UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
[_] 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
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. . . . . . . . . . . . . . . 9
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. . . . . . . . . . . . . . . . 11
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . 16
ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 10. ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . . . 20
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. . . . . . . . . . 20
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES. . . . . . . . . . . . . . . . . . 21
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART III
ITEM 17. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 18. FINANCIAL STATEMENTS (NOT APPLICABLE) . . . . . . . . . . . . . . . . . . 23
ITEM 19. EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Page 2 of 23
The Company is filing Amendment Number 1 to the Soil Biogenics Limited December
31, 2004 Form 20-F for the following reasons:
1. The Company has revised its Standard Industrial Classification Code
("SIC") from 1000, Metal Mining, to 2870, Agriculture Chemicals.
2. The Company has amended the note to the Compensation Table in Item 6
(B).
3. The auditors report for the year ended December 31, 2004 on page F-2
has been amended to indicate that the Company's audited consolidated
financial statements were prepared in accordance with U.S. GAAP.
4. The audited consolidated statements of stockholders' equity,
operations, cash flows and related notes for the year ended December
31, 2004 have been revised to include the year ended December 31,
2002.
5. The cost of sales for the years ended December 31, 2004 and 2003 have
been revised to include depreciation expense attributable to the cost
of sales. The depreciation expense has been reclassified from
Depreciation (December 31, 2004) and General and Administrative
(December 31, 2003).
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
Page 3 of 23
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.
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
Page 4 of 23
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 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 US dollars since the transactions of the
Company are primarily based in US dollars and the transactions that occur in
Roubles and Euros do not currently constitute a significant portion of the
activities or operations of the Company on a cash driven basis.
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.
Page 5 of 23
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.
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.
Page 6 of 23
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 Emprendimentos, 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.
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
Page 7 of 23
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 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);
Page 8 of 23
Piksa Inter LLC Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary
of Soil Biogenics Ltd. (Bermuda);
Piksa Research and Production Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary
Association LLC ("NPO Piksa LLC") 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 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.
Page 9 of 23
(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 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-
Page 10 of 23
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.
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:
Page 11 of 23
- ---------------------------------------------------------------------------------------------
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 (1) ----- ------- -------- -------- ----------- ----------- --------- --------
President 2003 Nil -0- -0- None None None -0-
and ----- ------- -------- -------- ----------- ----------- --------- --------
Director 2002 Nil -0- -0- None None None -0-
- ---------------------------------------------------------------------------------------------
(1) On July 1, 2003 Mr. Cameron Richardson resigned from the Board of
Directors and as President of the Company to pursue other interests.
Mr. Richardson's salary for the period January 1 to June 30, 2003 was
$1,600 (fiscal 2002 - $9,791). On July 1, 2003 Mr. Agustin Gomez de
Segura was appointed to the board of directors and President of the
Company. Mr. Segura is engaged in other business activities and
devotes only a limited amount of his time (approximately 20%) to our
business; who is the beneficial owner of approximately 6% of the
Company's issued and outstanding common shares; accordingly he has
agreed to forgo a salary during the Company's start up activities. As
and when our activities expand we expect to negotiate a mutually
acceptable compensation arrangement with Mr. Segura.
OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR
The following table sets forth information concerning individual grants of stock
options (whether or not in tandem with stock appreciation rights ("SARs") and
freestanding SARs made during the last completed fiscal year to each of the
named executive officers:
- -----------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN FISCAL YEAR 2004
(Individual Grants)
- -----------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS/
SECURITIES SARS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES OR
OPTION/SARS IN FISCAL BASE PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR ($/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.
Page 12 of 23
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
SECURITIES UNEXERCISED IN-THE-MONEY
ACQUIRED AGGREGATE OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FY-END (#) AT FY-END
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.
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.
Page 13 of 23
(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 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.
Page 14 of 23
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.
- ----------------------------------------------------------------------------
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.
Page 15 of 23
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
- --------------------------------------------------- ---------------- --------------
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
Page 16 of 23
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.
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.
Page 17 of 23
- --------------------------------
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.
(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
Page 18 of 23
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 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
Page 19 of 23
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
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
Page 20 of 23
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).
(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.
Page 21 of 23
(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 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. F-1
---------------------------------------------- ------------
Report of Independent Accountants F-2
---------------------------------------------- ------------
Consolidated Balance Sheets 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-19
---------------------------------------------- ------------
---------------------------------------------- ------------
Audited Financials - December 31, 2003 and
December 31, 2002. F-20
---------------------------------------------- ------------
Report of Independent Accountants F-21
---------------------------------------------- ------------
Consolidated Balance Sheets F-22
---------------------------------------------- ------------
Consolidated Statement of Stockholders' Equity F-23
---------------------------------------------- ------------
Consolidated Statements of Operations F-24
---------------------------------------------- ------------
Consolidated Statement of Cash Flows F-25
---------------------------------------------- ------------
Notes to Financial Statements F-26 to F-38
------------------------------------------------------------
Page 22 of 23
Consolidated Financial Statements
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
(Expressed in U.S. Dollars)
December 31, 2004, 2003 and 2002
ERNST & YOUNG
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
We have audited the accompanying consolidated balance sheet of SOIL BIOGENICS
LIMITED ("the Company") as of December 31, 2004 and the related consolidated
statements of stockholders' equity, operations and cash flows for the year 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 audit. The financial statements of the Company for the
years ended December 31, 2003 and December 31, 2002, were audited by other
auditors whose report dated June 30, 2004, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included 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. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2004 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
at December 31, 2004 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with U.S. generally accepted
accounting principles.
Vancouver, Canada, "ERNST & YOUNG LLP"
June 29, 2005. Chartered Accountants
F-2
A Member of Ernst & Young Global
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
CONSOLIDATED BALANCE SHEETS
As at December 31 (Expressed in U.S. Dollars)
2004 2003
$ $
- ---------------------------------------------------------------------------
ASSETS
CURRENT
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
CURRENT
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
- ---------------------------------------------------------------------------
Commitments and contingencies [note 10]
STOCKHOLDER'S 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
===========================================================================
See accompanying notes
Approved by the Directors:
"AGUSTIN GOMEZ DE SEGURA" "ALEXANDER BECKER"
------------------------- ------------------
Agustin Gomez de Segura Alexander Becker
F-3
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
ACCUM-
ULATED
OTHER
COMPRE- TOTAL TOTAL
PAID- ACCUM- HENSIVE STOCK- COMPRE-
COMMON STOCK IN ULATED INCOME HOLDERS' HENSIVE
-------------------
SHARES AMOUNT CAPITAL (DEFICIT) (LOSS) EQUITY INCOME
# $ $ $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 AS RESTATED 16,940,000 - 105,817 (18,517) - 87,300 -
Shares issued to effect the acquisition
of subsidiary 60,000 - - - - - -
Components of comprehensive income
- Net income for the year - - - 13,550 - 13,550 13,550
- Foreign currency translation adjustments - - - - 6,322 6,322 6,322
- --------------------------------------------------------------------------------------------------------------------------------
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
================================================================================================================================
See accompanying notes
F-4
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31 (Expressed in U.S. Dollars)
2004 2003 2002
$ $ $
- -------------------------------------------------------------------------------------------------
[Reclassified - [Reclassified -
notes 12 and 13] notes 12 and 13]
SALES 1,809,715 369,200 151,977
Cost of sales 1,148,653 327,155 115,790
- -------------------------------------------------------------------------------------------------
Gross profit 661,062 42,045 36,187
- -------------------------------------------------------------------------------------------------
SELLING EXPENSES 33,019 57,641 1,212
General and administrative 380,806 174,559 15,427
Depreciation 6,954 1,347 -
Research and development 61,304 23,358 -
- -------------------------------------------------------------------------------------------------
Income (loss) from operations 178,979 (214,860) 19,548
- -------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Other income 25,274 604 4,243
Realized gain (loss) on disposition of
marketable securities 120,175 (85,172) -
Interest expense (14,794) (46,615) (5,009)
Write-off of marketable securities - (1,341) -
- -------------------------------------------------------------------------------------------------
130,655 (132,524) (766)
- -------------------------------------------------------------------------------------------------
Income (loss) before income taxes 309,634 (347,384) 18,782
Income tax provision[note 8] (100,930) 782 (5,232)
- -------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR 208,704 (346,602) 13,550
=================================================================================================
Income (loss) per share - basic and diluted 0.01 (0.01) 0.00
=================================================================================================
Weighted average number of common shares
outstanding
- Basic and diluted 30,162,500 28,539,726 16,950,027
=================================================================================================
See accompanying notes
F-5
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 (Expressed in U.S. Dollars)
2004 2003 2002
$ $ $
- ----------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) for the year 208,704 (346,602) 13,550
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 43,685 29,215 471
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) (32,578)
(Increase) in inventories (73,936) (29,229) (15,522)
(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 (28,919)
- ----------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (140,316) (362,887) (62,998)
- ----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposition of marketable securities 379,733 - -
Purchase of equipment 5,554 (36,150) (4,678)
- ----------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 385,287 (36,150) (4,678)
- ----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,000,000 - 6,281
Increase (decrease) of bank loan (67,901 36,440) 31,461
Increase (decrease) of notes payable (115,202 377,038) 64,307
- ----------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 816,897 413,478 102,049
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents 5,612 9,031 48
- ----------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,067,480 23,472 34,421
Cash and cash equivalents, beginning of year 58,822 35,350 929
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 1,126,302 58,822 35,350
====================================================================================================
CASH AND CASH EQUIVALENTS ARE COMPRISED OF
Cash 1,105,836 39,986 35,350
Restricted cash 20,466 18,836 -
- ----------------------------------------------------------------------------------------------------
1,126,302 58,822 35,350
====================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid 15,490 45,721 3,215
Income taxes paid 60,928 - 5,232
====================================================================================================
NON-MONETARY TRANSACTIONS
Transfer of marketable securities for payment
of note payable [note 9] 379,733 - -
====================================================================================================
See accompanying notes
F-6
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (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.
F-7
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
1. NATURE OF ORGANIZATION (CONT'D.)
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
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.
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.
F-8
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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.
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.
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.
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.
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].
F-9
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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
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.
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.
F-10
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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.
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.
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; 2002 - $nil].
ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. The Company incurred
advertising costs of $33,019 in 2004 [2003 - $57,641; 2002 - $nil].
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.
F-11
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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, 2003
and 2002 as there are no dilutive securities.
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.
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.
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.
F-12
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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.
F-13
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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
===========================================================================================
F-14
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
4. EQUIPMENT
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ----------------------------------------------------------------------
2004
Office and production equipment 191,585 75,901 115,684
======================================================================
2003
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
NOTES PAYABLE
2004 2003
$ $
- --------------------------------------------------------------------
Interest calculated at rates of 16% to 24% per annum,
unsecured and due within March 4, 2003 to
February 3, 2004. Various non-related parties. - 21,762
Accrued interest - 2,688
- --------------------------------------------------------------------
Total - 24,450
====================================================================
F-15
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
6. NOTES PAYABLE (CONT'D.)
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. - a major shareholder 117,774 221,796
- A. Gomez de Segura - a director and a major shareholder 3,255 12,000
- Other 22,015 -
- --------------------------------------------------------------------------------
143,044 233,796
- --------------------------------------------------------------------------------
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.
F-16
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
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 2002
$ $ $
- -------------------------------------------------------------------------
Income taxes at statutory rate - - 5,232
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) 5,232
=========================================================================
A summary of future income tax assets is as follows:
2004 2003 2002
$ $ $
- ------------------------------------------------------------------------
Loss carryforwards 91,000 70,000 2,000
Valuation allowance (91,000) (70,000) (2,000)
- ------------------------------------------------------------------------
Provision for (benefit from) income taxes - - -
========================================================================
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.
F-17
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars)
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
---------------------------------------------------------------------------
Total 130,833
===========================================================================
[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.
F-18
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
NOTES TO CONSOLODATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002 (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:
CORPORATE SPAIN RUSSIA TOTAL
$ $ $ $
- --------------------------------------------------------------------
2004
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
====================================================================
2003
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
====================================================================
In 2002, the Company's operations and assets were all located in Russia.
12. COMPARATIVE FIGURES
Certain prior year balances have been reclassified to conform to the
presentation adopted in the current year.
13. RECLASSIFIED FIGURES
The cost of sales for the years ended December 31, 2004 and 2003 have been
revised to include depreciation expense attributable to the cost of sales. The
depreciation expense has been reclassified from Depreciation (December 31, 2004)
and General and Administrative (December 31, 2003).
F-19
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
December 31, 2003 and 2002
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
F20
MOORE STEPHENS
ELLIS FOSTER LTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
E-Mail: generaldelivery@ellisfoster.com
-------------------------------
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
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, 2003 and 2002 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2003 and 2002
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles in the United States of
America.
Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD."
June 30, 2004 Chartered Accountants
F21
- --------------------------------------------------------------------------------
EF A partnership of incorporated professionals
An independently owned and operated member of Moore Stephens North America
Inc., a member of Moore Stephens International Limited
- members in principal cities throughout the world
F21
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Balance Sheets
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
=======================================================================
2003 2002
- -----------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,986 $ 35,350
Receivables 91,085 82,345
Marketable securities 1,046,377 -
Inventories 62,767 33,538
Prepaid expenses and deposits 18,178 -
- -----------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,258,393 151,233
RESTRICTED CASH 18,836 -
EQUIPMENT 164,923 161,174
- -----------------------------------------------------------------------
TOTAL ASSETS $1,442,152 $312,407
=======================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT LIABILITIES
Bank loan $ 67,901 $ 31,461
Accounts payable and accrued liabilities 35,407 107,673
Notes payable 24,450 42,978
Notes payable - related parties 263,796 23,123
- -----------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 391,554 205,235
- -----------------------------------------------------------------------
STOCKHOLDERS' EQUITY
SHARE CAPITAL
Authorized:
50,000,000 common shares without par value
Issued:
30,162,500 (2002: 17,000,000) common shares - -
PAID-IN CAPITAL 915,959 105,817
ACCUMULATED DEFICIT (351,569) (4,967)
ACCUMULATED OTHER COMPREHENSIVE INCOME 486,208 6,322
- -----------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,050,598 107,172
- -----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,442,152 $312,407
=======================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F22
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
==========================================================================================================================
Accumulated Total
other Total compre-
Common stock compre- stock- hensive
------------------- Paid-in Accumulated hensive holders' income
Shares Amount capital (deficit) income (loss) equity (loss)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001,
as restated 16,940,000 $ - $105,817 $ (18,517) $ - $ 87,300 $ -
Shares issued to effect the
acquisition of subsidiary 60,000 - - - - - -
Components of comprehensive income
- - Net income for the year - - - 13,550 - 13,550 13,550
- - Foreign currency translation
adjustments - - - - 6,322 6,322 6,322
- --------------------------------------------------------------------------------------------------------------------------
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
==========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F23
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Operations
Year Ended December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
=============================================================================
2003 2002
- -----------------------------------------------------------------------------
SALES $ 369,200 $ 151,977
COST OF SALES 327,155 115,790
- -----------------------------------------------------------------------------
GROSS PROFIT 42,045 36,187
SELLING EXPENSES 57,641 1,212
GENERAL AND ADMINISTRATIVE 174,559 15,427
DEPRECIATION 1,347 -
RESEARCH AND DEVELOPMENT 23,358 -
- -----------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (214,860) 19,548
- -----------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Other income 604 4,243
Realized loss on sale of marketable securities (85,172) -
Interest expense (46,615) (5,009)
Write off of marketable securities (1,341) -
- -----------------------------------------------------------------------------
(132,524) (766)
- -----------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (347,384) 18,782
- -----------------------------------------------------------------------------
INCOME TAX PROVISION 782 (5,232)
- -----------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR $ (346,602) $ 13,550
=============================================================================
INCOME (LOSS) PER SHARE - basic and diluted $ (0.01) $ 0.00
=============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
- basic and diluted 28,539,726 16,950,027
=============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F24
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Consolidated Statements of Cash Flows
Year Ended December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
=================================================================================================
2003 2002
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income (loss) for the year $(346,602) $ 13,550
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
- depreciation 29,215 471
- imputed interest - related party 3,063 -
- realized loss on sale of marketable securities 85,172 -
- write-off of marketable securities 1,341 -
Changes in assets and liabilities:
- (increase) in receivables (8,740) (32,578)
- (increase) in inventories (29,229) (15,522)
- (increase) in prepaid expenses and deposit (18,178) -
- (decrease) in accounts payable (78,929) (28,919)
- -------------------------------------------------------------------------------------------------
(362,887) (62,998)
- -------------------------------------------------------------------------------------------------
CASH FLOWS (USED IN) INVESTING ACTIVITIES
Purchase of equipment (36,150) (4,678)
- -------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stocks - 6,281
Increase of bank loan 36,440 31,461
Increase of notes payable 377,038 64,307
- -------------------------------------------------------------------------------------------------
413,478 102,049
- -------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 9,031 48
- -------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 23,472 34,421
CASH AND CASH EQUIVALENTS,
beginning of year 35,350 929
- -------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
end of year $ 58,822 $ 35,350
=================================================================================================
CASH AND CASH EQUIVALENTS ARE COMPRISED OF
Cash $ 39,986 $ 35,350
Restricted cash 18,836 -
- -------------------------------------------------------------------------------------------------
$ 58,822 $ 35,350
=================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid $ 45,721 $ 3,215
Income taxes paid $ - $ 5,232
=================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F25
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(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 and Europe.
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 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 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.
F26
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
1. NATURE OF ORGANIZATION (continued)
Prior to the completion of Agreement and acquisition, SB (BVI) had no
significant operations, and was considered a development stage entity. A
summary of net assets of SB (BVI) acquired as at February 13, 2003 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 (See
Note 9 (a)). 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 has 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.
During the fiscal year 2003, Biogrunt was inactive and has no asset
and liabilities as at December 31, 2003.
(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, 2003 and 2002.
F27
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(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 are recognized on the delivery of
goods to customers and collection of revenue proceeds is reasonable
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,
2003, the Company holds certificates of deposit under the lease
agreement of $18,836.
(h) Plant and Equipment
Plant and equipment are 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
Depreciation expense for the years ended December 31, 2003 and 2002
was $29,215 and $471, respectively.
(i) Intangible Assets
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 141, "Business Combination" and SFAS No. 142, "Goodwill
and Intangible Assets". SFAS 141 requires companies to disaggregate
and report separately from goodwill certain intangible assets. SFAS
142 establishes new guidelines for accounting for intangible assets,
which require that certain intangible assets be reviewed annually for
impairment rather than amortized.
As at December 31, 2003 and 2002, the Company did not have any
goodwill and intangible assets.
F28
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) 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 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.
(k) 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,
2003 and 2002. The Company sold its goods predominantly to one
customer which accounted for 88% of sales in 2003. The Company
purchased the majority of the raw materials from one supplier in 2003.
(l) 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.
F29
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) 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.
(n) Research and Development
Research and development costs are expensed as incurred. Research and
development costs for the years ended December 31, 2003 was $23,358
(2002: $nil).
(o) Advertising Expenses
The Company expenses advertising costs as incurred. The Company
incurred advertising costs of $57,641 in 2003 (2002: $ nil).
(p) 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.
(q) 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 2003 and 2002 as there are no dilutive
securities.
(r) Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair value. These financial instruments
include cash, receivables, marketable securities, restricted cash,
bank loans, accounts payable and accrued liabilities and short-term
loans. Fair values were assumed to approximate carrying values for
these financial instruments, as they are short term in nature.
Management is of the opinion that the Company is not exposed to
significant credit risk arising from these financial instruments.
F30
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(r) Fair Value of Financial Instruments (continued)
The Company is exposed to currency risk as its subsidiaries'
functional currency is denominated in foreign currency. Unfavourable
changes in the applicable exchange rate may result in a decrease or
increase in translation adjustment. The Company does not use
derivative instruments to reduce its exposure to foreign currency
risk.
The Company is exposed to interest risks arising from the bank loan.
Unfavourable changes in the applicable interest rate may result in an
increase in interest expenses. The Company does not use derivative
instruments to reduce its exposure to interest risk.
(s) Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-based
Compensation. SFAS 123 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.
(t) New Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issued No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. SFAS No. 146 generally requires a
liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period
in which the liability is incurred. The pronouncement is effective for
exit or disposal activities initiated after December 31, 2002. The
adoption of SFAS No.146 does not have an impact on the Company's
financial statements.
F31
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) New Accounting Pronouncements (continued)
In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
including Indirect Guarantees of indebtedness of Others - An
Interpretation of FASB Statements of No. 5, 57 and 107 and rescission
of FASB Interpretation No. 34. This interpretation clarifies the
requirements for a guarantor's accounting for and disclosures of
certain guarantees issued and outstanding. FIN 45 also clarifies the
requirements related to the recognition of a liability by a guarantor
at the inception of a guarantee. FIN 45 is effective for guarantees
entered into or modified after December 31, 2002. The adoption of FIN
45 does not have impact on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-based Compensation - Transition and Disclosure. SFAS No. 148
amends SFAS No. 123 to provide alternative methods for voluntary
transition to SFAS No. 123's fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also requires
disclosure of the effects of an entity's accounting policy with
respect to stock-based employee compensation on reported net income
(loss) and earnings (loss) per share in annual and interim financial
statements. SFAS No. 148 is effective for fiscal years beginning after
December 15, 2002. The adoption of SFAS No. 148 does not have an
impact on the Company's financial statements.
In January 2003, the FASB released FASB Interpretation No. 46 ("FIN
46"), Consolidation of Variable Interest Entities. FIN 46 requires
that all primary beneficiaries of variable interest entities
consolidate that entity. FIN 46 is effective immediately for variable
interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after
that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003 to variable interest entities in which
an enterprise holds a variable interest it acquired before February 1,
2003. In December 2003, the FASB published a revision to FIN 46 ("FIN
46R") to clarify some of the provisions of the interpretation and to
defer the effective date of implementation for certain entities. Under
the guidance of FIN 46R, entities that do not have interests in
structures that are commonly referred to as special purpose entities
are required to apply the provisions of the interpretation in
financial statements for periods ending after March 14, 2004. The
Company did not create a variable interest entity after January 31,
2003 and does not have a variable interest entity as of December 31,
2003. The Company expects that the full adoption of FIN 46R in 2004
will not have a material impact on the Company's financial position or
results of operations.
F32
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) New Accounting Pronouncements (continued)
In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133. This Statement is effective for
contracts entered into or modified after June 30, 2003. The adoption
of SFAS No. 149 does not have an impact on the Company's financial
statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and
Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This Statement is
effective for financial instruments entered into or modified after May
30, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No.
150 does not have an impact on the Company's financial statements.
In December 2003, the FASB issued SFAS No. 132(R), a revision to SFAS
No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits. SFAS No. 132(R) requires additional
disclosures about the assets, obligations, cash flows and net periodic
benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. SFAS No. 132(R) is effective for
financial statements with fiscal years ending after December 15, 2003,
with the exception of disclosure requirements related to foreign plans
and estimated future benefit payments which are effective for fiscal
years ending after June 15, 2004. The adoption of SFAS No. 132(R) does
not impact our consolidated financial position or results of
operations.
F33
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(t) New Accounting Pronouncements (continued)
In a December 11, 2003 speech at the American Institute of Certified
Public Accountants the Securities and Exchange Commission ("SEC")
expressed the opinion that rate-lock commitments represent written put
options, and therefore should be valued as a liability. The SEC
expressed that they expect registrants to disclose the effect on the
financial statement of recognizing the rate-lock commitments as
written put options, for quarters commencing after March 15, 2004.
Additionally, the SEC recently issued Staff Accounting Bulletin (SAB)
No. 105. SAB No. 105 clarifies the SEC's position that the inclusion
of cash flows from servicing or ancillary income in the determination
of the fair value of interest rate lock commitments is not
appropriate. The Company has not yet determined the impact on the
consolidated financial statements of SAB No. 105, which must be
implemented for loan commitments entered into on or after April 1,
2004. The Company is currently analyzing the impact of the SEC's
position and will, if required, account for its loan origination
commitments as prescribed.
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
=========================================================================================
4. EQUIPMENT
- -----------------------------------------------------------------------
2003
--------------------------------------
Cost Accumulated Net book
Depreciation Value
- -----------------------------------------------------------------------
Office and production equipment $ 197,139 $ 32,216 $ 164,923
=======================================================================
- -----------------------------------------------------------------------
2002
--------------------------------------
Cost Accumulated Net book
Depreciation Value
- -----------------------------------------------------------------------
Office and production equipment $ 2,079 $ 471 $ 1,608
Construction in progress 159,566 - 159,566
- -----------------------------------------------------------------------
$ 161,645 $ 471 $ 161,174
=======================================================================
F34
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
5. BANK LOAN
The RUR 2,000,000 (2002: RUR 1,000,000) bank loan is unsecured, bearing
interest at 18% per annum (2002: 28% per annum) and due in February 2004.
The loan has been renewed for another year subsequent to the year-end.
6. NOTES PAYABLE
(a) Notes Payable
----------------------------------------------------------------------
2003 2002
----------------------------------------------------------------------
Interest at range of 16% to 24% per annum,
unsecured and due within March 4, 2003 to
February 3, 2004:
Various non related parties $21,762 $41,184
Accrued interest 2,688 1,794
----------------------------------------------------------------------
Total $24,450 $42,978
======================================================================
(b) Notes Payable Related Party
----------------------------------------------------------------------
2003 2002
----------------------------------------------------------------------
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 $ -
----------------------------------------------------------------------
ii. Non-interest bearing, unsecured and no
stated terms of repayment:
- Carrington International Ltd. - related to
a major shareholder 208,325 -
- Dr. G. Shnura - a major shareholder 13,471 -
- A. Gomez de Segura - a director and a
major shareholder 12,000 11,293
- A. Semencov - a major shareholder - 11,830
----------------------------------------------------------------------
Total $263,796 $23,123
======================================================================
7. SHARE CAPITAL
On February 14, 2003, the Company issued 250,000 common stock for the
settlement of the debt of $200,000.
F35
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
8. INCOME TAXES
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.
---------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------
Income taxes at statutory rate $(67,495) $5,232
Non recognition of benefit of losses 66,713 -
---------------------------------------------------------------------------
Provision for (benefit from) income taxes $ (782) $5,232
===========================================================================
A summary of future income tax asset is as follows:
---------------------------------------------------------------------------
2003 2002
---------------------------------------------------------------------------
Net operating loss carryforward $ 70,000 $ 2,000
Valuation allowance (70,000) (2,000)
---------------------------------------------------------------------------
Future income tax asset $ - $ -
===========================================================================
The Company has established the above valuation allowances as of December
31, 2003 due to uncertainty of future realization of deferred income tax
assets. At December 31, 2003, the Company has approximately $200,000 of
non-operating loss carryforwards which can be used against future earnings.
9. RELATED PARTY TRANSACTIONS
(a) During the year and prior to the acquisition of SB Bermuda, SB (BVI)
accrued a $200,000 compensation to a director of the Company. The
amount was settled with issuance of 250,000 common stock of the
Company after the acquisition of SB Bermuda. The $200,000 was expensed
and included in the computation of the net assets of SB (BVI)
acquired. (See Note 1 and Note 7)
(b) During the year, the Company settled a liability due to a shareholder
of the Company by transferring certain marketable securities it owned
at a fair value of $156,763.
(c) See Note 6 (b).
F36
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
10. NON-CASH TRANSACTIONS
See Note 9 (a) and (b).
11. COMMITMENT AND CONTINGENCIES
(a) The Company's subsidiary has entered into an office lease agreement
with minimum lease payments for the next five (4) years as follows:
-------------------------------------------------
2004 $37,381
2005 37.381
2006 37,381
2008 18,690
-------------------------------------------------
130,833
=================================================
(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 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.
(c) See Note 2 (g).
F37
SOIL BIOGENICS LIMITED
(formerly Patagonia Gold (BVI) Limited)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
(EXPRESSED IN U.S. DOLLARS)
================================================================================
12. GEOGRAPHICAL INFORMATION
The Company's business is considered as operating in one segment and the
geographical information is as follows:
---------------------------------------------------------------------------
2003
-----------------------------------------------
Corporate Spain Russia Total
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
In 2002, the Company's operations and assets were all located in Russia.
F38
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*
15.2 Consent of Independent Accountants
- --------
* 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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