-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NAir2EHgGP1IQq+9fjwriyRSJ2lrSOqTFYtZ2FP1ySoBhI/2pw2nI0rivm6FnY2g pXf9vprwOlRrR81DcGO0BA== 0001015402-03-002531.txt : 20030626 0001015402-03-002531.hdr.sgml : 20030626 20030626134222 ACCESSION NUMBER: 0001015402-03-002531 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030626 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOIL BIOGENICS LTD CENTRAL INDEX KEY: 0001049576 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 650401897 STATE OF INCORPORATION: D8 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-26531 FILM NUMBER: 03758237 BUSINESS ADDRESS: STREET 1: PO BOX 48525, 595 BURRARD STREET STREET 2: VANCOUVER, BC CANADA CITY: V7X 1A2 STATE: A1 ZIP: 00000 BUSINESS PHONE: 604-687-4432 MAIL ADDRESS: STREET 1: PO BOX 48525, 595 BURRARD STREET STREET 2: VANCOUVER, BC CANADA CITY: V7X 1A2 STATE: A1 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: PATAGONIA GOLD CORP DATE OF NAME CHANGE: 20010705 20-F 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . -------- -------- Commission File Number: 0-26531 SOIL BIOGENICS LIMITED (Exact name of Registrant as specified in its charter) British Virgin Islands (Jurisdiction of incorporation or organization) P.O. Box 48525, 595 Burrard Street, Vancouver, B.C., Canada V7X 1A2 (Address of Principal executive office) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class None Securities registered or to be registered pursuant to Section 12(g) of the Act: Title of each class Name of exchange on which registered Common Shares NASD OTC Bulletin Board Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. December 31, 2002 12,912,500 Common Shares Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark which financial statement item the Registrant has elected to follow: [X] Item 17 [ ] Item 18 Page 1 of 24
SOIL BIOGENICS LIMITED TABLE OF CONTENTS Forward-looking Statements 3 Currency and Metric Equivalents 3 PART 1 Item 1. Identity of Directors, Senior Managers and Advisors - Not Applicable 3 Item 2. Offer Statistics and Expected Timetable - NOT APPLICABLE 3 Item 3. Key Information Selected Financial Data 4 Risk Factors 5 Item 4. Information on the Company History and Development of the Company 7 Business Overview 8 Organizational Structure 9 Employees 9 Item 5. Operating and Financial Review and Prospects Management's Discussion and Analysis 9 Item 6. Directors, Senior Management and Employees Directors and Senior Management 11 Compensation 11 Corporate Governance 14 Employees 15 Share Ownership by Directors and Management 15 Item 7. Major Shareholders and Related Party Transactions 16 Item 8. Financial Information 17 Legal Proceedings 18 Dividend Record and Policy 18 Significant Changes 18 Item 9. The Offer and Listing 18 Item 10. Additional Information Memorandum and Articles of Incorporation 19 Material Contracts 19 Exchange Controls 19 Taxation 20 Item 11. Quantitative and Qualitative Disclosures about Market Risk 21 Item 12. Description of Securities Other Than Equity Securities - NOT APPLICABLE 21 PART II Item 13. Defaults, Dividend Arrearages and Delinquencies 21 Material Modification to the Right of Security Holders and Use of Proceeds Item 14. -- NONE 21 Item 15. Controls and Procedures 21 Item 16A. Audit Committee financial Expert 21 Item 16B. Code of Ethics 22 Item 16C. Principal Accountant Fees and Services 22 PART III Item 17. Financial Statements 22 Item 18. Financial Statements 22 Item 19. Item 19. Financial Statements and Exhibits 22 Signatures 23 Certifications 23 Page 2 of 24 (A) Pursuant to General Instruction G(b) of Form 20-F, this annual report includes the information specified in Parts I,II,III (B) Pursuant to General Instruction (G)(c) of Form 20-F, the registrant has elected to provide the financial statements and related information specified in Item 17.
- -------------------------------------------------------------------------------- FORWARD-LOOKING STATEMENTS We make statements in this Report and the documents we incorporate by reference that are considered forward-looking within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 . Sometimes these statements will contain the words such as "believes," "expects," "intends," "plans" and other similar words. We intend those forward-looking statements to be covered by the safe harbour provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for the purposes of complying with the safe harbour provisions. These forward-looking statements reflect our current views which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions and expectations as reflected in or suggested by those forward-looking statements are reasonable we can give no assurance that the plans, intentions or expectations will be achieved. Such forward-looking statements concern the Corporation's operations, economic performance and financial condition. Such statements involve known and unknown risks, uncertainties and other factors, including those identified under the "Risk Factors" section in Item 3 and elsewhere in this report, that may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to: differences between estimated and actual mineral and resources reserves and recovery rates; failure of plant, equipment or processes to operate in accordance with expectations and specifications; changes to exploration, development and mining plans due to prudent reaction of management to ongoing exploration results, engineering and financial concerns; environmental costs; and fluctuations in gold price which affect the profitability and ore reserves of the Corporation. These risks and uncertainties are the normal risks involved in mining. Readers are cautioned not to put undue reliance on forward-looking statements. See "Risk Factors" in Item 3, "Management's Discussion and Analysis" in Item 5, and elsewhere in Item 4. The forward-looking statements are made as of the date of this report, and the Corporation assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. CURRENCY AND METRIC EQUIVALENTS Unless otherwise indicated, all dollar amounts herein are expressed in United States dollars ("US$"). ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS - Not Applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE - Not Applicable. Page 3 of 24
ITEM 3. KEY INFORMATION SELECTED FINANCIAL DATA FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA (expressed in U.S. dollars unless otherwise indicated) 2002 2001 2000 1999 1998 $ $ $ $ $ - --------------------------------------------------------------------------------------------------------- OPERATING RESULTS Loss from operations (185,317) (244,423) (65,515) (460,883) (135,708) Net Loss (185,317) (244,423) (65,515) (460,883) (135,708) Cash flow from (used in) operations (13,659) (81,045) (78,761) (125,686) (152,242) Capital expenditures N/A N/A N/A (9,250) N/A FINANCIAL POSITION Cash and short-term deposits 176 11 1,352 22,913 73,651 Investments 913,003 801,884 693,171 921,332 1,567,456 Total assets 913,179 841,834 706,832 956,502 1,941,327 Long-term debt N/A N/A 930 76,879 N/A Capital stock 2,015,000 1,840,000 1,840,000 1,840,000 1,840,000 Shareholders' equity 903,800 721,104 652,256 844,623 1,925,474 PER SHARE DATA Net loss per share (0.01) (0.02) (0.01) (0.03) (0.01) SHARE OUTSTANDING At year end 12,912,500 13,000,000 13,000,000 13,000,000 13,000,000 Weighted average during year 12,991,849 13,000,000 13,000,000 13,000,000 13,000,000
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED) 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER YEAR ENDED DECEMBER 31, 2002 $ $ $ $ LOSS FROM OPERATIONS (11,362) (25,167) (7,793) (140,995) NET LOSS (11,362) (25,167) (7,793) (140,995) NET LOSS PER SHARE (0.00) (0.00) (0.00) (0.01) YEAR ENDED DECEMBER 31, 2001 Income (Loss) from operations 51,923 38,760 (19,831) (315,275) Net loss 51,923 38,760 (19,831) (315,275) Net income/(loss) per share 0.00 0.00 (0.00) (0.02)
Page 4 of 24 RISK FACTORS MINING RISKS The Corporation is subject to the risks typical in the mining business including uncertainty of success in exploration and development; operational risks including unusual and unexpected geological formations, rock bursts, particularly as mining moves into deeper levels, cave-ins, flooding and other conditions involved in the drilling and removal of material as well as environmental damage and other hazards; risks that intended production schedules or estimated costs will not be achieved; and risks of fluctuations in the price of precious and base metals and currency exchange rates. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors, all of which are beyond the Corporation's control, including expectations for inflation, levels of interest rates, sales of gold by central banks, the demand for gold, global or regional political, economic and banking crises and production rates in major gold producing regions. The aggregate effect of these factors is impossible to predict with any degree of certainty. The Corporation does not currently engage in hedging to protect against a portion of the volatility and is not currently protected against gold price movements. Any hedging and other activities involving financial instruments may be subject to margin requirements. The Corporation has no mines in operation. Commercial production of a mining operation will be dependent on the successful adoption of the operating assumptions and completion of the exploration and development work. Mining operations will also be dependent on metal prices, the US dollar in relation to the currency of the jurisdiction where the mining operations occur and the ability of the mine to generate cash flow. The Corporation has no mineral reserves and resources and no assurance can be given that once the Corporation develops mineral reserves and resources that the anticipated tonnages and grades will be achieved or the indicated level of recovery realized. In addition, no assurance can be given that the gold price on which these estimates are based can be achieved. As well, lead times required for underground stope preparation and development in mining operations can affect production decisions and schedules. Gold price fluctuations may render mineral reserves containing relatively lower grades of mineralization uneconomic. Moreover, short-term operating factors relating to the mineral reserves, such as the need for orderly development of ore bodies or the processing of new or different ore grades may cause the Corporation to be unprofitable in any particular accounting period. The Corporation doe not carry insurance to protect against certain risks. Risks not insured against include political risk, environmental pollution, mine flooding, landslides or other natural hazards relating to climate or topography as well as other hazards which cannot be insured against or which the Corporation may elect not to insure against. ENVIRONMENTAL MATTERS All phases of the Company's operations in Argentina are subject to environmental regulations. Environmental legislation in all countries is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Although the Company believes it is in compliance with all applicable environmental legislation, there is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company's operations. Page 5 of 24 INSURANCE The Company does not have general liability insurance covering its operations and does not presently intend to obtain liability insurance as to such hazards and liabilities. Payment of any liabilities therefore could have a materially adverse effect upon the Company's financial condition. REGULATION OF MINING ACTIVITY The Company's interests in its projects will be subject to various laws and regulations concerning exploration, production, taxes, labor standards, environmental protection, mine safety and other matters. In addition, new laws or regulations governing operations and activities could have a material adverse impact on the Company. FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS Mineral exploration and mining activities on the Company's properties may be affected in varying degrees by political stability, and the policies of other nations. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may adversely affect its business. Operations may be affected by government laws and regulations or the interpretations thereof, including those with respect to export controls, expropriation of property, employment, land use, water use, environmental legislation and mine safety. Operations may be also affected by political and economic instability, confiscatory taxation, restriction on currency conversions, imports and sources of supplies, the expropriation of private enterprises, economic or other sanctions imposed by other nations, terrorism, military repression, crime, and extreme fluctuations in currency exchange rates and high inflation and which may it more difficult for the Company to raise funds for the development of its mineral interests in some countries. COMPETITION Many companies are engaged in the exploration of mineral properties. The Company encounters strong competition from other mining companies in connection with the acquisition of properties producing or capable of producing precious or base metals. Many of these companies have substantially greater technical and financial resources than the company and thus the Company may be at a disadvantage with respect to some of its competitors. The marketing of minerals is affected by numerous factors, many of which are beyond the control of the Company. Such factors include the price of the mineral in the marketplace, imports of minerals from other nations, the availability of adequate refining and processing facilities, the price of fuel, electricity, labor, supplies and reagents and the market price of competitive minerals. In addition, sale prices for many commodities are determined by world market forces or are subject to rapid and significant fluctuations that may not necessarily be related to supply or demand or competitive conditions that in the past have affected such prices. Significant price movements in mineral prices over short periods of time may be affected by numerous factors beyond the control of the Company, including international economic and political trends, expectations of inflation, currency exchange fluctuations (specifically, the U.S. dollar relative to other currencies), interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The effect of these factors on the price of minerals and, therefore, the economic viability of any of the Company's projects cannot accurately be predicted. As the Company is in the exploration stage, the above factors have had no material impact on operations or income. Page 6 of 24 ITEM 4. INFORMATION ON THE COMPANY HISTORY AND DEVELOPMENT OF THE COMPANY Patagonia Gold Corporation was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc." The Company was inactive until it redirected its business efforts in mid 1997 following a change of management, which occurred on June 25, 1997, to the acquisition, exploration and, if warranted, the development of mineral resource properties. The Company changed its name to Patagonia Gold Corporation on October 13, 1997 to more fully reflect its business activities. Since its redirection, the Company's activities have been limited primarily to the acquisition of rights to certain mineral properties and the implementation of preliminary exploration programs on these properties in which it has acquired an interest. In August 2002 the Company incorporated a wholly owned subsidiary, Patagonia Gold (BVI) Limited as an International Business Company incorporated under the International Business Companies Act of the British Virgin Islands. The Memorandum and Articles of Association of the Patagonia Gold (BVI) Limited were filed with the Registrar of International Companies in the British Virgin Islands on the 23rd day of August 2002. At incorporation Patagonia Gold (BVI) Limited had 13,000,000 common shares with no par value issued and outstanding and is authorized to issue 50,000,000 common shares with no par value. All 13,000,000 issued and outstanding common shares are owned by Patagonia Gold Corporation. On September 19, 2002 Patagonia Gold (BVI) Limited entered into a Plan of Merger and Articles of Merger with Patagonia Gold Corporation whereby all the assets and liabilities of Patagonia Gold Corporation would vest by virtue of such merger into Patagonia Gold (BVI) Limited. The shareholders of Patagonia Gold Corporation received one common share of Patagonia Gold (BVI) Limited for each common share of Patagonia Gold Corporation they owned. The Merger was effective November 29, 2002. The shares of Patagonia Gold Corporation ceased trading on the NASD OTC Bulletin Board on November 29, 2002 and in there place the common shares of Patagonia Gold (BVI) Limited commenced trading. The old trading symbol for Patagonia Gold Corporation was "GONI". The new trading symbol for Patagonia Gold (BVI) Limited is "PGBVF". On December 2, 2002 Patagonia Gold (BVI) Limited acquired Soil Biogenics Ltd., a Bermuda corporation, for 17,000,000 shares of Patagonia Gold (BVI) Limited restricted common stock. Soil Biogenics will be a wholly-owned subsidiary of Patagonia Gold (BVI) Limited. Soil Biogenics Ltd. business is the production of bio-organic fertilizer. On March 3, 2003 Patagonia Gold (BVI) Limited changed its name to Soil Biogenics Limited and its trading symbol from "PGBVF" to "SOBGF". Soil Biogenics Limited (BVI) is engaged in the location, acquisition, exploration and, if warranted, development of mineral resource properties. Soil Biogenics Ltd (Bermuda) is engaged in the production and sale of bio-organic fertilizers. All of the mineral properties in which Soil Biogenics Limited (BVI) has an interest or a right to acquire an interest in are currently in the exploration stage. None of the properties have a known body of Mineral Reserves. Soil Biogenics Limited (BVI)'s primary objective is to explore for gold, silver, base metals and industrial minerals and, if warranted, to develop those existing mineral properties. Its secondary objective is to locate, evaluate, and acquire other mineral properties, and to finance their exploration and development either through equity financing, by way of joint venture or option agreements or through a combination of both. Page 7 of 24 BUSINESS OVERVIEW The Company conducts exploration activities from its headquarters in Vancouver, Canada. The Company controls mineral exploration concessions in Argentina. The Company's strategy is to concentrate its investigations into: (i) Existing operations where an infrastructure already exists; (ii) Properties presently being developed and/or in advanced stages of exploration which have potential for additional discoveries; and (iii) Grass-roots exploration opportunities. The Company is currently concentrating its exploration activities in Argentina. The Company is also examining data relating to the potential acquisition of exploration properties in Mexico. During Fiscal 2002, the Company continued its preliminary field assessment of its Argentina properties. The Company's exploration work program in 2003 will entail surface mapping of geology, sampling of soils on a grid basis to delineate geochemical anomalies, stream sediment sampling and geophysical surveying. The data assembled from this work will be used to determine whether: (i) further exploration is warranted; or (ii) whether mineral exploration concession licenses should be surrendered. All of the Company's properties are in the exploration stages only and are without a known body of Mineral Reserves. Development of the properties will follow only if satisfactory exploration results are obtained. Mineral exploration and development involves a high degree of risk and few properties that are explored are ultimately developed into producing mines. There is no assurance that the Company's mineral exploration and development activities will result in any discoveries of commercially viable bodies of mineralization. The long-term profitability of the Company's operations will be, in part, directly related to the cost and success of its exploration programs, which may be affected by a number of factors. Subsequent to the December 31, 2002 yearend the Company completed the acquisition of Soil Biogenics Ltd., a Bermuda corporation, with the issuance of 17,000,000 shares of Patagonia Gold (BVI) Limited restricted common stock. Soil Biogenics (Bermuda) became a wholly-owned subsidiary of Patagonia Gold (BVI) Limited. Soil Biogenics Ltd. (Bermuda) produces a bio-organic fertilizer. Piksa Inter LLC is a wholly owned subsidiary of Soil Biogenics Ltd (Bermuda) and was incorporated on March 10, 2000 to patent and commercially market a bio-organic fertilizer called "Super compost Piksa". The Super compost Piksa fertilizer was developed over a ten year period by a group of Russian scientists specializing in biotechnology. The bio-organic fertilizer is produced in a plant in the city of Tomilino near Moscow. In 2003 Piksa Inter opened a second production plant in the city of Chekhov. Piksa Inter LLC's website is http://www.piksa.ru. The company holds two patents with respect to the Super compost Piksa. The first patent is for the mixture of four types of bacteria. The second patent is for the process of producing the bio-organic fertilizer. The bacteria mixture when combined with sterile compost produces a Super compost Piksa bio-organic fertilizer which is then mixed with soil to increase soil fertility and productivity. The bio-organic fertilizer is also used in the reclamation of soil from contaminations such as oil derivates. Retail sales are currently concentrated in the Russian Federation. Customers vary from small farms and private garden owners to construction companies and city governments. In 2003 the Company started the process of certification of the product in the United Arab Emirates. Soil Biogenics Ltd (Bermuda) is currently in the process of incorporating a Spanish wholly owned subsidiary called Soil Biogenics S.L. which will market the bio-organic fertilizer in European markets such as Spain, Germany and France once certification of bio-organic fertilizer has been obtained. Page 8 of 24 ORGANIZATIONAL STRUCTURE Soil Biogenics Limited (British Virgin Islands) Soil Biogenics Ltd. (Bermuda) 100% wholly owned subsidiary of Soil Biogenics Limited (BVI) Piksa Inter LLC 100% wholly owned subsidiary of Soil Biogenics Ltd. (Bermuda) Piksa Research and Production Association LLC ("NPO Piksa LLC") 100% wholly owned subsidiary of Piksa Inter LLC EMPLOYEES Soil Biogenics Limited and its wholly owned subsidiaries employed 13 persons as of June 13, 2003, of which 0 were covered by collective bargaining agreements. The relationship of Soil Biogenics Limited and its subsidiaries with their employees and contractors is considered by Soil Biogenics Limited to be satisfactory. During 2002, 2001 and 2000, there were no strikes or walkouts. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT'S DISCUSSION AND ANALYSIS The Company's financial objectives are to build shareholder value through internal growth, to acquire properties and business that bring added value, to maintain operational flexibility and to minimize operating costs. The 2002 financial statements present the Company's results of operations and its financial position. These consolidated financial statements were compiled using United States generally accepted accounting principles ("U.S. GAAP"). These financial statements present information regarding the financial position and results of operations for the last two years. The Company had no revenues during fiscal 2002 and 2001. No funds were raised in fiscal 2002 or 2001. OPERATING RESULTS Operating results for the years ending December 31, 2002, 2001, 2000 and 1999 are tabulated below:
Year Ending Description Dec 31, 2002 Dec 31, 2001 Dec 31, 2000 Dec 31, 1999 Profit (Loss) (185,317) (244,423) (65,515) (460,883) Profit (Loss) per share (0.01) (0.02) (0.01) (0.03) General and Administration 236,353 76,877 94,945 103,970 Legal 6,144 (95) 6,501 21,962 Accounting 10,589 9,809 2,474 16,591 Exploration 0 0 1,135 32,236
Page 9 of 24 LIQUIDITY AND CAPITAL RESOURCES In fiscal 2002 the Company settled $175,000 of debt with the issuance of 350,000 common shares. The carrying value of the indebtedness approximated the fair value of the common shares issued. No common shares were issued in fiscal 2001. At December 31, 2002, the Company had cash of $176 (2001 - $11) and working capital of $903,800 (2001 working capital - $681,283) respectively. Total liabilities as of December 31, 2002 were $9,379 as compared to $120,730 on December 31, 2001, a decrease of $111,351. In fiscal 2002 the Company settled loans payable in the amount of $120,420 by the assignment of its holdings of Aurora Metals (BVI) Limited shares. During 2002 net proceeds from the issuance of common stock were $0 (2001 - $0). In Fiscal 2002 investing activities consisted of additions to mineral properties $0 (2001 - $0) and additions to fixed assets $0 (2001 - $0). For the year ended December 31, 2002 the Company recorded a loss of $185,317, or $0.01 per share, compared to a loss of $244,423 ($0.02 per share) in 2001. During the next 12 months the Company needs to raise additional funds through equity offerings and/or debt borrowing to meet its administrative/general operating expenses and to expand its bio-organic fertilizer production business. The Company intends to expand it's current bio-organic fertilizer business and to further develop the Company through the possible acquisition or joint venturing of additional business opportunities. Additional employees will be hired on a consulting basis as required by the exploration projects. The Company's exploration properties have not commenced commercial production and the Company has no history of earnings or cash flow from its operations. While the Company may attempt to generate additional working capital through the operation, development, sale or possible joint venture development of its property, there is no assurance that any such activity will generate funds that will be available for operations. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of its consolidated financial statements requires the Company to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenues and expenses. The Company's accounting policies are described in note 2 to its consolidated financial statements. The Company's accounting policies relating to depreciation and amortization of property, plant and equipment are critical accounting policies that are subject to estimates and assumptions regarding future activities. Exploration costs are charged to operations as incurred until such time that proven reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from mineral reserves equals or exceeds the costs deferred. The deferred costs will be amortized over the recoverable reserves when a property reaches commercial production. As at December 31, 2002 and 2001, the Company did not have proven reserves. Costs of initial acquisition of mineral rights and concessions are capitalized until the properties are abandoned or the right expires. Exploration activities conducted jointly with others are reflected at the Company's proportionate interest in such activities Generally accepted accounting principles require the Company to consider at the end of each accounting period whether or not there has been an impairment of the capitalized property, plant and equipment. This assessment is based on whether factors that may indicate the need for a write-down are present. If the Company determines there has been impairment, then the Company would be required to write-down the recorded value of its property, plant and equipment costs which would reduce the Company's earnings and net assets. Page 10 of 24 OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS The Company does not have any off-balance sheet arrangements or contractual obligations that are likely to have or are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in the Company's financial statements. MARKET RISK DISCLOSURES The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes PLANS FOR YEAR 2003 The Company's plans for year 2003 center on the development of it's bio-organic fertilizer subsidiary. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES DIRECTORS AND SENIOR MANAGEMENT The following table lists the names and positions of the executive officers and directors of the Company as of December 31, 2002. All executive officers and directors have been elected and appointed to serve until their successors are elected and qualified. Additional information regarding the business experience, length of time served in each capacity and other matters relevant to each individual are set forth below the table.
NAME POSITION - ----------------------- ------------------------------------------------------ A. Cameron Richardson Age 50, President since November 29, 2002, Chief Financial Officer since May 17, 2000. Director, President and Chief Financial Officer of Aurora Gold Corporation. From 1981 to 1997 held accounting positions with various Canadian resource companies. - ----------------------- ------------------------------------------------------ Agustin Gomez de Segura Age 48, banker and private investor and developer of new companies. - ----------------------- ------------------------------------------------------ Alexander Becker Age 42, director of several Russian companies involved in metallurgy, textiles and trading. - ----------------------- ------------------------------------------------------
COMPENSATION The following table sets forth information concerning the compensation of the named executive officers as required to be disclosed in accordance with applicable securities regulations during the Corporation's three financial years ended December 31, 2002, December 31, 2001 and December 31, 2000: Page 11 of 24
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------ ---------------------------------------------- AWARDS PAYMENTS ------------------------------ -------------------------- ------------------ SECURITIES OTHER UNDER- ALL NAME AND ANNUAL RESTRICTED LYING OTHER PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN- POSITION YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION ($) ($) ($) ($) (=) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ------------------- ----- --------- -------- ------------- ----------- ----------- -------- -------- Terry Longair 2002 Nil (2) -0- -0- None None None -0- President and 2001 Nil -0- -0- None None None -0- Director 2000 Nil -0- -0- None None None -0- - ------------------- ----- --------- -------- ------------- ----------- ----------- -------- -------- A. Cameron 2002 9,791 (2) -0- -0- None None None -0- Richardson President and 2001 7,662 -0- -0- None None None -0- Director 2000 6,748 -0- -0- None None None -0- - ------------------- ----- --------- -------- ------------- ----------- ----------- -------- --------
On November 29, 2002 Mr. Terry Longair resigned from the Board of Directors and as President of the Company to pursue other interests. On November 29, 2002 Mr. Cameron Richardson was appointed to the Board of Directors of the Corporation and President of the Company. OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR The following table sets forth information concerning individual grants of stock options (whether or not in tandem with stock appreciation rights ("SARs") and freestanding SARs made during the last completed fiscal year to each of the named executive officers:
- ----------------------------------------------------------------------------------------- OPTION/SAR GRANTS IN FISCAL YEAR 2003 (Individual Grants) - ----------------------------------------------------------------------------------------- PERCENT OF NUMBER OF TOTAL OPTIONS/ SECURITIES SARS GRANTED UNDERLYING TO EMPLOYEES EXERCISE OR OPTION/SARS IN FISCAL BASE PRICE EXPIRATION DATE NAME GRANTED (#) YEAR ($/Sh) (M/D/Y) (a) (b) (c) (d) (e) - ------------------------- ------------ --------------- ------------ ---------------- Terry Longair (1) Nil Nil Nil N/A - ------------------------- ------------ --------------- ------------ ---------------- A. Cameron Richardson (1) Nil Nil Nil N/A - ------------------------- ------------ --------------- ------------ ---------------- (1) No options were granted. No SARs were granted.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR END OPTION/SAR VALUES The following table sets forth information concerning the exercise of options (or tandem SARs) and freestanding SARs during the financial year ended December 31, 2002 and the value at December 31, 2002 of unexercised in-the-money options and SARs held by each of the Named Executive Officers: Page 12 of 24
- --------------------------------------------------------------------------------- AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES - --------------------------------------------------------------------------------- VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY SECURITIES AGGREGATE OPTIONS/SARS OPTIONS/SARS ACQUIRED VALUE AT FY-END (#) AT FY-END ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (a) (b) (c) (d) (e) - ---------------------- ------------ ---------- -------------- -------------- Terry Longair Nil Nil Nil Nil - ---------------------- ------------ ---------- -------------- -------------- A. Cameron Richardson Nil Nil Nil Nil - ---------------------- ------------ ---------- -------------- --------------
LONG-TERM INCENTIVE PLANS ("LTIP") AWARDS TABLE The Company does not have a Long-term Incentive Plan. PENSION PLAN The Company does not have a Pension plan. INDEBTEDNESS OF DIRECTORS AND OFFICERS No directors or officers of the Company are indebted to the Company. EMPLOYEE INCENTIVE PLAN The Company does not have an employee incentive plan. SHARE OPTION PLAN The Share Option Plan is intended to promote the interests of the Corporation and its shareholders by making provisions for stock options as an additional incentive to attract, retain and motivate officers and salaried employees. Grants are made at the discretion of the Board of Directors or a committee of the board comprised of members, a majority of whom are not eligible to participate in the Plan (the "Compensation Committee"). The Board of Directors or the Compensation Committee may, in its discretion, determine which officers or employees will be granted options, the number of Common Shares to be the subject of each option, the purchase price of such shares and the duration of the options, which may not exceed five years. The Board of Directors or the Compensation Committee may also impose other terms and conditions respecting any option granted as it may consider appropriate or necessary. Freestanding "SARs" are not provided for under the Share Option Plan. The options may, at the discretion of the Board of Directors or the Compensation Committee, be accompanied by SARs which entitle the holder to elect to terminate his or her options, in whole or in part and, in lieu of receiving the Common Shares ("Option Shares") to which the terminated options relate, elect to receive that number of Common Shares, disregarding fractions, which have a total value equal to the product of the number of Option Shares times the difference between the fair value (at the date of such election) and the option price per share of the Option Shares, less any amount withheld on account of income taxes, which income taxes will be remitted on the employee's behalf by the Corporation. Page 13 of 24 During 2002, no options were granted under the Share Option Plan to Named Executive Officers or Directors. REMUNERATION OF DIRECTORS The Company does not pay a fee to its outside, non-officer directors. The Company reimburses its directors for reasonable expenses incurred by them in attending meetings of the Board of Directors. The Corporation paid aggregate remuneration of $0 to the three incumbent and two former directors in their capacities as such during the fiscal period ended December 31, 2002. EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS None of the Company's officers or directors was party to an employment agreement with the company. Directors and/or officers receive reimbursement of expenses reasonably incurred on behalf of the Company. BOARD PRACTICES AND CORPORATE GOVERNANCE MANDATE AND DUTIES OF THE BOARD The Board has ultimate responsibility for supervising the conduct of the Company's affairs and the management of its business. The principal objective of the Board is to protect and enhance Shareholder value over the long term. Although the Board has delegated to management the responsibility for the day-to-day operations of the Company, the Board has ultimate responsibility for the stewardship of the Company. Board members generally serve until the next annual meeting and do not have service contracts. The Board's duties include overseeing, strategic planning, reviewing and assessing the principal risks to the Company's business and approving risk management strategies, supervising and evaluating management, authorizing significant expenditures, ensuring timely and effective communication with Shareholders, and overseeing the Company's internal controls and information systems. The Board's duties also include planning and monitoring activities of senior management. In considering and making appointments of senior management, the Board considers it appropriate, where relevant, to address succession and planning issues. In appointing senior management, the Board considers as a necessary requirement of such appointments that such personnel are qualified to carry out the duties and responsibilities relating to the appointed positions and thus, apart from monitoring, assessing and providing feedback to senior management, the Board does not consider it necessary to engage in specifically training senior management. The Board met by telephone five (5) times during 2002. MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES The Company's Board of Directors does not have a standing nominating committee or committee performing similar functions. During the fiscal year ended December 31, 2002 the entire board of directors acted as the Company's Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. During 2002 the Compensation and Benefits Committee held one meeting by telephone conference call and the audit committee held four meetings by telephone conference call. During 2002 and the first quarter of 2003 the audit committee reviewed the fiscal 2002 interim unaudited financial statements and the yearend audited financial statements. The Compensation Committee reviews employee compensation and benefits, and the Audit Committee reviews the scope of the independent audit, the appropriateness of the accounting policies, the adequacy of internal controls, Page 14 of 24 the Company's year-end financial statements and other such matters relating to the Company's financial affairs as its members deem appropriate. The Audit Committee has discussed matters in the audited financial statements with the independent auditors as required by SAS 61. The Audit Committee has received the written disclosures and the letter from the independent auditors required by the Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) and has discussed with the independent auditors the independent auditor's independence. Base on the review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 20-F for the latest fiscal year for filing with the SEC. Prior to November 29, 2002 the Audit Committee consists of Messrs. Antonino Cacace, Terry Longair and Cosme M. Beccar Varela. Subsequent to November 29, 2003 the Audit Committee consists of Messrs. A Cameron Richardson, Agustin Gomez de Segura and Alexander Becker. Agustin Gomez de Segura is the independent Director and the financial expert serving on the audit committee. INDEPENDENCE FROM MANAGEMENT It is the Board's view that the Board operates and functions independently of management as required. Although the President of the Company also serves as a Director, the Board is of the view that this does not impair the Board's ability to act independently of management. The Board's independence from management is principally derived from the fact that one of the three Board members is unrelated and an independent Director. SHAREHOLDER COMMUNICATION The Company communicates regularly with its Shareholders through annual, as well as news releases and regulatory filings. In addition, the executive officers of the Company are responsible for addressing day-to-day Shareholder enquiries and other Shareholder communication issues. EXPECTATIONS OF MANAGEMENT The Board has delegated to the President, and other executives, responsibility for day-to-day management of the business and affairs of the Company, subject to compliance with directives and objectives established by the Board from time to time. The Board relies on management to provide the Board on a timely basis with information required by the Board to perform its duties. OUTSIDE ADVISORS The Company does not have in place any specific procedures pursuant to which an individual director may engage the services of an outside advisor at the expense of the Company. Any requests for the services of an outside advisor at the expense of the Company would be considered by the Board on a case-by-case basis. EMPLOYEES As of December 31, 2002 the Company and its wholly owned subsidiaries had 11 full-time employees (2001 - 1, 2000 - 1, 1999 - 1) and 1 part-time employee (2001- 1, 2000 - 1, 1999 - 1). SHARE OWNERSHIP BY DIRECTORS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by the Company's directors and officers in common as at June 15, 2003. As at June 13, 2003 the Company had 30,162,500 (December 31, 2002 - 12,912,500) shares of Common Stock issued and outstanding. Page 15 of 24
- ------------------------------------------ ------------------ ------------ SHARES OF COMMON APPROXIMATE OFFICERS AND DIRECTORS STOCK BENEFICIALLY PERCENTAGE NAME OF BENEFICIAL OWNER OWNED OWNED - ------------------------------------------ ------------------ ------------ A. Cameron Richardson 1505-1060 Alberni Street, 250,000 * % Vancouver, B.C. Canada V6E 4K2 - ------------------------------------------ ------------------ ------------ Agustin Gomez de Segura Rdo. Fdez. Villaverde, 36 2,000,000 6.631 % 28003 Madrid, Spain - ------------------------------------------ ------------------ ------------ Alexander Becker 19a, Kuusinena Str., 2,084,040 6.909% Moscow, Russia 125252 - ------------------------------------------ ------------------ ------------ TOTAL - OFFICERS AND DIRECTORS (3 persons) 4,334,040 14.369 % - ------------------------------------------ ------------------ ------------
For information concerning options granted to the above-mentioned individuals see Item 6 Compensation - Options/SAR Grants Table on page 12. Agustin Gomez de Segura and Alexander Becker were appointed to the Company's Board of Directors on December 29, 2002. * Less than 1%. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS MAJOR SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of June 13, 2003 by each person who is known by the Company to own beneficially more than five percent (5%) of the Company's outstanding Common Stock. As at June 13, 2003 there were 30,162,500 shares of Common Stock issued and outstanding.
- --------------------------------------------------- ---------------- -------------- Name and Address of Amount and Percentage of Beneficial Owner Nature of Class Beneficial Owner - --------------------------------------------------- ---------------- -------------- Carrington International Limited 3,000,000 9.946 % Ste 2402, Bank of America tower 12 Harcourt Road, Central Hong Kong (Beneficially owed by Georg Schnura) - --------------------------------------------------- ---------------- -------------- Kastalia Ltd. 2,700,000 8.952 % Wickhams Cay 1, Road Town, Tortola, British Virgin Islands (Beneficially owned by Mr. Alexander Kleimionov) - --------------------------------------------------- ---------------- -------------- Page 16 of 24 - --------------------------------------------------- ---------------- -------------- Alexei Y. Sementsow 2,312,000 7.665 % Baklayeva Str.11, App. 105, City of Kimry, Tver Region, Russia - --------------------------------------------------- ---------------- -------------- Alexander Becker 2,084,040 6.909 % Komsomolsky Pr. 23/7, App. 25, Moscow, Russia - --------------------------------------------------- ---------------- -------------- Norbex Holdings Ltd. 2,000,000 6.631 % Drake Chambers, P.O. Box 3321, Road Town, Tortola, British Virgin Islands (Beneficially owned by Agustin Gomez de Segura) - --------------------------------------------------- ---------------- -------------- Redbridge Minerals (Overseas) Ltd. 2,000,000 6.631 % Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands (Beneficially owned by Mrs. Antonina Tsykova) - --------------------------------------------------- ---------------- --------------
The listed beneficial owner does not have the right to acquire any common shares within the next sixty days, through the exercise of options, warrants, rights, conversion privilege or similar obligations. All shareholders have the same voting rights. RELATED PARTY TRANSACTIONS The proposed business of the Company raises potential conflicts of interests between the Company and certain of its officers and directors. Certain of the directors of the Company are directors of other mineral resource or resource-related companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation. Mr. Richardson is an Officer and Director of Aurora Gold and an Officer and Director of La Plata Gold Corporation. In the event that such a conflict of interest arises at a meeting of the directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or Management, may have a conflict. From time to time, several companies may participate in the acquisition, exploration and development of natural resource properties thereby allowing for their participation in larger programs, involvement in a greater number of programs and reduction of the financial exposure with respect to any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. In determining whether the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which the Company may be exposed and its financial position at that time. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest. The Company is not aware of the existence of any conflict of interest as described herein. ITEM 8. FINANCIAL INFORMATION CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION Reference is made to Part III, Item 19 Financial Statements and Exhibits and the Financial Statements appearing as Exhibit (1). Page 17 of 24 LEGAL PROCEEDINGS The Company is not involved in any legal proceedings. DIVIDEND RECORD AND POLICY The Company has not declared cash or share dividends on its common shares since the Company was incorporated in 1997 and has no present plans to pay any cash or share dividends. The Company will declare cash or share dividends in the future only if earnings and capital of the Company are sufficient to justify the payment of such dividend. SIGNIFICANT CHANGES Subsequent to December 31, 2002 the Company completed the acquisition of Soil Biogenics Ltd (Bermuda). ITEM 9. THE OFFER AND LISTING OFFER AND LISTING DETAILS - NOT APPLICABLE PLAN OF DISTRIBUTION - NOT APPLICABLE MARKETS The Common Stock of the Company has been quoted on the NASD OTC Bulletin Board since May 1, 1997. The following tables sets forth the high and low bid prices for the Common Stock for the calendar quarters for the year ending December 31, 2002 and 2001 and the most recent six months as reported by the NASD OTC Bulletin Board. These prices represent quotations between dealers without adjustment for retail markup, markdown or commission and may not represent actual transactions.
PERIOD FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER - --------------- ------------- -------------- ------------- -------------- 2002 - High ($) 0.72 1.00 1.01 0.95 2002 - Low ($) 0.52 0.51 0.55 0.30 2001 - High ($) 1.00 0.90 0.90 0.69 2001- Low ($) 0.69 0.55 0.50 0.35 - --------------- ------------- -------------- ------------- --------------
MONTH HIGH ($) LOW ($) - ------------- -------- ------- June 2003 2.00 1.40 May 2003 2.00 1.40 April 2003 2.00 1.40 March 2003 1.50 1.08 February 2003 1.05 0.90 January 2003 0.95 0.75
ITEM 10. ADDITIONAL INFORMATION SHARE CAPITAL The authorized capital of the Company is 50,000,000 shares of no par value. Page 18 of 24 MEMORANDUM AND ARTICLES OF ASSOCIATION Patagonia Gold Corporation was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc.". The Company changed its name to Patagonia Gold Corporation on October 13, 1997. Patagonia Gold (BVI) Limited was incorporated under the International Business Companies Act of the British Virgin Islands on the 23rd day of August 2002 as a 100% wholly owned subsidiary of Patagonia Gold Corporation. On November 14, 2002 Articles of Merger between Patagonia Gold (BVI) Limited and Patagonia Gold Corporation of Florida were filed with the Registrar of Companies of the British Virgin Islands pursuant to the International Business Companies Act (Cap 29) whereby Patagonia Gold (BVI) Limited was the surviving company in the merger. On February 11, 2003 Patagonia Gold (BVI) Limited filed an amended and restated Memorandum of Association and Articles of Association with the Registrar of Companies of the British Virgin Islands pursuant to the International Business Companies Act (Cap 291), changing the Company's name from Patagonia Gold (BVI) Limited to Soil Biogenics Limited. The Company's Memorandum of Association and Articles of Association as amended and restated include its corporate name, the place in the British Virgin Islands where its registered office is located; it's minimum and maximum number of directors and the authorized share capital of the Corporation. There are only Common Shares outstanding. The Company may engage in any act or activity that is not prohibited under the laws of the British Virgin Islands. The Company's Memorandum of Association and Articles of Association as amended and restated are filed as Exhibit 3.2.2 to the Corporation's Annual Report on Form 20-F for the year ended December 31, 2002, which is hereby incorporated by reference. MATERIAL CONTRACTS - NOT APPLICABLE EXCHANGE CONTROLS The Company is limited in its ability to pay dividends on its Common Shares by limitations under British Virgin Island law relating to the sufficiency of profits from which dividends may be paid. Under the International Business Companies Act of the British Virgin Islands the declaration of a dividend is authorized by resolution of the board of directors The Company is an International Business Company ("IBC") incorporated under the provisions of the International Business Companies Act (the "Act") of the British Virgin Islands (the "BVI"). The transfer of shares between persons regarded as residents outside of the BVI is not subject to any exchange controls. Likewise, issues and transfers of the shares involving any person regarded as resident in the BVI are not subject to exchange control approval. There are no limitations on the rights of non-BVI owners of the Common Stock to hold or vote their shares. Because the Company is an IBC, there are no restrictions on its ability to transfer funds into and out of the BVI or to pay dividends to U.S. residents who are holders of the Common Stock. In accordance with the Company's Memorandum and Articles of Association, share certificates may be issued as either registered shares or shares issued to bearer as the directors may by resolution determine. In the case of a representative acting in a special capacity (for example, as an executor or trustee), share certificates should record the capacity in which the representative is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or trust. The Company takes no notice of any trust applicable to any of its shares whether or not it had notice of such trust. Page 19 of 24 As an IBC, the Company has no power to: (i) carry on business with persons resident in the BVI; (ii) own an interest in real property situated in the BVI, other than a lease of property for the use as an office from which to communicate with the shareholders or where books and records of the Company are prepared and maintained; (iii) carry on banking or trust business, unless it is licensed under the BVI Banks and Trusts Companies Act of 1990; (iv) carry on business as an insurance or a reinsurance company, insurance agency or insurance broker, unless it is licensed under an enactment authorizing it to transact that business; (v) carry on the business of company management unless it is licensed under the BVI Company Management Act, of 1990; or (vi) carry on the business of providing a registered office or the registered agent for companies incorporated in the BVI. There are no restrictions on the degree of foreign ownership of the Company. The Company is subject neither to taxes on its income or dividends nor to any foreign exchange controls in the BVI. In addition, the Company is not subject to capital gains tax in the BVI, and profits can be accumulated by the Company, as deemed by management to be required, without limitation. TAXATION The following discussion summarizes tax consequences to a holder of Common Stock of the Company under present British Virgin Islands tax laws. The discussion does not deal with all possible tax consequences relating to the Company's operations or the ownership of the Common Stock and does not purport to deal with the tax consequences applicable to particular investors, some of which (include banks, securities dealers, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other national (non-BVI) tax laws. The following discussion is based upon laws and relevant interpretations thereof in effect as of the date of this filing, all of which are subject to change. BRITISH VIRGIN ISLANDS TAXATION Under the International Business Companies Act of the British Virgin Islands (the "International Business Companies Act") as currently in effect, a holder of Common Stock paid with respect to the Common Stock of the Company. A holder of Common Stock of the Company is not liable for BVI income tax on gains realized on the sale or disposal of such shares. The BVI does not impose a withholding tax on dividends paid by the Company to its shareholders due to its incorporation under the International Business Companies Act. There are no capital gains or income taxes levied by the BVI on companies incorporated under the International Business Companies Act. In addition, the Common Stock of the Company is not subject to transfer taxes, stamp duties or similar charges. There is no income tax treaty or convention currently in effect between the United States and the BVI. As an exempted company, the Company is required to pay the BVI government an annual license fee based on the Company's stated authorized capital. This discussion is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of Common Shares of the Company and no opinion or representation with respect to the United Sates federal income tax consequences to any such holder or prospective holder is made. Holders and prospective holders should therefore consult their own tax advisors with respect to their particular circumstances. Page 20 of 24 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the notes to the consolidated financial statements in Item 17 and "Management's Discussion and Analysis" in Item 5 for additional information. The Company's reporting currency is United States dollars. The Company does not enter into any hedging transactions or hold any derivative instruments. The carrying amounts for cash and cash equivalents, marketable securities, deposits, advances and other, accrued interest and accounts payable and accrued expenses on the balance sheet approximate fair value because of the immediate or short-term maturity of these instruments. Fair value estimates are made at the balance sheet date based on relevant market information but involve uncertainties and therefore cannot be determined with precision. In order to limit its market risk, the Company diversifies its cash and investment holdings into U.S. treasury and agency obligations and major financial institutions and corporations. The fair values of investments in marketable securities are disclosed in Note 2 (l) to the Consolidated Financial Statements. The Company competes with other mining companies in connection with the acquisition of mining claims and leases on gold and other precious metals prospects. The Company's wholly owned subsidiary competes with other fertilizer manufacturing companies in the production and sales of fertilizer. The Company also competes with other companies in connection with the recruitment and retention of qualified employees. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES - NOT APPLICABLE PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES - NONE ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF PROCEEDS - NONE ITEM 15. CONTROLS AND PROCEDURES (a) Within 90 days prior to the date of this report, the Company completed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that the material financial, and non-financial information, required to be disclosed on Form 20-F, and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner. Based on the foregoing, the Company's management, including the President and Chief Financial Officer, have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended) are effective. (b) There have been no significant changes in our internal controls, or in other factors, that could significantly affect these controls subsequent to the date of the evaluation hereof. No corrective actions were taken, therefore, with regard to significant deficiencies and material weaknesses. ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT The Company's Audit Committee is composed of A Cameron Richardson, Agustin Gomez de Segura and Alexander Becker. Agustin Gomez de Segura is the independent director and financial expert serving on the audit committee. Page 21 of 24 ITEM 16 B. CODE OF ETHICS The Company has not yet adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Company is currently drafting a code of ethics. ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees: The aggregate fees billed by Moore Stephens Ellis Foster Ltd. for professional services for the audit of the Company's annual consolidated financial statements for fiscal 2002, review of the consolidated financial statements included in the Company's Annual Report on Form 10-KSB for fiscal 2002 and reviews of the financial statements included in the quarterly Form 10-QSB during the 2002 fiscal year were $5,000 (2001 - $5,350). All other fees: The aggregate fees billed to the Company for all other services by Moore Stephens Ellis Foster Ltd. for fiscal 2002 were $ 0 (fiscal 2001 - $0). PART III ITEM 17. FINANCIAL STATEMENTS The Corporation has elected to comply with the financial statement requirement of this Item rather than Item 18. The financial statements filed as part of this Annual Report are listed in "Item 19 - Financial Statements and Exhibits". These financial statements were prepared in accordance with United States generally accepted accounting principles and Regulation S-X and are expressed in United States dollars. ITEM 18. FINANCIAL STATEMENTS The Corporation has elected to comply with the financial statement requirement of Item 17 rather than this Item. ITEM 19. EXHIBITS FINANCIAL STATEMENTS Reference is made to the Financial Statements appearing as Exhibit (1). INDEX TO FINANCIAL STATEMENTS
- ------------------------------------------------------------ ------------ FINANCIAL STATEMENTS PAGE - ------------------------------------------------------------ ------------ Audited Financials -December 31, 2002 and December 31, 2001. Report of Independent Accountants F-2 Balance Sheet F-3 Consolidated Statement of Stockholders' Equity F-4 Consolidated Statements of Operations F-5 Consolidated Statement of Cash Flows F-6 Notes to Financial Statements F- 7 to F-15
Page 22 of 24 INDEX TO EXHIBITS Exhibits 2.1.1 Plan of Merger 2.1.2 Articles of Merger 3.1.1 Certificate of Incorporation* 3.1.2 Certificate of Restoration and Renewal of Certificate of Incorporation* 3.2.1 By-laws* 3.2.2a Amended and Restated Memorandum of Association 3.2.2b Amended and Restated Articles of Association 13.1 Form 10-QSB for the Quarter ended March 31, 2002* 13.2 Form 10-QSB for the Quarter ended June 30, 2002* 13.3 Form 10-QSB for the Quarter ended September 30, 2002* 16. Letter on change in certifying accountant* - -------- * Previously Filed Reports on Form 8-K Report dated March 3, 2003 * Report dated December 4, 2002 * Report dated October 29, 2002 * - -------- * Previously Filed SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. SOIL BIOGENICS LIMITED (Registrant) Date: June 24, 2003 BY: /s/ A. Cameron Richardson A. Cameron Richardson Director and President Date: June 24, 2003 BY: /s/ Agustin Gomez de Segura Agustin Gomez de Segura Director CERTIFICATIONS I, A Cameron Richardson, certify that: 1. I have reviewed this annual report on Form 20-F of Soil Biogenics Limited; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; Page 23 of 24 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 24, 2003 BY: /s/ A Cameron Richardson A Cameron Richardson President and Chief Financial Officer Page 24 of 24 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (A development stage company) Financial Statements (EXPRESSED IN U.S. DOLLARS) December 31, 2002 and 2001 INDEX ----- Report of Independent Accountants Balance Sheets Statements of Stockholders' Equity Statements of Operations Statements of Cash Flows Notes to Financial Statements F1 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 Website: www.ellisfoster.com - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) We have audited the balance sheets of SOIL BIOGENICS LIMITED ("the Company") as at December 31, 2002 and 2001 and the statements of stockholders' equity, operations and cash flows for the years then ended and cumulative data from June 30, 1997 to December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2002 and 2001 and the results of their operations and their cash flows for the years then ended and cumulative data from June 30, 1997 to December 31, 2002 in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." June 12, 2003 Chartered Accountants F2 - -------------------------------------------------------------------------------- MS An independently owned and operated member of Moore Stephens North America, Inc. Members in principal cities throughout North America. Moore Stephens North America, Inc. is a member of Moore Stephens International Limited, members in principal cities throughout the world.
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Balance Sheets December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) =========================================================================== 2002 2001 - --------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents $ 176 $ 11 Receivables - 118 Investments 913,003 801,884 - --------------------------------------------------------------------------- TOTAL CURRENT ASSETS 913,179 802,013 NOTES RECEIVABLE, non-interest bearing - 39,821 - --------------------------------------------------------------------------- TOTAL ASSETS $ 913,179 $ 841,834 =========================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT Accounts payable and accrued liabilities $ 9,379 $ 98,753 Note payable, non-interest bearing - 21,977 - --------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 9,379 120,730 - --------------------------------------------------------------------------- STOCKHOLDERS' EQUITY SHARE CAPITAL Authorized: 50,000,000 common shares without par value Issued: 12,912,500 (2001: 13,000,000) common shares - - PAID-IN CAPITAL 2,015,000 1,840,000 ACCUMULATED DEFICIT (1,120,423) (935,106) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 9,223 (183,790) - --------------------------------------------------------------------------- STOCKHOLDERS' EQUITY 903,800 721,104 - --------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 913,179 $ 841,834 ===========================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. MOORE STEPHENS ELLIS FOSTER LTD. F3
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Statements of Stockholders' Equity Years Ended December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ========================================================================================================================= Accumulated Total Other Total compre- compre- stock- hensive Common stock Paid-in Accumulated hensive holders' income Shares Amount capital (deficit) income (loss) equity (loss) - ------------------------------------------------------------------------------------------------------------------------- RECAPITALIZATION (Note 1) 13,000,000 $ - $1,840,000 $ (690,683) $ (497,061) $ 652,256 $ - Net (loss) for the year - - - (244,423) - (244,423) (244,423) Other comprehensive income - - Unrealized investment income - - - - 313,271 313,271 313,271 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2001 13,000,000 - 1,840,000 (935,106) (183,790) 721,104 $ 68,848 =========== For settlement of debt at $0.50 per share in November 350,000 - 175,000 - - 175,000 - Cancellation of common stocks held in escrow (437,500) - - - - - - Net (loss) for the year - - - (185,317) - (185,317) (185,317) Other comprehensive income - - Unrealized investment income - - - - 193,013 193,013 193,013 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2002 12,912,500 $ - $2,015,000 $(1,120,423) $ 9,223 $ 903,800 $ 7,696 =========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. MOORE STEPHENS ELLIS FOSTER LTD. F4
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Statements of Operations (EXPRESSED IN U.S. DOLLARS) ===================================================================================== Cumulative June 30 Year Year 1997 to Ended Ended December 31 December 31 December 31 2002 2002 2001 - ------------------------------------------------------------------------------------- GENERAL AND ADMINISTRATIVE EXPENSES Administrative and general $ 127,717 $ 13,829 $ 35,501 Professional fees - accounting and legal 105,826 16,733 9,714 Salaries and consulting fees 368,599 205,791 31,662 - ------------------------------------------------------------------------------------- 602,142 236,353 76,877 EXPLORATION EXPENSES 152,419 - - WRITE-OFF OF MINERAL PROPERTY COSTS 309,250 - 12,250 - ------------------------------------------------------------------------------------- (1,063,811) (236,353) (89,127) - ------------------------------------------------------------------------------------- OTHER INCOME (EXPENSES) Interest income 34,593 - 892 Dividend income 2,835 - - Realized gain (loss) on sale of investments 9,203 125,139 (145,901) Write-down of investments (72,788) (72,788) - Interest expense (15,842) (189) (519) Foreign exchange loss (14,613) (1,126) (9,768) - ------------------------------------------------------------------------------------- (56,612) 51,036 (155,296) - ------------------------------------------------------------------------------------- NET (LOSS) FOR THE PERIOD $(1,120,423) $ (185,317) $ (244,423) ===================================================================================== (LOSS) PER SHARE - basic and diluted $ (0.01) $ (0.02) ===================================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - basic and diluted 12,991,849 13,000,000 =====================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. MOORE STEPHENS ELLIS FOSTER LTD. F5
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Statements of Cash Flows (EXPRESSED IN U.S. DOLLARS) ==================================================================================== Cumulative June 30 Year Year 1997 to Ended Ended December 31 December 31 December 31 2002 2002 2001 - ------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net (loss) for the period $(1,120,423) $(185,317) $ (244,423) Adjustments to reconcile net loss to net cash used in operating activities: - realized loss (gain) on sale of investments (13,133) (125,319) 145,901 - expenses settled by common stocks 178,000 175,000 - - write-down of investments 72,788 72,788 - - write-off of mineral property costs 309,250 - 12,250 Changes in assets and liabilities: - decrease (increase) in receivables (118) 39,821 (39,880) - increase in accounts payable 108,120 9,368 45,107 - ------------------------------------------------------------------------------------ (465,516) (13,659) (81,045) - ------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Purchase of available-for-sale securities (2,470,742) - (291,001) Proceeds from sale of available-for-sale securities 1,386,707 13,824 349,658 Mineral property costs (12,250) - - - ------------------------------------------------------------------------------------ (1,096,285) 13,824 58,657 - ------------------------------------------------------------------------------------ CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from issuance of common stocks 1,540,000 - - Proceeds from notes payable 21,977 - 21,047 - ------------------------------------------------------------------------------------ 1,561,977 - 21,047 - ------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 176 165 (1,341) CASH AND CASH EQUIVALENTS, beginning of period - 11 1,352 - ------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, end of period $ 176 $ 176 $ 11 ====================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. MOORE STEPHENS ELLIS FOSTER LTD. F6 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 1. NATURE OF BUSINESS AND GOING CONCERN The Company was incorporated under the laws of the British Virgin Islands on August 23, 2002 and changed its name to Soil Biogenics Limited on February 11, 2003. The Company was formed as a wholly owned subsidiary of Patagonia Gold Corporation ("Patagonia"), a Florida State, United States of America incorporated company listed on the NASDAQ OTC Bulletin Board. The Company had no operations prior to November 29, 2002. Effective November 29, 2002, the shareholders of Patagonia approved a Plan and Articles of Merger (the "Merger") with the Company, whereby all the assets and liabilities of Patagonia vested by virtue of such merger into the Company. The shareholders of Patagonia received one common share of the Company for each common share of Patagonia they owned. Upon completion of the Merger, the common shares of the Company replaced the common shares of Patagonia on the NASDAQ OTC Bulletin Board and Patagonia ceased to exist. This transaction resulted in the former shareholders of Patagonia becoming the shareholders of the Company. Accordingly, the accounting principle is to treat the Company as a continuation of the operations of Patagonia. Under this basis of accounting, the Company's operating results and cash flows for the year ended December 31, 2002 will include Patagonia's operating results and cash flows from January 1, 2002 to November 28, 2002. The Company is also reporting the 2001 figures of Patagonia as the comparative figures of the Company in 2002. The cumulative data of Patagonia's operating results and cash flows from June 30, 1997 to November 28, 2002 will also be included in the cumulative data of the Company's operating results and cash flows. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has not generated any operating revenues to date and incurred recurring operating losses. These conditions raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty. The Company's continuing operations, as intended, are dependent upon its ability to obtain additional financing and identify, evaluate and negotiate an acquisition of an interest in properties, assets and businesses. The Company will require additional funds to meet its obligations and maintain its operations. Management's plans in this regard are to raise equity and/or debt financing as required. MOORE STEPHENS ELLIS FOSTER LTD. F7 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (a) Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. (b) Foreign Currency Transactions At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into U.S. dollars by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. (c) Cash Equivalents Cash equivalents are comprised of certain highly liquid instruments with a maturity of three months or less when purchased. There were no cash equivalents as of December 31, 2001 and 2002. (d) Concentration of Credit Risk The Company places its cash and cash equivalents with high credit quality financial institutions. The Company had no funds deposited in a financial institution beyond the insured limits as of December 31, 2001 and 2002. (e) Investments Available-for-sale securities are carried at fair market value with unrealized holding gains and losses included in stockholders' equity. Realized gains and losses are determined on an average cost basis when securities are sold. MOORE STEPHENS ELLIS FOSTER LTD. F8 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Long-lived Assets Impairment The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. Certain long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value (g) Comprehensive Income The Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. (h) Expenses Related to Mineral Properties Exploration costs are charged to operations as incurred as are normal development costs until such time that proven reserves are discovered. From that time forward, the Company will capitalize all costs to the extent that future cash flow from reserves equals or exceeds the costs deferred. Cost of initial acquisition of mineral rights and concessions are capitalized until the properties rights are abandoned, expired or became impaired. Exploration activities conducted jointly with others are reflected at the Company's proportionate interest in such activities. Costs related to site restoration programs are accrued over the life of the project. (i) Advertising Expenses The Company expenses advertising costs as incurred. The Company did not incur any advertising costs in 2001 and 2002. (j) Income Taxes The Company adopted SFAS No. 109, Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. MOORE STEPHENS ELLIS FOSTER LTD. F9 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Loss Per Share The Company adopted SFAS No. 128, Earnings Per Share. Loss per share is computed using the weighted average number of shares outstanding during the year. (l) Fair Value of Financial Instruments The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, receivables, investments and accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments, as they are short term in nature. Management is of the opinion that the Company is not exposed to significant interest, credit or currency risks arising from these financial instruments. (m) New Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issued No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS No. 146 generally requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred. The pronouncement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No.146 will not have an impact on the Company's financial statements. In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of indebtedness of Others - An Interpretation of FASB Statements of No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. This interpretation clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee. FIN 45 is effective for guarantees entered into or modified after December 31, 2002. The adoption of FIN 45 will not have impact on the Company's financial statements. MOORE STEPHENS ELLIS FOSTER LTD. F10 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) New Accounting Pronouncements (continued) In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods for voluntary transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also requires disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 will not have an impact on the Company's financial statements. In January 2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities - An Interpretation of Accounting Research Bulletin (ARB) No. 51. This interpretation clarifies how to identify variable interest entities and how the Company should assess its interests in a variable interest entity to decide whether to consolidate the entity. FIN 46 applies to variable interest entities created after January 31, 2003, in which the Company obtains an interest after that date. Also, FIN 46 applies in the first fiscal quarter or interim period beginning after June 15, 2003, to variable interest entities in which the Company holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 will not have an impact on the Company's financial statements. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 will not have an impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 30, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have an impact on the Company's financial statements. MOORE STEPHENS ELLIS FOSTER LTD. F11 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 3. INVESTMENTS Investments consist of available-for-sale securities and are summarized as follows:
- ------------------------------------------------------------------------------------- Gross Gross Accumulated unrealized unrealized unrealized Market Cost gains losses gains (losses) value - ------------------------------------------------------------------------------------- January 1, 2001 $1,190,232 $ 171,222 $ (668,283) $ (497,061) $693,171 Change in the year (204,558) 163,871 149,400 313,271 108,713 - ------------------------------------------------------------------------------------- December 31, 2001 985,674 335,093 (518,883) (183,790) 801,884 Change in the year (81,894) 99,394 93,619 193,013 111,119 - ------------------------------------------------------------------------------------- December 31, 2002 $ 903,780 $ 434,487 $ (425,264) $ 9,223 $913,003 - -------------------------------------------------------------------------------------
4. MINERAL PROPERTY COSTS (a) Argentina The Company held several mineral concessions in the Province of La Rioja, Argentina. Acquisition costs of $3,000 for these mineral concessions were capitalized by the Company. In 2001, the Company wrote off the acquisition cost since no proven mineral reserves were discovered and the recoverability of these costs was in doubt. (b) Guatamala The Company capitalized $9,250 of acquisition cost and earned a 50% interest in the San Diego Mineral Exploration Reconnaissance License. In 2001, the Company wrote-off the acquisition cost since it decided not to make the annual fee payment and thereby forfeited the mineral reconnaissance licence. MOORE STEPHENS ELLIS FOSTER LTD. F12 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 5. NON-CASH TRANSACTIONS (a) In 2002, the Company issued 350,000 common shares at $0.50 per share in settlement of consulting fees of $175,000. (b) In 2002, the Company transferred 301,050 common shares at $0.40 per share of its securities investment in a listed company to a debtor in settlement of $120,420 owed. 6. RELATED PARTY TRANSACTIONS The Company paid consulting fees of $9,791 to a director of the Company. 7. SUBSEQUENT EVENT The Company is in the process of completing the acquisition of Soil Biogenics Ltd. ("SBL Bermuda"), a Bermuda incorporated company, by the issuance of 17,000,000 of its common shares. SBL Bermuda has a wholly owned Russian subsidiary, Piksa Inter LLC and is in the business of producing bio-organic fertilizer. Pursuant to the Share Exchange Agreement between the Company and the shareholders of SBL Bermuda, the shareholders of SBL Bermuda will receive one common share of the Company for each common share of SBL Bermuda they own. After the acquisition, SBL Bermuda will become a wholly owned subsidiary of the Company. The transaction will result in the former shareholders of SBL Bermuda becoming the majority shareholders of the Company. Accounting principles applicable to reverse acquisition have been applied to record this transaction. Under this basis of accounting, SBL Bermuda has been identified as the acquirer and, accordingly, the combined entity is considered to be a continuation of the operations of SBL Bermuda with the net assets of the Company being acquired by SBL Bermuda. MOORE STEPHENS ELLIS FOSTER LTD. F13 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 7. SUBSEQUENT EVENT (continued) The following presents the 2002 pro-forma financial position and operating results of the combined entity as if the Company has completed the above transaction as at January 1, 2002, using the 2002 unaudited financial statements of SBL Bermuda.
Pro-forma Consolidated Balance Sheet as at December 31, 2002 (unaudited) - ------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 35,476 Investments 913,003 Accounts receivable 74,900 Inventories 48,100 - -------------------------------------------------------- TOTAL CURRENT ASSETS 1,071,479 Long term receivables 3,000 Property, plant and equipment 160,800 Patents, licenses and trademarks 1,800 - -------------------------------------------------------- TOTAL ASSETS $1,237,079 ======================================================== LIABILITIES Current liabilities Accounts payable and accrued liabilities $ 126,779 Loans payable 95,800 - -------------------------------------------------------- TOTAL CURRENT LIABILITIES 222,579 - -------------------------------------------------------- STOCKHOLDERS' EQUITY Share capital - Paid-in capital 1,008,304 Accumulated deficit (181,217) Accumulated other comprehensive income 187,413 - -------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,014,500 - -------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,237,079 ========================================================
MOORE STEPHENS ELLIS FOSTER LTD. F14 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) (An development stage company) Notes to Financial Statements December 31, 2002 and 2001 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 7. SUBSEQUENT EVENT (continued)
Pro-forma Consolidated Statement of Operations and Deficit for the year ended - ----------------------------------------------------------------------------- December 31, 2002 (unaudited) - ----------------------------- SALES $149,900 - ------------------------------------------- COSTS AND EXPENSES Operating 115,000 General and administrative 246,853 Amortization 500 - ------------------------------------------- 362,353 - ------------------------------------------- OTHER INCOME (EXPENSES) Interest income 1,400 Realized gain on investments 125,139 Write-down of investments (72,788) Interest expense (3,289) Foreign exchange loss (1,126) - ------------------------------------------- 49,336 - ------------------------------------------- LOSS BEFORE INCOME TAXES (163,117) INCOME TAXES 5,300 - ------------------------------------------- LOSS FOR THE YEAR $(168,417) ===========================================
MOORE STEPHENS ELLIS FOSTER LTD. F15 EX-2.1.1 3 doc2.txt EXHIBIT 2.1.1 PLAN OF MERGER This Plan of Merger is made the 23rd day of September, 2002 between Patagonia Gold (BVI) Limited and Patagonia Gold Corporation WHEREAS Patagonia Gold (BVI) Limited is an International Business Company incorporated and existing under and by virtue of the International Business Companies Act (the "Act") and is entering into this Plan of Merger pursuant to the provisions of Section 76 to 79 of the Act. AND WHEREAS Patagonia Gold Corporation is a company incorporated under and by virtue of the State of Florida, USA and is entering into this Plan of Merger pursuant to the provisions of section 607 of the said Law. AND WHEREAS the directors of the parties hereto deem it desirable and in the best interest of the companies and their members as the case may be that Patagonia Gold Corporation be merged into Patagonia Gold (BVI) Limited. NOW THEREFORE this Plan of Merger witnesseth as follows: 1. The constituent companies to this plan of Merger are Patagonia Gold (BVI) Limited and Patagonia Gold Corporation. 2. The Surviving Company is Patagonia Gold (BVI) Limited. 3. Patagonia Gold (BVI) Limited has 13,000,000 voting shares in issue which is owned by Patagonia Gold Corporation and Patagonia Gold Corporation has 13,000,000 voting shares in issue which is owned by Patagonia Gold Corporation public shareholders. The shares issued by the said companies are each entitled to vote on the merger as one class. 4. Upon the merger, the separate corporate existence of Patagonia Gold Corporation shall cease and the Surviving Company shall become the owner, without other transfer, of all the rights and property of the constituent companies and the Surviving Company shall become subject to all liabilities obligations and penalties of the constituent companies. 5. The manner and basis of converting the shares of the constituent companies into shares of the Surviving Company or other property shall be as follows: (a) each share with par value of Patagonia Gold (BVI) Limited issued and outstanding on the effective date of the merger shall continue to be one share with par value in the Surviving Company; and (b) each share with par value of Patagonia Gold Corporation issued and outstanding on the effective date and owned by Patagonia Gold Corporation public shareholders shall be converted into one share with par value of the Surviving Company. Page 1 of 2 6. The constituent documents of Patagonia Gold (BVI) Limited as in effect on the effective date shall be the constituent documents of the Surviving Company until the same shall be altered or amended or until a new constituent documents are adopted as provided therein. 7. This Plan of merger shall be submitted to the members of each of the constituent companies for their approval by a resolution of members. 8. The merger shall be effective as provided by the laws of the British Virgin Islands. 9. This Plan of Merger may be executed in counterparts. In witness whereof the parties hereto have caused this Plan of Merger to be executed on this 21st day of October, 2002. SIGNED and DELIVERED for and ) on behalf of the ) PATAGONIA GOLD (BVI) LIMITED ) /s/ A Cameron Richardson ) ------------------------ by A. Cameron Richardson ) A. Cameron Richardson a duly authorised director before me ) Director John David Phillips - ------------------- Name Jane Harvey Associates Barristers and Solicitors 1800 Sheppard Ave, East, Suite U-219B Willowdale, Ontario M2J 5A4 - --------------------------- Address /s/ John D Phillips - ------------------- Notary Public SIGNED and DELIVERED for and ) on behalf of ) PATAGONIA GOLD CORPORATION ) by Terry Longair ) /s/ Terry Longair ) ----------------- a duly authorized director before me ) Terry Longair ) Director Louis P Salley - -------------- Name Barrister & Solicitor Suite 1750 - 1185 W. Georgia Street Vancouver, B.C., Canada V6E 4E6 - ------------------------------- Address /s/ Louis P Salley - ------------------ Notary Public Page 2 of 2 EX-2.1.2 4 doc3.txt EXHIBIT 2.1.2 ARTICLES OF MERGER These Articles of Merger entered into this 23rd day of September, 2002 by and between Patagonia Gold (BVI) Limited (the "Surviving Company") and Patagonia Gold Corporation (the "Merging Company"), WITNESSETH as follows: 1. The parties hereto do hereby adopt the Plan of Merger a copy of which is annexed hereto to the intent that the merger shall be effective on November 29, 2002 (the "effective date"). 2. The Articles of Incorporation of the Merging Company were filed with the Registrar of Companies in the State of Florida, USA on the 31st day of March, 1993. 3. The Memorandum and Articles of the Surviving Company were registered with the Registrar of Companies in the British Virgin Islands on the 23rd day of August, 2002. 4. The Merger was approved for both the Surviving Company and the Merging Company by Resolutions of directors respectively dated the 18th and 18th days of September, 2002. 5. The Surviving Company has complied with all the provisions of the laws of the British Virgin Islands and the Merging Company has complied with all the provisions of the laws of the State of Florida, USA, to enable them to merge upon the effective date. 6. The Merger was approved for the Surviving Company by resolution of directors and dated the 18th day of September, 2002, and the Merging Company by resolutions of directors and resolutions of members or shareholders dated the 18th day of September, 2002 and 28th day of June 2002. IN WITNESS WHEREOF the parties hereto have caused these Articles of Merger to be executed on this 21st day of October, 2002 SIGNED and DELIVERED for and ) on behalf of the ) PATAGONIA GOLD (BVI) LIMITED ) /s/ A Cameron Richardson ) ------------------------ by A. Cameron Richardson ) A. Cameron Richardson a duly authorised director before me ) Director John David Phillips - ------------------- Name Jane Harvey Associates Barristers and Solicitors 1800 Sheppard Ave, East, Suite U-219B Willowdale, Ontario M2J 5A4 - --------------------------- Address /s/ John D Phillips - ------------------- Notary Public Page 1 of 2 SIGNED and DELIVERED for and ) on behalf of ) PATAGONIA GOLD CORPORATION ) by Terry Longair ) /s/ Terry Longair ) ----------------- a duly authorized director before me ) Terry Longair ) Director Louis P Salley - -------------- Name Barrister & Solicitor Suite 1750 - 1185 W. Georgia Street Vancouver, B.C., Canada V6E 4E6 - ------------------------------- Address /s/ Louis P Salley - ------------------ Notary Public Page 2 of 2 EX-3.2.2(A) 5 doc4.txt EXHIBIT 3.2.2(a) TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP 291) MEMORANDUM OF ASSOCIATION OF SOIL BIOGENICS LIMITED NAME 1. The name of the Company is Soil Biogenics Limited. REGISTERED OFFICE 2. The Registered Office of the Company will be at Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. REGISTERED AGENT 3. The Registered Agent of the Company will be HWR Services Limited of Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Islands. GENERAL OBJECTS AND POWERS 4. (1) The object of the Company is to engage in any act or activity that is not prohibited under any law for the time being in force in the British Virgin Islands; (2) The Company may not (a) carry on business with persons resident in the British Virgin Islands; (b) own an interest in real property situate in the British Virgin Islands, other than a lease referred to in paragraph (e) of subclause (3); (c) carry on banking or trust business, unless it is licensed to do so under the Banks and Trust Companies Act, 1990; (d) carry on business as an insurance or reinsurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorizing it to carry on that business; (e) carry on the business of company management, unless it is licensed under the Company Management Act, 1990; or 1 (f) carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands. (3) For purposes of paragraph (a) of subclause (2), the Company shall not be treated as carrying on business with persons resident in the British Virgin Islands if (a) it makes or maintains deposits with a person carrying on banking business within the British Virgin Islands; (b) it makes or maintains professional contact with solicitors, barristers, accountants, bookkeepers, trust companies, administration companies, investment advisers or other similar persons carrying on business within the British Virgin Islands; (c) it prepares or maintains books and records within the British Virgin Islands; (d) it holds, within the British Virgin Islands, meetings of its directors or members; (e) it holds a lease of property for use as an office from which to communicate with members or where books and records of the Company are prepared or maintained; (f) it holds shares, debt obligations or other securities in a company incorporated under the International Business Companies Act or under the Companies Act; or (g) shares, debt obligations or other securities in the Company are owned by any person resident in the British Virgin Islands or by any company incorporated under the International Business Companies Act or under the Companies Act. (4) The Company shall have all such powers as are permitted by law for the time being in force in the British Virgin Islands, irrespective of corporate benefit, to perform all acts and engage in all activities necessary or conducive to the conduct, promotion or attainment of the object of the Company. CURRENCY 5. Shares in the Company shall be issued in the currency of the United States of America. AUTHORIZED CAPITAL 6. The Company has no authorized capital. 2 CLASSES, NUMBER AND PAR VALUE OF SHARES 7. The Company is authorized to issue 50,000,000 shares of no par value. DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES 8. All shares shall (a) have one vote each; (b) be subject to redemption, purchase or acquisition by the Company for fair value; and (c) have the same rights with regard to dividends and distributions upon liquidation of the Company. VARIATION OF CLASS RIGHTS 9. 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. RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU 10. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. REGISTERED SHARES AND BEARER SHARES 11. Shares may be issued as registered shares or to bearer as may be determined by a resolution of directors. EXCHANGE OF REGISTERED SHARES AND BEARER SHARES 12. Registered shares may be exchanged for bearer shares and bearer shares may be exchanged for registered shares. TRANSFER OF REGISTERED SHARES 13. Subject to the provisions relating to the transfer of shares set forth in the Articles of Association annexed hereto (the "Articles of Association") 3 registered shares in the Company may be transferred subject to the prior or subsequent approval of the Company as evidenced by a resolution of directors or by a resolution of members. SERVICE OF NOTICE ON HOLDERS OF BEARER SHARES 14. Where shares are issued to bearer, the bearer, identified for this purpose by the number of the share certificate, shall be requested to provide the Company with the name and address of an agent for service of any notice, information or written statement required to be given to members, and service upon such agent shall constitute service upon the bearer of such shares until such time as a new name and address for service is provided to the Company. In the absence of such name and address being provided it shall be sufficient for the purposes of service for the Company to publish the notice, information or written statement or a summary thereof in one or more newspapers published or circulated in the British Virgin Islands and in such other place, if any, as the Company shall from time to time by a resolution of directors or a resolution of members determine. The directors of the Company must give sufficient notice of meetings to members holding shares issued to bearer to allow a reasonable opportunity for them to secure or exercise the right or privilege that is the subject of the notice other than the right or privilege to vote, as to which the period of notice shall be governed by the Articles of Association. What amounts to sufficient notice is a matter of fact to be determined after having regard to all the circumstances. AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION 15. The Company may amend its Memorandum of Association and Articles of Association by a resolution of members or directors. DEFINITIONS 16. The meanings of words in this Memorandum of Association are as defined in the Articles of Association. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to this Memorandum of Association the 23rd day of August, 2002 in the presence of: Witness Subscriber SGD: Simone I. Syfox SGD. Andrew B. Swapp - --------------------- --------------------- Simone I. Syfox Andrew B. Swapp Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 4 EX-3.2.2(B) 6 doc5.txt EXHIBIT 3.2.2(b) TERRITORY OF THE BRITISH VIRGIN ISLANDS THE INTERNATIONAL BUSINESS COMPANIES ACT (CAP 291) ARTICLES OF ASSOCIATION OF SOIL BIOGENICS LIMITED PRELIMINARY 1. In these Articles, if not inconsistent with the subject or context, the words and expressions standing in the first column of the following table shall bear the meanings set opposite them respectively in the second column thereof. WORDS MEANING ----- ------- CAPITAL the sum of the aggregate par value of all outstanding shares with par value of the Company and shares with par value held by the Company as treasury shares plus (a) the aggregate of the amounts designated as capital of all outstanding shares without par value of the Company and shares without par value held by the Company as treasury shares, and (b) the amounts as are from time to time transferred from surplus to capital by a resolution of directors. MEMBER a person who holds shares in the Company. PERSON an individual, a corporation, a trust, the estate of a deceased individual, a partnership or an unincorporated association of persons. RESOLUTION (a) a resolution approved at a duly convened and DIRECTORS constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or (b) a resolution consented to in writing by all directors or of all members of the committee, as the case may be; except that where a director is given more than one vote, he shall be counted by the 1 number of votes he casts for the purpose of establishing a majority. RESOLUTION (a) a resolution approved at a duly convened and MEMBERS constituted meeting of the members of the Company by the affirmative vote of (i) a simple majority of the votes of the shares entitled to vote thereon which were present at the meeting and were voted and not abstained, or (ii) a simple majority of the votes of each class or series of shares which were present at the meeting and entitled to vote thereon as a class or series and were voted and not abstained and of a simple majority of the votes of the remaining shares entitled to vote thereon which were present at the meeting and were voted and not abstained; or (b) a resolution consented to in writing by (i) an absolute majority of the votes of shares entitled to vote thereon, or (ii) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority of the votes of the remaining shares entitled to vote thereon; SECURITIES shares and debt obligations of every kind, and options, warrants and rights to acquire shares, or debt obligations. SURPLUS the excess, if any, at the time of the determination of the total assets of the Company over the aggregate of its total liabilities, as shown in its books of account, plus the Company's capital. THE ACT the International Business Companies Act (No. 8 of 1984) including any modification, extension, re-enactment or renewal thereof and any regulations made thereunder. THE MEMORANDUM the Memorandum of Association of the Company as originally framed or as from time to time amended. THE SEAL any Seal which has been duly adopted as the Seal of the Company. THESE ARTICLES these Articles of Association as originally framed or as from time to time amended. 2 TREASURY shares in the Company that were previously issued but SHARES were repurchased, redeemed or otherwise acquired by the Company and not cancelled. 2. "Written" or any term of like import includes words typewritten, printed, painted, engraved, lithographed, photographed or represented or reproduced by any mode of reproducing words in a visible form, including telex, facsimile, telegram, cable or other form of writing produced by electronic communication. 3. Save as aforesaid any words or expressions defined in the Act shall bear the same meaning in these Articles. 4. Whenever the singular or plural number, or the masculine, feminine or neuter gender is used in these Articles, it shall equally, where the context admits, include the others. 5. A reference in these Articles to voting in relation to shares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction. 6. A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the Company shall be issued according to the provisions of the Memorandum. REGISTERED SHARES 7. Every member holding registered shares in the Company shall be entitled to a certificate signed by a director or officer of the Company and under the Seal specifying the share or shares held by him and the signature of the director or officer and the Seal may be facsimiles. 8. Any member receiving a share certificate for registered shares shall indemnify and hold the Company and its directors and officers harmless from any loss or liability which it or they may incur by reason of any wrongful or fraudulent use or representation made by any person by virtue of the possession thereof. If a share certificate for registered shares is worn out or lost it may be renewed on production of the worn out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of directors. 9. If several persons are registered as joint holders of any shares, any one of such persons may give an effectual receipt for any dividend payable in respect of such shares. BEARER SHARES 10. Subject to a request for the issue of bearer shares and to the payment of the appropriate consideration for the shares to be issued, the Company may, to the extent authorized by the Memorandum, issue bearer shares to, and at the expense of, such person as shall be specified in the request. Bearer shares may not be issued for debt obligations, promissory notes or other obligations to contribute money or property and registered shares issued for debt obligations, promissory notes or other obligations to contribute money or property shall not be exchanged for bearer shares unless such debt obligations, promissory notes or other obligations to contribute money or property have been satisfied. The Company may also upon receiving a request in writing accompanied by the share certificate for the shares in question, exchange registered shares for bearer shares or may exchange bearer shares for registered shares. Such request served on the Company by the holder of bearer shares shall specify the name and address of the person to be registered and unless the request is delivered in person by the bearer shall be authenticated as hereinafter provided. 3 Such request served on the Company by the holder of bearer shares shall also be accompanied by any coupons or talons which at the date of such delivery have not become due for payment of dividends or any other distribution by the Company to the holders of such shares. Following such exchange the share certificate relating to the exchanged shares shall be delivered as directed by the member requesting the exchange. 11. Bearer share certificates shall be under the Seal and shall state that the bearer is entitled to the shares therein specified, and may provide by coupons, talons or otherwise for the payment of dividends or other moneys on the shares included therein. 12. Subject to the provisions of the Act and of these Articles, the bearer of a bearer share certificate shall be deemed to be a member of the Company and shall be entitled to the same rights and privileges as he would have had if his name had been included in the share register of the Company as the holder of the shares. 13. Subject to any specific provisions in these Articles, in order to exercise his rights as a member of the Company, the bearer of a bearer share certificate shall produce the bearer share certificate as evidence of his membership of the Company. Without prejudice to the generality of the foregoing, the following rights may be exercised in the following manner: (a) for the purpose of exercising his voting rights at a meeting, the bearer of a bearer share certificate shall produce such certificate to the chairman of the meeting; (b) for the purpose of exercising his vote on a resolution in writing, the bearer of a bearer share certificate shall cause his signature to any such resolution to be authenticated as hereinafter set forth; (c) for the purpose of requisitioning a meeting of members, the bearer of a bearer share certificate shall address his requisition to the directors and his signature thereon shall be duly authenticated as hereinafter provided; and (d) for the purpose of receiving dividends, the bearer of a bearer share certificate shall present at such places as may be designated by the directors any coupons or talons issued for such purpose, or shall present the bearer share certificate to any paying agent authorized to pay dividends. 14. The signature of the bearer of a bearer share certificate shall be deemed to be duly authenticated if the bearer of the bearer share certificate shall produce such certificate to a notary public or a bank manager or a director or officer of the Company (herein referred to as an "authorized person") and the authorized person endorses the document bearing such signature with a statement: (a) identifying the bearer share certificate produced to him by number and date and specifying the number of shares and the class of shares (if appropriate) comprised therein; (b) confirming that the signature of the bearer of the bearer share certificate was subscribed in his presence and that if the bearer is representing a body corporate he has so acknowledged and has produced satisfactory evidence thereof; and (c) specifying the capacity in which he is qualified as an authorized person and, if a notary public, affixing his seal thereto or, if a bank manager, attaching an identifying stamp of the bank of which he is a manager. 15. Notwithstanding any other provisions of these Articles, at any time, the bearer of a bearer share certificate may deliver the certificate for such shares into the custody of the Company at its registered office, whereupon the Company shall issue a receipt therefore 4 under the Seal signed by a director or officer identifying by name and address the person delivering such certificate and specifying the date and number of the bearer share certificate so deposited and the number of shares comprised therein. Any such receipt may be used by the person named therein for the purpose of exercising the rights vested in the shares represented by the bearer share certificate so deposited including the right to appoint a proxy. Any bearer share certificate so deposited shall be returned to the person named in the receipt or his personal representative if such person be dead and thereupon the receipt issued therefor shall be of no further effect whatsoever and shall be returned to the Company for cancellation or, if it has been lost or mislaid, such indemnity as may be required by resolution of directors shall be given to the Company. 16. The bearer of a bearer share certificate shall for all purposes be deemed to be the owner of the shares comprised in such certificate and in no circumstances shall the Company or the chairman of any meeting of members or the Company's registrars or any director or officer of the Company or any authorized person be obliged to inquire into the circumstances whereby a bearer share certificate came into the hands of the bearer thereof, or to question the validity or authenticity of any action taken by the bearer of a bearer share certificate whose signature has been authenticated as provided herein. 17. If the bearer of a bearer share certificate shall be a corporation, then all the rights exercisable by virtue of such shareholding may be exercised by an individual duly authorized to represent the corporation but unless such individual shall acknowledge that he is representing a corporation and shall produce upon request satisfactory evidence that he is duly authorized to represent the corporation, the individual shall for all purposes hereof be regarded as the holder of the shares in any bearer share certificate held by him. 18. The directors may provide for payment of dividends to the holders of bearer shares by coupons or talons and in such event the coupons or talons shall be in such form and payable at such time and in such place or places as the directors shall resolve. The Company shall be entitled to recognize the absolute right of the bearer of any coupon or talon issued as aforesaid to payment of the dividend to which it relates and delivery of the coupon or talon to the Company or its agents shall constitute in all respects a good discharge of the Company in respect of such dividend. 19. If any bearer share certificate, coupon or talon be worn out or defaced, the directors may, upon the surrender thereof for cancellation, issue a new one in its stead, and if any bearer share certificate, coupon or talon be lost or destroyed, the directors may upon the loss or destruction being established to their satisfaction, and upon such indemnity being given to the Company as it shall by resolution of directors determine, issue a new bearer share certificate in its stead, and in either case on payment of such sum as the Company may from time to time by resolution of directors require. In case of loss or destruction the person to whom such new bearer share certificate, coupon or talon is issued shall also bear and pay to the Company all expenses incidental to the investigation by the Company of the evidence of such loss or destruction and to such indemnity. SHARES, AUTHORIZED CAPITAL, CAPITAL AND SURPLUS 20. Subject to the provisions of these Articles and any resolution of members, the unissued shares of the Company shall be at the disposal of the directors who may, without limiting or affecting any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of shares to such persons, at such times and upon such terms and conditions as the Company may by resolution of directors determine. 21. No share in the Company may be issued until the consideration in respect thereof is fully paid, and when issued the share is for all purposes fully paid and non-assessable save that 5 a share issued for a promissory note or other written obligation for payment of a debt may be issued subject to forfeiture in the manner prescribed in these Articles. 22. Shares in the Company shall be issued for money, services rendered, personal property, an estate in real property, a promissory note or other binding obligation to contribute money or property or any combination of the foregoing as shall be determined by a resolution of directors. 23. Shares in the Company may be issued for such amount of consideration as the directors may from time to time by resolution of directors determine, except that in the case of shares with par value, the amount shall not be less than the par value, and in the absence of fraud the decision of the directors as to the value of the consideration received by the Company in respect of the issue is conclusive unless a question of law is involved. The consideration in respect of the shares constitutes capital to the extent of the par value and the excess constitutes surplus. 24. A share issued by the Company upon conversion of, or in exchange for, another share or a debt obligation or other security in the Company, shall be treated for all purposes as having been issued for money equal to the consideration received or deemed to have been received by the Company in respect of the other share, debt obligation or security. 25. Treasury shares may be disposed of by the Company on such terms and conditions (not otherwise inconsistent with these Articles) as the Company may by resolution of directors determine. 26. The Company may issue fractions of a share and a fractional share shall have the same corresponding fractional liabilities, limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of the same class or series of shares. 27. Upon the issue by the Company of a share without par value, if an amount is stated in the Memorandum to be authorized capital represented by such shares then each share shall be issued for no less than the appropriate proportion of such amount which shall constitute capital, otherwise the consideration in respect of the share constitutes capital to the extent designated by the directors and the excess constitutes surplus, except that the directors must designate as capital an amount of the consideration that is at least equal to the amount that the share is entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 28. The Company may purchase, redeem or otherwise acquire and hold its own shares but only out of surplus or in exchange for newly issued shares of equal value. 29. Subject to provisions to the contrary in (a) the Memorandum or these Articles; (b) the designations, powers, preferences, rights, qualifications, limitations and restrictions with which the shares were issued; or (c) the subscription agreement for the issue of the shares, the Company may not purchase, redeem or otherwise acquire its own shares without the consent of members whose shares are to be purchased, redeemed or otherwise acquired. 30. No purchase, redemption or other acquisition of shares shall be made unless the directors determine that immediately after the purchase, redemption or other acquisition the Company will be able to satisfy its liabilities as they become due in the ordinary course of 6 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 the books of account, and its capital and, in the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 31. A determination by the directors under the preceding Regulation is not required where shares are purchased, redeemed or otherwise acquired (a) pursuant to a right of a member to have his shares redeemed or to have his shares exchanged for money or other property of the Company; (b) by virtue of a transfer of capital pursuant to Regulation 59; (c) by virtue of the provisions of Section 83 of the Act; or (d) pursuant to an order of the Court. 32. Shares that the Company purchases, redeems or otherwise acquires pursuant to the preceding Regulation may be cancelled or held as treasury shares except to the extent that such shares are in excess of 80 percent of the issued shares of the Company in which case they shall be cancelled but they shall be available for reissue. 33. Where shares in the Company are held by the Company as treasury shares or are held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the votes in the election of directors of the other company, such shares of the Company are not entitled to vote or to have dividends paid thereon and shall not be treated as outstanding for any purpose except for purposes of determining the capital of the Company. 34. The Company may purchase, redeem or otherwise acquire its shares at a price lower than the fair value if permitted by, and then only in accordance with, the terms of (a) the Memorandum or these Articles; or (b) a written agreement for the subscription for the shares to be purchased, redeemed or otherwise acquired. 35. The Company may by a resolution of directors include in the computation of surplus for any purpose the unrealized appreciation of the assets of the Company, and, in the absence of fraud, the decision of the directors as to the value of the assets is conclusive, unless a question of law is involved. MORTGAGES AND CHARGES OF REGISTERED SHARES 36. Members may mortgage or charge their registered shares in the Company and upon satisfactory evidence thereof the Company shall give effect to the terms of any valid mortgage or charge except insofar as it may conflict with any requirements herein contained for consent to the transfer of shares. 37. In the case of the mortgage or charge of registered shares there may be entered in the share register of the Company at the request of the registered holder of such shares (a) a statement that the shares are mortgaged or charged; (b) the name of the mortgagee or chargee; and (c) the date on which the aforesaid particulars are entered in the share register. 7 38. Where particulars of a mortgage or charge are registered, such particulars shall be cancelled (a) with the consent of the named mortgagee or chargee oranyone authorized to act on his behalf; or (b) upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable. 39. Whilst particulars of a mortgage or charge are registered, no transfer of any share comprised therein shall be effected without the written consent of the named mortgagee or chargee or anyone authorized to act on his behalf. FORFEITURE 40. When shares issued for a promissory note or other written obligation for payment of a debt have been issued subject to forfeiture, the following provisions shall apply. 41. Written notice specifying a date for payment to be made and the shares in respect of which payment is to be made shall be served on the member who defaults in making payment pursuant to a promissory note or other written obligations to pay a debt. 42. The written notice specifying a date for payment shall (a) name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which payment required by the notice is to be made; and (b) contain a statement that in the event of non-payment at or before the time named in the notice the shares, or any of them, in respect of which payment is not made will be liable to be forfeited. 43. Where a written notice has been issued and the requirements have not been complied with within the prescribed time, the directors may at any time before tender of payment forfeit and cancel the shares to which the notice relates. 44. The Company is under no obligation to refund any moneys to the member whose shares have been forfeited and cancelled pursuant to these provisions. Upon forfeiture and cancellation of the shares the member is discharged from any further obligation to the Company with respect to the shares forfeited and cancelled. LIEN 45. The Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not. The Company's lien on a share shall extend to all dividends payable thereon. The directors may at any time either generally, or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Regulation. 8 46. In the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine, any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 47. The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale. TRANSFER OF SHARES 48. Subject to any limitations in the Memorandum, registered shares in the Company may be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee, but in the absence of such written instrument of transfer the directors may accept such evidence of a transfer of shares as they consider appropriate. 49. The Company shall not be required to treat a transferee of a registered share in the Company as a member until the transferee's name has been entered in the share register. 50. Subject to any limitations in the Memorandum, the Company must on the application of the transferor or transferee of a registered share in the Company enter in the share register the name of the transferee of the share save that the registration of transfers may be suspended and the share register closed at such times and for such periods as the Company may from time to time by resolution of directors determine provided always that such registration shall not be suspended and the share register closed for more than 60 days in any period of 12 months. TRANSMISSION OF SHARES 5l. The executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognized by the Company as having any title to his share but they shall not be entitled to exercise any rights as a member of the Company until they have proceeded as set forth in the next following three Regulations. 52. The production to the Company of any document which is evidence of probate of the will, or letters of administration of the estate, or confirmation as executor, of a deceased member or of the appointment of a guardian of an incompetent member or the trustee of a bankrupt member shall be accepted by the Company even if the deceased, incompetent or bankrupt member is domiciled outside the British Virgin Islands if the document evidencing the grant of probate or letters of administration, confirmation as executor, appointment as guardian or trustee in bankruptcy is issued by a foreign court which had competent jurisdiction in the matter. For the purpose of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain 9 appropriate legal advice. The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy. 53. Any person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall for all purposes be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such. 54. Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer. 55. What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case. REDUCTION OR INCREASE IN AUTHORIZED CAPITAL OR CAPITAL 56. The Company may by a resolution of directors amend the Memorandum to increase or reduce its authorized capital and in connection therewith the Company may in respect of any unissued shares increase or reduce the number of such shares, increase or reduce the par value of any such shares or effect any combination of the foregoing. 57. The Company may amend the Memorandum to (a) divide the shares, including issued shares, of a class or series into a larger number of shares of the same class or series; or (b) combine the shares, including issued shares, of a class or series into a smaller number of shares of the same class or series, provided, however, that where shares are divided or combined under (a) or (b) of this Regulation, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares. 58. The capital of the Company may by a resolution of directors be increased by transferring an amount of the surplus of the Company to capital. 59. Subject to the provisions of the two next succeeding Regulations, the capital of the Company may by resolution of directors be reduced by transferring an amount of the capital of the Company to surplus. 60. No reduction of capital shall be effected that reduces the capital of the Company to an amount that immediately after the reduction is less than the aggregate par value of all outstanding shares with par value and all shares with par value held by the Company as treasury shares and the aggregate of the amounts designated as capital of all outstanding shares without par value and all shares without par value held by the Company as treasury shares that are entitled to a preference, if any, in the assets of the Company upon liquidation of the Company. 61. No reduction of capital shall be effected unless the directors determine that immediately after the reduction the Company will be able to satisfy its liabilities as they become due in the ordinary course of its business and that the realizable assets of the Company will not be less than its total liabilities, other than deferred taxes, as shown in the books of the Company and its remaining capital, and, in the absence of fraud, the decision of the 10 directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. MEETINGS AND CONSENTS OF MEMBERS 62. 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. 63. Upon the written request of members holding 10 percent or more of the outstanding voting shares in the Company the directors shall convene a meeting of members. 64. The directors shall give not less than 7 days notice of meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting. 65. The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting. 66. A meeting of members may be called on short notice: (a) if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or (b) if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver. 67. The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting. 68. A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member. 69. The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote. 70. An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy. (Name of Company) I/We being a member of the above Company with shares HEREBY APPOINT of or failing him of to be my/our proxy to vote for me/us at the meeting of members to be held on the day of and at any adjournment thereof. (Any restrictions on voting to be inserted here.) Signed this day of .. . . . . . . . . . Member 11 7l. The following shall apply in respect of joint ownership of shares: (a) if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member; (b) if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and (c) if two or more of the joint owners are present in person or by proxy they must vote as one. 72. A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other. 73. A meeting of members is duly constituted if, at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members. 74. If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved. 75. At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the members present shall choose some one of their number to be the chairman. If the members are unable to choose a chairman for any reason, then the person representing the greatest number of voting shares present in person or by prescribed form of proxy at the meeting shall preside as chairman failing which the oldest individual member or representative of a member present shall take the chair. 76. The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. 77. At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman. 12 78. Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member. 79. Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company. 80. The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded. 81. Directors of the Company may attend and speak at any meeting of members of the Company and at any separate meeting of the holders of any class or series of shares in the Company. 82. An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more members. DIRECTORS 83. The first directors of the Company shall be appointed by the subscribers to the Memorandum; and thereafter, the directors shall be elected by the members for such term as the members determine. 84. The minimum number of directors shall be one and the maximum number shall be 7. 85. Each director shall hold office for the term, if any, fixed by resolution of members or until his earlier death, resignation or removal. 86. A director may be removed from office, with or without cause, by a resolution of members or, with cause, by a resolution of directors. 87. A director may resign his office by giving written notice of his resignation to the Company and the resignation shall have effect from the date the notice is received by the Company or from such later date as may be specified in the notice. 88. The directors may at any time appoint any person to be a director either to fill a vacancy or as an addition to the existing directors. A vacancy occurs through the death, resignation or removal of a director, but a vacancy or vacancies shall not be deemed to exist where one or more directors shall resign after having appointed his or their successor or successors. 13 89. The Company may determine by resolution of directors to keep a register of directors containing (a) the names and addresses of the persons who are directors of the Company; (b) the date on which each person whose name is entered in the register was appointed as a director of the Company; and (c) the date on which each person named as a director ceased to be a director of the Company. 90. If the directors determine to maintain a register of directors, a copy thereof shall be kept at the registered office of the Company and the Company may determine by resolution of directors to register a copy of the register with the Registrar of Companies. 9l. With the prior or subsequent approval by a resolution of members, the directors may, by a resolution of directors, fix the emoluments of directors with respect to services to be rendered in any capacity to the Company. 92. A director shall not require a share qualification and may be an individual or a company. POWERS OF DIRECTORS 93. The business and affairs of the Company shall be managed by the directors who may pay all expenses incurred preliminary to and in connection with the formation and registration of the Company and may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made. 94. The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company. 95. Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Act. 96. Any director which is a body corporate may appoint any person its duly authorized representative for the purpose of representing it at meetings of the Board of Directors or with respect to unanimous written consents. 97. The continuing directors may act notwithstanding any vacancy in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members. 98. The directors may by resolution of directors exercise all the powers of the Company 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 14 borrowed or as security for any debt, liability or obligation of the Company or of any third party. 99. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors. l00. The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee, chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register. l0l. The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies. PROCEEDINGS OF DIRECTORS 102. The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable. 103. A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other. 104. A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting. 105. A director may by a written instrument appoint an alternate who need not be a director and an alternate is entitled to attend meetings in the absence of the director who appointed him and to vote or consent in place of the director. 106. A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person or by alternate not less than one-half of the total number of directors, unless there are only 2 directors in which case the quorum shall be 2. 107. If the Company shall have only one director the provisions herein contained for meetings of the directors shall not apply but such sole director shall have full power to represent and act for the Company in all matters as are not by the Act or the Memorandum or these Articles required to be exercised by the members of the Company and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters 15 requiring a resolution of directors. Such a note or memorandum shall constitute sufficient evidence of such resolution for all purposes. 108. At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice-Chairman of the Board of Directors shall preside. If there is no Vice-Chairman of the Board of Directors or if the Vice-Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting. 109. An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by all directors or all members of the committee as the case may be, without the need for any notice. The consent may be in the form of counterparts, each counterpart being signed by one or more directors. 110. The directors shall cause the following corporate records to be kept: (a) minutes of all meetings of directors, members, committees of directors, committees of officers and committees of members; (b) copies of all resolutions consented to by directors, members, committees of directors, committees of officers and committees of members; and (c) such other accounts and records as the directors by resolution of directors consider necessary or desirable in order to reflect the financial position of the Company. 111. The books, records and minutes shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine. 112. The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors. 113. Each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee, except that no committee has any power or authority to amend the Memorandum or these Articles, to appoint directors or fix their emoluments, or to appoint officers or agents of the Company. 114. The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee. OFFICERS 115. The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, a President and one or more Vice-Presidents, Secretaries and Treasurers and such other officers as may from time to time be deemed desirable. Any number of offices may be held by the same person. 116. The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific 16 allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice-Chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice-Presidents to act in order of seniority in the absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretaries to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company. 117. The emoluments of all officers shall be fixed by resolution of directors. 118. The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office of the Company may be filled by resolution of directors. CONFLICT OF INTERESTS 119. No agreement or transaction between the Company and one or more of its directors or any person in which any director has a financial interest or to whom any director is related, including as a director of that other person, is void or voidable for this reason only or by reason only that the director is present at the meeting of directors or at the meeting of the committee of directors that approves the agreement or transaction or that the vote or consent of the director is counted for that purpose if the material facts of the interest of each director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith or are known by the other directors. l20. A director who has an interest in any particular business to be considered at a meeting of directors or members may be counted for purposes of determining whether the meeting is duly constituted. INDEMNIFICATION l2l. Subject to the limitations hereinafter provided the Company may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who (a) is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of the Company; or (b) is or was, at the request of the Company, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise. 122. The Company may only indemnify a person if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful. 123. The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved. 17 124. The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful. 125. If a person to be indemnified has been successful in defence of any proceedings referred to above the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings. 126. The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in these Articles. SEAL 127. The Company may have more than one Seal and references herein to the Seal shall be references to every Seal which shall have been duly adopted by resolution of directors. The directors shall provide for the safe custody of the Seal and for an imprint thereof to be kept at the Registered Office. Except as otherwise expressly provided herein the Seal when affixed to any written instrument shall be witnessed and attested to by the signature of a director or any other person so authorized from time to time by resolution of directors. Such authorization may be before or after the Seal is affixed, may be general or specific and may refer to any number of sealings. The Directors may provide for a facsimile of the Seal and of the signature of any director or authorized person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the Seal had been affixed to such instrument and the same had been signed as hereinbefore described. DIVIDENDS 128. The Company may by a resolution of directors declare and pay dividends in money, shares, or other property, but dividends shall only be declared and paid out of surplus. In the event that dividends are paid in specie the directors shall have responsibility for establishing and recording in the resolution of directors authorizing the dividends, a fair and proper value for the assets to be so distributed. 129. The directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the Company. 130. The directors may, before declaring any dividend, set aside out of the profits of the Company such sum as they think proper as a reserve fund, and may invest the sum so set aside as a reserve fund upon such securities as they may select. 131. 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. In the absence of fraud, the decision of the directors as to the realizable value of the assets of the Company is conclusive, unless a question of law is involved. 18 132. Notice of any dividend that may have been declared shall be given to each member in manner hereinafter mentioned and all dividends unclaimed for 3 years after having been declared may be forfeited by resolution of directors for the benefit of the Company. 133. No dividend shall bear interest as against the Company and no dividend shall be paid on treasury shares or shares held by another company of which the Company holds, directly or indirectly, shares having more than 50 percent of the vote in electing directors. 134. A share issued as a dividend by the Company shall be treated for all purposes as having been issued for money equal to the surplus that is transferred to capital upon the issue of the share. 135. In the case of a dividend of authorized but unissued shares with par value, an amount equal to the aggregate par value of the shares shall be transferred from surplus to capital at the time of the distribution. 136. In the case of a dividend of authorized but unissued shares without par value, the amount designated by the directors shall be transferred from surplus to capital at the time of the distribution, except that the directors must designate as capital an amount that is at least equal to the amount that the shares are entitled to as a preference, if any, in the assets of the Company upon liquidation of the Company. 137. A division of the issued and outstanding shares of a class or series of shares into a larger number of shares of the same class or series having a proportionately smaller par value does not constitute a dividend of shares. ACCOUNTS AND AUDIT 138. The Company may by resolution of members call for the directors to prepare periodically a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for the financial period and a true and fair view of the state of affairs of the Company as at the end of the financial period. 139. The Company may by resolution of members call for the accounts to be examined by auditors. 140. The first auditors shall be appointed by resolution of directors; subsequent auditors shall be appointed by a resolution of members. 141. The auditors may be members of the Company but no director or other officer shall be eligible to be an auditor of the Company during his continuance in office. 142. The remuneration of the auditors of the Company (a) in the case of auditors appointed by the directors, may be fixed by resolution of directors; and (b) subject to the foregoing, shall be fixed by resolution of members or in such manner as the Company may by resolution of members determine. 143. The auditors shall examine each profit and loss account and balance sheet required to be served on every member of the Company or laid before a meeting of the members of the Company and shall state in a written report whether or not (a) in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; and 19 (b) all the information and explanations required by the auditors have been obtained. 144. The report of the auditors shall be annexed to the accounts and shall be read at the meeting of members at which the accounts are laid before the Company or shall be served on the members. 145. Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors. 146. The auditors of the Company shall be entitled to receive notice of, and to attend any meetings of members of the Company at which the Company's profit and loss account and balance sheet are to be presented. NOTICES 147 Any notice, information or written statement to be given by the Company to members may be served in the case of members holding registered shares in any way by which it can reasonably be expected to reach each member or by mail addressed to each member at the address shown in the share register and in the case of members holding shares issued to bearer, in the manner provided in the Memorandum. 148. Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company. 149. Service of any summons, notice, order, document, process, information or written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid. PENSION AND SUPERANNUATION FUNDS 150. The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company or any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid or who hold or held any salaried employment or office in the Company or such other company, or any persons in whose welfare the Company or any such other company as aforesaid is or has been at any time interested, and to the wives, widows, families and dependents of any such person, and may make payments for or towards the insurance of any such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. Subject always to the proposal being approved by resolution of members, a director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension allowance or emolument. 20 ARBITRATION 151. Whenever any difference arises between the Company on the one hand and any of the members or their executors, administrators or assigns on the other hand, touching the true intent and construction or the incidence or consequences of these Articles or of the Act, touching anything done or executed, omitted or suffered in pursuance of the Act or touching any breach or alleged breach or otherwise relating to the premises or to these Articles, or to any Act or Ordinance affecting the Company or to any of the affairs of the Company such difference shall, unless the parties agree to refer the same to a single arbitrator, be referred to 2 arbitrators one to be chosen by each of the parties to the difference and the arbitrators shall before entering on the reference appoint an umpire. 152. If either party to the reference makes default in appointing an arbitrator either originally or by way of substitution (in the event that an appointed arbitrator shall die, be incapable of acting or refuse to act) for 10 days after the other party has given him notice to appoint the same, such other party may appoint an arbitrator to act in the place of the arbitrator of the defaulting party. VOLUNTARY WINDING UP AND DISSOLUTION 153. The Company may voluntarily commence to wind up and dissolve by a resolution of members but if the Company has never issued shares it may voluntarily commence to wind up and dissolve by resolution of director. CONTINUATION 154. The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws. We, HWR SERVICES LIMITED, of Craigmuir Chambers, Road Town, Tortola, British Virgin Islands for the purpose of incorporating an International Business Company under the laws of the British Virgin Islands hereby subscribe our name to these Articles of Association the 23rd day of August, 2002 in the presence of: Witness Subscriber SGD: Simone I. Syfox SGD. Andrew B. Swapp .. . . . . . . . . . . . . . . . . . . . Simone I. Syfox Andrew B. Swapp Craigmuir Chambers Authorized Signatory Road Town, Tortola HWR Services Limited 21 -----END PRIVACY-ENHANCED MESSAGE-----