UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to _______
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of event requiring this shell company report
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, 5deg 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 Name of each exchange on which registered
None 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 None
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.
As at December 31, 2005 there were 31,162,500 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
If this report is an annual or transitional report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
Yes [ ] No [ ]
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark which financial statement item the Registrant has elected
to follow:
[X] Item 17 [ ] Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [X]
SOIL BIOGENICS LIMITED
TABLE OF CONTENTS
PART I
GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS. . . . 4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE. . . . . . . . . . . 4
ITEM 3. KEY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 4. INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . . 6
ITEM 4A UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . . 9
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . 9
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . 12
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. . . . . . 17
ITEM 8. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . 18
ITEM 9. THE OFFER AND LISTING. . . . . . . . . . . . . . . . . . . . 18
ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . 20
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET.
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . 24
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. . . . . . . 24
ITEM 14. MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 15. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . 25
ITEM 16. (RESERVED) . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . . 25
ITEM 16B. CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . 25
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS. . . . . . . . . . . . . . . . . . . . 27
PART III
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 27
ITEM 18. FINANCIAL STATEMENTS (NOT APPLICABLE). . . . . . . . . . . . 28
ITEM 19. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Page 2 of 31
PART I
GENERAL INFORMATION
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. The Company's consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and include accounts of the Company and its
wholly-owned subsidiaries; Soil Biogenics Ltd., Soil Biogenics S.L., PIKSA Inter
LLC and NOP PIKSA LLC, Biogrunt and 61% owned subsidiary Biopotok-Piksa.
Collectively, they are referred to herein as "the Company". The Company is in
the business of bio-organic fertilizer production and distribution in the Russia
Federation. Unless otherwise indicated all dollar references are to United
States dollars. The Company's principal office is located at Marques de Urquijo
5, 5deg B, 28008, Madrid, Spain. We administer our bio-organic fertilizer
production and distribution business in the Russia Federation from our Moscow
office located at 19a, Kuusinena str., Moscow Russia 125252.
FORWARD-LOOKING STATEMENTS
This document contains statements that plan for or anticipate the future,
called "forward-looking statements." In some cases, you can identify forward
looking statements by terminology such as "may," "will," "should," "could,"
"expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of those terms and other
comparable terminology.
These forward-looking statements appear in a number of places in this
document and include, but are not limited to, statements about: our market
opportunity; revenue generation; our strategies; competition; expected
activities and expenditures as we pursue our business plan; the adequacy of our
available cash resources; 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 that require 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; conduct of operations in
politically and economically less developed areas of the world and the costs and
effects of legal proceedings, including environmental and administrative
proceedings involving the Company all as more fully set forth in item 3D - Risk
Factors and Item 5 - Operating and Financial Review and Prospects and factors
reported from time to time in the Company's Securities and Exchange Commission
reports.
Page 3 of 31
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
A. DIRECTORS AND SENIOR MANAGEMENT
Not Applicable.
B. ADVISORS
Not applicable
C. AUDITORS
Not applicable
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
A. OFFER STATISTICS
Not Applicable
B. METHOD AND EXPECTED TIMETABLE
Not Applicable
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
2005 2004 2003 2002 2001
$ $ $ $ $
- ---------------------------------------------------------------------------------------
OPERATING RESULTS
Sales 1,817,688 1,809,715 369,200 151,977 N/A
Income (Loss) 247,196 178,980 (214,860) 19,548 (244,423)
from operations
Net Income (Loss) (11,846) 208,704 (346,602) 13,550 (244,423)
Cash flow used in 917,669 140,316 362,887 62,998 81,045
operations
Capital 3,442 (5,554) 36,150 4,678 N/A
expenditures
FINANCIAL
POSITION
Cash and short- 672,326 1,126,302 58,822 35,350 11
term deposits
Investments 789,066 566,196 1,046,377 - 801,884
Total assets 3,396,405 2,957,687 1,442,152 312,407 841,834
Long-term debt N/A N/A N/A N/A N/A
Capital stock 1,915,959 1,915,959 915,959 105,817 1,840,000
Shareholders' 2,328,515 2,044,292 1,050,598 107,172 721,104
equity
PER SHARE
DATA
Net Income (loss) 0.00 0.01 (0.01) 0.00 (0.02)
per share
SHARES
OUTSTANDING
At year end 31,162,500 30,162,500 30,162,500 17,000,000 13,000,000
Weighted average 31,162,500 30,162,500 28,539,726 16,950,027 13,000,000
during year
Page 4 of 31
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.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable
D. RISK FACTORS
The Market for our products
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 for our products
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.
Page 5 of 31
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Cayman Purchasing & Supply, Inc. was incorporated under the laws of the State of
Florida on March 31, 1993. 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 Patagonia Gold Corporation 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.
On September 19, 2002 Patagonia Gold Corporation entered into a Plan of Merger
and Articles of Merger with Patagonia Gold (BVI) Limited 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) a company incorporated in Moscow in the Russian
Federation. 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 shares of SB
Bermuda common stock. In connection with the Plan, the Board of Directors of SB
Bermuda approved and increased the authorized shares of SB Bermuda to
3,4000,000, followed by a stock split of 5 common stock for one common stock
totalling 17,000,000 common stock issued and outstanding after the completion of
the Plan.
PIKSA was accounted for as the acquirer and as the surviving accounting entity
because the former stockholders of PIKSA received approximately 100% of the
voting rights in the combined corporation. The shares issued by the SB Bermuda
have been accounted for as if those shares comprised the historical share
capital of PIKSA. The outstanding capital stock of the SB Bermuda, at the date
of the 2002 acquisition, has been accounted for as shares issued by PIKSA to
acquire the net assets of SB Bermuda. The transaction was treated, for
accounting purposes, as an acquisition (purchase) of control of the assets and
business of SB Bermuda by PIKSA. At the date of transaction, SB Bermuda has nil
assets and liabilities.
On February 11, 2003 Patagonia Gold (BVI) Limited changed its name to Soil
Biogenics Limited (SB (BVI)) and its trading symbol from "PGBVF" to "SOBGF".
Page 6 of 31
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.
B. 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 nine 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.
Retail sales are currently concentrated in and around the city of Moscow, while
wholesale sales are sold throughout the Russian Federation. The Company's
products are currently used in hothouses, private gardens, in commercial
agriculture and landscaping. Customers vary from small farms and retail garden
centers to construction companies, large gardening companies contracted by the
Moscow City Government and Russian State Agencies where the bio-organic
fertilizers are used for soil remuneration and decontamination.
Page 7 of 31
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 2006. 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
2006.
C. ORGANIZATIONAL STRUCTURE
Soil Biogenics Limited
|
Soil Biogenics Ltd.
|
----------------------------------------------
| |
Piksa Inter LLC Soil Biogenics S.L.
|
|
|-------Piksa Research and Production Association ("NPO Piksa LC")
|
|-------Biogrunt
|
|-------Biopotok-Piksa
[GRAPHIC OMITTED]
Soil Biogenics Limited Incorporated as an International Business Company in the British
Virgin Islands;
Soil Biogenics Ltd. Incorporated in Bermuda and is a 100% wholly owned subsidiary of Soil
Biogenics Limited (BVI);
Soil Biogenics S.L. Incorporated in Madrid, Spain and is a 100% wholly owned subsidiary of
Soil Biogenics Ltd. (Bermuda);
Piksa Inter LLC Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary of
Soil Biogenics Ltd. (Bermuda);
Piksa Research and Production Association LLC ("NPO Piksa LLC")
Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary of
Piksa Inter LLC;
Biogrunt Incorporated in Moscow, Russia and is a 61% owned subsidiary of Piksa
Inter LLC;
Biopotok-Piksa Incorporated in Moscow, Russia and is a 50% owned subsidiary of Piksa
Inter LLC.
Page 8 of 31
D. PROPERTY, PLANT AND EQUIPMENT
The Company's principal office is located at Marques de Urquijo 5, 5deg B,
28008, Madrid, Spain. We administer our bio-organic fertilizer production and
distribution business in the Russia Federation from our Moscow office located at
19a, Kuusinena str., Moscow Russia 125252. Our production plant is located in
the Tomilino Township outside Moscow. The net book value of the office and
production equipment at December 31, 2005 was $94,980 (2004 - $115,684).
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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 2005 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").
A. OPERATING RESULTS
These financial statements present information regarding the financial position
and results of operations for the last three years.
Revenues during 2005 were $1,817,688 (2004 - $1,809,715; 2003 - $369,200; 2002 -
$151,977).
Operating results for the years ending December 31, 2005, 2004, 2003 and 2002
are tabulated below:
DESCRIPTION YEAR ENDING
31-DEC-05 31-DEC-04 31-DEC-03 31-DEC-02
Income (Loss) (11,846) 208,704 (346,602) 13,550
Income (Loss) per 0.00 0.01 (0.01) 0
share
Sales 1,817,688 1,809,715 369,200 151,977
Cost of Sales 954,052 1,148,653 327,155 115,790
Gross Profit 863,636 661,062 42,045 36,187
Selling Expenses 27,328 33,019 57,641 1,212
General and 472,349 380,806 174,559 15,427
Administration
Amortization 44,035 6,954 1,347 -
Research and 72,728 61,304 23,358 -
development
Page 9 of 31
The above Comparative Summary of Selected Financial Data reflects that the
acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI) was
accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda) because the
shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil Biogenics Limited
(BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was treated as the
acquiring entity for accounting purposes and Soil Biogenics Limited (BVI) was
the surviving entity for legal purposes.
B. LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2005 the Company recorded a net loss of $11,846
($0.00 per share), compared to an income of $208,704 ($0.01 per share) for 2004
and a net loss of $346,602 ($0.01 per share) in 2003.
At December 31, 2005, the Company had cash of $672,326 (2004 - $1,126,302; 2003
- - $58,822) and working capital of $2,195,318 (2004 - $1,883,886; 2003 -
$866,839) respectively. Total liabilities as of December 31, 2005 were
$1,067,890 (2004 - $913,395; 2003 - $391,554) an increase of $154,495. In fiscal
2004 the Company settled loans payable in the amount of $379,733 by the
assignment of its holdings of International Croesus Ventures Corp. During 2005
net proceeds from the issuance of common stock were $0 (2004 - $1,000,000; 2003
- - $0). In Fiscal 2005 investing activities consisted of additions to plant and
equipment $3,442 (2004 - $-5,554; 2003 - $36,150).
In fiscal 2005 the Company issued 1,000,000 shares for cash of $1,000,000
received on December 29, 2004. In fiscal 2003 the company issued 17,000,000
shares to acquire a 100% interest in Soil Biogenics Ltd., a Bermuda corporation.
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.
Page 10 of 31
PLANS FOR THE YEAR 2006 AND 2007
The Company's plans for year 2006 and 2007 center on the Piksa subsidiary
increasing the sales of its Super compost Piksa bio-organic fertilizer to the
various Russian State Agencies, the gardening companies working for the Moscow
City Government and to increase sales in the St. Petersburg market place, for
the Spanish subsidiary to produce and supply Piksa, the Russian subsidiary, with
the bacteria used in the production of the bio-organic fertilizer and to
complete the patenting and certification of its bio-organic fertilizer in Spain.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of its financial statements requires the Company to use
estimates and assumptions that affect the reported amounts of assets and
liabilities as well as revenues and expenses. The Company's accounting policies
are described in note 2 to its financial statements. The Company's accounting
policies relating to depreciation and amortization of property, plant and
equipment are critical accounting policies that are subject to estimates and
assumptions regarding future activities. Generally accepted accounting
principles require the Company to consider at the end of each accounting period
whether or not there has been an impairment of the capitalized property, plant
and equipment. This assessment is based on whether factors that may indicate the
need for a write-down are present. If the Company determines there has been
impairment, then the Company would be required to write-down the recorded value
of its property, plant and equipment costs which would reduce the Company's
earnings and net assets.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES, ETC
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.
D. TREND INFORMATION
There are no known trends that might eventually affect us.
E. OFF-BALANCE SHEET ARRANGEMENTS
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.
Page 11 of 31
F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The Company has not entered into derivative contracts either to hedge existing
risks or for speculative purposes.
G. SAFE HARBOR
This document contains statements that plan for or anticipate the future, called
"forward-looking statements." In some cases, you can identify forward looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of those terms and other comparable
terminology.
These forward-looking statements appear in a number of places in this document
and include, but are not limited to, statements about: our market opportunity;
revenue generation; our strategies; competition; expected activities and
expenditures as we pursue our business plan; the adequacy of our available cash
resources; 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 that require 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; conduct of operations in politically and
economically less developed areas of the world and the costs and effects of
legal proceedings, including environmental and administrative proceedings
involving the Company all as more fully set forth in item 3D - Risk Factors and
Item 5 - Operating and Financial Review and Prospects and factors reported from
time to time in the Company's Securities and Exchange Commission reports.
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, 2006 and December 31, 2005. 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 52, banker and private investor and developer of
new companies.
- ----------------------- ------------------------------------------------------
Alexander Becker Age 45, director of several Russian companies involved
in metallurgy, textiles and trading.
- -------------------------------------------------------------------------------
Page 12 of 31
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, 2005, December 31, 2004 and December 31, 2003:
- ------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------------
AWARDS PAYMENTS
------------------------ ---------------------- ----------------
SECURITIES
OTHER UNDER- ALL
NAME ANNUAL RESTRICTED LYING OTHER
AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION
POSITION ($) ($) ($) ($) (=) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ---------- ---- ------ ------- ------- ---------- ---------- ------- -------
Agustin
Gomez de 2005 Nil -0- -0- None None None -0-
Segura (1) ---- ------ ------- ------- ---------- ---------- ------- -------
President 2004 Nil -0- -0- None None None -0-
and ---- ------ ------- ------- ---------- ---------- ------- -------
Director 2003 Nil -0- -0- None None None -0-
- ------------------------------------------------------------------------------------
None of our officers or directors was party to an employment agreement with us.
During the fiscal year ending December 31, 2005 the entire board of directors
acted as our compensation committee and audit committee.
Mr. Gomez de Segura, the president and chief executive officer of Soil Biogenics
Limited (the parent company) is engaged in other business activities and devotes
only a limited amount of his time (approximately 35%) to our business. As we
expand our activities, a need for full time management may arise. In such an
event, should Mr. Gomez de Segura be unwilling to dedicate more of his time to
our business or fail to hire additional personnel, our business and results of
operations would suffer a material adverse effect.
OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR
The following table sets forth information concerning individual grants of stock
options (whether or not in tandem with stock appreciation rights ("SARs") and
freestanding SARs made during the last completed fiscal year to each of the
named executive officers:
- ---------------------------------------------------------------------------------------
OPTION/SAR GRANTS IN FISCAL YEAR 2005
(Individual Grants)
- ---------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS/ EXERCISE
SECURITIES SARS GRANTED OR
UNDERLYING TO EMPLOYEES BASE
OPTION/SARS IN FISCAL PRICE EXPIRATION DATE
NAME GRANTED (#) YEAR ($/Sh) (M/D/Y)
(a) (b) (c) (d) (e)
- --------------------------- ------------ --------------- --------- ----------------
Agustin Gomez de Segura (1) None None None None
- --------------------------- ------------ --------------- --------- ----------------
(1) No options were granted in fiscal 2005. No SARs were granted in fiscal 2005
or 2004.
Page 13 of 31
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, 2005 and the value at December 31, 2005 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 None None None None
- ---------------------------------------------------------------------------------
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 directors in their capacities as such
during the fiscal period ended December 31, 2005 (2004 - $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 14 of 31
C. BOARD PRACTICES
Mandate and duties of the board
The Board of Directors has no committees. The entire Board of Directors
functions as: the Executive Committee, the Audit Committee, the Compensation and
Benefits Committee and the Nominating and Corporate Governance Committee. 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 2005.
Meetings of the board of directors and committees
The Company's Board of Directors does not have a standing and nominating
committee or committee performing similar functions. During the fiscal year
ended December 31, 2005 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 2005 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 15 of 31
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 24 persons as
of June 30, 2006 (December 31, 2005 - 29 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 2005, 2004 and 2003, there were no
strikes or walkouts.
E. SHARE OWNERSHIP
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 30, 2006. As of June 30, 2006 the Company had 31,162,500
shares of Common Stock issued and outstanding (December 31, 2005 - 31,162,500).
- ----------------------------------------------------------------------------
OFFICERS AND DIRECTORS SHARES OF APPROXIMATE
COMMON PERCENTAGE
NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED
OWNED
- ------------------------------------------ ------------------ ------------
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)
- ------------------------------------------ ------------------ ------------
Alexander Becker 2,084,040 6.688%
19a, Kuusinena Str.,
Moscow, Russia 125252
- ------------------------------------------ ------------------ ------------
Total - Officers and Directors (2 persons) 4,084,040 13.106%
- ----------------------------------------------------------------------------
Page 16 of 31
For information concerning options granted to the above-mentioned individuals
see Item 6 Compensation - Options/SAR Grants Table on page 11.
Agustin Gomez de Segura and Alexander Becker were appointed to the Company's
Board of Directors on July 1, 2003.
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 15, 2006 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 30, 2006 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. (1) 2,700,000 8.664 %
Wickhams Cay 1, Road Town, Tortola, British Virgin
Islands
- --------------------------------------------------- ---------------- --------------
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) (4) 2,000,000 6.418 %
Drake Chambers, P.O. Box 3321, Road Town, Tortola,
British Virgin Islands
(Beneficially owned by)
- --------------------------------------------------- ---------------- --------------
Redbridge Minerals (Overseas) Ltd. (3) 2,000,000 6.418 %
Trident Chambers, PO Box 146, Road Town, Tortola,
British Virgin Islands
(Beneficially owned by Mrs. Antonina Tsykova)
- -------------------------------------------------------------------------------------
<FN>
(1) Alexander Kleimionov, Ul. Demiana Bednovo 17, corp. 3, ap. 10 Moscow,
Russia is the 100% beneficial owner of Kastalia Ltd.
(2) Agustin Gomez de Segura, Rdo. Fernandez Villaverde 36, E-28003 Madrid is
the 100% beneficial owner of Norbex Holdings Ltd.
(3) Antonina Tsykova, 2nd Tverskaya Yamskaya 54, Moscow, Russia is the 100%
beneficial owner of Redbridge Minerals (Overseas) Ltd.
(4) Officer and/or director
All shareholders have the same voting rights.
The listed beneficial owners do 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.
Page 17 of 31
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.
Messrs. Gomez de Segura and Becker, who serve as our Directors, may also be
Directors of other companies. To the extent that such other companies may
participate in ventures in which the Company may participate, the directors of
the Company may have a conflict of interest in negotiating and concluding terms
regarding the extent of such participation. In the event that such a conflict of
interest arises at a meeting of the directors of the Company, a director who has
such a conflict will abstain from voting for or against the approval of such
participation or such terms. In appropriate cases, the Company will establish a
special committee of independent directors to review a matter in which several
directors, or Management, may have a conflict. From time to time, several
companies may participate in the joint ventures thereby allowing for their
participation in larger programs, involvement in a greater number of programs
and reduction of the financial exposure with respect to any one program. It may
also occur that a particular company will assign all or a portion of its
interest in a particular program to another of these companies due to the
financial position of the company making the assignment. In determining whether
the Company will participate in a particular program and the interest therein to
be acquired by it, the directors will primarily consider the potential benefits
to the Company, the degree of risk to which the Company may be exposed and its
financial position at that time. Other than as indicated, the Company has no
other procedures or mechanisms to deal with conflicts of interest. The Company
is not aware of the existence of any conflict of interest as described herein.
C. INTEREST OF EXPERTS AND COUNSEL
None
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.
B. 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
A. OFFER AND LISTING DETAILS
Not applicable
B. PLAN OF DISTRIBUTION
Not applicable
C. 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,
2005 and 2004 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 18 of 31
(a) For the five most recent financial years: the annual high and low market
prices;
------------------
Period
----------- -----
2005 - High $2.40
----------- -----
2005 - Low $1.25
----------- -----
2004 - High $1.95
----------- -----
2004 - Low $0.75
----------- -----
2003 - High $2.00
----------- -----
2003 - Low $0.75
----------- -----
2002 - High $1.01
----------- -----
2002 - Low $0.30
----------- -----
2001 - High $1.00
----------- -----
2001 - Low $0.35
------------------
(b) For the two most recent full financial years and any subsequent period: the
high and low market prices for each full financial quarter;
-----------------------------------------------------------------------------
PERIOD FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
----------- -------------- --------------- -------------- ---------------
2006 - High $ 2.09 $ 2.75(1) $ 2.45(1) -
----------- -------------- --------------- -------------- ---------------
2006 - Low $ 1.00 $ 1.45(1) $ 2.20(1) -
----------- -------------- --------------- -------------- ---------------
2005 - High $ 2.35 $ 2.35 $ 2.35 $ 2.40
----------- -------------- --------------- -------------- ---------------
2005 - Low $ 1.25 $ 1.96 $ 1.70 $ 1.35
----------- -------------- --------------- -------------- ---------------
2004 - High $ 1.95 $ 1.95 $ 1.75 $ 1.85
----------- -------------- --------------- -------------- ---------------
2004 - Low $ 1.50 $ 0.75 $ 1.49 $ 1.45
-----------------------------------------------------------------------------
(1) The high and low bid prices for our Common Stock for the Third Quarter
of 2006 were for the period July 1 to July 14, 2006.
(c) For the most recent six months: the high and low market prices for each
month;
---------------------------
MONTH HIGH LOW
------------- ----- -----
June 2006 $2.70 $1.80
------------- ----- -----
May 2006 $2.75 $1.59
------------- ----- -----
April 2006 $1.85 $1.45
------------- ----- -----
March 2006 $1.85 $1.05
------------- ----- -----
February 2006 $1.70 $1.00
------------- ----- -----
January 2006 $2.09 $1.05
---------------------------
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
F. EXPENSES OF THE ISSUE
Not applicable
Page 19 of 31
ITEM 10 ADDITIONAL INFORMATION
A SHARE CAPITAL
The authorized capital of the Company is 50,000,000 common shares without par
value.
At June 30, 2006 there were 31,162,500 (December 31, 2005 - 31,162,500) common
shares issued and outstanding. During the year ended December 31, 2005 the
Company issued 1,000,000 shares for cash proceeds of $1,000,000 received on
December 29, 2004.
B MEMORANDUM AND ARTICLES OF ASSOCIATION
The Companies Amended Memorandum and Articles of Association filed on Form 20-F
on June 26, 2003 is incorporated herein by reference. (SEC file number
000-26531-03758237).
The following summarizes certain provisions of the Company's Memorandum and
Articles of Association and applicable British Virgin Islands law. This summary
is qualified in its entirety by reference to the International Business
Companies Act (the "Act") of the British Virgin Islands (the "BVI") and the
Company's Memorandum and Articles of Association. Information on where investors
can obtain copies of the Memorandum and Articles of Association is described
under the heading 'Documents on Display' under this Item.
OBJECTS AND PURPOSES
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"). In accordance with the Company's Memorandum
and Articles of Association, share certificates may be issued as either
registered shares or shares issued to bearer as the directors may by resolution
determine. In the case of a representative acting in a special capacity (for
example, as an executor or trustee), share certificates should record the
capacity in which the representative is acting. Notwithstanding the recording of
any such special capacity, the Company is not bound to investigate or incur any
responsibility in respect of the proper administration of any such estate or
trust. The Company takes no notice of any trust applicable to any of its shares
whether or not it had notice of such trust.
As an IBC, the Company has no power: (i) carry on business with persons resident
in the BVI; (ii) own an interest in real property situated in the BVI, other
than a lease of property for the use as an office from which to communicate with
the shareholders or where books and records of the Company are prepared and
maintained; (iii) carry on banking or trust business, unless it is licensed
under the BVI Banks and Trusts Companies Act of 1990; (iv) carry on business as
an insurance or a reinsurance company, insurance agency or insurance broker,
unless it is licensed under an enactment authorizing it to transact that
business; (v) carry on the business of company management unless it is licensed
under the BVI Company Management Act, of 1990; or (vi) carry on the business of
providing a registered office or the registered agent for companies incorporated
in the BVI.
There are no restrictions on the degree of foreign ownership of the Company. The
Company is subject neither to taxes on its income or dividends nor to any
foreign exchange controls in the BVI. In addition, the Company is not subject to
capital gains tax in the BVI, and profits can be accumulated by the Company, as
deemed by management to be required, without limitation.
Page 20 of 31
DIRECTORS
The business and affairs of the Company shall be managed by the directors.
The Memorandum and Articles of Association place a general prohibition on a
director voting in respect of any contract or arrangement in which he has a
material or financial interest in or on any contract or arrangement in which any
person to whom the director is related has a material or financial interest in.
In the absence of some material or financial interest, a director is entitled to
vote and to be counted in a quorum for the purpose of any vote relating to a
resolution to borrow money and to mortgage or charge its undertakings and
property or any part thereof, to issue debentures, debenture stock and other
securities whenever money is borrowed or as security for any debt, liability or
obligation of the Company or any third party.
The Company's Memorandum and Articles of Association require a director of the
company who has a material interest in a contract or proposed contract with the
company to declare the nature of his interest at a meeting of the directors of
the company. The definition of 'interest' includes the interests of spouses,
children, companies and Trusts.
DIVIDEND RIGHTS; OTHER RIGHTS TO SHARE IN COMPANY PROFITS;
The Company may by resolution of directors declare and pay dividends in money,
shares, or other property, but dividends shall only be declared and paid out of
surplus. The directors may also pay interim dividends without obtaining
shareholder approval. No dividend shall be declared and paid unless the
directors determine that immediately after the payment of the dividend the
Company will be able to satisfy its liabilities as they become due in the
ordinary course of its business and the realizable value of the assets of the
Company will not be less than the sum of its total liabilities, other than
deferred taxes, as shown in its books of account, and its capital.
VOTING RIGHTS
Each shareholder of Common Stock is entitled to one vote on all matters to be
acted upon at the Annual Meeting and the Company's Memorandum and Articles of
Association do not allow for cumulative voting rights. The presence, in person
or by proxy, of the holders of thirty-three and one third percent (33 1/3%) of
the issued and outstanding Common Stock entitled to vote at the meeting is
necessary to constitute a quorum to transact business. If a quorum is not
present or represented at the Annual Meeting, the shareholders entitled to vote
thereat, present in person or by proxy, may adjourn the Annual Meeting from time
to time without notice or other announcement until a quorum is present or
represented. Assuming the presence of a quorum, the affirmative vote of the
holders of a plurality of the shares of Common Stock voting at the meeting is
required for the election of each of the nominees for director.
LIQUIDATION RIGHTS; REDEMPTION PROVISIONS
In the event of a liquidation of the Company, after payment of all liabilities
and applicable deductions under BVI laws and subject to the payment of secured
creditors, all shares have the same rights with regard to distributions upon the
liquidation of the Company.
All shares shall be subject to redemption, purchase or acquisition by the
Company for fair value.
VARIATION OF RIGHTS
If at any time the authorized capital is divided into different classes or
series of shares, the rights attached to any class or series (unless otherwise
provided by the terms of issue of the shares of that class or series) may,
whether or not the Company is being wound up, be varied with the consent in
writing of the holders of not less than three-fourths of the issued shares of
that class or series and of the holders of not less than three-fourths of the
issued shares of any other class or series of shares which may be affected by
such variation.
Page 21 of 31
SHAREHOLDERS' MEETINGS AND NOTICES
Under the Memorandum and Articles of Association, the Directors of the Company
may convene meetings of the members of the Company at such times and in such
manner and places within or outside the British Virgin Islands as the directors'
consider necessary or desirable. The directors' shall give not less than 7 days
notice of meetings to shareholders who are entitled to notice and to vote at the
meeting. If any shareholders' meeting is adjourned for lack of quorum, notice of
the time and place of the rescheduled meeting may be given by the directors' to
shareholders who are entitled to notice and to vote at the meeting.
LIMITATIONS ON VOTING AND SHAREHOLDING
There are no limitations imposed by British Virgin Islands law or the Company's
Memorandum and Articles of Association on the right of non-residents or foreign
persons to hold or vote the Company's shares, other than limitations that would
generally apply to all of the shareholders.
C. MATERIAL CONTRACTS
Not applicable.
D. EXCHANGE CONTROLS
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.
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.
Page 22 of 31
There are no capital gains or income taxes levied by the BVI on companies
incorporated under the International Business Companies Act. In addition, the
Common Stock of the Company is not subject to transfer taxes, stamp duties or
similar charges.
There is no income tax treaty or convention currently in effect between the
United States and the BVI.
As an exempted company, the Company is required to pay the BVI government an
annual license fee based on the Company's stated authorized capital.
This discussion is not intended to be, nor should it be construed to be, legal
or tax advice to any holder or prospective holder of Common Shares of the
Company and no opinion or representation with respect to the United Sates
federal income tax consequences to any such holder or prospective holder is
made. Holders and prospective holders should therefore consult their own tax
advisors with respect to their particular circumstances.
F. DIVIDENDS AND PAYING AGENTS
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 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.
G. STATEMENT BY EXPERTS
Our financial statements at December 31, 2005, and for each of the two years in
the period ending December 31, 2005 appearing in this Form 20-F statement have
been audited by Peterson Sullivan PLLC, independent registered public accounting
firm, as set forth in their report (which contains an explanatory paragraph
describing conditions that raise substantial doubt about our ability to continue
as a going concern as described in Note 1 to the financial statements) appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
H. DOCUMENTS ON DISPLAY
We file current and annual reports with the U.S. Securities & Exchange
Commission on forms 6-K, and 20-F. The information may be inspected and copied
at the Public Reference Room maintained by the U.S. Securities & Exchange
Commission at 100 F Street, N.E., Washington, D.C. 20549. You can obtain
information about operation of the Public Reference Room by calling the U.S.
Securities & Exchange Commission at 1-800-SEC-0330. The U.S. Securities &
Exchange Commission also maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the U.S. Securities & Exchange Commission at
http://www.sec.gov. Copies of such material can be obtained from the public
reference section of the U.S. Securities & Exchange Commission at prescribed
rates. Statements contained in this Form 20-F as to the contents of any contract
or other document filed as an exhibit to this Form 20-F are not necessarily
complete and in each instance reference is made to the copy of the document
filed as an exhibit to this Form 20-F, each statement made in this document
relating to such documents being qualified in all respects by such reference.
Page 23 of 31
I. SUBSIDIARY INFORMATION
Not applicable
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 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
A. DEBT SECURITIES
Not applicable
B. WARRANTS AND RIGHTS
Not applicable
C. OTHER SECURITIES
Not applicable
D. AMERICAN DEPOSITARY SHARES
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
Page 24 of 31
ITEM 15 CONTROLS AND PROCEDURES
The principal executive and principal financial officers of the Company have
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this report (evaluation date) and have concluded
that the disclosure controls and procedures are adequate and effective based
upon their evaluation as of the evaluation date.
ITEM 16 (RESERVED)
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
Messrs. Agustin Gomez de Segura and Alexander Becker comprise the Audit
Committee. Mr. Alexander Becker is Chairman of the Audit Committee. Mr. Becker
satisfies the current requirements of the NASD OTC Bulletin Board, relating to
the independence and the qualification of the members of the Audit Committee.
Mr. Agustin Gomez de Segura is and officer and director of the Company.
The Board of Directors of the Company has determined that Mr. Alexander Becker
qualifies as an "audit committee financial expert".
ITEM 16B CODE OF ETHICS
As part of its stewardship responsibilities, the Board of Directors has approved
formal "Standards of Ethical Conduct" that govern the behavior of the directors,
officers and employees of the Company. The Board monitors compliance with these
standards and is responsible for the granting of any waivers from these
standards to directors or officers. Disclosure will be made by the Company of
any waiver from these standards granted to the directors or officers of the
Company in the quarterly report of the Company that immediately follows the
grant of such waiver. No waiver has been granted to date. The "Corporate
Governance Principles" was filed on Form 20-F on July 7, 2004 and is
incorporated herein by reference (SEC file number 000-26531-04903315).
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
Effective May 5, 2006, we dismissed our prior independent public accountant,
Ernst & Young LLP and retained as our new independent public accountant Peterson
Sullivan PLLC. Prior to May 5, 2006, Ernst & Young LLP had been our certifying
independent public accountant since the transaction of Moore Stephens
International member firm Ellis Foster Ltd. with Ernst & Young LLP in May 2005.
Moore Stephens International member firm Ellis Foster Ltd. has been our
certifying independent public accountant since March 2000. Ernst & Young LLP
reported on our financial statements for the year ended December 31, 2004 and
their report contained no adverse opinion or disclaimer of opinion, nor was it
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change accountants was approved by the Company's Board of
Directors.
For the fiscal year 2004 and the subsequent period preceding the change, there
were no disagreements between the Company and Ernst & Young LLP on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused it to make a reference to
the subject matter of disagreements in connection with its report. There were no
"reportable events" as that term is described in Item 304(a)(1)(v) of Regulation
S-B for the fiscal year 2004 and any subsequent period.
Page 25 of 31
Effective May 5, 2006, the Company engaged Peterson Sullivan PLLC as our new
independent registered public accountants to audit our financial statements. The
appointment of Peterson Sullivan PLLC was recommended and approved by our board
of directors. During our last two most recent fiscal years and the subsequent
interim period to date hereof, we have not consulted Peterson Sullivan PLLC
regarding either: (1) the application of accounting principles to a specified
transaction, either complete or proposed, or the type of audit opinion that
might be rendered on our financial statements, or (2) any matter that was either
the subject matter of a disagreement as defined in Item 304(a)(1)(iv) of
Regulation S-B or a reportable event as described in Item 304(a)(1)(v) of
Regulation S-B.
(A) AUDIT FEES
The aggregate fees billed for professional services billed by Ernst & Young LLP
and Moore Stephens Ellis Foster Ltd. 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, 2005, were $36,360 (2004 - $48,037).
(B) AUDIT-RELATED FEES
The aggregate fees billed for assurance and related services by Ernst & Young
LLP and Moore Stephens Ellis Foster Ltd. that are reasonably related to the
performance of the audit or review of the Company's financial statements were $0
for the Company's fiscal year ended December 31, 2005 (2004 - $Nil).
(C) TAX FEES
The aggregate fees billed for products and services rendered by Ernst & Young
LLP and Moore Stephens Ellis Foster Ltd. for tax compliance, tax advice and tax
planning for the Company's fiscal ended December 31, 2005 were $0 (2004 - $Nil).
(D) ALL OTHER FEES
There were no additional fees billed for professional services rendered by Ernst
& Young LLP and Moore Stephens Ellis Foster Ltd. other than the fees reported in
this Item 16C above for the Company's fiscal year ended December 31, 2005 (2004
- - $Nil).
(E) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES
The Audit Committee approves the engagement terms for all audit and non-audit
services to be provided by the Company's accountants before such services are
provided to the Company or any of its subsidiaries.
The Audit Committee approved one hundred percent (100%) of the services provided
to the Company and its subsidiaries described in Items 16C (b) through (d)
above.
(F) AUDITORS USE OF NON-PERMANENT EMPLOYEes
None of the hours expended by Ernst & Young LLP and Moore Stephens Ellis Foster
Ltd. on its engagement to audit the Company's financial statements for the
fiscal year ended December 31, 2005, were performed by persons other than
fulltime permanent employees of Ernst & Young LLP and Moore Stephens Ellis
Foster Ltd.
Page 26 of 31
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, 2005 and December 31, 2004. F-1
- ------------------------------------------------------------- -----------
Report of Independent Accountants F-2
- ------------------------------------------------------------- -----------
Consolidated Balance Sheets F-4
- ------------------------------------------------------------- -----------
Consolidated Statements of Operations F-5
- ------------------------------------------------------------- -----------
Consolidated Statement of Stockholders' Equity F-6
- ------------------------------------------------------------- -----------
Consolidated Statement of Cash Flows F-7
- ------------------------------------------------------------- -----------
Notes to Financial Statements F-8 to F-19
- --------------------------------------------------------------------------
Page 27 of 31
Consolidated Financial Statements
SOIL BIOGENICS LIMITED
(Expressed in U.S. Dollars)
December 31, 2005, 2004 and 2003
F-1
[GRAPHIC OMITTED]
PETERSON SULLIVAN PLLC
CERTIFIED PUBLIC ACCOUNTANTS TEL 206.382.7777 * FAX 206.382.7700
601 UNION STREET, SUITE 2300 http://www.pscpa.com
SEATTLE, WASHINGTON 98101
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Board of Directors and Stockholders
Soil Biogenics Limited
We have audited the accompanying consolidated balance sheet of Soil Biogenics
Limited and Subsidiaries as of December 31, 2005, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its 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. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Soil Biogenics
Limited and Subsidiaries as of December 31, 2005, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.
/S/ PETERSON SULLIVAN PLLC
June 14, 2006
Seattle, Washington
F-2
SOIL BIOGENICS LIMITED
CONSOLIDATED BALANCE SHEETS
As at December 31 (Expressed in U.S. Dollars)
2005 2004
$ $
- --------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 654,560 1,105,836
Accounts receivable 1,304,266 975,053
Marketable securities 789,066 566,196
Inventories 461,491 136,703
Prepaid expenses and other 53,825 13,493
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,263,208 2,797,281
Restricted cash 17,766 20,466
Equipment, net 94,980 115,684
Other assets 20,451 24,256
- --------------------------------------------------------------------------
TOTAL ASSETS 3,396,405 2,957,687
- --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans 591,600 -
Accounts payable and accrued expenses 365,358 679,480
Income taxes payable 8,890 42,290
Notes payable - related parties 102,042 191,625
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,067,890 913,395
- --------------------------------------------------------------------------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY
Share capital
Authorized
50,000,000 common shares without par value
Issued and outstanding
31,162,500 [2004 - 30,162,500] common shares 1,915,959 1,915,959
Accumulated deficit (154,711) (142,865)
Accumulated other comprehensive income 567,267 271,198
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,328,515 2,044,292
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 3,396,405 2,957,687
==========================================================================
See accompanying notes
Approved by the Directors:
"AGUSTIN GOMEZ DE SEGURA" "ALEXANDER BECKER"
- ------------------------- ------------------
Agustin Gomez de Segura Alexander Becker
F-3
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years ended December 31 (Expressed in U.S. Dollars)
2005 2004 2003
$ $ $
- ---------------------------------------------------------------------------------------------
Sales 1,817,688 1,809,715 369,200
Cost of sales 954,052 1,148,653 327,155
- ---------------------------------------------------------------------------------------------
Gross profit 863,636 661,062 42,045
- ---------------------------------------------------------------------------------------------
Selling expenses 27,328 33,019 57,641
General and administrative 472,349 380,806 174,559
Depreciation 44,035 6,954 1,347
Research and development 72,728 61,304 23,358
- ---------------------------------------------------------------------------------------------
Income (loss) from operations 247,196 178,979 (214,860)
- ---------------------------------------------------------------------------------------------
Other income (expense)
Other income 5,989 25,274 604
Realized gain (loss) on disposition of
marketable securities - 120,175 (85,172)
Interest expense (20,638) (14,794) (46,615)
Write-off of marketable securities - - (1,341)
Unrealized loss on other than temporary impairment
of available-for-sale securities (88,192) - -
- ---------------------------------------------------------------------------------------------
(102,841) 130,655 (132,524)
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes 144,355 309,634 (347,384)
Income tax provision (156,201) (100,930) 782
- ---------------------------------------------------------------------------------------------
Net income (loss) for the year (11,846) 208,704 (346,602)
=============================================================================================
Income (loss) per share - basic and diluted (0.00) 0.01 (0.01)
=============================================================================================
Weighted average number of common shares
outstanding
- Basic and diluted 31,162,500 30,162,500 28,539,726
=============================================================================================
See accompanying notes
F-4
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME (LOSS)
For the Years ended December 31, 2005, 2004 and 2003 (Expressed in U.S. Dollars)
ACCUMULATED
COMMON STOCK OTHER TOTAL TOTAL
---------------------- ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT (DEFICIT) INCOME (LOSS) EQUITY INCOME (LOSS)
# $ $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 17,000,000 105,817 (4,967) 6,322 107,172 -
Recapitalization 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
- Net loss for the year - - (346,602) - (346,602) (346,602)
- Foreign currency translation
adjustments - - - 9,490 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 1,050,598 133,284
===============
Cash for share subscription - 1,000,000 - - 1,000,000 -
Components of comprehensive
income (loss)
- Net income for the year - - 208,704 - 208,704 208,704
- Foreign currency translation
adjustments - - - 5,612 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) (233,754)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004 30,162,500 1,915,959 (142,865) 271,198 2,044,292 (6,306)
===============
Issuance of common shares
previously subscribed for 1,000,000 - - - - -
Components of comprehensive
income (loss) - - - - - -
- Net loss for the year (11,846) - (11,846) (11,846)
- Foreign currency translation
adjustments - - - (14,993) (14,993) (14,993)
- Unrealized gains on marketable
securities - - - 222,870 222,870 222,870
- Reclassification adjustment for
other than temporary impairment
loss - - - 88,192 88,192 88,192
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2005 31,162,500 $1,915,959 $ (154,711) $ 567,267 $ 2,328,515 $ 284,223
- ----------------------------------------------------------------------------------------------------------------===============
See accompanying notes
F-5
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2005 2004 2003
$ $ $
- ---------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) for the year (11,846) 208,704 (346,602)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 44,035 43,685 29,215
Imputed interest - related party - - 3,063
Realized gain (loss) on sale of marketable securities - (120,175) 85,172
Write-off of marketable securities - - 1,341
Other than temporary impairment on available-for-sale
security 88,192 - -
Changes in assets and liabilities:
(Increase) in accounts receivable (329,213) (883,968) (8,740)
(Increase) in inventories (324,788) (73,936) (29,229)
(Increase) in prepaid expenses and other assets (36,527) (990) (18,178)
Increase (decrease) in income taxes payable (33,400) 42,290 -
Increase (decrease) in accounts payable
accrued expenses (314,122) 644,074 (78,929)
- ---------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (917,669) (140,316) (62,998)
- ---------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposition of marketable securities - 379,733 -
Purchase of equipment (3,442) 5,554 (36,150)
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (3,442) 385,287 (36,150)
- ---------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - 1,000,000 -
Increase (decrease) of bank loan 591,600 (67,901) 36,440
Increase (decrease) of notes payable (89,583) (115,202) 377,038
- ---------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 502,017 816,897 413,478
- ---------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (34,882) 5,612 9,031
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (453,976) 1,067,480 23,472
Cash and cash equivalents, beginning of year 1,126,302 58,822 35,350
- ---------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 672,326 1,126,302 58,822
=============================================================================================
CASH AND CASH EQUIVALENTS ARE COMPRISED OF
Cash 654,560 1,105,836 39,986
Restricted cash 17,766 20,466 18,836
- ---------------------------------------------------------------------------------------------
672,326 1,126,302 58,822
=============================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid 16,738 15,490 45,721
Income taxes paid 188,604 60,928 -
=============================================================================================
NON-MONETARY TRANSACTIONS
Transfer of marketable securities for payment
of note payable - 379,733 -
=============================================================================================
See accompanying notes
F-6
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
1. NATURE OF ORGANIZATION
The consolidated financial statements presented are those of Soil Biogenics
Limited and its wholly owned subsidiaries, Soil Biogenics Ltd. (SB Bermuda),
Soil Biogenics S.L. (SB Spain), PIKSA Inter LLC (PIKSA), NPO PIKSA LLC (NPO),
Biogrunt and 61% owned subsidiary Biopotok-Piksa. 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 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.
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.
F-7
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include accounts of the Company and its wholly-owned subsidiaries; Soil
Biogenics Ltd., Soil Biogenics S.L., PIKSA Inter LLC and NPO PIKSA LLC, Biogrunt
and 61% owned subsidiary Biopotok-Piksa. Collectively, they are referred to
herein as "the Company". All significant inter-company accounts 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.
CASH EQUIVALENTS
Cash equivalents comprise certain highly liquid instruments with a maturity of
three months or less when purchased. The Company did not have any cash
equivalents as of December 31, 2005 and 2004.
ACCOUNTS RECEIVABLE
Accounts receivable result primarily from the sale of fertilizer and related
products and are stated at their principal balances net of any allowance for
credit losses. Receivables are considered past due on an individual basis based
on the terms of the trade or the contracts.
The Company's allowance for credit losses is to be maintained at an amount
considered adequate to absorb estimated credit-related losses. Such allowance
reflects management's best estimate of the losses in the Company's credit
portfolio and judgments about economic conditions. Estimates and judgments could
change in the near-term, and could result in a significant change to a
previously recognized allowance. An allowance for credit losses may be increased
by provisions which are charged to income and reduced by write-offs net of
recoveries. There was no allowance for credit losses as at December 31, 2005 and
2004.
F-8
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
At December 31, 2005 and 2004, 3 and 2 customers, respectively, accounted for
83% and 73% respectively, of accounts receivable.
MARKETABLE SECURITIES
The Company's available-for-sale securities consist of shares of common stock of
four publicly traded companies and are stated at market value. The cost of these
securities is $228,230 at December 31, 2005 and the net unrealized holding gain
of $560,836 is included in accumulated other comprehensive income (loss) at
December 31, 2005. Any unrealized holding gains or losses in these securities
are included in the determination of accumulated other comprehensive income
(loss). If a loss in value in the available-for-sale securities is considered to
be other than temporary, it is recognized in the determination of net income.
All unrealized holding losses at December 31, 2005 are on securities held less
than 12 months. Cost is based on the specific identification method for the
individual securities to determine realized gains or losses.
INVENTORIES
Inventories consist mainly of packaged fertilizer and is stated at the lower of
cost or 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, it 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, 2005, the Company holds certificates of deposit under the lease
agreement.
EQUIPMENT
Depreciation is based on the estimated useful lives of the assets and is
computed using the straight-line method. Equipment is recorded at cost.
Depreciation is provided over the following useful lives:
Office and production equipment 5-20 years
F-9
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS
The Company and SB Bermuda's functional currencies are US dollars. SB Spain is
considered to be an integrated operation and its accounts are accounted for
using US dollars as the functional currency. Piksa Inter LLC and NPO PIKSA LLC
are considered to be self-sustaining foreign operations and their accounts are
accounted for using the Russian Rouble (RUR) as the functional currency.
The Company translates foreign assets and liabilities of its subsidiaries, other
than those denominated in U.S. dollars, at the rate of exchange at the balance
sheet date. Revenues and expenses are translated at the average rate of exchange
throughout the year. Gains or losses from these translations are reported as a
separate component of other comprehensive income (loss) until all or a part of
the investment in the subsidiaries is sold or liquidated. The translation
adjustments do not recognize the effect of income tax because the Company
expects to reinvest the amounts indefinitely in operations.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the local functional currency
are included in general and administrative expenses in the statements of
operations, which amount was not material for 2005, 2004, and 2003.
CONCENTRATION OF CREDIT RISK
The Company places its cash and cash equivalents with high credit quality
financial institutions. The Company had $329,742 (2004 - Nil) funds deposited in
a bank beyond the insured limits as of December 31, 2005.
The Company sold its goods predominantly to a limited number of companies all
located in Russia. Sales to four, four, and one companies represented 82%, 88%
and 84% of the total sales in 2005, 2004 and 2003, respectively. The Company
purchased the majority of the raw materials from one supplier in 2005.
LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable, in
accordance with the Statement of Financial Accounting Standards No. 144 (SFAS
144), Accounting for the Impairment or Disposal of Long-lived Assets. An
impairment loss would be recognized when the carrying amount of an asset exceeds
the estimated undiscounted future cash flows expected to result from the use of
the asset and its eventual disposition.
F-10
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
The amount of the impairment loss to be recorded is calculated by the excess of
the asset's carrying value over its fair value. Fair value is generally
determined using a discounted cash flow analysis. The Company has not recognized
any impairment losses through December 31, 2005.
COMPREHENSIVE INCOME
The Company has adopted the Statement of Financial Accounting Standards No. 130
(SFAS 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 Consolidated
Statement of Stockholders' Equity (Deficiency). Comprehensive income comprises
equity except those resulting from investments by owners and distributions to
owners.
Accumulated other comprehensive income consists of the following at December 31:
2005 2004
$ $
------------------
Foreign currency translation adjustments 6,431 21,424
Unrealized gains on marketable securities 560,836 249,774
-------- --------
567,267 271,198
======== ========
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. The Company incurred
advertising costs of $74,545 in 2005 [2004 - $33,019; 2003 - $57,641].
INCOME TAXES
The Company has adopted the Statement of Financial Accounting Standards No. 109
(SFAS 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 differences between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. The Company is subject to taxes on income earned in Russia and Spain.
F-11
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed by dividing net income or loss available
to common stockholders by the weighted average number of common shares
outstanding during the year. The Company has adopted the Statement of Financial
Accounting Standards No. 128 (SFAS 128), Earnings Per Share. Diluted loss per
share takes into consideration common shares outstanding (computed under basic
earnings per share) and potentially dilutive securities and is equivalent to
basic loss per share for 2005, 2004 and 2003 because there are no potentially
dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISKS
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
value.
The carrying value of cash, accounts receivable, accounts payable and accrued
expenses, bank loans and notes payable - related parties approximate their fair
value because of the short-term nature of these instruments. Management is of
the opinion that the Company is not exposed to significant interest or credit
risks arising from these financial instruments.
The Company operates outside of the United States of America and is exposed to
foreign currency risk due to the fluctuation between the currency in which the
Company operates in and the U.S. dollar.
SHARE-BASED PAYMENT
The Company has adopted the fair value method of accounting for stock-based
compensation consistent with Statement of Financial Accounting Standards No. 123
(R) (SFAS 123 (R)), Share-based Payment.
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 will not have a material impact on the Company's financial
statements.
F-12
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
NEW ACCOUNTING PRONOUNCEMENTS (CONT'D.)
In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions. SFAS No. 152 amends FASB Statement No. 66,
Accounting for Sales of Real Estate, to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends FASB Statement No. 67, Accounting for
Costs and Initial Rental Operations of Real Estate Projects, to state that the
guidance for (a) incidental operations and (b) costs incurred to sell real
estate projects does not apply to real estate time-sharing transactions. The
accounting for those operations and costs is subject to the guidance in SOP
04-2. SFAS No. 152 is effective for fiscal years beginning after June 15, 2005.
The adoption of SFAS No. 152 will not affect the Company's financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS No.
153 requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. SFAS No. 153 is effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The adoption of FASB No. 153 will not have a material impact on the
Company's financial statements.
In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. 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
Company has adopted this Standard.
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections- a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS
No. 154 replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No.
3, Reporting Accounting Changes in Interim Financial Statements - an amendment
of APB Opinion No. 3, and changes the requirements for the accounting principle.
This Statement applies to all voluntary changes in accounting principle. It
also applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition. SFAS No.
154 is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The adoption of FASB No. 154 will not
have a material impact on the Company's financial statements.
F-13
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
NEW ACCOUNTING PRONOUNCEMENTS (CONT'D.)
In May 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations-an interpretation of FASB Statement No.
143. FASB Interpretation No. 47 clarifies that conditional asset retirement
obligations describe a legal obligation to perform an asset retirement activity
in which the timing and/or method of settlement are conditional on a future
event that may not be under the entity's control. FASB Interpretation No. 47 is
effective no later than for fiscal years ending after December 15, 2005. The
adoption of FASB Interpretation No. 47 will not have a material impact on the
Company's financial statements.
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
$ $ $ $ $
- ----------------------------------------------------------------------------------------
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
Change in the year (88,192) 311,062 0 311,062 222,870
- ----------------------------------------------------------------------------------------
December 31, 2005 228,230 578,473 17,637 560,836 789,066
========================================================================================
At December 31, 2005, securities of one publicly traded company classified as
available-for-sale were written down $88,192 to their estimated realizable
value, because, in the opinion of management, the decline in the market value of
those securities is considered to be other than temporary. Gross unrealized
losses of $17,637 at December 31, 2005, relate to one security with a market
value of $35,727 held for greater than twelve months and is not material and
does not indicate losses which may be other than temporary.
4. EQUIPMENT
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- -------------------------------------------------------------------
2005
Office and production equipment 216,311 121,331 94,980
===================================================================
2004
Office and production equipment 191,585 75,901 115,684
===================================================================
F-14
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
5. BANK LOANS
Bank loans amount to $591,600 (RUR 17,000,000) at December 31, 2005, and are
held by PIKSA and NPO Piksa. The bank loans are unsecured, bear interest at 16%
per annum and are due in October 2006.
6. NOTES PAYABLE - RELATED PARTIES
2005 2004
$ $
- ------------------------------------------------------------------------------------------------------
i. Interest at 6.0% per annum, unsecured and due November 2007:
- Publix Overseas Ltd. - related to a director and a major shareholder 30,000 30,000
- ------------------------------------------------------------------------------------------------------
ii. Interest at 6.0% per annum, unsecured and due May 2008
- Finiss Investments Ltd. - related to a director and major shareholder 35,000 35,000
iii. Non-interest bearing, unsecured and no stated terms of repayment:
- Carrington International Ltd. - a major shareholder - 117,774
- A. Gomez de Segura - a director and a major shareholder 23,698 3,255
- Other 13,344 5,596
- ------------------------------------------------------------------------------------------------------
37,042 126,625
- ------------------------------------------------------------------------------------------------------
TOTAL 102,042 191,625
======================================================================================================
7. SHARE CAPITAL
On December 29, 2004, the Company received $1,000,000 for 1,000,000 shares of
common stock which were issued in May 2005.
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
in Bermuda are not subject to income taxes because of the countries in which
they were incorporated, while the Russian subsidiaries and Spanish subsidiary
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.
F-15
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
8. INCOME TAX PROVISION (CONT'D)
2005 2004 2003
$ $ $
- ----------------------------------------------------------------------------------------
Income taxes at statutory rate - - -
Foreign tax rate differences 86,201 126,934 (67,495)
Utilization of previously unrecognized losses - 26,004 -
Non recognition of benefit of losses 70,000 - 66,713
- ----------------------------------------------------------------------------------------
Provision for (benefit from) income taxes 156,201 100,930 (782)
========================================================================================
A summary of deferred income tax assets is as follows:
2005 2004
$ $
- ----------------------------------------------------------------------------------------
Loss carryforwards 145,000 91,000
Valuation allowance (145,000) (91,000)
- ----------------------------------------------------------------------------------------
Net deferred tax asset - -
========================================================================================
The Company has established the above valuation allowances as of December 31,
2005 and 2004 due to uncertainty of future realization of future income tax
assets. The change in the valuation allowance was $54,000 for 2005, $21,000 for
2004 and $68,000 for 2003. At December 31, 2005, the Company has approximately
$580,000 of loss carryforwards which can be used against future earnings in
Spain.
9. RELATED PARTY TRANSACTION
During 2004, the Company settled a liability of $379,733 due to a shareholder of
the Company by transferring certain marketable securities it owned at a fair
value of $379,733.
10. COMMITMENT AND CONTINGENCIES
[a] The Company's subsidiary in Spain has entered into an office lease
agreement expiring June 2007 with approximate minimum lease payments for
the next two (2) years as follows:
$
---------------------------------------------------------------------------
2006 30,000
2007 15,000
---------------------------------------------------------------------------
Total 45,000
===========================================================================
Rent expense under this operating lease amounted to approximately
$32,000 in 2005. The Company also leases office and production space for
its fertilizer operations in Russia under short term lease arrangements.
F-16
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
10. COMMITMENT AND CONTINGENCIES (CONT'D)
[b] The Company's Russian subsidiaries - PIKSA, NPO and Biogrunt and
Biopotok-Piksa 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 believes that, based on current year results, it has
adequately provided for tax liabilities in the accompanying consolidated
financial statements; however, the risk remains as those relevant
authorities could take different positions with regard to interpretive
issues.
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
$ $ $ $
- -------------------------------------------------------------------
2005
Sales - - 1,817,688 1,817,688
Net income (loss) (271,861) (276,361) 536,376 (11,846)
Assets 1,173,887 153,125 2,069,393 3,396,405
===================================================================
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 1,303,699 2,957,687
===================================================================
F-17
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
11. GEOGRAPHICAL INFORMATION (CONT'D)
2003
Sales - - 369,200 369,200
Net income (loss) (153,759) (80,817) (112,026) (346,602)
- ------------------------------------------------------------
12. RECLASSIFICATIONS
Certain reclassifications to the 2004 amounts have been made to conform to the
2005 presentation.
13. SUBSEQUENT EVENTS
In February 2006, NPO Piksa entered into a loan agreement with a bank. The loan
is for RUR 8,000,000 ($278,400 at December 31, 2005), bears interest at 16% per
annum, is unsecured and is due December 2006.
In April 2006 Piksa entered into a three year lease for equipment to be used in
its fertilizer operations. The total amount of the lease payments required under
the lease are RUR 7,197,192 ($250,462 at December 31, 2005). This lease will be
accounted for as a capital lease for financial statement purposes.
F-18
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 incorporated by reference to the registration
statement on Form 10SB12G filed on June 29, 1999. (SEC File No.
000-26531-99654119) *
1.2 Certificate of Restoration and Renewal of Certificate of Incorporation
incorporated by reference to the registration statement on Form 10SB12G
filed on June 29, 1999. (SEC File No. 000-26531-99654119) *
1.3 Amended and Restated Memorandum of Association incorporated by reference to
the registration statement on Form 20-F filed on June 26, 2003. (SEC File
No. 000-26531-03758237) *
1.4 Amended and Restated Articles of Association incorporated by reference to
the registration statement on Form 20-F filed on June 26, 2003. (SEC File
No. 000-26531-03758237) *
1.5 Plan of Merger incorporated by reference to the registration statement on
Form 20-F filed on June 26, 2003. (SEC File No. 000-26531-03758237) *
1.6 Articles of Merger incorporated by reference to the registration statement
on Form 20-F on June 26, 2003. (SEC File No. 000-26531-03758237) *
1.7 By-laws incorporated by reference to the registration statement on Form
20-F filed on June 26, 2003. (SEC File No. 000-26531-03758237) *
8.1 Significant subsidiaries incorporated by reference to the registration
statement on Form 20-F on June 26, 2003. (SEC File No. 000-26531-03758237)
*
11.1 Corporate Governance Principles incorporated by reference to the
registration statement on Form 20-F on July 7, 2004. (SEC File No.
000-26531-04903315) *
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.
* Previously filed
Page 28 of 31
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.
SOIL BIOGENICS LIMITED
(Registrant)
Date: July 14, 2006 BY: /s/ Agustin Gomez de Segura
-------------------------------
Agustin Gomez de Segura
Director, President and CFO
Date: July 14, 2006 BY: /s/ Alexander Becker
-------------------------------
Alexander Becker
Director
Page 29 of 31