect against certain risks.
Risks not insured against include political risk, environmental pollution, mine
flooding, landslides or other natural hazards relating to climate or topography
as well as other hazards which cannot be insured against or which the
Corporation may elect not to insure against.
ENVIRONMENTAL MATTERS
All phases of the Company's operations in Argentina are subject to environmental
regulations. Environmental legislation in all countries is evolving in a manner
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. Although the Company believes it is in
compliance with all applicable environmental legislation, there is no assurance
that future changes in environmental regulation, if any, will not adversely
affect the Company's operations.
Page 5 of 24
INSURANCE
The Company does not have general liability insurance covering its
operations and does not presently intend to obtain liability insurance as to
such hazards and liabilities. Payment of any liabilities therefore could have a
materially adverse effect upon the Company's financial condition.
REGULATION OF MINING ACTIVITY
The Company's interests in its projects will be subject to various laws and
regulations concerning exploration, production, taxes, labor standards,
environmental protection, mine safety and other matters. In addition, new laws
or regulations governing operations and activities could have a material adverse
impact on the Company.
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS
Mineral exploration and mining activities on the Company's properties may
be affected in varying degrees by political stability, and the policies of other
nations. Any changes in regulations or shifts in political conditions are beyond
the control of the Company and may adversely affect its business. Operations may
be affected by government laws and regulations or the interpretations thereof,
including those with respect to export controls, expropriation of property,
employment, land use, water use, environmental legislation and mine safety.
Operations may be also affected by political and economic instability,
confiscatory taxation, restriction on currency conversions, imports and sources
of supplies, the expropriation of private enterprises, economic or other
sanctions imposed by other nations, terrorism, military repression, crime, and
extreme fluctuations in currency exchange rates and high inflation and which may
it more difficult for the Company to raise funds for the development of its
mineral interests in some countries.
COMPETITION
Many companies are engaged in the exploration of mineral properties. The
Company encounters strong competition from other mining companies in connection
with the acquisition of properties producing or capable of producing precious or
base metals. Many of these companies have substantially greater technical and
financial resources than the company and thus the Company may be at a
disadvantage with respect to some of its competitors.
The marketing of minerals is affected by numerous factors, many of which
are beyond the control of the Company. Such factors include the price of the
mineral in the marketplace, imports of minerals from other nations, the
availability of adequate refining and processing facilities, the price of fuel,
electricity, labor, supplies and reagents and the market price of competitive
minerals. In addition, sale prices for many commodities are determined by world
market forces or are subject to rapid and significant fluctuations that may not
necessarily be related to supply or demand or competitive conditions that in the
past have affected such prices. Significant price movements in mineral prices
over short periods of time may be affected by numerous factors beyond the
control of the Company, including international economic and political trends,
expectations of inflation, currency exchange fluctuations (specifically, the
U.S. dollar relative to other currencies), interest rates and global or regional
consumption patterns, speculative activities and increased production due to
improved mining and production methods. The effect of these factors on the price
of minerals and, therefore, the economic viability of any of the Company's
projects cannot accurately be predicted. As the Company is in the exploration
stage, the above factors have had no material impact on operations or income.
Page 6 of 24
ITEM 4. INFORMATION ON THE COMPANY
HISTORY AND DEVELOPMENT OF THE COMPANY
Patagonia Gold Corporation was incorporated under the laws of the State of
Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc." The
Company was inactive until it redirected its business efforts in mid 1997
following a change of management, which occurred on June 25, 1997, to the
acquisition, exploration and, if warranted, the development of mineral resource
properties. The Company changed its name to Patagonia Gold Corporation on
October 13, 1997 to more fully reflect its business activities.
Since its redirection, the Company's activities have been limited primarily
to the acquisition of rights to certain mineral properties and the
implementation of preliminary exploration programs on these properties in which
it has acquired an interest.
In August 2002 the Company incorporated a wholly owned subsidiary,
Patagonia Gold (BVI) Limited as an International Business Company incorporated
under the International Business Companies Act of the British Virgin Islands.
The Memorandum and Articles of Association of the Patagonia Gold (BVI) Limited
were filed with the Registrar of International Companies in the British Virgin
Islands on the 23rd day of August 2002. At incorporation Patagonia Gold (BVI)
Limited had 13,000,000 common shares with no par value issued and outstanding
and is authorized to issue 50,000,000 common shares with no par value. All
13,000,000 issued and outstanding common shares are owned by Patagonia Gold
Corporation.
On September 19, 2002 Patagonia Gold (BVI) Limited entered into a Plan of
Merger and Articles of Merger with Patagonia Gold Corporation whereby all the
assets and liabilities of Patagonia Gold Corporation would vest by virtue of
such merger into Patagonia Gold (BVI) Limited. The shareholders of Patagonia
Gold Corporation received one common share of Patagonia Gold (BVI) Limited for
each common share of Patagonia Gold Corporation they owned.
The Merger was effective November 29, 2002. The shares of Patagonia Gold
Corporation ceased trading on the NASD OTC Bulletin Board on November 29, 2002
and in there place the common shares of Patagonia Gold (BVI) Limited commenced
trading. The old trading symbol for Patagonia Gold Corporation was "GONI". The
new trading symbol for Patagonia Gold (BVI) Limited is "PGBVF".
On December 2, 2002 Patagonia Gold (BVI) Limited acquired Soil Biogenics
Ltd., a Bermuda corporation, for 17,000,000 shares of Patagonia Gold (BVI)
Limited restricted common stock. Soil Biogenics will be a wholly-owned
subsidiary of Patagonia Gold (BVI) Limited. Soil Biogenics Ltd. business is the
production of bio-organic fertilizer.
On March 3, 2003 Patagonia Gold (BVI) Limited changed its name to Soil
Biogenics Limited and its trading symbol from "PGBVF" to "SOBGF".
Soil Biogenics Limited (BVI) is engaged in the location, acquisition,
exploration and, if warranted, development of mineral resource properties. Soil
Biogenics Ltd (Bermuda) is engaged in the production and sale of bio-organic
fertilizers.
All of the mineral properties in which Soil Biogenics Limited (BVI) has an
interest or a right to acquire an interest in are currently in the exploration
stage. None of the properties have a known body of Mineral Reserves. Soil
Biogenics Limited (BVI)'s primary objective is to explore for gold, silver, base
metals and industrial minerals and, if warranted, to develop those existing
mineral properties. Its secondary objective is to locate, evaluate, and acquire
other mineral properties, and to finance their exploration and development
either through equity financing, by way of joint venture or option agreements or
through a combination of both.
Page 7 of 24
BUSINESS OVERVIEW
The Company conducts exploration activities from its headquarters in
Vancouver, Canada. The Company controls mineral exploration concessions in
Argentina. The Company's strategy is to concentrate its investigations into: (i)
Existing operations where an infrastructure already exists; (ii) Properties
presently being developed and/or in advanced stages of exploration which have
potential for additional discoveries; and (iii) Grass-roots exploration
opportunities.
The Company is currently concentrating its exploration activities in
Argentina. The Company is also examining data relating to the potential
acquisition of exploration properties in Mexico.
During Fiscal 2002, the Company continued its preliminary field assessment
of its Argentina properties. The Company's exploration work program in 2003 will
entail surface mapping of geology, sampling of soils on a grid basis to
delineate geochemical anomalies, stream sediment sampling and geophysical
surveying. The data assembled from this work will be used to determine whether:
(i) further exploration is warranted; or (ii) whether mineral exploration
concession licenses should be surrendered.
All of the Company's properties are in the exploration stages only and are
without a known body of Mineral Reserves. Development of the properties will
follow only if satisfactory exploration results are obtained. Mineral
exploration and development involves a high degree of risk and few properties
that are explored are ultimately developed into producing mines. There is no
assurance that the Company's mineral exploration and development activities will
result in any discoveries of commercially viable bodies of mineralization. The
long-term profitability of the Company's operations will be, in part, directly
related to the cost and success of its exploration programs, which may be
affected by a number of factors.
Subsequent to the December 31, 2002 yearend the Company completed the
acquisition of Soil Biogenics Ltd., a Bermuda corporation, with the issuance of
17,000,000 shares of Patagonia Gold (BVI) Limited restricted common stock. Soil
Biogenics (Bermuda) became a wholly-owned subsidiary of Patagonia Gold (BVI)
Limited. Soil Biogenics Ltd. (Bermuda) produces a bio-organic fertilizer.
Piksa Inter LLC is a wholly owned subsidiary of Soil Biogenics Ltd
(Bermuda) and was incorporated on March 10, 2000 to patent and commercially
market a bio-organic fertilizer called "Super compost Piksa". The Super compost
Piksa fertilizer was developed over a ten year period by a group of Russian
scientists specializing in biotechnology. The bio-organic fertilizer is produced
in a plant in the city of Tomilino near Moscow. In 2003 Piksa Inter opened a
second production plant in the city of Chekhov. Piksa Inter LLC's website is
http://www.piksa.ru.
The company holds two patents with respect to the Super compost Piksa. The
first patent is for the mixture of four types of bacteria. The second patent is
for the process of producing the bio-organic fertilizer.
The bacteria mixture when combined with sterile compost produces a Super
compost Piksa bio-organic fertilizer which is then mixed with soil to increase
soil fertility and productivity. The bio-organic fertilizer is also used in the
reclamation of soil from contaminations such as oil derivates.
Retail sales are currently concentrated in the Russian Federation.
Customers vary from small farms and private garden owners to construction
companies and city governments. In 2003 the Company started the process of
certification of the product in the United Arab Emirates. Soil Biogenics Ltd
(Bermuda) is currently in the process of incorporating a Spanish wholly owned
subsidiary called Soil Biogenics S.L. which will market the bio-organic
fertilizer in European markets such as Spain, Germany and France once
certification of bio-organic fertilizer has been obtained.
Page 8 of 24
ORGANIZATIONAL STRUCTURE
Soil Biogenics Limited (British Virgin Islands)
Soil Biogenics Ltd. (Bermuda) 100% wholly owned subsidiary of Soil Biogenics
Limited (BVI)
Piksa Inter LLC 100% wholly owned subsidiary of Soil Biogenics
Ltd. (Bermuda)
Piksa Research and Production
Association LLC ("NPO Piksa LLC") 100% wholly owned subsidiary of
Piksa Inter LLC
EMPLOYEES
Soil Biogenics Limited and its wholly owned subsidiaries employed 13 persons as
of June 13, 2003, of which 0 were covered by collective bargaining agreements.
The relationship of Soil Biogenics Limited and its subsidiaries with their
employees and contractors is considered by Soil Biogenics Limited to be
satisfactory. During 2002, 2001 and 2000, there were no strikes or walkouts.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's financial objectives are to build shareholder value through
internal growth, to acquire properties and business that bring added value, to
maintain operational flexibility and to minimize operating costs.
The 2002 financial statements present the Company's results of operations
and its financial position. These consolidated financial statements were
compiled using United States generally accepted accounting principles ("U.S.
GAAP").
These financial statements present information regarding the financial
position and results of operations for the last two years.
The Company had no revenues during fiscal 2002 and 2001. No funds were
raised in fiscal 2002 or 2001.
OPERATING RESULTS
Operating results for the years ending December 31, 2002, 2001, 2000 and 1999
are tabulated below:
Year Ending
Description Dec 31, 2002 Dec 31, 2001 Dec 31, 2000 Dec 31, 1999
Profit (Loss) (185,317) (244,423) (65,515) (460,883)
Profit (Loss) per share (0.01) (0.02) (0.01) (0.03)
General and Administration 236,353 76,877 94,945 103,970
Legal 6,144 (95) 6,501 21,962
Accounting 10,589 9,809 2,474 16,591
Exploration 0 0 1,135 32,236
Page 9 of 24
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 2002 the Company settled $175,000 of debt with the issuance of
350,000 common shares. The carrying value of the indebtedness approximated the
fair value of the common shares issued. No common shares were issued in fiscal
2001.
At December 31, 2002, the Company had cash of $176 (2001 - $11) and working
capital of $903,800 (2001 working capital - $681,283) respectively. Total
liabilities as of December 31, 2002 were $9,379 as compared to $120,730 on
December 31, 2001, a decrease of $111,351. In fiscal 2002 the Company settled
loans payable in the amount of $120,420 by the assignment of its holdings of
Aurora Metals (BVI) Limited shares. During 2002 net proceeds from the issuance
of common stock were $0 (2001 - $0). In Fiscal 2002 investing activities
consisted of additions to mineral properties $0 (2001 - $0) and additions to
fixed assets $0 (2001 - $0). For the year ended December 31, 2002 the Company
recorded a loss of $185,317, or $0.01 per share, compared to a loss of $244,423
($0.02 per share) in 2001.
During the next 12 months the Company needs to raise additional funds
through equity offerings and/or debt borrowing to meet its
administrative/general operating expenses and to expand its bio-organic
fertilizer production business. The Company intends to expand it's current
bio-organic fertilizer business and to further develop the Company through the
possible acquisition or joint venturing of additional business opportunities.
Additional employees will be hired on a consulting basis as required by the
exploration projects.
The Company's exploration properties have not 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 property, there is no assurance that any such activity will generate
funds that will be available for operations.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of its consolidated financial statements requires the
Company to use estimates and assumptions that affect the reported amounts of
assets and liabilities as well as revenues and expenses. The Company's
accounting policies are described in note 2 to its consolidated financial
statements. The Company's accounting policies relating to depreciation and
amortization of property, plant and equipment are critical accounting policies
that are subject to estimates and assumptions regarding future activities.
Exploration costs are charged to operations as incurred until such time
that proven reserves are discovered. From that time forward, the Company will
capitalize all costs to the extent that future cash flow from mineral reserves
equals or exceeds the costs deferred. The deferred costs will be amortized over
the recoverable reserves when a property reaches commercial production. As at
December 31, 2002 and 2001, 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
Generally accepted accounting principles require the Company to consider at
the end of each accounting period whether or not there has been an impairment of
the capitalized property, plant and equipment. This assessment is based on
whether factors that may indicate the need for a write-down are present. If the
Company determines there has been impairment, then the Company would be required
to write-down the recorded value of its property, plant and equipment costs
which would reduce the Company's earnings and net assets.
Page 10 of 24
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
The Company does not have any off-balance sheet arrangements or contractual
obligations that are likely to have or are reasonably likely to have a material
current or future effect on the Company's financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that have not been disclosed in the
Company's financial statements.
MARKET RISK DISCLOSURES
The Company has not entered into derivative contracts either to hedge existing
risks or for speculative purposes
PLANS FOR YEAR 2003
The Company's plans for year 2003 center on the development of it's
bio-organic fertilizer subsidiary.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS AND SENIOR MANAGEMENT
The following table lists the names and positions of the executive officers
and directors of the Company as of December 31, 2002. All executive officers and
directors have been elected and appointed to serve until their successors are
elected and qualified. Additional information regarding the business experience,
length of time served in each capacity and other matters relevant to each
individual are set forth below the table.
NAME POSITION
- ----------------------- ------------------------------------------------------
A. Cameron Richardson Age 50, President since November 29, 2002, Chief
Financial Officer since May 17, 2000. Director,
President and Chief Financial Officer of Aurora Gold
Corporation. From 1981 to 1997 held accounting
positions with various Canadian resource companies.
- ----------------------- ------------------------------------------------------
Agustin Gomez de Segura Age 48, banker and private investor and developer of
new companies.
- ----------------------- ------------------------------------------------------
Alexander Becker Age 42, director of several Russian companies involved
in metallurgy, textiles and trading.
- ----------------------- ------------------------------------------------------
COMPENSATION
The following table sets forth information concerning the compensation of
the named executive officers as required to be disclosed in accordance with
applicable securities regulations during the Corporation's three financial years
ended December 31, 2002, December 31, 2001 and December 31, 2000:
Page 11 of 24
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------ ----------------------------------------------
AWARDS PAYMENTS
------------------------------ -------------------------- ------------------
SECURITIES
OTHER UNDER- ALL
NAME AND ANNUAL RESTRICTED LYING OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION
($) ($) ($) ($) (=) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------- ----- --------- -------- ------------- ----------- ----------- -------- --------
Terry Longair 2002 Nil (2) -0- -0- None None None -0-
President and 2001 Nil -0- -0- None None None -0-
Director 2000 Nil -0- -0- None None None -0-
- ------------------- ----- --------- -------- ------------- ----------- ----------- -------- --------
A. Cameron 2002 9,791 (2) -0- -0- None None None -0-
Richardson
President and 2001 7,662 -0- -0- None None None -0-
Director 2000 6,748 -0- -0- None None None -0-
- ------------------- ----- --------- -------- ------------- ----------- ----------- -------- --------
On November 29, 2002 Mr. Terry Longair resigned from the Board of Directors
and as President of the Company to pursue other interests. On November 29, 2002
Mr. Cameron Richardson was appointed to the Board of Directors of the
Corporation and President of the Company.
OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR
The following table sets forth information concerning individual grants of
stock options (whether or not in tandem with stock appreciation rights ("SARs")
and freestanding SARs made during the last completed fiscal year to each of the
named executive officers:
- -----------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN FISCAL YEAR 2003
(Individual Grants)
- -----------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR ($/Sh) (M/D/Y)
(a) (b) (c) (d) (e)
- ------------------------- ------------ --------------- ------------ ----------------
Terry Longair (1) Nil Nil Nil N/A
- ------------------------- ------------ --------------- ------------ ----------------
A. Cameron Richardson (1) Nil Nil Nil N/A
- ------------------------- ------------ --------------- ------------ ----------------
<FN>
(1) No options were granted. No SARs were granted.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL
YEAR AND FINANCIAL YEAR END OPTION/SAR VALUES
The following table sets forth information concerning the exercise of
options (or tandem SARs) and freestanding SARs during the financial year ended
December 31, 2002 and the value at December 31, 2002 of unexercised in-the-money
options and SARs held by each of the Named Executive Officers:
Page 12 of 24
- ---------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- ---------------------------------------------------------------------------------
VALUE OF
UNEXERCISED
UNEXERCISED IN-THE-MONEY
SECURITIES AGGREGATE OPTIONS/SARS OPTIONS/SARS
ACQUIRED VALUE AT FY-END (#) AT FY-END
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
(a) (b) (c) (d) (e)
- ---------------------- ------------ ---------- -------------- --------------
Terry Longair Nil Nil Nil Nil
- ---------------------- ------------ ---------- -------------- --------------
A. Cameron Richardson Nil Nil Nil Nil
- ---------------------- ------------ ---------- -------------- --------------
LONG-TERM INCENTIVE PLANS ("LTIP") AWARDS TABLE
The Company does not have a Long-term Incentive Plan.
PENSION PLAN
The Company does not have a Pension plan.
INDEBTEDNESS OF DIRECTORS AND OFFICERS
No directors or officers of the Company are indebted to the Company.
EMPLOYEE INCENTIVE PLAN
The Company does not have an employee incentive plan.
SHARE OPTION PLAN
The Share Option Plan is intended to promote the interests of the
Corporation and its shareholders by making provisions for stock options as an
additional incentive to attract, retain and motivate officers and salaried
employees. Grants are made at the discretion of the Board of Directors or a
committee of the board comprised of members, a majority of whom are not eligible
to participate in the Plan (the "Compensation Committee"). The Board of
Directors or the Compensation Committee may, in its discretion, determine which
officers or employees will be granted options, the number of Common Shares to be
the subject of each option, the purchase price of such shares and the duration
of the options, which may not exceed five years. The Board of Directors or the
Compensation Committee may also impose other terms and conditions respecting any
option granted as it may consider appropriate or necessary.
Freestanding "SARs" are not provided for under the Share Option Plan. The
options may, at the discretion of the Board of Directors or the Compensation
Committee, be accompanied by SARs which entitle the holder to elect to terminate
his or her options, in whole or in part and, in lieu of receiving the Common
Shares ("Option Shares") to which the terminated options relate, elect to
receive that number of Common Shares, disregarding fractions, which have a total
value equal to the product of the number of Option Shares times the difference
between the fair value (at the date of such election) and the option price per
share of the Option Shares, less any amount withheld on account of income taxes,
which income taxes will be remitted on the employee's behalf by the Corporation.
Page 13 of 24
During 2002, no options were granted under the Share Option Plan to Named
Executive Officers or Directors.
REMUNERATION OF DIRECTORS
The Company does not pay a fee to its outside, non-officer directors. The
Company reimburses its directors for reasonable expenses incurred by them in
attending meetings of the Board of Directors. The Corporation paid aggregate
remuneration of $0 to the three incumbent and two former directors in their
capacities as such during the fiscal period ended December 31, 2002.
EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS
None of the Company's officers or directors was party to an employment
agreement with the company. Directors and/or officers receive reimbursement of
expenses reasonably incurred on behalf of the Company.
BOARD PRACTICES AND CORPORATE GOVERNANCE
MANDATE AND DUTIES OF THE BOARD
The Board has ultimate responsibility for supervising the conduct of the
Company's affairs and the management of its business. The principal objective
of the Board is to protect and enhance Shareholder value over the long term.
Although the Board has delegated to management the responsibility for the
day-to-day operations of the Company, the Board has ultimate responsibility for
the stewardship of the Company. Board members generally serve until the next
annual meeting and do not have service contracts.
The Board's duties include overseeing, strategic planning, reviewing and
assessing the principal risks to the Company's business and approving risk
management strategies, supervising and evaluating management, authorizing
significant expenditures, ensuring timely and effective communication with
Shareholders, and overseeing the Company's internal controls and information
systems.
The Board's duties also include planning and monitoring activities of
senior management. In considering and making appointments of senior management,
the Board considers it appropriate, where relevant, to address succession and
planning issues. In appointing senior management, the Board considers as a
necessary requirement of such appointments that such personnel are qualified to
carry out the duties and responsibilities relating to the appointed positions
and thus, apart from monitoring, assessing and providing feedback to senior
management, the Board does not consider it necessary to engage in specifically
training senior management. The Board met by telephone five (5) times during
2002.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors does not have a standing nominating
committee or committee performing similar functions. During the fiscal year
ended December 31, 2002 the entire board of directors acted as the Company's
Audit Committee, Compensation Committee and Nominating and Corporate Governance
Committee. During 2002 the Compensation and Benefits Committee held one meeting
by telephone conference call and the audit committee held four meetings by
telephone conference call. During 2002 and the first quarter of 2003 the audit
committee reviewed the fiscal 2002 interim unaudited financial statements and
the yearend audited financial statements.
The Compensation Committee reviews employee compensation and benefits, and
the Audit Committee reviews the scope of the independent audit, the
appropriateness of the accounting policies, the adequacy of internal controls,
Page 14 of 24
the Company's year-end financial statements and other such matters relating to
the Company's financial affairs as its members deem appropriate.
The Audit Committee has discussed matters in the audited financial
statements with the independent auditors as required by SAS 61. The Audit
Committee has received the written disclosures and the letter from the
independent auditors required by the Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees) and has discussed with the independent auditors the
independent auditor's independence. Base on the review and discussions, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 20-F for the
latest fiscal year for filing with the SEC. Prior to November 29, 2002 the Audit
Committee consists of Messrs. Antonino Cacace, Terry Longair and Cosme M. Beccar
Varela. Subsequent to November 29, 2003 the Audit Committee consists of Messrs.
A Cameron Richardson, Agustin Gomez de Segura and Alexander Becker. Agustin
Gomez de Segura is the independent Director and the financial expert serving on
the audit committee.
INDEPENDENCE FROM MANAGEMENT
It is the Board's view that the Board operates and functions independently
of management as required. Although the President of the Company also serves as
a Director, the Board is of the view that this does not impair the Board's
ability to act independently of management. The Board's independence from
management is principally derived from the fact that one of the three Board
members is unrelated and an independent Director.
SHAREHOLDER COMMUNICATION
The Company communicates regularly with its Shareholders through annual, as
well as news releases and regulatory filings. In addition, the executive
officers of the Company are responsible for addressing day-to-day Shareholder
enquiries and other Shareholder communication issues.
EXPECTATIONS OF MANAGEMENT
The Board has delegated to the President, and other executives,
responsibility for day-to-day management of the business and affairs of the
Company, subject to compliance with directives and objectives established by the
Board from time to time. The Board relies on management to provide the Board on
a timely basis with information required by the Board to perform its duties.
OUTSIDE ADVISORS
The Company does not have in place any specific procedures pursuant to
which an individual director may engage the services of an outside advisor at
the expense of the Company. Any requests for the services of an outside advisor
at the expense of the Company would be considered by the Board on a case-by-case
basis.
EMPLOYEES
As of December 31, 2002 the Company and its wholly owned subsidiaries had
11 full-time employees (2001 - 1, 2000 - 1, 1999 - 1) and 1 part-time employee
(2001- 1, 2000 - 1, 1999 - 1).
SHARE OWNERSHIP BY DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock by the Company's directors and officers
in common as at June 15, 2003. As at June 13, 2003 the Company had 30,162,500
(December 31, 2002 - 12,912,500) shares of Common Stock issued and outstanding.
Page 15 of 24
- ------------------------------------------ ------------------ ------------
SHARES OF
COMMON APPROXIMATE
OFFICERS AND DIRECTORS STOCK BENEFICIALLY PERCENTAGE
NAME OF BENEFICIAL OWNER OWNED OWNED
- ------------------------------------------ ------------------ ------------
A. Cameron Richardson
1505-1060 Alberni Street, 250,000 * %
Vancouver, B.C. Canada V6E 4K2
- ------------------------------------------ ------------------ ------------
Agustin Gomez de Segura
Rdo. Fdez. Villaverde, 36 2,000,000 6.631 %
28003 Madrid, Spain
- ------------------------------------------ ------------------ ------------
Alexander Becker
19a, Kuusinena Str., 2,084,040 6.909%
Moscow, Russia 125252
- ------------------------------------------ ------------------ ------------
TOTAL - OFFICERS AND DIRECTORS (3 persons) 4,334,040 14.369 %
- ------------------------------------------ ------------------ ------------
For information concerning options granted to the above-mentioned individuals
see Item 6 Compensation - Options/SAR Grants Table on page 12.
Agustin Gomez de Segura and Alexander Becker were appointed to the Company's
Board of Directors on December 29, 2002.
* Less than 1%.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 13, 2003 by each person who
is known by the Company to own beneficially more than five percent (5%) of the
Company's outstanding Common Stock. As at June 13, 2003 there were 30,162,500
shares of Common Stock issued and outstanding.
- --------------------------------------------------- ---------------- --------------
Name and Address of Amount and Percentage of
Beneficial Owner Nature of Class
Beneficial Owner
- --------------------------------------------------- ---------------- --------------
Carrington International Limited 3,000,000 9.946 %
Ste 2402, Bank of America tower
12 Harcourt Road, Central Hong Kong
(Beneficially owed by Georg Schnura)
- --------------------------------------------------- ---------------- --------------
Kastalia Ltd. 2,700,000 8.952 %
Wickhams Cay 1, Road Town, Tortola, British Virgin
Islands
(Beneficially owned by Mr. Alexander Kleimionov)
- --------------------------------------------------- ---------------- --------------
Page 16 of 24
- --------------------------------------------------- ---------------- --------------
Alexei Y. Sementsow 2,312,000 7.665 %
Baklayeva Str.11, App. 105, City of Kimry,
Tver Region, Russia
- --------------------------------------------------- ---------------- --------------
Alexander Becker 2,084,040 6.909 %
Komsomolsky Pr. 23/7, App. 25, Moscow, Russia
- --------------------------------------------------- ---------------- --------------
Norbex Holdings Ltd. 2,000,000 6.631 %
Drake Chambers, P.O. Box 3321, Road Town, Tortola,
British Virgin Islands
(Beneficially owned by Agustin Gomez de Segura)
- --------------------------------------------------- ---------------- --------------
Redbridge Minerals (Overseas) Ltd. 2,000,000 6.631 %
Trident Chambers, PO Box 146, Road Town, Tortola,
British Virgin Islands
(Beneficially owned by Mrs. Antonina Tsykova)
- --------------------------------------------------- ---------------- --------------
The listed beneficial owner does not have the right to acquire any common
shares within the next sixty days, through the exercise of options, warrants,
rights, conversion privilege or similar obligations.
All shareholders have the same voting rights.
RELATED PARTY 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 or resource-related 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. Mr. Richardson is
an Officer and Director of Aurora Gold and an Officer and 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 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.
ITEM 8. FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Reference is made to Part III, Item 19 Financial Statements and Exhibits
and the Financial Statements appearing as Exhibit (1).
Page 17 of 24
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
DIVIDEND RECORD AND POLICY
The Company has not declared cash or share dividends on its common shares
since the Company was incorporated in 1997 and has no present plans to pay any
cash or share dividends. The Company will declare cash or share dividends in the
future only if earnings and capital of the Company are sufficient to justify the
payment of such dividend.
SIGNIFICANT CHANGES
Subsequent to December 31, 2002 the Company completed the acquisition of
Soil Biogenics Ltd (Bermuda).
ITEM 9. THE OFFER AND LISTING
OFFER AND LISTING DETAILS - NOT APPLICABLE
PLAN OF DISTRIBUTION - NOT APPLICABLE
MARKETS
The Common Stock of the Company has been quoted on the NASD OTC Bulletin
Board since May 1, 1997. The following tables sets forth the high and low bid
prices for the Common Stock for the calendar quarters for the year ending
December 31, 2002 and 2001 and the most recent six months as reported by the
NASD OTC Bulletin Board. These prices represent quotations between dealers
without adjustment for retail markup, markdown or commission and may not
represent actual transactions.
PERIOD FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- --------------- ------------- -------------- ------------- --------------
2002 - High ($) 0.72 1.00 1.01 0.95
2002 - Low ($) 0.52 0.51 0.55 0.30
2001 - High ($) 1.00 0.90 0.90 0.69
2001- Low ($) 0.69 0.55 0.50 0.35
- --------------- ------------- -------------- ------------- --------------
MONTH HIGH ($) LOW ($)
- ------------- -------- -------
June 2003 2.00 1.40
May 2003 2.00 1.40
April 2003 2.00 1.40
March 2003 1.50 1.08
February 2003 1.05 0.90
January 2003 0.95 0.75
ITEM 10. ADDITIONAL INFORMATION
SHARE CAPITAL
The authorized capital of the Company is 50,000,000 shares of no par value.
Page 18 of 24
MEMORANDUM AND ARTICLES OF ASSOCIATION
Patagonia Gold Corporation was incorporated under the laws of the State of
Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc.".
The Company changed its name to Patagonia Gold Corporation on October 13, 1997.
Patagonia Gold (BVI) Limited was incorporated under the International
Business Companies Act of the British Virgin Islands on the 23rd day of August
2002 as a 100% wholly owned subsidiary of Patagonia Gold Corporation.
On November 14, 2002 Articles of Merger between Patagonia Gold (BVI)
Limited and Patagonia Gold Corporation of Florida were filed with the Registrar
of Companies of the British Virgin Islands pursuant to the International
Business Companies Act (Cap 29) whereby Patagonia Gold (BVI) Limited was the
surviving company in the merger.
On February 11, 2003 Patagonia Gold (BVI) Limited filed an amended and
restated Memorandum of Association and Articles of Association with the
Registrar of Companies of the British Virgin Islands pursuant to the
International Business Companies Act (Cap 291), changing the Company's name from
Patagonia Gold (BVI) Limited to Soil Biogenics Limited.
The Company's Memorandum of Association and Articles of Association as
amended and restated include its corporate name, the place in the British Virgin
Islands where its registered office is located; it's minimum and maximum number
of directors and the authorized share capital of the Corporation. There are only
Common Shares outstanding. The Company may engage in any act or activity that is
not prohibited under the laws of the British Virgin Islands.
The Company's Memorandum of Association and Articles of Association as
amended and restated are filed as Exhibit 3.2.2 to the Corporation's Annual
Report on Form 20-F for the year ended December 31, 2002, which is hereby
incorporated by reference.
MATERIAL CONTRACTS - NOT APPLICABLE
EXCHANGE CONTROLS
The Company is limited in its ability to pay dividends on its Common Shares
by limitations under British Virgin Island law relating to the sufficiency of
profits from which dividends may be paid. Under the International Business
Companies Act of the British Virgin Islands the declaration of a dividend is
authorized by resolution of the board of directors
The Company is an International Business Company ("IBC") incorporated under
the provisions of the International Business Companies Act (the "Act") of the
British Virgin Islands (the "BVI"). The transfer of shares between persons
regarded as residents outside of the BVI is not subject to any exchange
controls. Likewise, issues and transfers of the shares involving any person
regarded as resident in the BVI are not subject to exchange control approval.
There are no limitations on the rights of non-BVI owners of the Common Stock to
hold or vote their shares. Because the Company is an IBC, there are no
restrictions on its ability to transfer funds into and out of the BVI or to pay
dividends to U.S. residents who are holders of the Common Stock.
In accordance with the Company's Memorandum and Articles of Association,
share certificates may be issued as either registered shares or shares issued to
bearer as the directors may by resolution determine. In the case of a
representative acting in a special capacity (for example, as an executor or
trustee), share certificates should record the capacity in which the
representative is acting. Notwithstanding the recording of any such special
capacity, the Company is not bound to investigate or incur any responsibility in
respect of the proper administration of any such estate or trust. The Company
takes no notice of any trust applicable to any of its shares whether or not it
had notice of such trust.
Page 19 of 24
As an IBC, the Company has no power to: (i) carry on business with persons
resident in the BVI; (ii) own an interest in real property situated in the BVI,
other than a lease of property for the use as an office from which to
communicate with the shareholders or where books and records of the Company are
prepared and maintained; (iii) carry on banking or trust business, unless it is
licensed under the BVI Banks and Trusts Companies Act of 1990; (iv) carry on
business as an insurance or a reinsurance company, insurance agency or insurance
broker, unless it is licensed under an enactment authorizing it to transact that
business; (v) carry on the business of company management unless it is licensed
under the BVI Company Management Act, of 1990; or (vi) carry on the business of
providing a registered office or the registered agent for companies incorporated
in the BVI.
There are no restrictions on the degree of foreign ownership of the
Company. The Company is subject neither to taxes on its income or dividends nor
to any foreign exchange controls in the BVI. In addition, the Company is not
subject to capital gains tax in the BVI, and profits can be accumulated by the
Company, as deemed by management to be required, without limitation.
TAXATION
The following discussion summarizes tax consequences to a holder of Common
Stock of the Company under present British Virgin Islands tax laws. The
discussion does not deal with all possible tax consequences relating to the
Company's operations or the ownership of the Common Stock and does not purport
to deal with the tax consequences applicable to particular investors, some of
which (include banks, securities dealers, insurance companies and tax-exempt
entities) may be subject to special rules. In particular, the discussion does
not address the tax consequences under state, local and other national (non-BVI)
tax laws. The following discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this filing, all of which
are subject to change.
BRITISH VIRGIN ISLANDS TAXATION
Under the International Business Companies Act of the British Virgin
Islands (the "International Business Companies Act") as currently in effect, a
holder of Common Stock paid with respect to the Common Stock of the Company. A
holder of Common Stock of the Company is not liable for BVI income tax on gains
realized on the sale or disposal of such shares. The BVI does not impose a
withholding tax on dividends paid by the Company to its shareholders due to its
incorporation under the International Business Companies Act.
There are no capital gains or income taxes levied by the BVI on companies
incorporated under the International Business Companies Act. In addition, the
Common Stock of the Company is not subject to transfer taxes, stamp duties or
similar charges.
There is no income tax treaty or convention currently in effect between the
United States and the BVI.
As an exempted company, the Company is required to pay the BVI government
an annual license fee based on the Company's stated authorized capital.
This discussion is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or prospective holder of Common Shares of the
Company and no opinion or representation with respect to the United Sates
federal income tax consequences to any such holder or prospective holder is
made. Holders and prospective holders should therefore consult their own tax
advisors with respect to their particular circumstances.
Page 20 of 24
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the notes to the consolidated financial statements in Item 17 and
"Management's Discussion and Analysis" in Item 5 for additional information.
The Company's reporting currency is United States dollars. The Company does
not enter into any hedging transactions or hold any derivative instruments. The
carrying amounts for cash and cash equivalents, marketable securities, deposits,
advances and other, accrued interest and accounts payable and accrued expenses
on the balance sheet approximate fair value because of the immediate or
short-term maturity of these instruments. Fair value estimates are made at the
balance sheet date based on relevant market information but involve
uncertainties and therefore cannot be determined with precision. In order to
limit its market risk, the Company diversifies its cash and investment holdings
into U.S. treasury and agency obligations and major financial institutions and
corporations. The fair values of investments in marketable securities are
disclosed in Note 2 (l) to the Consolidated Financial Statements.
The Company competes with other mining companies in connection with the
acquisition of mining claims and leases on gold and other precious metals
prospects. The Company's wholly owned subsidiary competes with other fertilizer
manufacturing companies in the production and sales of fertilizer. The Company
also competes with other companies in connection with the recruitment and
retention of qualified employees.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES - NOT APPLICABLE
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES - NONE
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF
PROCEEDS - NONE
ITEM 15. CONTROLS AND PROCEDURES
(a) Within 90 days prior to the date of this report, the Company completed an
evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures. Disclosure controls and procedures are
designed to ensure that the material financial, and non-financial
information, required to be disclosed on Form 20-F, and filed with the
Securities and Exchange Commission is recorded, processed, summarized and
reported in a timely manner. Based on the foregoing, the Company's
management, including the President and Chief Financial Officer, have
concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as
amended) are effective.
(b) There have been no significant changes in our internal controls, or in
other factors, that could significantly affect these controls subsequent to
the date of the evaluation hereof. No corrective actions were taken,
therefore, with regard to significant deficiencies and material weaknesses.
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company's Audit Committee is composed of A Cameron Richardson, Agustin
Gomez de Segura and Alexander Becker. Agustin Gomez de Segura is the independent
director and financial expert serving on the audit committee.
Page 21 of 24
ITEM 16 B. CODE OF ETHICS
The Company has not yet adopted a code of ethics that applies to the
Company's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. The
Company is currently drafting a code of ethics.
ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees:
The aggregate fees billed by Moore Stephens Ellis Foster Ltd. for
professional services for the audit of the Company's annual consolidated
financial statements for fiscal 2002, review of the consolidated financial
statements included in the Company's Annual Report on Form 10-KSB for fiscal
2002 and reviews of the financial statements included in the quarterly Form
10-QSB during the 2002 fiscal year were $5,000 (2001 - $5,350).
All other fees:
The aggregate fees billed to the Company for all other services by Moore
Stephens Ellis Foster Ltd. for fiscal 2002 were $ 0 (fiscal 2001 - $0).
PART III
ITEM 17. FINANCIAL STATEMENTS
The Corporation has elected to comply with the financial statement
requirement of this Item rather than Item 18. The financial statements filed as
part of this Annual Report are listed in "Item 19 - Financial Statements and
Exhibits".
These financial statements were prepared in accordance with United States
generally accepted accounting principles and Regulation S-X and are expressed in
United States dollars.
ITEM 18. FINANCIAL STATEMENTS
The Corporation has elected to comply with the financial statement requirement
of Item 17 rather than this Item.
ITEM 19. EXHIBITS
FINANCIAL STATEMENTS
Reference is made to the Financial Statements appearing as Exhibit (1).
INDEX TO FINANCIAL STATEMENTS
- ------------------------------------------------------------ ------------
FINANCIAL STATEMENTS PAGE
- ------------------------------------------------------------ ------------
Audited Financials -December 31, 2002 and December 31, 2001.
Report of Independent Accountants F-2
Balance Sheet F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Cash Flows F-6
Notes to Financial Statements F- 7 to F-15
Page 22 of 24
INDEX TO EXHIBITS
Exhibits
2.1.1 Plan of Merger
2.1.2 Articles of Merger
3.1.1 Certificate of Incorporation*
3.1.2 Certificate of Restoration and Renewal of Certificate of
Incorporation*
3.2.1 By-laws*
3.2.2a Amended and Restated Memorandum of Association
3.2.2b Amended and Restated Articles of Association
13.1 Form 10-QSB for the Quarter ended March 31, 2002*
13.2 Form 10-QSB for the Quarter ended June 30, 2002*
13.3 Form 10-QSB for the Quarter ended September 30, 2002*
16. Letter on change in certifying accountant*
- --------
* Previously Filed
Reports on Form 8-K
Report dated March 3, 2003 *
Report dated December 4, 2002 *
Report dated October 29, 2002 *
- --------
* Previously Filed
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
SOIL BIOGENICS LIMITED
(Registrant)
Date: June 24, 2003 BY: /s/ A. Cameron Richardson
A. Cameron Richardson
Director and President
Date: June 24, 2003 BY: /s/ Agustin Gomez de Segura
Agustin Gomez de Segura
Director
CERTIFICATIONS
I, A Cameron Richardson, certify that:
1. I have reviewed this annual report on Form 20-F of Soil Biogenics Limited;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
Page 23 of 24
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 24, 2003 BY: /s/ A Cameron Richardson
A Cameron Richardson
President and Chief Financial Officer
Page 24 of 24
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(A development stage company)
Financial Statements
(EXPRESSED IN U.S. DOLLARS)
December 31, 2002 and 2001
INDEX
-----
Report of Independent Accountants
Balance Sheets
Statements of Stockholders' Equity
Statements of Operations
Statements of Cash Flows
Notes to Financial Statements
F1
MOORE STEPHENS ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
Website: www.ellisfoster.com
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
We have audited the balance sheets of SOIL BIOGENICS LIMITED ("the Company") as
at December 31, 2002 and 2001 and the statements of stockholders' equity,
operations and cash flows for the years then ended and cumulative data from June
30, 1997 to December 31, 2002. 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 of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2002 and 2001
and the results of their operations and their cash flows for the years then
ended and cumulative data from June 30, 1997 to December 31, 2002 in conformity
with generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
June 12, 2003 Chartered Accountants
F2
- --------------------------------------------------------------------------------
MS An independently owned and operated member of Moore Stephens North America,
Inc. Members in principal cities throughout North America. Moore Stephens North
America, Inc. is a member of Moore Stephens International Limited, members in
principal cities throughout the world.
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Balance Sheets
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
===========================================================================
2002 2001
- ---------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents $ 176 $ 11
Receivables - 118
Investments 913,003 801,884
- ---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 913,179 802,013
NOTES RECEIVABLE, non-interest bearing - 39,821
- ---------------------------------------------------------------------------
TOTAL ASSETS $ 913,179 $ 841,834
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT
Accounts payable and accrued liabilities $ 9,379 $ 98,753
Note payable, non-interest bearing - 21,977
- ---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,379 120,730
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
50,000,000 common shares without par value
Issued:
12,912,500 (2001: 13,000,000) common shares - -
PAID-IN CAPITAL 2,015,000 1,840,000
ACCUMULATED DEFICIT (1,120,423) (935,106)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 9,223 (183,790)
- ---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 903,800 721,104
- ---------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 913,179 $ 841,834
===========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MOORE STEPHENS ELLIS FOSTER LTD.
F3
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Statements of Stockholders' Equity
Years Ended December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
=========================================================================================================================
Accumulated Total
Other Total compre-
compre- stock- hensive
Common stock Paid-in Accumulated hensive holders' income
Shares Amount capital (deficit) income (loss) equity (loss)
- -------------------------------------------------------------------------------------------------------------------------
RECAPITALIZATION (Note 1) 13,000,000 $ - $1,840,000 $ (690,683) $ (497,061) $ 652,256 $ -
Net (loss) for the year - - - (244,423) - (244,423) (244,423)
Other comprehensive income
- - Unrealized investment income - - - - 313,271 313,271 313,271
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2001 13,000,000 - 1,840,000 (935,106) (183,790) 721,104 $ 68,848
===========
For settlement of debt
at $0.50 per share in November 350,000 - 175,000 - - 175,000 -
Cancellation of common stocks
held in escrow (437,500) - - - - - -
Net (loss) for the year - - - (185,317) - (185,317) (185,317)
Other comprehensive income
- - Unrealized investment income - - - - 193,013 193,013 193,013
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2002 12,912,500 $ - $2,015,000 $(1,120,423) $ 9,223 $ 903,800 $ 7,696
=========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MOORE STEPHENS ELLIS FOSTER LTD.
F4
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Statements of Operations
(EXPRESSED IN U.S. DOLLARS)
=====================================================================================
Cumulative
June 30 Year Year
1997 to Ended Ended
December 31 December 31 December 31
2002 2002 2001
- -------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Administrative and general $ 127,717 $ 13,829 $ 35,501
Professional fees - accounting and legal 105,826 16,733 9,714
Salaries and consulting fees 368,599 205,791 31,662
- -------------------------------------------------------------------------------------
602,142 236,353 76,877
EXPLORATION EXPENSES 152,419 - -
WRITE-OFF OF MINERAL PROPERTY COSTS 309,250 - 12,250
- -------------------------------------------------------------------------------------
(1,063,811) (236,353) (89,127)
- -------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Interest income 34,593 - 892
Dividend income 2,835 - -
Realized gain (loss) on
sale of investments 9,203 125,139 (145,901)
Write-down of investments (72,788) (72,788) -
Interest expense (15,842) (189) (519)
Foreign exchange loss (14,613) (1,126) (9,768)
- -------------------------------------------------------------------------------------
(56,612) 51,036 (155,296)
- -------------------------------------------------------------------------------------
NET (LOSS) FOR THE PERIOD $(1,120,423) $ (185,317) $ (244,423)
=====================================================================================
(LOSS) PER SHARE - basic and diluted $ (0.01) $ (0.02)
=====================================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- basic and diluted 12,991,849 13,000,000
=====================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MOORE STEPHENS ELLIS FOSTER LTD.
F5
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Statements of Cash Flows
(EXPRESSED IN U.S. DOLLARS)
====================================================================================
Cumulative
June 30 Year Year
1997 to Ended Ended
December 31 December 31 December 31
2002 2002 2001
- ------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net (loss) for the period $(1,120,423) $(185,317) $ (244,423)
Adjustments to reconcile net loss to net
cash used in operating activities:
- realized loss (gain) on sale of
investments (13,133) (125,319) 145,901
- expenses settled by common stocks 178,000 175,000 -
- write-down of investments 72,788 72,788 -
- write-off of mineral property costs 309,250 - 12,250
Changes in assets and liabilities:
- decrease (increase) in receivables (118) 39,821 (39,880)
- increase in accounts payable 108,120 9,368 45,107
- ------------------------------------------------------------------------------------
(465,516) (13,659) (81,045)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN)
INVESTING ACTIVITIES
Purchase of available-for-sale securities (2,470,742) - (291,001)
Proceeds from sale of available-for-sale
securities 1,386,707 13,824 349,658
Mineral property costs (12,250) - -
- ------------------------------------------------------------------------------------
(1,096,285) 13,824 58,657
- ------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Proceeds from issuance of common stocks 1,540,000 - -
Proceeds from notes payable 21,977 - 21,047
- ------------------------------------------------------------------------------------
1,561,977 - 21,047
- ------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 176 165 (1,341)
CASH AND CASH EQUIVALENTS,
beginning of period - 11 1,352
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of period $ 176 $ 176 $ 11
====================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
MOORE STEPHENS ELLIS FOSTER LTD.
F6
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1. NATURE OF BUSINESS AND GOING CONCERN
The Company was incorporated under the laws of the British Virgin Islands
on August 23, 2002 and changed its name to Soil Biogenics Limited on
February 11, 2003.
The Company was formed as a wholly owned subsidiary of Patagonia Gold
Corporation ("Patagonia"), a Florida State, United States of America
incorporated company listed on the NASDAQ OTC Bulletin Board. The Company
had no operations prior to November 29, 2002. Effective November 29, 2002,
the shareholders of Patagonia approved a Plan and Articles of Merger (the
"Merger") with the Company, whereby all the assets and liabilities of
Patagonia vested by virtue of such merger into the Company. The
shareholders of Patagonia received one common share of the Company for each
common share of Patagonia they owned. Upon completion of the Merger, the
common shares of the Company replaced the common shares of Patagonia on the
NASDAQ OTC Bulletin Board and Patagonia ceased to exist.
This transaction resulted in the former shareholders of Patagonia becoming
the shareholders of the Company. Accordingly, the accounting principle is
to treat the Company as a continuation of the operations of Patagonia.
Under this basis of accounting, the Company's operating results and cash
flows for the year ended December 31, 2002 will include Patagonia's
operating results and cash flows from January 1, 2002 to November 28, 2002.
The Company is also reporting the 2001 figures of Patagonia as the
comparative figures of the Company in 2002. The cumulative data of
Patagonia's operating results and cash flows from June 30, 1997 to November
28, 2002 will also be included in the cumulative data of the Company's
operating results and cash flows.
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company has not
generated any operating revenues to date and incurred recurring operating
losses. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from this uncertainty.
The Company's continuing operations, as intended, are dependent upon its
ability to obtain additional financing and identify, evaluate and negotiate
an acquisition of an interest in properties, assets and businesses. The
Company will require additional funds to meet its obligations and maintain
its operations. Management's plans in this regard are to raise equity
and/or debt financing as required.
MOORE STEPHENS ELLIS FOSTER LTD.
F7
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates
and assumptions.
(b) Foreign Currency Transactions
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.
(c) Cash Equivalents
Cash equivalents are comprised of certain highly liquid instruments
with a maturity of three months or less when purchased. There were no
cash equivalents as of December 31, 2001 and 2002.
(d) Concentration of Credit Risk
The Company places its cash and cash equivalents with high credit
quality financial institutions. The Company had no funds deposited in
a financial institution beyond the insured limits as of December 31,
2001 and 2002.
(e) 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.
MOORE STEPHENS ELLIS FOSTER LTD.
F8
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Long-lived Assets Impairment
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets. Certain long-term assets of the Company are
reviewed when changes in circumstances require as to whether their
carrying value has become impaired. Management considers assets to be
impaired if the carrying value exceeds the future projected cash flows
from related operations (undiscounted and without interest charges).
If impairment is deemed to exist, the assets will be written down to
fair value
(g) Comprehensive Income
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.
(h) Expenses Related to Mineral Properties
Exploration costs are charged to operations as incurred as are normal
development costs until such time that proven reserves are discovered.
From that time forward, the Company will capitalize all costs to the
extent that future cash flow from reserves equals or exceeds the costs
deferred. Cost of initial acquisition of mineral rights and
concessions are capitalized until the properties rights are abandoned,
expired or became impaired. 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.
(i) Advertising Expenses
The Company expenses advertising costs as incurred. The Company did
not incur any advertising costs in 2001 and 2002.
(j) Income Taxes
The Company adopted SFAS No. 109, Accounting for Income Taxes, which
requires the Company to recognize deferred tax liabilities and assets
for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns using
the liability method. Under this method, deferred tax liabilities and
assets are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are
expected to reverse.
MOORE STEPHENS ELLIS FOSTER LTD.
F9
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Loss Per Share
The Company adopted SFAS No. 128, Earnings Per Share. Loss per share
is computed using the weighted average number of shares outstanding
during the year.
(l) Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. 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, as they are short term in
nature. Management is of the opinion that the Company is not exposed
to significant interest, credit or currency risks arising from these
financial instruments.
(m) New Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issued No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. SFAS No. 146 generally requires a
liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period
in which the liability is incurred. The pronouncement is effective for
exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No.146 will not have an impact on the Company's
financial statements.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
including Indirect Guarantees of indebtedness of Others - An
Interpretation of FASB Statements of No. 5, 57 and 107 and rescission
of FASB Interpretation No. 34. This interpretation clarifies the
requirements for a guarantor's accounting for and disclosures of
certain guarantees issued and outstanding. FIN 45 also clarifies the
requirements related to the recognition of a liability by a guarantor
at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The adoption of FIN
45 will not have impact on the Company's financial statements.
MOORE STEPHENS ELLIS FOSTER LTD.
F10
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) New Accounting Pronouncements (continued)
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-based Compensation - Transition and Disclosure. SFAS No. 148
amends SFAS No. 123 to provide alternative methods for voluntary
transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also requires
disclosure of the effects of an entity's accounting policy with
respect to stock-based employee compensation on reported net income
(loss) and earnings (loss) per share in annual and interim financial
statements. SFAS No. 148 is effective for fiscal years beginning after
December 15, 2002. The adoption of SFAS No. 148 will not have an
impact on the Company's financial statements.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities - An Interpretation of
Accounting Research Bulletin (ARB) No. 51. This interpretation
clarifies how to identify variable interest entities and how the
Company should assess its interests in a variable interest entity to
decide whether to consolidate the entity. FIN 46 applies to variable
interest entities created after January 31, 2003, in which the Company
obtains an interest after that date. Also, FIN 46 applies in the first
fiscal quarter or interim period beginning after June 15, 2003, to
variable interest entities in which the Company holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN
46 will not have an impact on the Company's financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133. This Statement is effective for
contracts entered into or modified after June 30, 2003. The adoption
of SFAS No. 149 will not have an impact on the Company's financial
statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This Statement is
effective for financial instruments entered into or modified after May
30, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No.
150 will not have an impact on the Company's financial statements.
MOORE STEPHENS ELLIS FOSTER LTD.
F11
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
3. INVESTMENTS
Investments consist of available-for-sale securities and are summarized as
follows:
- -------------------------------------------------------------------------------------
Gross Gross Accumulated
unrealized unrealized unrealized Market
Cost gains losses gains (losses) value
- -------------------------------------------------------------------------------------
January 1, 2001 $1,190,232 $ 171,222 $ (668,283) $ (497,061) $693,171
Change in the year (204,558) 163,871 149,400 313,271 108,713
- -------------------------------------------------------------------------------------
December 31, 2001 985,674 335,093 (518,883) (183,790) 801,884
Change in the year (81,894) 99,394 93,619 193,013 111,119
- -------------------------------------------------------------------------------------
December 31, 2002 $ 903,780 $ 434,487 $ (425,264) $ 9,223 $913,003
- -------------------------------------------------------------------------------------
4. MINERAL PROPERTY COSTS
(a) Argentina
The Company held several mineral concessions in the Province of La
Rioja, Argentina. Acquisition costs of $3,000 for these mineral
concessions were capitalized by the Company. In 2001, the Company
wrote off the acquisition cost since no proven mineral reserves were
discovered and the recoverability of these costs was in doubt.
(b) Guatamala
The Company capitalized $9,250 of acquisition cost and earned a 50%
interest in the San Diego Mineral Exploration Reconnaissance License.
In 2001, the Company wrote-off the acquisition cost since it decided
not to make the annual fee payment and thereby forfeited the mineral
reconnaissance licence.
MOORE STEPHENS ELLIS FOSTER LTD.
F12
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
5. NON-CASH TRANSACTIONS
(a) In 2002, the Company issued 350,000 common shares at $0.50 per share
in settlement of consulting fees of $175,000.
(b) In 2002, the Company transferred 301,050 common shares at $0.40 per
share of its securities investment in a listed company to a debtor in
settlement of $120,420 owed.
6. RELATED PARTY TRANSACTIONS
The Company paid consulting fees of $9,791 to a director of the Company.
7. SUBSEQUENT EVENT
The Company is in the process of completing the acquisition of Soil
Biogenics Ltd. ("SBL Bermuda"), a Bermuda incorporated company, by the
issuance of 17,000,000 of its common shares. SBL Bermuda has a wholly owned
Russian subsidiary, Piksa Inter LLC and is in the business of producing
bio-organic fertilizer.
Pursuant to the Share Exchange Agreement between the Company and the
shareholders of SBL Bermuda, the shareholders of SBL Bermuda will receive
one common share of the Company for each common share of SBL Bermuda they
own. After the acquisition, SBL Bermuda will become a wholly owned
subsidiary of the Company. The transaction will result in the former
shareholders of SBL Bermuda becoming the majority shareholders of the
Company. Accounting principles applicable to reverse acquisition have been
applied to record this transaction. Under this basis of accounting, SBL
Bermuda has been identified as the acquirer and, accordingly, the combined
entity is considered to be a continuation of the operations of SBL Bermuda
with the net assets of the Company being acquired by SBL Bermuda.
MOORE STEPHENS ELLIS FOSTER LTD.
F13
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
7. SUBSEQUENT EVENT (continued)
The following presents the 2002 pro-forma financial position and operating
results of the combined entity as if the Company has completed the above
transaction as at January 1, 2002, using the 2002 unaudited financial
statements of SBL Bermuda.
Pro-forma Consolidated Balance Sheet as at December 31, 2002 (unaudited)
- ------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 35,476
Investments 913,003
Accounts receivable 74,900
Inventories 48,100
- --------------------------------------------------------
TOTAL CURRENT ASSETS 1,071,479
Long term receivables 3,000
Property, plant and equipment 160,800
Patents, licenses and trademarks 1,800
- --------------------------------------------------------
TOTAL ASSETS $1,237,079
========================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 126,779
Loans payable 95,800
- --------------------------------------------------------
TOTAL CURRENT LIABILITIES 222,579
- --------------------------------------------------------
STOCKHOLDERS' EQUITY
Share capital -
Paid-in capital 1,008,304
Accumulated deficit (181,217)
Accumulated other comprehensive income 187,413
- --------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,014,500
- --------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,237,079
========================================================
MOORE STEPHENS ELLIS FOSTER LTD.
F14
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
(An development stage company)
Notes to Financial Statements
December 31, 2002 and 2001
(EXPRESSED IN U.S. DOLLARS)
================================================================================
7. SUBSEQUENT EVENT (continued)
Pro-forma Consolidated Statement of Operations and Deficit for the year ended
- -----------------------------------------------------------------------------
December 31, 2002 (unaudited)
- -----------------------------
SALES $149,900
- -------------------------------------------
COSTS AND EXPENSES
Operating 115,000
General and administrative 246,853
Amortization 500
- -------------------------------------------
362,353
- -------------------------------------------
OTHER INCOME (EXPENSES)
Interest income 1,400
Realized gain on investments 125,139
Write-down of investments (72,788)
Interest expense (3,289)
Foreign exchange loss (1,126)
- -------------------------------------------
49,336
- -------------------------------------------
LOSS BEFORE INCOME TAXES (163,117)
INCOME TAXES 5,300
- -------------------------------------------
LOSS FOR THE YEAR $(168,417)
===========================================
MOORE STEPHENS ELLIS FOSTER LTD.
F15