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, 2006
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, 5 B, 28008, Madrid, Spain
(Address of Principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class 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 each 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 June 30, 2007 there were 31,162,500 (December 31, 2006 - 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
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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]
Page 2 of 31
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. . . . . . . . . . 5
ITEM 3. KEY INFORMATION. . . . . . . . . . . . . . . . . . . . . . 5
ITEM 4. INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . 7
ITEM 4A UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . 10
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . 10
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . 14
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. . . . . 18
ITEM 8. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 20
ITEM 9. THE OFFER AND LISTING. . . . . . . . . . . . . . . . . . . 20
ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . 21
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . 26
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES. . . . . . 26
ITEM 14. MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . 26
ITEM 15. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . 26
ITEM 16. (RESERVED) . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . 27
ITEM 16B. CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . 27
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR
AUDIT COMMITTEES . . . . . . . . . . . . . . . . . . . . . 29
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS. . . . . . . . . . . . . . . . . . . 29
PART III
ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . 29
ITEM 18. FINANCIAL STATEMENTS (NOT APPLICABLE). . . . . . . . . . . 30
ITEM 19. FINANCIAL STATEMENTS AND EHXHIBITS . . . . . . . . . . . . 30
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Page 3 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
subsidiaries; 100% owned Soil Biogenics Ltd. (SB Bermuda), 100% owned Soil
Biogenics S.L. (SB Spain), 100% owned PIKSA Inter LLC (PIKSA), NPO PIKSA LLC
(NPO) (100% owned by Piksa Inter), Biogrunt (61% owned by Piksa Inter),
Biopotok-Piksa (50% owned by Piksa Inter), Biogruntstroy (50% owned by
Biopotok-Piksa) and Piksa Domodedovo (75% owned by Piksa Inter). 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, 5 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.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
A. DIRECTORS AND SENIOR MANAGEMENT
Not Applicable.
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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
The Company's plans, funding requirements, sources and alternatives relating
thereto are presented and discussed in Item 5. " Operating and Financial Review
and Prospects ". Any selected data presented here will be merely repetition of
that contained within the consolidated financial statements under Part III
hereof and not necessarily indicative of the future results of operations or
financial performance of the Company.
The following table sets forth, for the periods and the dates indicated,
selected financial data for the Company. This information should be read in
conjunction with the Company's Audited Financial Statements and Notes thereto
for the period ended December 31, 2006 and "Operating and Financial Review and
Prospects " included elsewhere herein.
The selected financial data provided below are not necessarily indicative of the
future results of operations or financial performance of the Company. To date
the Company has not paid any dividends on the Common Shares and it does not
expect to pay dividends in the foreseeable future.
The Financial Statements of the Company have been prepared in accordance with
accounting principles generally accepted in United States ("US GAAP").
Page 5 of 31
A. SELECTED FINANCIAL DATA
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA
(EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
2006 2005 2004 2003 2002
$ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS
Sales 3,761,904 1,817,688 1,809,715 369,200 151,977
Income (Loss) from operations 151,547 247,196 178,979 (214,860) 19,548
Net Income (Loss) (132,300) (11,846) 208,704 (346,602) 13,550
Cash flow used in operations 513,108 917,669 140,316 362,887 62,998
Capital expenditures 768,005 3,442 (5,554) 36,150 4,678
FINANCIAL POSITION
Cash and short-term deposits 215,563 654,560 1,105,836 39,986 35,350
Investments 583,259 789,066 566,196 1,046,377 -
Total assets 5,435,433 3,396,405 2,957,687 1,442,152 312,407
Long-term debt 296,511 72,752 N/A N/A N/A
Capital stock 1,915,959 1,915,959 1,915,959 915,959 105,817
Shareholders' equity 2,128,229 2,328,515 2,044,292 1,050,598 107,172
PER SHARE DATA
Net Income (loss) per share (0.00) (0.00) 0.01 (0.01) 0.00
SHARES OUTSTANDING
At year end 31,162,500 31,162,500 30,162,500 30,162,500 17,000,000
Weighted average during year 31,162,500 31,162,500 30,162,500 28,539,726 16,950,027
The above Five Year Comparative Summary of Selected Financial Data reflects 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
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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.
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
Page 7 of 31
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 exchange 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".
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.
Page 8 of 31
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 thirty-four people, mostly engineers and
scientists, and subcontracts services for the maintenance of the production
facilities. The company also uses the services of specialists from leading
Russian agricultural research institutions.
The Company sells two types of products: fertile soils and PIKSA Super Compost.
The fertile soils are mainly used by construction companies to rehabilitate
exhausted areas in the Capital city, like residential complexes and parks. The
PIKSA Super Compost is sold to the Federal railways Agency (to reinforce the
slopes), to construction companies and through a retail network of two hundred
outlets to the public for their gardens. The Super Compost is also used to
recover contaminated soils. 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 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.
The raw materials, peat, sand and dung, for the fertile soils and PIKSA Super
Compost is readily available from local suppliers. Production of the fertile
soils and PIKSA Super Compost occurs throughout the year however sales are
affected by the seasons and usually occur between April and November. The
Company has two production plants. During 2007 a new production facility capable
of producing and additional 800 m3 per day of fertile soils will be put into
operation. The new plant is located near the town of Domodedovo on the South of
Moscow region. The Company's other two production sites are located in the
Noguinski district on the East side of the Moscow region and have a production
capacity for 800 and 400 m3 daily respectively.
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
Page 9 of 31
composts are easily available from numerous suppliers. Production and marketing
of the bio-organic fertilizer is expected to commence in late 2008. 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.
C. ORGANIZATIONAL STRUCTURE\
Incorporated as an International Business Company in the British Virgin
Soil Biogenics Limited Islands;
Incorporated in Bermuda and is a 100% wholly owned subsidiary of Soil
Soil Biogenics Ltd. Biogenics Limited (BVI);
Incorporated in Madrid, Spain and is a 100% wholly owned subsidiary of
Soil Biogenics S.L. Soil Biogenics Ltd. (Bermuda);
Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary of
Piksa Inter LLC 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;
Incorporated in Moscow, Russia and is a 61% owned subsidiary of Piksa
Biogrunt Inter LLC;
Incorporated in Moscow, Russia and is a 50% owned subsidiary of Piksa
Biopotok-Piksa Inter LLC.
Incorporated in Moscow, Russia and is a 50% owned subsidiary of
Biogruntstroy Biopotok-Piksa.
Incorporated in Moscow, Russia and is a 75% owned subsidiary of Piksa
Piksa Domodedovo Inter LLC.
D. PROPERTY, PLANT AND EQUIPMENT
The Company's principal office is located at Marques de Urquijo 5, 5 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 two current production plants are
located in the Noguinski district on the East side of the Moscow region. The net
book value of the office and production equipment at December 31, 2006 was
$1,187,112 (2005 - $94,980).
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 2006 consolidated 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 consolidated financial statements present information regarding the
financial position and results of operations for the last three years.
Page 10 of 31
Revenues during 2006 were $3,761,904 (2005 - $1,817,688; 2004 - $1,809,715; 2003
- - $369,200; 2002 - $151,977).
Operating results for the years ending December 31, 2006, 2005, 2004 and 2003
are tabulated below:
YEAR ENDING
DESCRIPTION 31-DEC-06 31-DEC-05 31-DEC-04 31-DEC-03
Net Income (Loss) (132,300) (11,846) 208,704 (346,602)
Net Income (Loss) per share (0.00) (0.00) 0.01 (0.01)
Sales 3,761,904 1,817,688 1,809,715 369,200
Cost of Sales 2,708,935 954,052 1,148,653 327,155
Gross Profit 1,052,969 863,636 661,062 42,045
Selling Expenses 244,496 27,328 33,019 57,641
General and Administration 489,854 472,349 380,806 174,559
Depreciation and amortization 73,398 44,035 6,954 1,347
Research and development 93,674 72,728 61,304 23,358
The above Comparative Summary of Selected Financial Data reflects that the
acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI) was
accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda) because the
shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil Biogenics Limited
(BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was treated as the
acquiring entity for accounting purposes and Soil Biogenics Limited (BVI) was
the surviving entity for legal purposes.
B. LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 2006 the Company recorded a net loss of $132,300
($0.00 per share), compared to net loss of $11,846 ($0.00 per share) for 2005
and net income of $208,704 ($0.01 per share) in 2004.
At December 31, 2006, the Company had cash of $215,563 (2005 - $654,560; 2004 -
$1,105,836) and working capital of $1,049,067 (2005 - $2,268,070; 2004 -
$1,883,886). Total liabilities as of December 31, 2006 were $3,305,696 (2005 -
$1,067,890; 2004- $913,395) an increase of $2,237,806 from December 31, 2005. 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 2006
net proceeds from the issuance of common stock were $0 (2005 - $0; 2004 -
$1,000,000). In Fiscal 2006 investing activities consisted of additions to plant
and equipment $883,857 (2005 - $3,442: 2004 - $-5,554).
Page 11 of 31
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.
PLANS FOR THE YEAR 2007
The Company's plans for year 2007 center on the Piksa subsidiary increasing the
sales of its Super compost Piksa bio-organic fertilizer to the various Russian
State Agencies, the contractors/gardening companies working for the Moscow City
Government and 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 accounting policies and methods we utilize in the preparation of our
consolidated financial statements determine how we report our financial
condition and results of operations and may require our management to make
estimates or rely on assumptions about matters that are inherently uncertain.
Our accounting policies are described in note 2 to our December 31, 2006
consolidated financial statements. Our accounting policies relating to revenue
recognition, income taxes, inventory and depreciation and amortization of
property, plant and equipment are critical accounting policies that are subject
to estimates and assumptions regarding future activities.
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 to 20 years.
US GAAP requires us 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 we determine there has been an impairment,
then we would be required to write-down the recorded value of its property,
plant and equipment costs which would reduce our 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
Page 12 of 31
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
We do not have any off-balance sheet arrangements that are likely to have or are
reasonably likely to have a material current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that have not
been disclosed in our financial statements.
In April 2006 Piksa entered into leases for equipment to be used in its
fertilizer production operations. The total amount of the lease payments
required under the leases are RUR 12,542,806 ($476,501 at December 31, 2006)
excluding the value added tax at 18%. These leases have been accounted for as
capital leases at imputed interest rates ranging from 20% to 23% for financial
statement purposes.
Future minimum lease payments under the capital leases are as follows for years
ending December 31:
Total Amount Net Amount
Representing Due
Interest
------------------------------------
2007 $128,265 $ 44,001 $ 84,264
2008 128,265 22,742 105,523
2009 42,978 1,965 41,013
- -------------------------------------------
Total $299,508 $ 68,708 $ 230,800
- -------------------------------------------
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.
Page 13 of 31
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 30, 2007 and December 31, 2006. 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
2 Tvezskaya - Yamskaya 54, Moscow, Russia
Age 52, Director since July 2003
- ----------------------------------------- --------------------------------
Alexander Becker
19a, Kuusinena Str.,
Moscow, Russia 125252 Age 46, Director since July 2003
- ---------------------------------------------------------------------------
AGUSTIN GOMEZ DE SEGURA Director of the Delta Capital, an investment company in
Liechtenstein from April 1999 to present, Director and President of Eurasia
Gold Fields, Inc. November 1997 to present. Director of Cigma Metals
Corporation April 1998 to present.
ALEXANDER BECKER Director of several Russian companies involved in metallurgy,
textiles and trading.
During the past five years none of our directors, executive officers, promoters
or control persons has been:
(a) the subject of any bankruptcy petition filed by or against any
business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior
to that time;
Page 14 of 31
(b) convicted in a criminal proceeding or is subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
(c) subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(d) found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law.
COMPLIANCE WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, OF THE
EXCHANGE ACT OF 1934
Based on information provided to the Company, it is believed that all of the
Company's directors, executive officers and persons who own more than 10% of the
Company's common stock were in compliance with Section 16(a) of the Exchange Act
of 1934 during the last fiscal year. During the year ended December 31, 2006,
all of the Company's directors, executive officers and Company's common stock
were in compliance with section 16(a) of the Exchange Act of 1934.
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, 2006, December 31, 2005 and December 31, 2004:
- -------------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYMENTS
------------------------------------- ------------------------ -----------------------
SECURITIES
UNDER- ALL
OTHER ANNUAL RESTRICTED LYING OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION
($) ($) ($) ($) (=) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------------ ----- ------- ------------- ------------- ----------- ----------- ------------- --------
Agustin Gomez de Segura 2006 Nil -0- -0- None None None -0-
----- ------- ------------- ------------- ----------- ----------- ------------- --------
President and 2005 Nil -0- -0- None None None -0-
----- ------- ------------- ------------- ----------- ----------- ------------- --------
Director 2004 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, 2006 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
Page 15 of 31
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 TABLE
The following information 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.
We awarded no stock purchase options, or any other rights, to any of our
directors or officers in Fiscal 2006, 2005 or 2004.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
We have no options issued or outstanding.
We do not have a Long-term Incentive Plan. None of our officers or directors was
party to an employment agreement with us. At no time during the last completed
fiscal year did we, while a reporting company pursuant to Section 13(a) of 15(d)
of the Exchange Act, adjust or amend the exercise price of the stock options or
SARs previously awarded to any of the named executive officers, whether through
amendment, cancellation or replacement grants, or any other means.
COMPENSATION 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, 2006 (2005 - $Nil and 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.
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,
Page 16 of 31
where relevant, to address succession and planning issues. In appointing senior
management, the Board considers as a necessary requirement of such appointments
that such personnel are qualified to carry out the duties and responsibilities
relating to the appointed positions and thus, apart from monitoring, assessing
and providing feedback to senior management, the Board does not consider it
necessary to engage in specifically training senior management. The Board met by
telephone four (4) times during 2006.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Company's Board of Directors does not have a nominating committee or
committee performing similar functions. During the fiscal year ended December
31, 2006 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 2006 the Compensation Committee held two (2) meetings by telephone
conference call and the Audit Committee held two (2) meetings by conference
calls.
The Audit Committee has discussed matters in the audited consolidated 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. Based on the review and discussions, the
Audit Committee recommended to the Board of Directors that the audited
consolidated 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.
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.
Page 17 of 31
D. EMPLOYEES
Soil Biogenics Limited and its wholly owned subsidiaries employed 38 persons as
of June 30, 2007 (December 31, 2006 - 31 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 2006, 2005 and 2004, 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, 2007. As of June 30, 2007 the Company had 31,162,500
shares of Common Stock issued and outstanding (December 31, 2006 - 31,162,500).
- ----------------------------------------------------------------------------
SHARES OF COMMON APPROXIMATE
OFFICERS AND DIRECTORS STOCK BENEFICIALLY PERCENTAGE
NAME OF BENEFICIAL OWNER OWNED OWNED
- ------------------------------------------ ------------------ ------------
Norbex Holdings Ltd.
Drake Chambers, P.O. Box 3321, Road Town,
Tortola, British Virgin Islands
(Beneficially owned by Agustin Gomez de
Segura) 2,000,000 6.418 %
- ------------------------------------------ ------------------ ------------
Alexander Becker
19a, Kuusinena Str.,
Moscow, Russia 125252 2,084,040 6.688%
- ------------------------------------------ ------------------ ------------
4,084,040
Total - Officers and Directors (2 persons) 13.106%
- ----------------------------------------------------------------------------
For information concerning options granted to the above-mentioned individuals
see Item 6 Compensation - Options/SAR Grants on page 14.
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 30, 2007 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, 2007 there were 31,162,500
shares of Common Stock issued and outstanding.
Page 18 of 31
- -------------------------------------------------------------------------------------
AMOUNT AND
NAME AND ADDRESS OF NATURE OF PERCENTAGE OF
BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- --------------------------------------------------- ---------------- --------------
Kastalia Ltd. (1) 2,700,000 8.664 %
Wickhams Cay 1, Road Town, Tortola, British Virgin
Islands
- --------------------------------------------------- ---------------- --------------
Alexei Y. Sementsow
Baklayeva Str.11, App. 105, City of Kimry,
Tver Region, Russia 2,312,000 7.419 %
- --------------------------------------------------- ---------------- --------------
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 Agustin Gomez de Segura)
- --------------------------------------------------- ---------------- --------------
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)
- -------------------------------------------------------------------------------------
(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.
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
Page 19 of 31
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 FINANCIAL 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 consolidated
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,
2006 and 2005 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.
(a) For the five most recent financial years: the annual high and low market
prices;
- ------------------
Period
- ----------- -----
2006 - High $2.75
- ----------- -----
2006 - Low $1.00
- ----------- -----
2005 - High $2.40
- ----------- -----
2005 - Low $1.25
- ----------- -----
2004 - High $1.95
- ----------- -----
2004 - Low $0.75
- ----------- -----
2003 - High $2.00
- ----------- -----
2003 - Low $0.75
- ----------- -----
Page 20 of 31
2002 - High $1.01
- ----------- -----
2002 - Low $0.30
- ------------------
(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
- ----------- -------------- --------------- -------------- ---------------
2007 - High $ 2.10 $ 1.70 $ 0.77 -
- ----------- -------------- --------------- -------------- ---------------
2007 - Low $ 1.15 $ 0.55 $ 0.59 -
- ----------- -------------- --------------- -------------- ---------------
2006 - High $ 2.09 $ 2.75 $ 2.45 $ 2.10
- ----------- -------------- --------------- -------------- ---------------
2006 - Low $ 1.00 $ 1.45 $ 1.05 $ 1.06
- ----------- -------------- --------------- -------------- ---------------
2005 - High $ 2.35 $ 2.35 $ 2.35 $ 2.40
- ----------- -------------- --------------- -------------- ---------------
2005 - Low $ 1.25 $ 1.96 $ 1.70 $ 1.35
- -----------------------------------------------------------------------------
(1) The high and low bid prices for our Common Stock for the Third Quarter of
2007 were for the period July 1 to July 12, 2007.
(c) For the most recent seven months: the high and low market prices for each
month;
- ---------------------------
MONTH HIGH LOW
- ------------- ----- -----
July 2007 $0.77 $0.59
- ------------- ----- -----
June 2007 $1.10 $0.55
- ------------- ----- -----
May 2007 $1.60 $0.85
- ------------- ----- -----
April 2007 $1.70 $1.35
- ------------- ----- -----
March 2007 $1.70 $1.15
- ------------- ----- -----
February 2007 $1.90 $1.45
- ------------- ----- -----
January 2007 $2.10 $1.20
- ---------------------------
D. SELLING SHAREHOLDERS
Not applicable
E. DILUTION
Not applicable
F. EXPENSES OF THE ISSUE
Not applicable
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, 2007 there were 31,162,500 (December 31, 2006 - 31,162,500) common
shares issued and outstanding. During the year ended December 31, 2006 the
Company issued 0 (2005 - 1,000,000) shares for cash proceeds of $0 (2005 -
$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).
Page 21 of 31
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.
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.
Page 22 of 33
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.
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.
Page 23 of 31
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.
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.
Page 24 of 31
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, 2006 and 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 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.
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 Operating and Financial Review and Prospects for
additional information.
Page 25 of 31
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
ITEM1 4 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not Applicable
ITEM 15 CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Based on their evaluation as of the end of the period covered by this
Annual Report on Form 20-F, the Company's principle executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange of 1934 (the "Exchange") are effective to ensure
that the information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time period specified in Securities and
Exchange Commission rules and forms except as noted below.
In connection with the 2006 audit, our independent registered public
accounting firm has advised us and our Board of Directors that there were
material weaknesses in our internal controls and procedures. The identified
material weaknesses primarily relate to the number of Company employees
engaged in the authorization, recording, processing and reporting of
transactions, as well as the overall financial reporting process.
(b) MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Not currently applicable.
Page 26 of 31
(c) ATTESTATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
This annual report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management's report in this annual
report.
(d) CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING.
As a result of the weakness identified we have taken certain steps to
correct material weaknesses by enhancing our reporting process in the
future. Enhancing our internal controls to correct the material weaknesses
will result in increased costs to us.
Except as forth set above, there were no other significant changes in our
internal controls over financial reporting identified in connection with
the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15
that occurred during the period covered by this annual report that has
effected, or is reasonably likely to materially affect, the issuer's
control over financial reporting.
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 an 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 registered public
accounting firm, Ernst & Young LLP and retained as our new independent
registered public accounting firm Peterson Sullivan PLLC. Prior to May 5, 2006,
Ernst & Young LLP had been our certifying independent
Page 27 of 31
registered public accounting firm 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.
Effective May 5, 2006, the Company engaged Peterson Sullivan PLLC as our new
independent registered public accounting firm to audit our consolidated
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 rendered by Peterson
Sullivan PLLC, the independent registered public accounting firm for the
Company, for the audit of the Company's annual consolidated 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, 2006, were $35,000 (2005 - $38,019).
(B) AUDIT-RELATED FEES
The aggregate fees billed for assurance and related services by Peterson
Sullivan PLLC, the independent registered public accounting firm for the
Company, 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, 2006 (2005 - $Nil).
(C) TAX FEES
The aggregate fees billed for products and services by Peterson Sullivan PLLC,
the independent registered public accounting firm for the Company, for tax
compliance, tax advice and tax planning for the Company's fiscal ended December
31, 2006 were $0 (2005 - $Nil).
(D) ALL OTHER FEES
There were no additional fees billed for professional services by Peterson
Sullivan PLLC, the independent registered public accounting firm for the
Company, other than the fees reported in this Item 16C above for the Company's
fiscal year ended December 31, 2006 (2005 - $Nil).
Page 28 of 31
(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 Peterson Sullivan PLLC, the independent registered
public accounting firm for the Company, on its engagement to audit the Company's
consolidated financial statements for the fiscal year ended December 31, 2006,
were performed by persons other than fulltime permanent employees of Peterson
Sullivan PLLC.
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 consolidated 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 CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS PAGE
- ------------------------------------------------------------------------------- ------------
Audited Financials - December 31, 2006 and December 31, 2005.
- ------------------------------------------------------------------------------- ------------
Report of Independent Registered Public Accounting Firm F-1
- ------------------------------------------------------------------------------- ------------
Report of Independent Registered Public Accounting Firm F-2
- ------------------------------------------------------------------------------- ------------
Consolidated Balance Sheets F-3
- ------------------------------------------------------------------------------- ------------
Consolidated Statements of Operations F-4
- ------------------------------------------------------------------------------- ------------
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) F-5
- ------------------------------------------------------------------------------- ------------
Consolidated Statements of Cash Flows F-6
- ------------------------------------------------------------------------------- ------------
Notes to Consolidated Financial Statements F-7 to F-18
- ---------------------------------------------------------------------------------------------
Page 29 of 31
[GRAPHIC OMMITED]
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 sheets of Soil Biogenics
Limited and Subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows for the years 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 audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform 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
audits provide 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, 2006 and 2005, and the results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States.
/S/ PETERSON SULLIVAN PLLC
July 15, 2007
Seattle, Washington
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
SOIL BIOGENICS LIMITED
(FORMERLY PANTAGONIA GOLD (BVI) LIMITED)
We have audited the accompanying consolidated balance sheet of SOIL BIOGENICS
LIMITED ("the Company") as of December 31, 2004 and the related consolidated
statements of stockholders' equity, operations and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company for the
years ended December 31, 2003 and December 31, 2002, were audited by other
auditors whose report dated June 30, 2004, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2004 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
at December 31, 2004 and the consolidated results of its operations and its cash
flows for the year then ended in conformity with U.S. generally accepted
accounting principles.
Vancouver, Canada, "ERNST & YOUNG LLP"
June 29, 2005. Chartered Accountants
F-2
SOIL BIOGENICS LIMITED
CONSOLIDATED BALANCE SHEETS
As at December 31 (Expressed in U.S. Dollars)
2006 2005
$ $
- --------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 215,563 654,560
Accounts receivable 969,822 1,304,266
Marketable securities 583,259 789,066
Inventories 1,902,482 461,491
Prepaid expenses and other 387,126 53,825
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 4,058,252 3,263,208
Restricted cash 19,805 17,766
Equipment, net 1,187,112 94,980
Other 170,264 20,451
- --------------------------------------------------------------------------
TOTAL ASSETS 5,435,433 3,396,405
- --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans 1,121,655 591,600
Loans payable 75,776 4,537
Notes and loans payable - related parties 321,402 24,753
Accounts payable and accrued expenses 1,360,541 365,358
Income taxes payable 45,547 8,890
Current portion of obligations
under capital leases 84,264 -
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,009,185 995,138
Notes and loans payable - related parties 149,975 72,752
Obligations under capital leases, less
current portion 146,536 -
- --------------------------------------------------------------------------
Total liabilities 3,305,696 1,067,890
- --------------------------------------------------------------------------
Minority interests 1,508 -
STOCKHOLDERS' EQUITY
Share capital
Authorized
50,000,000 common shares without par value
Issued and outstanding
31,162,500 [2005 - 31,162,500] common shares 1,915,959 1,915,959
Accumulated deficit (287,011) (154,711)
Accumulated other comprehensive income 499,281 567,267
- --------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,128,229 2,328,515
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 5,435,433 3,396,405
==========================================================================
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)
2006 2005 2004
$ $ $
- ---------------------------------------------------------------------------------------------
Sales 3,761,904 1,817,688 1,809,715
Cost of sales 2,708,935 954,052 1,148,653
- ---------------------------------------------------------------------------------------------
Gross profit 1,052,969 863,636 661,062
- ---------------------------------------------------------------------------------------------
Selling expenses 244,496 27,328 33,019
General and administrative 489,854 472,349 380,806
Depreciation and amortization 73,398 44,035 6,954
Research and development 93,674 72,728 61,304
- ---------------------------------------------------------------------------------------------
Operating expenses 901,422 616,440 482,083
- ---------------------------------------------------------------------------------------------
Income from operations 151,547 247,196 178,979
- ---------------------------------------------------------------------------------------------
Other income (expense)
Other income 8,256 5,989 25,274
Realized gain on disposition of
marketable securities 42,908 - 120,175
Interest expense (257,886) (20,638) (14,794)
Unrealized loss on other than temporary impairment
of available-for-sale securities - (88,192) -
- ---------------------------------------------------------------------------------------------
(206,722) (102,841) 130,655
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes and
minority interests (55,175) 144,355 309,634
Income tax provision (80,873) (156,201) (100,930)
Minority interests 3,748 - -
- ---------------------------------------------------------------------------------------------
Net income (loss) for the year (132,300) (11,846) 208,704
=============================================================================================
Income (loss) per share - basic and diluted (0.00) (0.00) 0.01
=============================================================================================
Weighted average number of common shares
outstanding
- Basic and diluted 31,162,500 31,162,500 30,162,500
=============================================================================================
See accompanying notes
F-4
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME (LOSS)
For the Years ended December 31, 2006, 2005 and 2004 (Expressed in U.S. Dollars)
ACCUMULATED
OTHER TOTAL TOTAL
COMMON STOCK ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
----------------------
SHARES AMOUNT (DEFICIT) INCOME (LOSS) EQUITY INCOME (LOSS)
# $ $ $ $ $\
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2003 30,162,500 915,959 (351,569) 486,208 1,050,598 -
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
===============
Components of comprehensive
income (loss) - - - - - -
- Net loss for the year (132,300) - (132,300) (132,300)
- Foreign currency translation
adjustments - - - 133,245 133,245 133,245
- Unrealized losses on
marketable securities - - - (158,323) (158,323) (158,323)
-Reclassification adjustment
for gains on disposition
of marketable securities
included in net loss - - - (42,908) (42,908) (42,908)
===========================================================================================================================
BALANCE, DECEMBER 31, 2006 31,162,500 $1,915,959 $ (287,011) $ 499,281 $ 2,128,229 $ (200,286)
===========================================================================================================================
See accompanying notes
F-5
SOIL BIOGENICS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years ended December 31 (Expressed in U.S. Dollars)
2006 2005 2004
$ $ $
- -----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) for the year (132,300) (11,846) 208,704
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 73,398 44,035 43,685
Minority interests (3,748) - -
Realized gain on sale of marketable securities (42,908) - (120,175)
Other than temporary impairment on available-for-sale
security - 88,192 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 438,820 (329,213) (883,968)
(Increase) in inventories (1,354,068) (324,788) (73,936)
(Increase) in prepaid expenses and other assets (460,805) (36,527) (990)
Increase (decrease) in income taxes payable 34,719 (33,400) 42,290
Increase (decrease) in accounts payable and
accrued expenses 933,784 (314,122) 644,074
- -----------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (513,108) (917,669) (140,316)
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from disposition of marketable securities 47,484 - 379,733
Purchase of equipment (768,005) (3,442) 5,554
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (720,521) (3,442) 385,287
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - - 1,000,000
Proceeds from bank loans, net of payments 530,055 591,600 (67,901)
Proceeds from notes and loans payable, net of payments 445,111 (89,583) (115,202)
Payments on capital lease obligations (135,137) - -
Minority interests' investments in subsidiaries 5,376 - -
- -----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 845,405 502,017 816,897
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
cash equivalents (50,773) (32,182) 3,982
- -----------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (438,997) (451,276) 1,065,850
Cash and cash equivalents, beginning of year 654,560 1,105,836 39,986
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 215,563 654,560 1,105,836
===============================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Interest paid 249,379 16,738 15,490
Income taxes paid 44,216 188,604 60,928
===============================================================================================
NON-MONETARY TRANSACTIONS
Transfer of marketable securities for payment
of note payable - - 379,733
Equipment acquired under
capital leases 365,937 - -
===============================================================================================
See accompanying notes
F-6
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. NATURE OF ORGANIZATION
The consolidated financial statements presented are those of Soil Biogenics
Limited (SB(BVI)) and its subsidiaries, 100% owned Soil Biogenics Ltd. (SB
Bermuda), 100% owned Soil Biogenics S.L. (SB Spain), 100% owned PIKSA Inter LLC
(PIKSA), NPO PIKSA LLC (NPO) (100% owned by Piksa Inter), Biogrunt (61% owned by
Piksa Inter), Biopotok-Piksa (50% owned by Piksa Inter), Biogruntstroy (50%
owned by Biopotok-Piksa) and Piksa Domodedovo (75% owned by Piksa Inter).
Collectively, they are referred to here in as "the Company". The Company is in
the business of bio-organic fertilizer production and distribution mainly 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.
On March 7, 2003, the Company acquired and reactivated SB Spain (formerly Aam
Empreendimentos, S.L.), a company incorporated in Spain. Prior to the
acquisition, SB Spain had no assets and liabilities.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Accounting
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its majority-owned subsidiaries; Soil
Biogenics Ltd. (SB Bermuda), Soil Biogenics S.L. (SB Spain), PIKSA Inter LLC
(PIKSA), NPO PIKSA LLC (NPO), Biogrunt, Biopotok-Piksa, Biogruntstroy and Piksa
Domodedovo. All significant inter-company accounts and transactions have been
eliminated.
F-7
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and assumptions.
(c) Cash equivalents
Cash equivalents comprise certain highly liquid instruments with a maturity of
three months or less when purchased. The Company did not have any cash
equivalents as of December 31, 2006 and 2005.
(d) 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 expense and reduced by write-offs net of
recoveries. There was no allowance for credit losses as at December 31, 2006 and
2005.
At December 31, 2006 and 2005, 2 and 3 customers, respectively, accounted for
88% and 83% respectively, of accounts receivable.
(e) Marketable securities
The Company's available-for-sale securities consist of shares of common stock of
three and four publicly traded companies at December 31, 2006 and 2005,
respectively, and are stated at fair value. The cost of these securities is
$223,654 at December 31, 2006 (2005 - $228,230) and the net unrealized holding
gain of $359,605 at December 31, 2006 (2005 - $560,836) is included in
accumulated other comprehensive income (loss) at December 31, 2006. 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
F-8
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
temporary, it is recognized in the determination of net income. All unrealized
holding losses at December 31, 2006 are on securities that have been in a loss
position less than twelve months; these securities have a fair market value of
$111,384 at December 31, 2006. Cost is based on the specific identification
method for the individual securities to determine realized gains or losses.
(f) 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.
(g) 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.
(h) Restricted cash
The Company's wholly owned subsidiary, SB Spain, under the terms of its lease
agreement, 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, 2006 and
2005, the Company holds certificates of deposit under the lease agreement the
value of which is shown as restricted cash in the consolidated balance sheets.
(i) 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
(j) Foreign currency translations and transactions
The Company and SB Bermuda's functional currencies are US dollars. Piksa Inter
LLC and its subsidiaries and SB Spain (as of January 1, 2006) are considered to
be self-sustaining foreign operations and their accounts are accounted for using
the Russian Rouble (RUR) and the Euro, respectively, 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
F-9
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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 consolidated
statements of operations, which amount was not material for 2006, 2005, and
2004.
(k) Concentration of credit risk
The Company places its cash and cash equivalents with high credit quality
financial institutions. From time to time, the Company maintains funds in banks
beyond the insured limits.
The Company sold its goods predominantly to a limited number of companies all
located in Russia. Sales to three, four and three companies represented 72%, 82%
and 88% of the total sales in 2006, 2005 and 2004, respectively. The Company
purchased the majority of the raw materials from one supplier in 2006 and 2005.
(l) 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.
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, 2006.
(m) 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.
F-10
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Accumulated other comprehensive income consists of the following at December 31:
2006 2005
$ $
------------------
Foreign currency translation adjustments 139,676 6,431
Unrealized gains on marketable securities 359,605 560,836
------------------
499,281 567,267
==================
(n) Research and development
Research and development costs are expensed as incurred.
(o) Advertising expenses
The Company expenses advertising costs as incurred. The Company incurred
advertising costs of $6,451 in 2006 (2005 - $27,328; 2004 - $33,019).
(p) 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 and cash equivalents, accounts receivable, bank
loans, notes and loans payable, and accounts payable and accrued expenses
approximate their fair value because of the short-term nature of these
instruments and because interest rates of long-term notes payable approximate
market interest rates. 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.
(q) 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
F-11
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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.
(r) Earnings (Loss) per share
The Company has adopted the Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings Per Share", which requires the presentation of basic and
diluted earnings 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. 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 2006, 2005 and 2004 because there are no potentially
dilutive securities.
(s) New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, Accounting for Uncertainties in Income Taxes, (FIN 48).
FIN 48 clarifies the accounting for uncertainty in income taxes and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company has not yet determined if there will be a material impact in
applying FIN 48 with respect to the tax effects of foreign subsidiaries.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements but does not require any new fair value measurements.
FAS 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. The
Company has not yet determined the impact of applying FAS 157.
In September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which
misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective for
fiscal years ending after November 15, 2006, and early application is
encouraged. The Company does not expect any material impact from applying SAB
108.
2. Significant Accounting Policies (cont'd.)
F-12
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,
(FAS 159). FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. The Company has not yet determined the
impact of adopting FAS 159 on the Company's financial position.
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, 2004 316,422 267,411 17,637 249,774 566,196
- ----------------- --------- ------------ ----------- --------------- ----------
Change in year (88,192) 311,062 0 311,062 222,870
- ----------------- --------- ------------ ----------- --------------- ----------
December 31, 2005 228,230 578,473 17,637 560,836 789,066
- ----------------- --------- ------------ ----------- --------------- ----------
Change in year (4,576) (210,259) 9,028 (201,231) (205,807)
- ----------------- --------- ------------ ----------- --------------- ----------
December 31, 2006 223,654 368,214 26,665 359,605 583,259
- ------------------------------------------------------------------------------------
At December 31, 2005, the investment in 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 was considered to be other than
temporary.
4. EQUIPMENT
2006 2005
$ $
-----------------------
Production and office equipment 604,670 210,568
Other 4,955 4,955
- ------------------------------------------------------------------
609,625 215,523
Accumulated depreciation and amortization (209,397) (121,331)
- ------------------------------------------------------------------
400,228 94,192
Assets under construction 786,884 788
- ------------------------------------------------------------------
Equipment, net 1,187,112 94,980
==================================================================
The Company is obligated under multiple contracts for the continuing
construction of production facilities and related equipment. The original
aggregate contractual amount of the construction was approximately $1,200,000
(RUR 31,500,000). As of December 31, 2006, the Company's remaining total
obligation under the contracts was approximately $400,000 (RUR 10,500,000).
F-13
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
4. EQUIPMENT (CONT'D)
Included in production equipment at December 31, 2006 are assets under capital
leases of $365,937 with accumulated amortization of $51,841. Amortization
expense of assets under capital leases amounted to $50,217 in 2006 and is
included in depreciation and amortization expense.
5. BANK LOANS
Bank loans amount to $1,121,655 (RUR 29,525,000) at December 31, 2006, and are
held by PIKSA Inter (RUR 25,000,000) and Biogruntstroy (RUR 4,525,000). The
PIKSA Inter bank loans are unsecured, bear interest at 16% per annum and are due
in November 2007. The Biogruntstroy bank loans are unsecured, bear interest at
an imputed rate of approximately 10% per annum and are due in April 2007.
Bank loans amount to $591,600 (RUR 17,000,000) at December 31, 2005, and were
held by PIKSA Inter (RUR 10,000,000) and NPO Piksa (RUR 7,000,000). The PIKSA
Inter bank loan was unsecured, bore interest at 16% per annum and was repaid in
2006. The NPO Piksa bank loan was unsecured, bore interest at 16% per annum and
was repaid in 2006.
6. NOTES AND LOANS PAYABLE
2006 2005
$ $
- ------------------------------------------------------------------------------------------------------------
i. Interest at 6.0% per annum, unsecured and due November 2007:
- Publix Overseas Ltd. - related to a director and 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. Interest at 6% per annum, unsecured and due March 2009 (80,000 Euro)
- Redbridge Minerals - shareholder 104,685 -
iv. Non-interest bearing, unsecured and no stated terms of repayment:
Gomez de Segura - a director and a major shareholder 183,758 23,698
- Redbridge Minerals - shareholder (60,000 Euros) 79,218 -
- Alexei Sementsov - a director of the Piksa group of companies 22,457 1,055
- Lloyd Investment Corp (50,000 Euros) 66,015 -
- Other 9,761 4,537
Interest payable 16,259 7,752
- ------------------------------------------------------------------------------------------------------------
TOTAL $ 547,153 $102,042
- ------------------------------------------------------------------------------------------------------------
F-14
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
6. NOTES AND LOANS PAYABLE (CONT'D)
Based on the stated terms of repayment, payments of the notes and loans
payable are as follows for the years ended December 31:
2007 $397,178
2008 41,507
2009 108,468
- -------------------
$547,153
===================
7. 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.
2006 2005 2004
$ $ $
- -------------------------------------------------------------------------
Income taxes at statutory rate - - -
Foreign tax rate differences 30,873 86,201 126,934
Utilization of previously unrecognized losses - - (26,004)
Non recognition of benefit of losses 50,000 70,000 -
- -------------------------------------------------------------------------
Provision for income taxes 80,873 156,201 100,930
=========================================================================
A summary of deferred income tax assets is as follows:
2006 2005
$ $
- --------------------------------------------
Loss carryforwards 195,000 45,000
Valuation allowance (195,000) (145,000)
- --------------------------------------------
Net deferred tax asset - -
============================================
The Company has established the above valuation allowances as of December 31,
2006 and 2005 due to uncertainty of future realization of future income tax
assets. The change in the valuation allowance was $50,000 for 2006, $54,000 for
2005 and $21,000 for 2004. At December 31, 2006, the Company has approximately
$780,000 of loss carryforwards which can be used against future earnings in
Spain.
F-15
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
8. RELATED PARTY TRANSACTION
Included in accounts payable and accrued expenses at December 31, 2006, is
$62,136 owed to a minority interest owner of Biopotok-Piksa for purchases of
inventory items.
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.
9. COMMITMENT AND CONTINGENCIES
(a) The Company's subsidiary in Spain has entered into an office lease
agreement expiring June 2007 with approximate future minimum lease payments
amounting to $15,000 in 2007.
Rent expense under this operating lease amounted to approximately
$42,000 in 2006 (2005 - $32,000). The Company also leases office and
production space for its fertilizer operations in Russia under short term
lease arrangements.
(b) The Company's Russian subsidiaries - PIKSA, NPO and Biogrunt and
Biopotok-Piksa, Biogruntstroy and Piksa Domodedovo 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.
F-16
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
9. COMMITMENT AND CONTINGENCIES (CONT'D)
(c) Obligations under capital leases
In April 2006 Piksa entered into leases for equipment to be used in
its fertilizer production operations. The total amount of the lease
payments required under the leases are RUR 12,542,806 ($476,501 at December
31, 2006) excluding the value added tax at 18%. These leases have been
accounted for as capital leases at imputed interest rates ranging from 20%
to 23% for financial statement purposes.
Future minimum lease payments under the capital leases are as follows
for years ending December 31:
Total Amount Net Amount
Representing Due
Interest
------------------------------------
2007 $128,265 $ 44,001 $ 84,264
2008 128,265 22,742 105,523
2009 42,978 1,965 41,013
- -------------------------------------------
Total $299,508 $ 68,708 $ 230,800
- -------------------------------------------
10. GEOGRAPHICAL INFORMATION
The Company's business is considered as operating in one segment and the
geographical information is as follows:
Corporate Spain Russia Total
$ $ $ $
- -------------------------------------------------------------------
2006
Sales - 62,736 3,699,168 3,761,904
Net Income (loss) (90,359) (200,505) 158,564 (132,300)
Assets 584,492 135,215 4,715,726 5,435,433
- -------------------------------------------------------------------
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
- -------------------------------------------------------------------
F-17
SOIL BIOGENICS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004 (EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
11. RECLASSIFICATIONS
Certain reclassifications to the 2005 and 2004 amounts have been made to conform
to the 2006 presentation.
12. SUBSEQUENT EVENTS
In January 2007, the Company received proceeds under a note in the amount of
200,000 Euros ($264,060 at December 31, 2006). The note bears interest at 20%
per annum, is unsecured and is due April 2010.
In February 2007, the Company received proceeds under a note in the amount of
200,000 Euros ($264,060 at December 31, 2006). The note bears interest at 20%
per annum, is unsecured and is due December 2010.
In February 2007, NPO Piksa entered into a loan agreement with a bank. The loan
is for RUR 15,000,000 ($569,850 at December 31, 2006), bears interest at 16% per
annum, is unsecured and is due January 2008.
In April 2007 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 6,348,962 ($241,197 at December 31, 2006). This lease will be
accounted for as a capital lease for financial statement purposes.
In April 2007, the Company received proceeds under a note in the amount of
240,000 Euros ($316,872 at December 31, 2006). The note bears interest at 20%
per annum, is unsecured and is due April 2010.
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
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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 13, 2007 BY: /s/ Agustin Gomez de Segura
-------------------------------
Agustin Gomez de Segura
Director, President and CFO
Date: July 13, 2007 BY: /s/ Alexander Becker
----------------------
Alexander Becker
Director
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