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, 2004
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)
Marques de Urquijo 5, 5 B, 28008, Madrid, Spain
(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, 2004 30,162,500 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 23
SOIL BIOGENICS LIMITED
TABLE OF CONTENTS
PART I
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 3
FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 3
CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS . . 4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . 4
ITEM 3. KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . 4
ITEM 4. INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . 5
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . 8
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . 10
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . 15
ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . 16
ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . 17
ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . 17
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . 19
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES . . . . . 20
ITEM 14. MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . 20
ITEM 15. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . 20
ITEM 16. (RESERVED) . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . 20
ITEM 16B. CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . 20
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES . . . . . . . . . . . . . . . . . . . . . 21
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS. . . . . . . . . . . . . . . . . . . 21
PART III
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 21
ITEM 18. FINANCIAL STATEMENTS (NOT APPLICABLE) . . . . . . . . . . 23
ITEM 19. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Page 2 of 23
PART I
GENERAL INFORMATION
DEFINED TERMS
Soil Biogenics Limited is a corporation organized under the laws of the British
Virgin Islands. As used in this document, the term "Soil Biogenics" refers to
Soil Biogenics Limited and the terms "we", "us", "our", and the "Company" refer
to Soil Biogenics and, as applicable, Soil Biogenics and its direct and indirect
subsidiaries as a group.
FORWARD-LOOKING STATEMENTS
This document, including the documents incorporated by reference, contain
"forward-looking statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995 that relate to future events or our future
financial performance. Statements containing words such as "could", "expect",
"may", "anticipate", "believe", "intend", "estimate", "plan" and similar
expressions constitute forward-looking statements. We disclaim any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by
applicable securities laws.
Forward-looking statements are subject to important risks, uncertainties and
assumptions that are difficult to predict. The results or events predicted in
forward-looking statements may differ materially from actual results or events.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include, but are not
limited to, the following: general business and economic conditions and
governmental policies affecting the agricultural industry in localities where
the Company or its customers operate; weather conditions; the impact of
competitive products; pressure on prices realized by the Company for its
products; constraints on supplies of raw materials used in manufacturing certain
of the Company's products; capacity constraints limiting the production of
certain products; difficulties or delays in the development, production, testing
and marketing of products; difficulties or delays in receiving, or increased
costs of obtaining or satisfying conditions of, required governmental and
regulatory approvals; market acceptance issues, including the failure of
products to generate anticipated sales levels; the effects of and change in
trade, monetary, environmental and fiscal policies, laws and regulations;
foreign exchange rates and fluctuations in those rates; the costs and effects of
legal proceedings, including environmental and administrative proceedings
involving the Company; success in implementing the Company's various
initiatives; and other risk factors reported from time to time in the Company's
Securities and Exchange Commission reports. These factors are based upon the
Company's strategic plans and direction under its current Board of Directors and
management.
As a result of these and other factors, there is no assurance that any of the
events, circumstances or results anticipated by forward-looking statements
included or incorporated by reference into this document will occur or, if they
do, of what impact they will have on our business or on our results of
operations and financial condition.
CURRENCY
All dollar references are to United States dollars unless indicated.
Page 3 of 23
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
SELECTED FINANCIAL DATA
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
2004 2003 2002 2001 2000
$ $ $ $ $
- ---------------------------------------------------------------------------------------------------
OPERATING RESULTS
Sales 1,809,715 369,200 151,977 N/A N/A
Income (Loss) from operations 178,980 (214,860) 19,548 (244,423) (65,515)
Net Income (Loss) 208,704 (346,602) 13,550 (244,423) (65,515)
Cash flow used in operations 140,316 362,887 62,998 81,045 78,761
Capital expenditures (5,554) 36,150 4,678 N/A N/A
FINANCIAL POSITION
Cash and short-term deposits 1,126,302 58,822 35,350 11 1,352
Investments 566,196 1,046,377 - 801,884 693,171
Total assets 2,939,106 1,442,152 312,407 841,834 706,832
Long-term debt N/A N/A N/A N/A 930
Capital stock 1,915,959 915,959 105,817 1,840,000 1,840,000
Shareholders' equity 2,044,292 1,050,598 107,172 721,104 652,256
PER SHARE DATA
Net Income (loss) per share 0.01 (0.01) 0.00 (0.02) (0.01)
SHARES OUTSTANDING
At year end 30,162,500 30,162,500 17,000,000 13,000,000 13,000,000
Weighted average during year 30,162,500 28,539,726 16,950,027 13,000,000 13,000,000
The above Five Year Comparative Summary of Selected Financial Data reflects that
the acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI)
which was accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda)
because the shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil
Biogenics Limited (BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was
treated as the acquiring entity for accounting purposes and Soil Biogenics
Limited (BVI) was the surviving entity for legal purposes.
MARKET
The soil regeneration, soil reclamation and grass and crop nutrients industry is
a global market, in which supply and demand are dictated by worldwide factors.
Demand is driven largely by economic and political conditions, demographics as
well as limits on arable land. Population growth increases demand for
agricultural products, as do increases in disposable income and associated
improvements in diet. Improved diets include greater consumption of livestock
and
Page 4 of 23
poultry, which together lead to an increase in the annual consumption of grain.
An increasing demand for grain, combined with limits on arable land, drives
demand for higher crop yields through greater application of crop
nutrients/fertilizers, soil regeneration and reclamation. Supply of products of
crop nutrients and fertilizers for soil regeneration and reclamation is
generally driven by higher global commodity prices, weather conditions and local
government policies.
Given the commodity nature of the soil regeneration, soil reclamation and grass
and crop nutrients business, industry players compete largely on the basis of
low cost and, to a lesser extent, differentiated customer service. Low cost is
principally a function of the ability to strategically source raw material
inputs and the breadth and cost of the transportation infrastructure.
FACTORS AFFECTING DEMAND
The Company currently sells its products in the Moscow region. Future sales of
the Company's products throughout Russia, Spain, the Southern Mediterranean and
Europe will be affected by unfavorable changes in trade protection laws,
policies and measures, and other regulatory requirements affecting trade;
unexpected changes in tax and trade treaties and strengthening or weakening of
foreign economies may cause sales trends to customers in one or more foreign
countries to differ from sales trends in Russia.
Revenues are highly dependent upon conditions in the Russian agriculture,
landscaping and gardening industries and can be affected by crop failure,
changes in agricultural production, landscaping and gardening practices,
government policies and weather. Furthermore, the Company's business is
seasonal to the extent Russian farmers, agricultural enterprises and landscaping
companies purchase more of the Company's products during the spring and fall.
The Company maintains its accounts in United States dollars. The Company's
operations in Russia and Spain are subject to risks from changes in foreign
currencies. The costs of the Russian operations are principally denominated in
Roubles while the Spanish operations are denominated in the Euro. As a result,
significant changes in the exchange rate of these two currencies can have a
significant effect on the company's business and results of operations. For
additional detail, see Market Risk in Item 5, "Market Risk Disclosures" and Item
11 "Quantitative and Qualitative Disclosures about Market Risk" of this Annual
Report on Form 20-F.
CONFLICTS OF INTEREST
The Company's Directors serves as Directors of other companies. To the extent
that such other companies may participate in ventures in which the Company may
participate, a Director may have a conflict of interest in negotiating and
concluding terms respecting the extent of such participation. In addition,
conflicts of interest may arise from time to time, as a result of the Company
engaging in transactions in which Directors and Officers of the Company may have
an interest. Please refer to Item 7, "Related Party Transactions."
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.
Page 5 of 23
On August 23, 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 were 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 November 2, 2002, Soil Biogenics Ltd. (SB Bermuda), a company incorporated in
Bermuda on October 19, 2000, entered into a Plan and agreement of reorganization
with PIKSA Inter LLC (PIKSA). Under the terms of the Plan, SB Bermuda acquired
all of the issued and outstanding common stock of PIKSA in exchanged for
16,940,000 of its shares of common stock. In connection with the Plan, the Board
of Directors of SB Bermuda approved and increased the authorized shares of SB
Bermuda to 3,4000,000, followed by a stock split of 5 common stock for one
common stock totalling 17,000,000 common stock issued and outstanding after the
completion of the Plan.
PIKSA was accounted for as the acquirer and as the surviving accounting entity
because the former stockholders of PIKSA received approximately 100% of the
voting rights in the combined corporation. The shares issued by the SB Bermuda
have been accounted for as if those shares comprised the historical share
capital of PIKSA. The outstanding capital stock of the SB Bermuda, at the date
of the 2002 acquisition, has been accounted for as shares issued by PIKSA to
acquire the net assets of SB Bermuda. The transaction was treated, for
accounting purposes, as an acquisition (purchase) of control of the assets and
business of SB Bermuda by PIKSA. At the date of transaction, SB Bermuda has nil
assets and liabilities.
On February 11, 2003 Patagonia Gold (BVI) Limited changed its name to Soil
Biogenics Limited (SB (BVI)) and its trading symbol from "PGBVF" to "SOBGF".
On February 13, 2003, SB (BVI) completed an Agreement for the Exchange of Common
Stock ("Agreement") with SB Bermuda, whereby SB (BVI) issued 17,000,000 shares
of its common stock in exchange for all of the outstanding common stock of SB
Bermuda. Immediately prior to the Agreement, SB (BVI) had 12,912,500 shares of
common stock issued and outstanding. The acquisition was accounted for as a
recapitalization of SB Bermuda because the shareholders of SB Bermuda controlled
SB (BVI) after the acquisition. SB Bermuda was treated as the acquiring entity
for accounting purposes and SB (BVI) was the surviving entity for legal
purposes. There was no adjustment to the carrying value of the assets or
liabilities of SB Bermuda.
On March 7, 2003 Soil Biogenics Ltd. acquired 100% of the issued and outstanding
shares of Soil Biogenics S.L., (SB Spain) formerly known as AAM Emprendimentos,
S.L. AAM mprendimentos, S.L was incorporated as a Limited liability Mercantile
Company in Madrid, Spain on August 5, 2002. The company was inactive prior to
its acquisition by Soil Biogenics Ltd.
Page 6 of 23
Soil Biogenics Limited is engaged in the design, development and manufacture of
bio-organic and biological fertilizers used in soil regeneration, reclamation
and improvement of intracellular processes in grass and agricultural plants
through its subsidiary Soil Biogenics Ltd.
BUSINESS OVERVIEW
Piksa Inter LLC, a wholly owned subsidiary of Soil Biogenics Ltd (Bermuda), is a
production and scientific research company engaged in the design, development
and manufacture of bio-organic and biological fertilizer products used for soil
regeneration, reclamation and improvement of intracellular processes in grass
and agricultural plants. The company 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
production facilities are located 25 km from Moscow in the district of
Liubertzi. The Company employs twenty people, mostly engineers and scientists,
and subcontracts services for the maintenance of the production facilities. The
company also uses the services of specialists from leading Russian agricultural
research institutions.
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 Company's technology
transforms wastes produced through agriculture and food-processing into an
ecologically pure bio-compost fertilizer. All raw materials used in the process
are available in large quantities. One of the Company's primary sources of raw
materials is chicken manure which is available in large quantities from a nearby
plant. The manufacturing process produces no wastes and there are no harmful
byproducts emitted into the air.
The bacteria mixture when combined with sterile compost produces a Super-compost
bio-organic fertilizer which is then mixed with soil to increase soil fertility
and productivity. The organic makeup of the Super-compost Piksa regenerates the
soil while the micro-organisms from the bacteria mixture restore nitrogen and
transform both phosphorus and potassium into more plant accessible forms. The
bio-organic fertilizer is also used in the reclamation of soil from
contaminations such as oil derivates and heavy metals.
Retail sales are currently concentrated in and around the city of Moscow, while
wholesale sales are sold throughout the Russian Federation. The Company's
products are currently used in hothouses, private gardens, in commercial
agriculture and landscaping. Customers vary from small farms and retail garden
centers to construction companies, large gardening companies contracted by the
Moscow City Government and Russian State Agencies where the bio-organic
fertilizers are used for soil remuneration and decontamination.
In 2003 the Company started the process of certification of the Super compost
Piksa bio-organic fertilizer in Spain. Soil Biogenics S.L., a 100% subsidiary of
Soil Biogenics Ltd. (Bermuda) is in the process of obtaining certification and
patenting of the Super compost Piksa bio-organic fertilizer. Upon obtaining
certification and registration of patents for the Company's products, Soil
Biogenics S.L. will produce and market its product in the Mediterranean region.
The Company expects the largest market for its product to be in the agriculture
industry. The Company intends to also market its product to golf courses in
Spain's southern region and golf courses in and around Madrid. Heavy competition
in the production of fertilizers for golf courses will mean industry players
will compete on the basis of low cost and to a lesser extent differentiated
customer service. Pricing policy is expected to play a decisive role in sales.
The Spanish company currently employs four people and has an agreement with the
Environmental Sciences Centre (Centro de Ciencias Medioambientales) of the
Superior Council for Scientific Research (Consejo Superior de Investigaciones
Cientificas) "the CCMA-CSIC" to assist in the
Page 7 of 23
development of new types of bio-organic fertilizers. Raw materials in the form
of high quality composts are easily available from numerous suppliers.
Production and marketing of the bio-organic fertilizer is expected to commence
in late 2005. The bio-organic fertilizer product will be offered in concentrated
liquid form in 5 to 10 liter volumes and should be diluted prior to application.
The Company intends to set up a distribution network of dealers throughout the
Mediterranean region in late 2005.
EMPLOYEES
Soil Biogenics Limited and its wholly owned subsidiaries employed 25 persons as
of June 15, 2005, (December 31, 2004 - 19 persons) 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 2004, 2003 and 2002, there were no
strikes or walkouts.
ORGANIZATION STUCTURE
Soil Biogenics Limited
|
Soil Biogenics Ltd.
|
-----------------------------
| |
Piksa Inter LLC Soil Biogenics S.L.
|
-- Piksa Research and Production Association ("NPO Piksa LC")
-- Biogrunt
Soil Biogenics Limited Incorporated as an International Business Company in
the British Virgin Islands;
Soil Biogenics Ltd. Incorporated in Bermuda and is a 100% wholly owned
subsidiary of Soil Biogenics Limited (BVI);
Soil Biogenics S.L. Incorporated in Madrid, Spain and is a 100% wholly
owned subsidiary of Soil Biogenics Ltd. (Bermuda);
Piksa Inter LLC Incorporated in Moscow, Russia and is a 100% wholly
owned subsidiary of Soil Biogenics Ltd. (Bermuda);
Piksa Research and Production Association LLC ("NPO Piksa LLC")
Incorporated in Moscow, Russia and is a 100% wholly
owned subsidiary of Piksa Inter LLC;
Biogrunt Incorporated in Moscow, Russia and is a 61% owned
subsidiary of Piksa Inter LLC;
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 projects and business that bring added value, to
maintain operational flexibility and to minimize operating costs.
The 2004 financial statements present the Company's results of operations and
its financial
Page 8 of 23
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.
Revenues during 2004 were $1,809,715 (2003 - $369,200; 2002 - $151,977).
(A) OPERATING RESULTS
Operating results for the years ending December 31, 2004, 2003, 2002 and 2001
are tabulated below:
YEAR ENDING
DESCRIPTION DEC 31, 2004 DEC 31, 2003 DEC 31, 2002 DEC 31, 2001
Income (Loss) 208,704 (346,602) 13,550 (244,423)
Income (Loss) per share 0.01 (0.01) 0.00 (0.02)
Sales 1,809,715 369,200 151,977 -
Cost of Sales 1,111,921 327,155 115,790 -
Gross Profit 697,794 42,045 36,187 -
Selling Expenses 33,019 57,641 1,212 -
General and Administration 380,806 146,691 15,427 76,877
Amortization 43,685 29,215 - -
Research and development 61,304 23,358 - -
The above Comparative Summary of Selected Financial Data reflects that the
acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI) was
accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda) because the
shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil Biogenics Limited
(BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was treated as the
acquiring entity for accounting purposes and Soil Biogenics Limited (BVI) was
the surviving entity for legal purposes.
(B) LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2004 the Company recorded income of $208,704
($0.01 per share), compared to a loss of $346,602 ($0.01 per share) for 2003 and
a net loss of 13,550 ($0.00 per share) in 2002.
At December 31, 2004, the Company had cash of $1,126,302 (2003 - $58,822) and
working capital of $1,908,142 (2003 working capital - $866,839) respectively.
Total liabilities as of December 31, 2004 were $894,814 as compared to $391,554
on December 31, 2003, an increase of $503,260. In fiscal 2004 the Company
settled loans payable in the amount of $259,558 by the assignment of its
holdings of International Croesus Ventures Corp. During 2004 net proceeds from
the issuance of common stock were $1,000,000 (2003 - $0). In Fiscal 2004
investing activities consisted of additions to plant and equipment $-5,554 (2003
- - $36,150).
In fiscal 2003 the company issued 17,000,000 shares to acquire a 100% interest
in Soil Biogenics Ltd., a Bermuda corporation. 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.
The general business strategy of the Company is to research, design, develop and
manufacture products for soil regeneration, soil reclamation and grass and crop
nutrients either directly or through the acquisition of operating entities. The
Company's financial statements have been
Page 9 of 23
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 may need to obtain additional funds (presumably through equity
offerings and/or debt borrowing) in order, if warranted, for plant and equipment
acquisition and expansion, for new bio-organic fertilizer products research,
development, testing, certification, manufacture and marketing. Failure to
obtain such additional financing may result in a reduction of the Company's
future revenues and profitability. The Company has no agreements with any person
as to such additional financing.
While the Company may attempt to generate additional working capital through
research and development, manufacture, sale or possible joint venture
development of bio-organic fertilizers and other products for soil regeneration,
soil reclamation and grass and crop nutrients, there is no assurance that any
such activity will generate funds that will be available for operations.
PLANS FOR YEAR 2005
The Company's plans for year 2005 center on the Piksa subsidiary increasing the
sales of its Super compost Piksa bio-organic fertilizer to the various Russian
State Agencies, the gardening companies working for the Moscow City Government
and to increase sales in the St. Petersburg market place, for the Spanish
subsidiary to produce and supply Piksa, the Russian subsidiary, with the
bacteria used in the production of the bio-organic fertilizer and to complete
the patenting and certification of its bio-organic fertilizer in Spain.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of its 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 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. 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.
(C) 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.
(E) MARKET RISK DISCLOSURES.
The Company has not entered into derivative contracts either to hedge existing
risks or for speculative purposes.
Page 10 of 23
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
(A) DIRECTORS AND SENIOR MANAGEMENT
The following table lists the names and positions of the executive officers and
directors of the Company as of June 15, 2005 and December 31, 2004. 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
----------------------- ------------------------------------------------------
Agustin Gomez de Segura Age 50, banker and private investor and developer of
new companies.
----------------------- ------------------------------------------------------
Alexander Becker Age 44, director of several Russian companies involved
in metallurgy, textiles and trading.
-------------------------------------------------------------------------------
(B) 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, 2004, December 31, 2003 and December 31, 2002:
- --------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION AWARDS PAYMENTS
--------------------------- ----------------------- -------------------
SECURITIES
NAME OTHER UNDER- ALL
AND ANNUAL RESTRICTED LYING OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION
($) ($) ($) ($) (=) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------------------------------------------------------------------------
Agustin
Gomez de 2004 Nil -0- -0- None None None -0-
Segura --------------------------------------------------------------------------------
President 2003 Nil -0- -0- None None None -0-
and --------------------------------------------------------------------------------
Director 2002 Nil -0- -0- None None None -0-
- --------------------------------------------------------------------------------------------
On July 1, 2003 Mr. Cameron Richardson resigned from the Board of Directors and
as President of the Company to pursue other interests. On July 1, 2003 Mr.
Agustin Gomez de Segura was appointed to the Board of Directors of the
Corporation and President of the Company.
OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR
The following table sets forth information concerning individual grants of stock
options (whether or not in tandem with stock appreciation rights ("SARs") and
freestanding SARs made during the last completed fiscal year to each of the
named executive officers:
Page 11 of 23
- ------------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN FISCAL YEAR 2004
(Individual Grants)
- ------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR ($/Sh) (M/D/Y)
(a) (b) c) (d) (e)
- --------------------------- ------------ --------------- ------------ ----------------
Agustin Gomez de Segura (1) Nil Nil Nil N/A
- ------------------------------------------------------------------------------------------
(1) No options were granted in fiscal 2004. No SARs were granted in fiscal
2004.
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, 2004 and the value at December 31, 2004 of unexercised in-the-money options
and SARs held by each of the Named Executive Officers:
- ----------------------------------------------------------------------------------
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)
- ----------------------------------------------------------------------------------
Agustin Gomez de Segura 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.
Page 12 of 23
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 two incumbent and one former director in their
capacities as such during the fiscal period ended December 31, 2004 (2003 -
$Nil).
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.
(C) BOARD PRACTICES
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 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 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 be 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 four (4) times during 2004.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors does not have standing a nominating committee
or committee performing similar functions. During the fiscal year ended
December 31, 2004 the entire Board of Directors acted as the Company's
Compensation Committee. 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, the Company's year-end financial statements and other such
matters relating to the Company's financial affairs as its members deem
appropriate. During 2004 the Compensation Committee held one (1) meeting and
the Audit Committee held three (3) meetings.
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
Page 13 of 23
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. The Audit Committee
consists of Messrs. Agustin Gomez de Segura and Alexander Becker.
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 two 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.
(D) EMPLOYEES
Soil Biogenics Limited and its wholly owned subsidiaries employed 25 persons as
of June 15, 2005, of which 0 were covered by collective bargaining agreements.
(E) SHARE OWNERSHIP
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, 2005. As at June 15, 2005 the Company had 31,162,500
(December 31, 2004 - 30,162,500) shares of Common Stock issued and outstanding.
Page 14 of 23
- ----------------------------------------------------------------------------
OFFICERS AND DIRECTORS SHARES OF APPROXIMATE
COMMON PERCENTAGE
NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED
OWNED
- ----------------------------------------------------------------------------
Norbex Holdings Ltd.
Drake Chambers, P.O. Box 3321, Road Town,
Tortola, British Virgin Islands 2,000,000 6.418 %
(Beneficially owned by Agustin Gomez de
Segura)
- ----------------------------------------------------------------------------
Alexander Becker
Komsomolsky Pr. 23/7, App. 25, Moscow, 2,084,040 6.688%
Russia
- ----------------------------------------------------------------------------
Total - Officers and Directors (2 persons) 4,084,040 13.106%
- ----------------------------------------------------------------------------
For information concerning options granted to the above-mentioned individuals
see Item 6 Compensation - Options/SAR Grants Table on page 11.
Agustin Gomez de Segura and Alexander Becker were appointed to the Company's
Board of Directors on July 1, 2003.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
(A) MAJOR SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 15, 2005 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 15, 2005 there were 31,162,500
shares of Common Stock issued and outstanding.
- -------------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT AND PERCENTAGE OF
BENEFICIAL OWNER NATURE OF CLASS
BENEFICIAL OWNER
- -------------------------------------------------------------------------------------
Kastalia Ltd. 2,700,000 8.664 %
Wickhams Cay 1, Road Town, Tortola, British Virgin
Islands
(Beneficially owned by Mr. Alexander Kleimionov)
- -------------------------------------------------------------------------------------
Alexei Y. Sementsow 2,312,000 7.419 %
Baklayeva Str.11, App. 105, City of Kimry,
Tver Region, Russia
- -------------------------------------------------------------------------------------
Alexander Becker 2,084,040 6.688 %
Komsomolsky Pr. 23/7, App. 25, Moscow, Russia
- -------------------------------------------------------------------------------------
Page 15 of 23
- -------------------------------------------------------------------------------------
Norbex Holdings Ltd. 2,000,000 6.418 %
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 6.418 %
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.
(B) 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 companies and, to
the extent that such other companies may participate in ventures in which the
Company may participate, the directors of the Company may have a conflict of
interest in negotiating and concluding terms regarding the extent of such
participation. In the event that such a conflict of interest arises at a
meeting of the directors of the Company, a director who has such a conflict will
abstain from voting for or against the approval of such participation or such
terms. In appropriate cases, the Company will establish a special committee of
independent directors to review a matter in which several directors, or
Management, may have a conflict. From time to time, several companies may
participate in the joint ventures 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
(A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
References are made to Part III, Item 17 Financial Statements and Item 18
Financial Statements.
DIVIDEND RECORD AND POLICY
The Company has not declared cash or share dividends on its common shares since
the Company was incorporated in 1993 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.
Page 16 of 23
SIGNIFICANT CHANGES
No significant changes have occurred since the date of the annual financial
statements included in this document.
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,
2004 and 2003 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.
- --------------------------------
MONTH HIGH ($) LOW ($)
- --------------------------------
June 2005 2.20 2.05
- --------------------------------
May 2005 2.15 1.96
- --------------------------------
April 2005 2.35 2.05
- --------------------------------
March 2005 2.35 1.85
- --------------------------------
February 2005 2.00 1.25
- --------------------------------
January 2005 1.74 1.65
- --------------------------------
- -----------------------------------------------------------------------------
PERIOD FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
- -----------------------------------------------------------------------------
2004 - High ($) 1.95 1.95 1.75 1.85
- -----------------------------------------------------------------------------
2004 - Low ($) 1.30 0.75 1.28 1.45
- -----------------------------------------------------------------------------
2003 - High ($) 1.50 2.00 1.70 1.70
- -----------------------------------------------------------------------------
2003- Low ($) 0.75 1.40 0.90 0.75
- -----------------------------------------------------------------------------
ITEM 10 ADDITIONAL INFORMATION
(A) SHARE CAPITAL
The authorized capital of the Company is 50,000,000 shares of no par value.
(B) MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company previously filed Exhibit 3.2.2b, Amended Memorandum and Articles of
Association in its registration statement on Form 20-F and as the information
has not changed it is incorporated herein by reference.
Page 17 of 23
(C) MATERIAL CONTRACTS
Not applicable.
(D) 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.
As an IBC, the Company has no power: (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.
(E) 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
Page 18 of 23
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.
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has not entered into any derivative contracts either to hedge
existing risks or for speculative purposes. 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 (g) to the
Consolidated Financial Statements.
See the notes to the Consolidated Financial Statements in Item 17 Financial
Statements and Item 5 Management's Discussion and Analysis for additional
information.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable
Page 19 of 23
PART II
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not Applicable
ITEM 15 CONTROLS AND PROCEDURES
The principal executive and principal financial officers of the Company have
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report (evaluation date) and have concluded
that the disclosure controls and procedures are adequate and effective based
upon their evaluation as of the evaluation date.
ITEM 16 (RESERVED)
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
Messrs. Agustin Gomez de Segura and Alexander Becker comprise the Audit
Committee. Mr. Alexander Becker is Chairman of the Audit Committee. Mr. Becker
satisfies the current requirements of the NASD OTC Bulletin Board, relating to
the independence and the qualification of the members of the Audit Committee.
Mr. Agustin Gomez de Segura is and officer and director of the Company.
The Board of Directors of the Company has determined that Mr. Alexander Becker
qualifies as an "audit committee financial expert".
ITEM 16B CODE OF ETHICS
As part of its stewardship responsibilities, the Board of Directors has approved
formal "Standards of Ethical Conduct" that govern the behavior of the directors,
officers and employees of the Company. The Board monitors compliance with these
standards and is responsible for the granting of any waivers from these
standards to directors or officers. Disclosure will be made by the Company of
any waiver from these standards granted to the directors or officers of the
Company in the quarterly report of the Company that immediately follows the
grant of such waiver. No waiver has been granted to date. A copy of the
"Corporate Governance Principles" is filed as Exhibit 11.1 to this Annual Report
on Form 20-F.
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) AUDIT FEES
The aggregate fees billed for professional services rendered by Ernst & Young
LLP (formerly Moore Stephens Ellis Foster Ltd.), the principal accountant for
the Company, for the audit of the Company's annual financial statements and
services normally provided by such accountants in connection with the Company's
statutory and regulatory filings for the Company's fiscal year ended December
31, 2004, were $25,000 (2003 - $23,050).
Page 20 of 23
(b) AUDIT-RELATED FEES
The aggregate fees billed for assurance and related services by Ernst & Young
LLP (formerly Moore Stephens Ellis Foster Ltd.) that are reasonably related to
the performance of the audit or review of the Company's financial statements
were $Nil for the Company's fiscal year ended December 31, 2004 (2003 - $Nil).
(c) TAX FEES
The aggregate fees billed for products and services rendered by Ernst & Young
LLP (formerly Moore Stephens Ellis Foster Ltd.) for tax compliance, tax advice
and tax planning for the Company's fiscal ended December 31, 2004 were $Nil
(2003 - $Nil).
(d) ALL OTHER FEES
There were no additional fees billed for professional services rendered by Ernst
& Young LLP (formerly Moore Stephens Ellis Foster Ltd.) other than the fees
reported in this Item 16C above for the Company's fiscal year ended December 31,
2004 (2003 - $Nil).
(e) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES
The Audit Committee approves the engagement terms for all audit and non-audit
services to be provided by the Company's accountants before such services are
provided to the Company or any of its subsidiaries.
The Audit Committee approved one hundred percent (100%) of the services provided
to the Company and its subsidiaries described in Items 16C (b) through (d)
above.
(f) AUDITORS USE OF NON-PERMANENT EMPLOYEES
None of the hours expended by Ernst & Young LLP (formerly Moore Stephens Ellis
Foster Ltd.) on its engagement to audit the Company's financial statements for
the fiscal year ended December 31, 2004, were performed by persons other than
fulltime permanent employees of Ernst & Young LLP (formerly Moore Stephens Ellis
Foster Ltd.).
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
None.
PART III
ITEM 17 FINANCIAL STATEMENTS.
The Company has elected to comply with the financial statement requirement of
this Item rather than Item 18.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America and applicable to
a going concern which contemplates
Page 21 of 23
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business.
INDEX TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------
FINANCIAL STATEMENTS PAGE
--------------------------------------------------------------------------
Audited Financials - December 31, 2004 and December 31, 2003.
--------------------------------------------------------------------------
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-18
--------------------------------------------------------------------------
Page 22 of 23
SOIL BIOGENICS LIMITED
(formerly Pantagonia Gold (BVI) Limited)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
December 31, 2004 and 2003
INDEX
-----
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F1
Ernst & Young Ernst & Young LLP Phone: (604) 891-8200
[LOGO OMITTED] Chartered Accountants Fax: (604) 643-5422
Pacific Centre
700 West Georgia Street
P.O. Box 10101
Vancouver, BC V7Y 1C7
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
We have audited the consolidated balance sheets of SOIL BIOGENICS LIMITED ("the
Company") as at December 31, 2004 and 2003 and the consolidated statements of
stockholders' equity, operations and cash flows for the years then ended. 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 Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). We were not engaged to perform an audit of the Company's
internal control over financial reporting. Our audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2004 and 2003
and the results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.
Vancouver, Canada "ERNST & YOUNG LLP"
June 29, 2005 Chartered Accountants
F2
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Balance Sheets
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------
2004 2003
- --------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,105,836 $ 39,986
Receivables 975,053 91,085
Marketable securities (note 3) 566,196 1,046,377
Inventories 136,703 62,767
Prepaid expenses and deposits 19,168 18,178
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,802,956 1,258,393
RESTRICTED CASH 20,466 18,836
EQUIPMENT, NET (note 4) 115,684 164,923
- --------------------------------------------------------------------------
TOTAL ASSETS $2,939,106 $1,442,152
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Bank loan (note 5) - $ 67,901
Accounts payable and accrued liabilities 679,480 35,407
Income taxes payable 42,290 -
Notes payable (note 6) - 24,450
Notes payable - related parties (note 6) 173,044 263,796
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 894,814 391,554
- --------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
50,000,000 common shares without par value
Issued:
30,162,500 (2003: 30,162,500) common shares
PAID-IN CAPITAL (note 7) 1,915,959 915,959
ACCUMULATED DEFICIT (142,865) (351,569)
ACCUMULATED OTHER COMPREHENSIVE INCOME 271,198 486,208
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,044,292 1,050,598
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,939,106 $1,442,152
==========================================================================
COMMITMENT AND CONTINGENCIES (note 10)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
APPROVED BY THE DIRECTORS: Agustin Gomez de Segura Alexander Becker
--------------------------- --------------------
Agustin Gomez de Segura Alexander Becker
F3
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated Total
other Total compre-
Common stock Accum- compre- stock- hensive
------------------ Paid-in ulated hensive holders' income
Shares Amount capital (deficit) income (loss) equity (loss)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2002 17,000,000 - $ 105,817 $ (4,967) $ 6,322 $ 107,172 $ 19,872
==========
Recapitalization (Note 1) 12,912,500 - 607,079 - - 607,079 -
Shares issued for the settlement of debt 250,000 - 200,000 - - 200,000 -
Imputed interest - related parties - - 3,063 - - 3,063 -
Components of comprehensive income (loss)
- Net income (loss) for the year - - - (346,602) - (346,602) (346,602)
- Foreign currency translation
adjustments - - - - 9,490 9,490 -
- Unrealized gains on marketable
securities - - - - 470,396 470,396 470,396
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2003 30,162,500 - 915,959 (351,569) 486,208 1,050,598 $ 123,794
==========
Cash for share subscription - - 1,000,000 - - 1,000,000 -
Components of comprehensive income (loss)
- Net income (loss) for the year - - - 208,704 - 208,704 208,704
- Foreign currency translation
adjustments - - - - 5,612 5,612 -
- Unrealized gains on marketable
securities - - - - 13,132 13,132 13,132
- Reversal of unrealized gain on
disposition of marketable securities - - - - (233,754) (233,754) -
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 2004 30,162,500 - $1,915,959 $(142,865) $ 271,198 $2,044,292 $ 221,836
================================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F4
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Operations
Years Ended December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- ------------------------------------------------------------------------
2004 2003
- ------------------------------------------------------------------------
SALES $ 1,809,715 $ 369,200
COST OF SALES 1,111,921 327,155
- ------------------------------------------------------------------------
GROSS PROFIT 697,794 42,045
SELLING EXPENSES 33,019 57,641
GENERAL AND ADMINISTRATIVE 380,806 146,691
DEPRECIATION 43,685 29,215
RESEARCH AND DEVELOPMENT 61,304 23,358
- ------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 178,980 (214,860)
- ------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Other income 25,273 604
Realized gain (loss) on disposition of
marketable securities 120,175 (85,172)
Interest expense (14,794) (46,615)
Write off of marketable securities - (1,341)
- ------------------------------------------------------------------------
130,654 (132,524)
- ------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 309,634 (347,384)
INCOME TAX PROVISION (note 8) (100,930) 782
- ------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR $ 208,704 $ (346,602)
========================================================================
INCOME (LOSS) PER SHARE - basic and diluted $ 0.01 $ (0.01)
========================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- basic and diluted 30,162,500 28,539,726
========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F5
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Cash Flows
Years Ended December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------------
2004 2003
- --------------------------------------------------------------------------------------
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income (loss) for the year $ 208,704 $(346,602)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
- depreciation 43,685 29,215
- imputed interest - related party - 3,063
- realized gain (loss) on sale of marketable securities (120,175) 85,172
- write-off of marketable securities - 1,341
Changes in assets and liabilities:
- (increase) in receivables (883,968) (8,740)
- (increase) in inventories (73,936) (29,229)
- (increase) in prepaid expenses and deposit (990) (18,178)
- increase in income taxes payable 42,290 -
- increase (decrease) in accounts payable 644,074 (78,929)
- --------------------------------------------------------------------------------------
(140,316) (362,887)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Proceeds from disposition of marketable securities 379,733 -
Purchase of equipment 5,554 (36,150)
- --------------------------------------------------------------------------------------
385,287 (36,150)
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,000,000 -
Increase (decrease) of bank loan (67,901) 36,440
Increase (decrease) of notes payable (115,202) 377,038
- --------------------------------------------------------------------------------------
816,897 413,478
- --------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 5,612 9,031
- --------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,067,480 23,472
CASH AND CASH EQUIVALENTS, beginning of year 58,822 35,350
- --------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $1,126,302 $ 58,822
======================================================================================
CASH AND CASH EQUIVALENTS ARE COMPRISED OF
Cash $1,105,836 $ 39,986
Restricted cash 20,466 18,836
- --------------------------------------------------------------------------------------
$1,126,302 $ 58,822
======================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid $ 15,490 $ 45,721
Income taxes paid $ 60,928 $ -
======================================================================================
NON-MONETARY TRANSACTIONS
Transfer of marketable securities for payment
of note payable (note 9) $ 379,733 $ -
======================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F6
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. NATURE OF ORGANIZATION
The consolidated financial statements presented are those of Soil Biogenics
Limited (formerly Patagonia Gold (BVI) Limited) (SB (BVI)) and its wholly
own subsidiaries, Soil Biogenics Ltd. (SB Bermuda), Soil Biogenics S.L. (SB
Spain), PIKSA Inter LLC (PIKSA) and NPO PIKSA LLC (NPO). Collectively, they
are referred to here in as "the Company". The Company is in the business of
bio-organic fertilizer production and distribution in Russia. The Company's
business is considered as operating in one segment based upon the Company's
organizational structure, the way in which the operation is managed and
evaluated, the availability of separate financial results and materiality
considerations.
SB (BVI) 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.
On November 2, 2002, SB Bermuda, a company incorporated in Bermuda on
October 19, 2000, entered into a Plan and agreement of reorganization with
PIKSA. Under the terms of the Plan, SB Bermuda acquired all of the issued
and outstanding common stock of PIKSA in exchanged for 16,940,000 of its
shares of common stock. In connection with the Plan, the Board of Directors
of SB Bermuda approved and increased the authorized shares of SB Bermuda to
3,4000,000, followed by a stock split of 5 common stock for one common
stock totalling 17,000,000 common stock issued and outstanding after the
completion of the Plan.
PIKSA was accounted for as the acquirer and as the surviving accounting
entity because the former stockholders of PIKSA received approximately 100%
of the voting rights in the combined corporation. The shares issued by SB
Bermuda have been accounted for as if those shares comprised the historical
share capital of PIKSA. The outstanding capital stock of SB Bermuda, at the
date of the 2002 acquisition, has been accounted for as shares issued by
PIKSA to acquire the net assets of SB Bermuda. The transaction was treated,
for accounting purposes, as an acquisition (purchase) of control of the
assets and business of SB Bermuda by PIKSA. At the date of transaction, SB
Bermuda has nil assets and liabilities.
On February 13, 2003, SB (BVI) completed an Agreement For The Exchange of
Common Stock ("Agreement") with SB Bermuda, whereby SB (BVI) issued
17,000,000 shares of its common stock in exchange for all of the
outstanding common stock of SB Bermuda. Immediately prior to the Agreement,
SB (BVI) had 12,912,500 shares of common stock issued and outstanding. The
acquisition was accounted for as a recapitalization of SB Bermuda because
the shareholders of SB Bermuda controlled SB (BVI) after the acquisition.
SB Bermuda was treated as the acquiring entity for accounting purposes and
SB (BVI) was the surviving entity for legal purposes. There was no
adjustment to the carrying value of the assets or liabilities of SB
Bermuda.
F7
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. NATURE OF ORGANIZATION (continued)
Prior to the completion of the agreement and acquisition, SB (BVI) had no
significant operations, and was considered a development stage entity. A
summary of the net assets of SB (BVI) acquired as at February 13, 2003 is
as follows:
----------------------------------------------------
Current assets $ 819,472
Current liabilities (212,393)
----------------------------------------------------
Net assets $ 607,079
====================================================
SB (BVI) had minimal operations from January 1, 2003 to February 12, 2003
except a $200,000 compensation accrued to a director of the Company.
On March 7, 2003, the Company acquired and reactivated SB Spain (formerly
Aam Empreendimentos, S.L.), a company incorporated in Spain. Prior to the
acquisition, SB Spain had no assets and liabilities.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include accounts of the Company
and its wholly-owned subsidiaries; Soil Biogenics Ltd., Soil Biogenics
S.L., PIKSA Inter LLC and NOP PIKSA LLC, and 61% owned subsidiary
Biogrunt. All significant inter-company balances and transactions have
been eliminated.
(b) Use of 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.
(c) Cash Equivalents
Cash equivalents comprise certain highly liquid instruments with a
maturity of three months or less when purchased. There were no cash
equivalents as of December 31, 2004 and 2003.
F8
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) Marketable Securities
Available-for-sale securities are carried at fair market value with
unrealized holding gains and losses included in stockholders' equity.
Realized gains and losses are determined on an average cost basis when
securities are sold.
(e) Inventories
Inventories are stated at the lower of cost and net realizable value.
Net realizable value represents the anticipated selling prices less
all further costs for distribution.
(f) Revenue Recognition
Revenue from sales of fertilizers is recognized on the delivery of
goods to customers and when collection of revenue proceeds is
reasonably assured.
(g) Restricted Cash
The Company's wholly owned subsidiary Soil Biogenics S.L., ("SB
Spain") under the terms of its lease agreements, is required to
collateralize its lease obligation and commitment. SB Spain has
collateralized its lease obligation and commitment by assigning
certificates of deposit to a respective institution. At December 31,
2004, the Company holds certificates of deposit under the lease
agreement of $20,466 (2003 - $18,836).
(h) Equipment
Equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated
useful lives:
Office and production equipment 5 - 20 years
F9
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Foreign Currency Translations
The Company and SB Bermuda's functional currencies are US dollars. In
the accounts of subsidiaries: SB Spain (whose functional currency is
Euro) is considered to be an integrated operation, and its accounts
are translated into US dollars using the temporal method. PIKSA Inter
LLC and NPO PIKSA LLC (whose functional currency are Russian Rouble
(RUR)) are considered to be self-sustaining foreign operations and
their accounts are translated into US dollars using the current rate
method.
Under the temporal method: 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.
Under the current rate method: Assets and liabilities are translated
at the year end exchange rates. Revenues and expenses are translated
at average exchange rates during each reporting period. Exchange gains
and losses from foreign currency translations are recorded in other
comprehensive income until they are realized by a reduction in the
investment.
Transactions denominated in foreign currencies are translated into US
dollars at the exchange rates prevailing at transaction dates.
(j) 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,
2004 and 2003.
The Company sold its goods predominantly to a limited number of
companies. Sales to three companies represented 41%, 38% and 14% of
total sales respectively. The Company purchased the majority of the
raw materials from one supplier in 2004.
(k) 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. 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.
F10
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(l) 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.
(m) Research and Development
Research and development costs are expensed as incurred. Research and
development costs for the years ended December 31, 2004 were $61,304
(2003 - $23,358).
(n) Advertising Expenses
The Company expenses advertising costs as incurred. The Company
incurred advertising costs of $33,019 in 2004 (2003 - $57,641).
(o) 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.
(p) 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. Diluted earnings (loss) per share is equal to the
basic loss per share for 2004 and 2003 as there are no dilutive
securities.
(q) 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 and cash equivalents, receivables, marketable securities,
restricted cash, accounts payable and accrued liabilities and notes
payable. Fair values were assumed to approximate carrying values for
these financial instruments, as they are short term in nature.
F11
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(q) Fair Value of Financial Instruments (continued)
The Company is exposed to currency risk as its subsidiaries'
functional currency is denominated in a foreign currency. Unfavourable
changes in the applicable exchange rate may result in a decrease or
increase in the translation adjustment. The Company does not use
derivative instruments to reduce its exposure to foreign currency
risk.
(r) Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (No. 123 (revised 2004) (FAS 123R),
Accounting for Stock-based Compensation. FAS 123R encourages, but does
not require, companies to adopt a fair value based method for
determining expense related to stock-based compensation. The Company
accounts for stock-based compensation issued to employees and
directors using the intrinsic value method as prescribed under
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations.
The Company did not grant any stock options during the period.
(s) New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4", which is the result of the FASB's
project to reduce differences between U.S. and international
accounting standards. SFAS No. 151 requires idle facility costs,
abnormal freight, handling costs, and amounts of wasted materials
(spoilage) be treated as current-period costs. Under this concept, if
the costs associated with the actual level of spoilage or production
defects are greater than the costs associated with the range of normal
spoilage or defects, the difference would be charged to current-period
expense, not included in inventory costs. SFAS No. 151 will be
effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151 does not have an
impact on the Company's consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for
Stock-Based Compensation". SFAS 123(R) establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS 123(R) requires
that the fair value of such equity instruments be recognized as
expense in the historical financial statements as services are
performed. Prior to SFAS 123(R), only certain pro-forma disclosures of
fair value were required. SFAS 123(R) shall be effective for the
Company as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005. The adoption of this new
accounting pronouncement does not have a material impact on the
Company's consolidated financial statements.
F12
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(s) New Accounting Pronouncements (continued)
In May 2005, the FASB issued Statement of Financial Accounting
Standards SFAS No. 154, "Accounting Changes and Error Corrections, a
replacement of AFB Opinion No. 20 and FASB Statement No. 3." SFAS 154
requires retrospective application to prior periods' financial
statements for changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. SFAS 154 also requires that
retrospective application of a change in accounting principle be
limited to the direct effects of the change. Indirect effects of a
change in accounting principle, such as a change in non-discretionary
profit-sharing payments resulting from an accounting change, should be
recognized in the period of the accounting change. SFAS 154 also
requires that a change in depreciation, amortization, or depletion
method for long-lived, non-financial assets be accounted for as a
change in accounting estimate effected by a change in accounting
principle. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15, 2005. Early adoption is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date
this Statement is issued. The adoptions of this new accounting
pronouncement does not have a material impact on its consolidated
financial position, results of operations or cash flows.
3. MARKETABLE SECURITIES
Marketable securities consist of available-for-sale securities and are
summarized as follows:
-----------------------------------------------------------------------------------------
Gross Gross Accumulated
unrealized unrealized unrealized Market
Cost gains losses gains/ (losses) value
-----------------------------------------------------------------------------------------
Recapitalization $ 819,296 $ - $ - $ - $ 819,296
Change in the year (243,315) 537,421 67,025 470,396 227,081
-----------------------------------------------------------------------------------------
December 31, 2003 575,981 537,421 67,025 470,396 1,046,377
Change in the year (259,559) (270,010) (49,388) (220,622) (480,181)
-----------------------------------------------------------------------------------------
December 31, 2004 $ 316,422 $ 267,411 $ 17,637 $ 249,774 $ 566,196
=========================================================================================
F13
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
4. EQUIPMENT
-------------------------------------------------------------------
2004
----------------------------------
Cost Accumulated Net book
Depreciation Value
-------------------------------------------------------------------
Office and production equipment $191,585 $ 75,901 $ 115,684
===================================================================
-------------------------------------------------------------------
2003
----------------------------------
Cost Accumulated Net book
Depreciation Value
-------------------------------------------------------------------
Office and production equipment $197,139 $ 32,216 $ 164,923
===================================================================
5. BANK LOAN
The bank loan is unsecured, bearing interest at 18% per annum and due
February 2004. The bank loan was fully repaid during 2004 (2003 - RUR
2,000,000).
6. NOTES PAYABLE
(a) Notes Payable
------------------------------------------------------------------
2004 2003
----------------------------------------------------------------
Interest calculated at rates of 16% to 24% per $ - $21,762
annum, unsecured and due within March 4,
2003 to February 3, 2004. Various non-related
parties.
Accrued interest - 2,688
------------------------------------------------------------------
Total $ - $24,450
==================================================================
F14
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
6. NOTES PAYABLE (continued)
(b) Notes Payable Related Parties
--------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------
i. Interest at 6.0% per annum, unsecured and
due in December 2004:
- Public Overseas - related to a director and
a major shareholder $ 30,000 $ 30,000
--------------------------------------------------------------------------
ii. Non-interest bearing, unsecured and no
stated terms of repayment:
- Carrington International Ltd. - related to a
major shareholder 101,642 208,325
- Dr. G. Shnura - a major shareholder 16,132 13,471
- A. Gomez de Segura - a director and a
major shareholder 3,255 12,000
- Other 22,015 -
--------------------------------------------------------------------------
Total $173,044 $263,796
==========================================================================
7. SHARE CAPITAL
On December 29, 2004, the Company received $1,000,000 for common stock to
be issued. Subsequent to year end 1,000,000 shares of common stock were
issued.
8. INCOME TAX PROVISION
The Company and its subsidiaries operate in several tax jurisdictions, and
its income is subject to various rates of taxation. The Company and its
subsidiary SB Bermuda are not subject to income taxes because of the
countries in which they were incorporated, while the Russian subsidiaries
(PIKSA, NPO and Biogrunt) and Spanish subsidiary (SB Spain) are subject to
income tax in Russia and Spain, respectively. The following is a
reconciliation of the Company's provision for income taxes and is based on
the tax rates applicable to the parents or subsidiaries jurisdiction of
incorporation.
------------------------------------------------------------------
2004 2003
------------------------------------------------------------------
Income taxes at statutory rate $ - $ -
Foreign tax rate differences 126,934 (67,495)
Utilization of previously unrecognized losses 26,004 -
Non recognition of benefit of losses - 66,713
------------------------------------------------------------------
Provision for (benefit from) income taxes $100,930 $ (782)
==================================================================
F15
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
8. INCOME TAX PROVISION (continued)
A summary of future income tax assets is as follows:
-------------------------------------------------------------
2004 2003
-------------------------------------------------------------
Loss carryforwards $ 91,000 $ 70,000
Valuation allowance (91,000) (70,000)
-------------------------------------------------------------
Future income tax assets $ - $ -
=============================================================
The Company has established the above valuation allowances as of December
31, 2004 due to uncertainty of future realization of future income tax
assets. At December 31, 2004, the Company has approximately $303,000 (2003
- $200,000) of loss carryforwards which can be used against future earnings
in Spain.
9. RELATED PARTY TRANSACTION
During the year, the Company settled a liability of $379,733 due to a
shareholder of the Company by transferring certain marketable securities it
owned at a fair value of $379,733.
10. COMMITMENT AND CONTINGENCIES
(a) The Company's subsidiary has entered into an office lease agreement
with minimum lease payments for the next four (4) years as follows:
--------------------------------------------
2005 $ 37,381
2006 37,381
2007 37,381
2008 18,690
--------------------------------------------
$130,833
============================================
F16
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
10. COMMITMENT AND CONTINGENCIES (continued)
(b) The Company's Russian subsidiaries - PIKSA, NPO and Biogrunt are
subject to significant exposure to the Russian business and fiscal
environment. Russia currently has a number of laws related to various
taxes imposed by both federal and regional governmental authorities.
Applicable taxes include value added tax, corporate income (profits
tax), a number of turnover based taxes, and payroll (social) taxes.
Laws related to these taxes have not been in force for significant
periods, in contrast to more developed market economies; therefore,
implementing regulations are often unclear or nonexistent.
Accordingly, few precedents with regard to tax related issues have
been established. Often, different opinions regarding legal
interpretation exist both among and within government ministries and
organizations; thus creating uncertainties and areas of conflict. Tax
declarations, together with other legal compliance areas (as examples,
customs and currency control matters) are subject to review and
investigation by a number of authorities, who are enabled by law to
impose extremely severe fines, penalties and interest charges.
These facts create tax risks in Russia substantially more significant
than those typically found in countries with more developed tax
systems.
Generally, tax declarations remain subject to inspection for a period
of three years. The fact that a year has been reviewed does not
preclude the Russian Tax Service from performing a subsequent
inspection of that year.
Management believe that, based on current year results, it has
adequately provided for tax liabilities in the accompanying financial
statements; however, the risk remains as those relevant authorities
could take different positions with regard to interpretive issues.
F17
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
11. GEOGRAPHICAL INFORMATION
The Company's business is considered as operating in one segment and the
geographical information is as follows:
-----------------------------------------------------------------
2004
----------------------------------------------
Corporate Spain Russia Total
-----------------------------------------------------------------
Sales $ - $ - $1,809,715 $1,809,715
Net income (loss) $ 6,587 $(222,388) $ 424,505 $ 208,704
Assets $1,540,943 $ 113,045 $1,285,118 $2,939,106
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2003
-----------------------------------------------
Corporate Spain Russia Total
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Sales $ - $ - $ 369,200 $ 369,200
Net income (loss) $ (153,759) $(80,817) $(112,026) $ (346,602)
Assets $1,065,567 $ 63,867 $ 312,718 $1,442,152
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12. COMPARATIVE FIGURES
Certain prior year balances have been reclassified to conform to the
presentation adopted in the current year.
F18
ITEM 18 FINANCIAL STATEMENTS
The Company has elected to comply with the financial statement requirement of
Item 17 rather than this Item.
ITEM 19 EXHIBITS
INDEX TO EXHIBITS
Exhibits
1.1 Certificate of Incorporation*
1.2 Certificate of Restoration and Renewal of Certificate of Incorporation*
1.3 Amended and Restated Memorandum of Association*
1.4 Amended and Restated Articles of Association*
1.5 Plan of Merger*
1.6 Articles of Merger*
1.7 By-laws*
8.1 Significant subsidiaries*
11.1 Corporate Governance Principles*
12.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
13.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1 Letter on change in certifying accountant*
- --------
* 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 registration statement [annual report] on its behalf.
AURORA METALS (BVI) LIMITED
(Registrant)
Date: July 11, 2005 BY: /s/ Agustin Gomez de Segura
----------------------------
Agustin Gomez de Segura
Director, President and CFO
Date: July 11, 2005 BY: /s/ Alexander Becker
---------------------
Alexander Becker
Director
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