-----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, RlfZdv6RMsz2GIObjEjA4IVxqk44jQ1GVdYIj/ZETacefhYj3o8lmAktTgngZ8Op 1JMmoD4sWwnbWzHpHNWV0A== 0001140361-05-008644.txt : 20051026 0001140361-05-008644.hdr.sgml : 20051026 20051026133901 ACCESSION NUMBER: 0001140361-05-008644 CONFORMED SUBMISSION TYPE: 20-F/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20051026 DATE AS OF CHANGE: 20051026 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-26531 FILM NUMBER: 051156494 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/A 1 body.txt SOIL BIOGENICS 20-F-A 12-31-2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F/A [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2004 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to_______ Commission File Number: 0-26531 SOIL BIOGENICS LIMITED (Exact name of Registrant as specified in its charter) British Virgin Islands (Jurisdiction of incorporation or organization) Marques de Urquijo 5, 5 B, 28008, Madrid, Spain (Address of Principal executive office) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class None Securities registered or to be registered pursuant to Section 12(g) of the Act: Title of each class Name of exchange on which registered Common Shares NASD OTC Bulletin Board Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. December 31, 2004 30,162,500 Common Shares Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark which financial statement item the Registrant has elected to follow: [X] Item 17 [_] Item 18 Page 1 of 23
SOIL BIOGENICS LIMITED TABLE OF CONTENTS PART I GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 FORWARD LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 CURRENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS . . . . . . . . . . 4 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . 4 ITEM 3. KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ITEM 4. INFORMATION ON THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 5 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS. . . . . . . . . . . . . . . 9 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES. . . . . . . . . . . . . . . . 11 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . . . . . 16 ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ITEM 10. ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 18 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . . . 20 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. . . . . . . . . . 20 PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES . . . . . . . . . . . . . 20 ITEM 14. MATERIAL MODIFICATIONS TO RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 15. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 16. (RESERVED). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT. . . . . . . . . . . . . . . . . . . . . 20 ITEM 16B. CODE OF ETHICS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES. . . . . . . . . . . . . . . . . . 21 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . 22 PART III ITEM 17. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ITEM 18. FINANCIAL STATEMENTS (NOT APPLICABLE) . . . . . . . . . . . . . . . . . . 23 ITEM 19. EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Page 2 of 23 The Company is filing Amendment Number 1 to the Soil Biogenics Limited December 31, 2004 Form 20-F for the following reasons: 1. The Company has revised its Standard Industrial Classification Code ("SIC") from 1000, Metal Mining, to 2870, Agriculture Chemicals. 2. The Company has amended the note to the Compensation Table in Item 6 (B). 3. The auditors report for the year ended December 31, 2004 on page F-2 has been amended to indicate that the Company's audited consolidated financial statements were prepared in accordance with U.S. GAAP. 4. The audited consolidated statements of stockholders' equity, operations, cash flows and related notes for the year ended December 31, 2004 have been revised to include the year ended December 31, 2002. 5. The cost of sales for the years ended December 31, 2004 and 2003 have been revised to include depreciation expense attributable to the cost of sales. The depreciation expense has been reclassified from Depreciation (December 31, 2004) and General and Administrative (December 31, 2003). PART I GENERAL INFORMATION DEFINED TERMS Soil Biogenics Limited is a corporation organized under the laws of the British Virgin Islands. As used in this document, the term "Soil Biogenics" refers to Soil Biogenics Limited and the terms "we", "us", "our", and the "Company" refer to Soil Biogenics and, as applicable, Soil Biogenics and its direct and indirect subsidiaries as a group. FORWARD-LOOKING STATEMENTS This document, including the documents incorporated by reference, contain "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance. Statements containing words such as "could", "expect", "may", "anticipate", "believe", "intend", "estimate", "plan" and similar expressions constitute forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. Forward-looking statements are subject to important risks, uncertainties and assumptions that are difficult to predict. The results or events predicted in forward-looking statements may differ materially from actual results or events. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following: general business and economic conditions and governmental policies affecting the agricultural industry in localities where the Company or its customers operate; weather conditions; the impact of competitive products; pressure on prices realized by the Company for its products; constraints on supplies of raw materials used in manufacturing certain of the Company's products; capacity constraints limiting the production of certain products; difficulties or delays in the development, production, testing and marketing of products; difficulties or delays in receiving, or increased costs of obtaining or satisfying conditions of, required governmental and regulatory approvals; market acceptance issues, including the failure of products to generate anticipated sales levels; the effects of and change in trade, monetary, environmental and fiscal policies, laws and regulations; foreign exchange rates and fluctuations in those rates; the costs and effects of legal proceedings, including environmental and administrative proceedings involving the Company; success in implementing the Company's various initiatives; and other risk factors reported from Page 3 of 23 time to time in the Company's Securities and Exchange Commission reports. These factors are based upon the Company's strategic plans and direction under its current Board of Directors and management. As a result of these and other factors, there is no assurance that any of the events, circumstances or results anticipated by forward-looking statements included or incorporated by reference into this document will occur or, if they do, of what impact they will have on our business or on our results of operations and financial condition. CURRENCY All dollar references are to United States dollars unless indicated. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not Applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not Applicable. ITEM 3. KEY INFORMATION SELECTED FINANCIAL DATA
FIVE YEAR COMPARATIVE SUMMARY OF SELECTED FINANCIAL DATA (EXPRESSED IN U.S. DOLLARS UNLESS OTHERWISE INDICATED) 2004 2003 2002 2001 2000 $ $ $ $ $ - --------------------------------------------------------------------------------------------------- OPERATING RESULTS Sales 1,809,715 369,200 151,977 N/A N/A Income (Loss) from operations 178,980 (214,860) 19,548 (244,423) (65,515) Net Income (Loss) 208,704 (346,602) 13,550 (244,423) (65,515) Cash flow used in operations 140,316 362,887 62,998 81,045 78,761 Capital expenditures (5,554) 36,150 4,678 N/A N/A FINANCIAL POSITION Cash and short-term deposits 1,126,302 58,822 35,350 11 1,352 Investments 566,196 1,046,377 - 801,884 693,171 Total assets 2,939,106 1,442,152 312,407 841,834 706,832 Long-term debt N/A N/A N/A N/A 930 Capital stock 1,915,959 915,959 105,817 1,840,000 1,840,000 Shareholders' equity 2,044,292 1,050,598 107,172 721,104 652,256 PER SHARE DATA Net Income (loss) per share 0.01 (0.01) 0.00 (0.02) (0.01) SHARES OUTSTANDING At year end 30,162,500 30,162,500 17,000,000 13,000,000 13,000,000 Weighted average during year 30,162,500 28,539,726 16,950,027 13,000,000 13,000,000
Page 4 of 23 The above Five Year Comparative Summary of Selected Financial Data reflects that the acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI) which was accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda) because the shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil Biogenics Limited (BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was treated as the acquiring entity for accounting purposes and Soil Biogenics Limited (BVI) was the surviving entity for legal purposes. MARKET The soil regeneration, soil reclamation and grass and crop nutrients industry is a global market, in which supply and demand are dictated by worldwide factors. Demand is driven largely by economic and political conditions, demographics as well as limits on arable land. Population growth increases demand for agricultural products, as do increases in disposable income and associated improvements in diet. Improved diets include greater consumption of livestock and poultry, which together lead to an increase in the annual consumption of grain. An increasing demand for grain, combined with limits on arable land, drives demand for higher crop yields through greater application of crop nutrients/fertilizers, soil regeneration and reclamation. Supply of products of crop nutrients and fertilizers for soil regeneration and reclamation is generally driven by higher global commodity prices, weather conditions and local government policies. Given the commodity nature of the soil regeneration, soil reclamation and grass and crop nutrients business, industry players compete largely on the basis of low cost and, to a lesser extent, differentiated customer service. Low cost is principally a function of the ability to strategically source raw material inputs and the breadth and cost of the transportation infrastructure. FACTORS AFFECTING DEMAND The Company currently sells its products in the Moscow region. Future sales of the Company's products throughout Russia, Spain, the Southern Mediterranean and Europe will be affected by unfavorable changes in trade protection laws, policies and measures, and other regulatory requirements affecting trade; unexpected changes in tax and trade treaties and strengthening or weakening of foreign economies may cause sales trends to customers in one or more foreign countries to differ from sales trends in Russia. Revenues are highly dependent upon conditions in the Russian agriculture, landscaping and gardening industries and can be affected by crop failure, changes in agricultural production, landscaping and gardening practices, government policies and weather. Furthermore, the Company's business is seasonal to the extent Russian farmers, agricultural enterprises and landscaping companies purchase more of the Company's products during the spring and fall. The Company maintains its accounts in US dollars since the transactions of the Company are primarily based in US dollars and the transactions that occur in Roubles and Euros do not currently constitute a significant portion of the activities or operations of the Company on a cash driven basis. The Company's operations in Russia and Spain are subject to risks from changes in foreign currencies. The costs of the Russian operations are principally denominated in Roubles while the Spanish operations are denominated in the Euro. As a result, significant changes in the exchange rate of these two currencies can have a significant effect on the company's business and results of operations. For additional detail, see Market Risk in Item 5, "Market Risk Disclosures" and Item 11 "Quantitative and Qualitative Disclosures about Market Risk" of this Annual Report on Form 20-F. CONFLICTS OF INTEREST The Company's Directors serves as Directors of other companies. To the extent that such other companies may participate in ventures in which the Company may participate, a Director may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. Page 5 of 23 In addition, conflicts of interest may arise from time to time, as a result of the Company engaging in transactions in which Directors and Officers of the Company may have an interest. Please refer to Item 7, "Related Party Transactions." ITEM 4. INFORMATION ON THE COMPANY HISTORY AND DEVELOPMENT OF THE COMPANY Patagonia Gold Corporation was incorporated under the laws of the State of Florida on March 31, 1993, under the name "Cayman Purchasing & Supply, Inc." The Company was inactive until it redirected its business efforts in mid 1997 following a change of management, which occurred on June 25, 1997, to the acquisition, exploration and, if warranted, the development of mineral resource properties. The Company changed its name to Patagonia Gold Corporation on October 13, 1997 to more fully reflect its business activities. On August 23, 2002 the Company incorporated a wholly owned subsidiary, Patagonia Gold (BVI) Limited as an International Business Company incorporated under the International Business Companies Act of the British Virgin Islands. The Memorandum and Articles of Association of the Patagonia Gold (BVI) Limited were filed with the Registrar of International Companies in the British Virgin Islands on the 23rd day of August 2002. At incorporation Patagonia Gold (BVI) Limited had 13,000,000 common shares with no par value issued and outstanding and is authorized to issue 50,000,000 common shares with no par value. All 13,000,000 issued and outstanding common shares were owned by Patagonia Gold Corporation. On September 19, 2002 Patagonia Gold (BVI) Limited entered into a Plan of Merger and Articles of Merger with Patagonia Gold Corporation whereby all the assets and liabilities of Patagonia Gold Corporation would vest by virtue of such merger into Patagonia Gold (BVI) Limited. The shareholders of Patagonia Gold Corporation received one common share of Patagonia Gold (BVI) Limited for each common share of Patagonia Gold Corporation they owned. The Merger was effective November 29, 2002. The shares of Patagonia Gold Corporation ceased trading on the NASD OTC Bulletin Board on November 29, 2002 and in there place the common shares of Patagonia Gold (BVI) Limited commenced trading. The old trading symbol for Patagonia Gold Corporation was "GONI". The new trading symbol for Patagonia Gold (BVI) Limited is "PGBVF". On November 2, 2002, Soil Biogenics Ltd. (SB Bermuda), a company incorporated in Bermuda on October 19, 2000, entered into a Plan and agreement of reorganization with PIKSA Inter LLC (PIKSA). Under the terms of the Plan, SB Bermuda acquired all of the issued and outstanding common stock of PIKSA in exchanged for 16,940,000 of its shares of common stock. In connection with the Plan, the Board of Directors of SB Bermuda approved and increased the authorized shares of SB Bermuda to 3,4000,000, followed by a stock split of 5 common stock for one common stock totalling 17,000,000 common stock issued and outstanding after the completion of the Plan. PIKSA was accounted for as the acquirer and as the surviving accounting entity because the former stockholders of PIKSA received approximately 100% of the voting rights in the combined corporation. The shares issued by the SB Bermuda have been accounted for as if those shares comprised the historical share capital of PIKSA. The outstanding capital stock of the SB Bermuda, at the date of the 2002 acquisition, has been accounted for as shares issued by PIKSA to acquire the net assets of SB Bermuda. The transaction was treated, for accounting purposes, as an acquisition (purchase) of control of the assets and business of SB Bermuda by PIKSA. At the date of transaction, SB Bermuda has nil assets and liabilities. Page 6 of 23 On February 11, 2003 Patagonia Gold (BVI) Limited changed its name to Soil Biogenics Limited (SB (BVI)) and its trading symbol from "PGBVF" to "SOBGF". On February 13, 2003, SB (BVI) completed an Agreement for the Exchange of Common Stock ("Agreement") with SB Bermuda, whereby SB (BVI) issued 17,000,000 shares of its common stock in exchange for all of the outstanding common stock of SB Bermuda. Immediately prior to the Agreement, SB (BVI) had 12,912,500 shares of common stock issued and outstanding. The acquisition was accounted for as a recapitalization of SB Bermuda because the shareholders of SB Bermuda controlled SB (BVI) after the acquisition. SB Bermuda was treated as the acquiring entity for accounting purposes and SB (BVI) was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities of SB Bermuda. On March 7, 2003 Soil Biogenics Ltd. acquired 100% of the issued and outstanding shares of Soil Biogenics S.L., (SB Spain) formerly known as AAM Emprendimentos, S.L. AAM Emprendimentos, S.L was incorporated as a Limited liability Mercantile Company in Madrid, Spain on August 5, 2002. The company was inactive prior to its acquisition by Soil Biogenics Ltd. Soil Biogenics Limited is engaged in the design, development and manufacture of bio-organic and biological fertilizers used in soil regeneration, reclamation and improvement of intracellular processes in grass and agricultural plants through its subsidiary Soil Biogenics Ltd. BUSINESS OVERVIEW Piksa Inter LLC, a wholly owned subsidiary of Soil Biogenics Ltd (Bermuda), is a production and scientific research company engaged in the design, development and manufacture of bio-organic and biological fertilizer products used for soil regeneration, reclamation and improvement of intracellular processes in grass and agricultural plants. The company is a wholly owned subsidiary of Soil Biogenics Ltd (Bermuda) and was incorporated on March 10, 2000 to patent and commercially market a bio-organic fertilizer called "Super compost Piksa". The Super compost Piksa fertilizer was developed over a ten year period by a group of Russian scientists specializing in biotechnology. The bio-organic fertilizer production facilities are located 25 km from Moscow in the district of Liubertzi. The Company employs twenty people, mostly engineers and scientists, and subcontracts services for the maintenance of the production facilities. The company also uses the services of specialists from leading Russian agricultural research institutions. The company holds two patents with respect to the Super-compost Piksa. The first patent is for the mixture of four types of bacteria. The second patent is for the process of producing the bio-organic fertilizer. The Company's technology transforms wastes produced through agriculture and food-processing into an ecologically pure bio-compost fertilizer. All raw materials used in the process are available in large quantities. One of the Company's primary sources of raw materials is chicken manure which is available in large quantities from a nearby plant. The manufacturing process produces no wastes and there are no harmful byproducts emitted into the air. The bacteria mixture when combined with sterile compost produces a Super-compost bio-organic fertilizer which is then mixed with soil to increase soil fertility and productivity. The organic makeup of the Super-compost Piksa regenerates the soil while the micro-organisms from the bacteria mixture restore nitrogen and transform both phosphorus and potassium into more plant accessible forms. The bio-organic fertilizer is also used in the reclamation of soil from contaminations such as oil derivates and heavy metals. Retail sales are currently concentrated in and around the city of Moscow, while wholesale sales are sold throughout the Russian Federation. The Company's products are currently used in hothouses, private gardens, in commercial agriculture and landscaping. Customers vary from small farms and retail garden centers to construction companies, large gardening companies contracted by the Page 7 of 23 Moscow City Government and Russian State Agencies where the bio-organic fertilizers are used for soil remuneration and decontamination. In 2003 the Company started the process of certification of the Super compost Piksa bio-organic fertilizer in Spain. Soil Biogenics S.L., a 100% subsidiary of Soil Biogenics Ltd. (Bermuda) is in the process of obtaining certification and patenting of the Super compost Piksa bio-organic fertilizer. Upon obtaining certification and registration of patents for the Company's products, Soil Biogenics S.L. will produce and market its product in the Mediterranean region. The Company expects the largest market for its product to be in the agriculture industry. The Company intends to also market its product to golf courses in Spain's southern region and golf courses in and around Madrid. Heavy competition in the production of fertilizers for golf courses will mean industry players will compete on the basis of low cost and to a lesser extent differentiated customer service. Pricing policy is expected to play a decisive role in sales. The Spanish company currently employs four people and has an agreement with the Environmental Sciences Centre (Centro de Ciencias Medioambientales) of the Superior Council for Scientific Research (Consejo Superior de Investigaciones Cientificas) "the CCMA-CSIC" to assist in the development of new types of bio-organic fertilizers. Raw materials in the form of high quality composts are easily available from numerous suppliers. Production and marketing of the bio-organic fertilizer is expected to commence in late 2005. The bio-organic fertilizer product will be offered in concentrated liquid form in 5 to 10 liter volumes and should be diluted prior to application. The Company intends to set up a distribution network of dealers throughout the Mediterranean region in late 2005. EMPLOYEES Soil Biogenics Limited and its wholly owned subsidiaries employed 25 persons as of June 15, 2005, (December 31, 2004 - 19 persons) of which 0 were covered by collective bargaining agreements. The relationship of Soil Biogenics Limited and its subsidiaries with their employees and contractors is considered by Soil Biogenics Limited to be satisfactory. During 2004, 2003 and 2002, there were no strikes or walkouts. ORGANIZATION STUCTURE -------------------------- | Soil Biogenics Limited | -------------------------- | -------------------------- | Soil Biogenics Ltd. | -------------------------- | ---------------------------| | | ------------------- -------------------------- | Piksa Inter LLC | | Soil Biogenics S.L. | ------------------- -------------------------- | | ---------------------------------------------------------------- |-- | - Piksa Research and Production Association ("NPO Piksa LC") | | - Biogrunt | ----------------------------------------------------------------
Soil Biogenics Limited Incorporated as an International Business Company in the British Virgin Islands; Soil Biogenics Ltd. Incorporated in Bermuda and is a 100% wholly owned subsidiary of Soil Biogenics Limited (BVI); Soil Biogenics S.L. Incorporated in Madrid, Spain and is a 100% wholly owned subsidiary of Soil Biogenics Ltd. (Bermuda); Page 8 of 23 Piksa Inter LLC Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary of Soil Biogenics Ltd. (Bermuda); Piksa Research and Production Incorporated in Moscow, Russia and is a 100% wholly owned subsidiary Association LLC ("NPO Piksa LLC") of Piksa Inter LLC; Biogrunt Incorporated in Moscow, Russia and is a 61% owned subsidiary of Piksa Inter LLC;
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT'S DISCUSSION AND ANALYSIS The Company's financial objectives are to build shareholder value through internal growth, to acquire projects and business that bring added value, to maintain operational flexibility and to minimize operating costs. The 2004 financial statements present the Company's results of operations and its financial position. These consolidated financial statements were compiled using United States generally accepted accounting principles ("U.S. GAAP"). These financial statements present information regarding the financial position and results of operations for the last two years. Revenues during 2004 were $1,809,715 (2003 - $369,200; 2002 - $151,977). (A) OPERATING RESULTS Operating results for the years ending December 31, 2004, 2003, 2002 and 2001 are tabulated below:
YEAR ENDING DESCRIPTION DEC 31, 2004 DEC 31, 2003 DEC 31, 2002 DEC 31, 2001 Income (Loss) 208,704 (346,602) 13,550 (244,423) Income (Loss) per share 0.01 (0.01) 0.00 (0.02) Sales 1,809,715 369,200 151,977 - Cost of Sales 1,111,921 327,155 115,790 - Gross Profit 697,794 42,045 36,187 - Selling Expenses 33,019 57,641 1,212 - General and Administration 380,806 146,691 15,427 76,877 Amortization 43,685 29,215 - - Research and development 61,304 23,358 - -
The above Comparative Summary of Selected Financial Data reflects that the acquisition of Soil Biogenics Ltd (Bermuda) by Soil Biogenics Limited (BVI) was accounted for as a recapitalization of Soil Biogenics Ltd (Bermuda) because the shareholders of Soil Biogenics Ltd (Bermuda) controlled Soil Biogenics Limited (BVI) after the acquisition. Soil Biogenics Ltd (Bermuda) was treated as the acquiring entity for accounting purposes and Soil Biogenics Limited (BVI) was the surviving entity for legal purposes. Page 9 of 23 (B) LIQUIDITY AND CAPITAL RESOURCES For the year ended December 31, 2004 the Company recorded income of $208,704 ($0.01 per share), compared to a loss of $346,602 ($0.01 per share) for 2003 and a net loss of 13,550 ($0.00 per share) in 2002. At December 31, 2004, the Company had cash of $1,126,302 (2003 - $58,822) and working capital of $1,908,142 (2003 working capital - $866,839) respectively. Total liabilities as of December 31, 2004 were $894,814 as compared to $391,554 on December 31, 2003, an increase of $503,260. In fiscal 2004 the Company settled loans payable in the amount of $259,558 by the assignment of its holdings of International Croesus Ventures Corp. During 2004 net proceeds from the issuance of common stock were $1,000,000 (2003 - $0). In Fiscal 2004 investing activities consisted of additions to plant and equipment $-5,554 (2003 - - $36,150). In fiscal 2003 the company issued 17,000,000 shares to acquire a 100% interest in Soil Biogenics Ltd., a Bermuda corporation. In fiscal 2002 the Company settled $175,000 of debt with the issuance of 350,000 common shares. The carrying value of the indebtedness approximated the fair value of the common shares issued. The general business strategy of the Company is to research, design, develop and manufacture products for soil regeneration, soil reclamation and grass and crop nutrients either directly or through the acquisition of operating entities. The Company's financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company may need to obtain additional funds (presumably through equity offerings and/or debt borrowing) in order, if warranted, for plant and equipment acquisition and expansion, for new bio-organic fertilizer products research, development, testing, certification, manufacture and marketing. Failure to obtain such additional financing may result in a reduction of the Company's future revenues and profitability. The Company has no agreements with any person as to such additional financing. While the Company may attempt to generate additional working capital through research and development, manufacture, sale or possible joint venture development of bio-organic fertilizers and other products for soil regeneration, soil reclamation and grass and crop nutrients, there is no assurance that any such activity will generate funds that will be available for operations. PLANS FOR YEAR 2005 The Company's plans for year 2005 center on the Piksa subsidiary increasing the sales of its Super compost Piksa bio-organic fertilizer to the various Russian State Agencies, the gardening companies working for the Moscow City Government and to increase sales in the St. Petersburg market place, for the Spanish subsidiary to produce and supply Piksa, the Russian subsidiary, with the bacteria used in the production of the bio-organic fertilizer and to complete the patenting and certification of its bio-organic fertilizer in Spain. APPLICATION OF CRITICAL ACCOUNTING POLICIES The preparation of its financial statements requires the Company to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenues and expenses. The Company's accounting policies are described in note 2 to its financial statements. The Company's accounting policies relating to depreciation and amortization of property, plant and equipment are critical accounting policies that are subject to estimates and assumptions regarding future activities. Generally accepted accounting principles require the Company to consider at the end of each accounting period whether or not there has been an impairment of the capitalized property, plant and equipment. This assessment is based on whether factors that may indicate the need for a write- Page 10 of 23 down are present. If the Company determines there has been impairment, then the Company would be required to write-down the recorded value of its property, plant and equipment costs which would reduce the Company's earnings and net assets. (C) OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS. The Company does not have any off-balance sheet arrangements or contractual obligations that are likely to have or are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in the Company's financial statements. (E) MARKET RISK DISCLOSURES. The Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES (A) DIRECTORS AND SENIOR MANAGEMENT The following table lists the names and positions of the executive officers and directors of the Company as of June 15, 2005 and December 31, 2004. All executive officers and directors have been elected and appointed to serve until their successors are elected and qualified. Additional information regarding the business experience, length of time served in each capacity and other matters relevant to each individual are set forth below the table.
------------------------------------------------------------------------------- NAME POSITION ----------------------- ------------------------------------------------------ Agustin Gomez de Segura Age 50, banker and private investor and developer of new companies. ----------------------- ------------------------------------------------------ Alexander Becker Age 44, director of several Russian companies involved in metallurgy, textiles and trading. -------------------------------------------------------------------------------
(B) COMPENSATION The following table sets forth information concerning the compensation of the named executive officers as required to be disclosed in accordance with applicable securities regulations during the Corporation's three financial years ended December 31, 2004, December 31, 2003 and December 31, 2002: Page 11 of 23
- --------------------------------------------------------------------------------------------- LONG-TERM COMPENSATION ANNUAL COMPENSATION --------------------------------------------- AWARDS PAYMENTS --------------------------- ------------------------ ------------------- SECURITIES NAME OTHER UNDER- ALL AND ANNUAL RESTRICTED LYING OTHER PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN- POSITION YEAR SALARY BONUSES SATION AWARD(S) SARS PAYOUTS SATION ($) ($) ($) ($) (=) ($) ($) (a) (b) (c) (d) (e) (f) (g) (h) (i) - ---------- ----- ------- -------- -------- ----------- ----------- --------- -------- Agustin Gomez de 2004 Nil -0- -0- None None None -0- Segura (1) ----- ------- -------- -------- ----------- ----------- --------- -------- President 2003 Nil -0- -0- None None None -0- and ----- ------- -------- -------- ----------- ----------- --------- -------- Director 2002 Nil -0- -0- None None None -0- - ---------------------------------------------------------------------------------------------
(1) On July 1, 2003 Mr. Cameron Richardson resigned from the Board of Directors and as President of the Company to pursue other interests. Mr. Richardson's salary for the period January 1 to June 30, 2003 was $1,600 (fiscal 2002 - $9,791). On July 1, 2003 Mr. Agustin Gomez de Segura was appointed to the board of directors and President of the Company. Mr. Segura is engaged in other business activities and devotes only a limited amount of his time (approximately 20%) to our business; who is the beneficial owner of approximately 6% of the Company's issued and outstanding common shares; accordingly he has agreed to forgo a salary during the Company's start up activities. As and when our activities expand we expect to negotiate a mutually acceptable compensation arrangement with Mr. Segura. OPTIONS/SAR GRANTS IN LAST FINANCIAL YEAR The following table sets forth information concerning individual grants of stock options (whether or not in tandem with stock appreciation rights ("SARs") and freestanding SARs made during the last completed fiscal year to each of the named executive officers:
- ----------------------------------------------------------------------------------------- OPTION/SAR GRANTS IN FISCAL YEAR 2004 (Individual Grants) - ----------------------------------------------------------------------------------------- PERCENT OF NUMBER OF TOTAL OPTIONS/ SECURITIES SARS GRANTED EXERCISE UNDERLYING TO EMPLOYEES OR OPTION/SARS IN FISCAL BASE PRICE EXPIRATION DATE NAME GRANTED (#) YEAR ($/Sh) (M/D/Y) (a) (b) (c) (d) (e) - --------------------------- ------------ --------------- ----------- ---------------- Agustin Gomez de Segura (1) Nil Nil Nil N/A - -----------------------------------------------------------------------------------------
(1) No options were granted in fiscal 2004. No SARs were granted in fiscal 2004. Page 12 of 23 AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR END OPTION/SAR VALUES The following table sets forth information concerning the exercise of options (or tandem SARs) and freestanding SARs during the financial year ended December 31, 2004 and the value at December 31, 2004 of unexercised in-the-money options and SARs held by each of the Named Executive Officers:
- --------------------------------------------------------------------------------- AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES - --------------------------------------------------------------------------------- VALUE OF UNEXERCISED SECURITIES UNEXERCISED IN-THE-MONEY ACQUIRED AGGREGATE OPTIONS/SARS OPTIONS/SARS ON VALUE AT FY-END (#) AT FY-END EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (a) (b) (c) (d) (e) - ------------------------ ----------- ---------- -------------- -------------- Agustin Gomez de Segura Nil Nil Nil Nil - ---------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS ("LTIP") AWARDS TABLE The Company does not have a Long-term Incentive Plan. PENSION PLAN The Company does not have a Pension plan. INDEBTEDNESS OF DIRECTORS AND OFFICERS No directors or officers of the Company are indebted to the Company. EMPLOYEE INCENTIVE PLAN The Company does not have an employee incentive plan. REMUNERATION OF DIRECTORS The Company does not pay a fee to its outside, non-officer directors. The Company reimburses its directors for reasonable expenses incurred by them in attending meetings of the Board of Directors. The Corporation paid aggregate remuneration of $0 to the two incumbent and one former director in their capacities as such during the fiscal period ended December 31, 2004 (2003 - $Nil). EMPLOYMENT CONTRACT AND TERMINATION AGREEMENTS None of the Company's officers or directors was party to an employment agreement with the company. Directors and/or officers receive reimbursement of expenses reasonably incurred on behalf of the Company. Page 13 of 23 (C) BOARD PRACTICES MANDATE AND DUTIES OF THE BOARD The Board has ultimate responsibility for supervising the conduct of the Company's affairs and the management of its business. The principal objective of the Board is to protect and enhance Shareholder value over the long term. Although the Board has delegated to management responsibility for the day-to-day operations of the Company, the Board has ultimate responsibility for the stewardship of the Company. Board members generally serve until the next annual meeting and do not have service contracts. The Board's duties include overseeing strategic planning, reviewing and assessing principal risks to the Company's business and approving risk management strategies, supervising and evaluating management, authorizing significant expenditures, ensuring timely and effective communication with Shareholders, and overseeing the Company's internal controls and information systems. The Board's duties also include planning and monitoring activities of senior management. In considering and making appointments of senior management, the Board considers it appropriate, where relevant, to address succession and planning issues. In appointing senior management, the Board considers as a necessary requirement of such appointments that such personnel be qualified to carry out the duties and responsibilities relating to the appointed positions and thus, apart from monitoring, assessing and providing feedback to senior management, the Board does not consider it necessary to engage in specifically training senior management. The Board met four (4) times during 2004. MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES The Company's Board of Directors does not have standing a nominating committee or committee performing similar functions. During the fiscal year ended December 31, 2004 the entire Board of Directors acted as the Company's Compensation Committee. The Compensation Committee reviews employee compensation and benefits, and the Audit Committee reviews the scope of the independent audit, the appropriateness of the accounting policies, the adequacy of internal controls, the Company's year-end financial statements and other such matters relating to the Company's financial affairs as its members deem appropriate. During 2004 the Compensation Committee held one (1) meeting and the Audit Committee held three (3) meetings. The Audit Committee has discussed matters in the audited financial statements with the independent auditors as required by SAS 61. The Audit Committee has received the written disclosures and the letter from the independent auditors required by the Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees) and has discussed with the independent auditors the independent auditor's independence. Base on the review and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 20-F for the latest fiscal year for filing with the SEC. The Audit Committee consists of Messrs. Agustin Gomez de Segura and Alexander Becker. INDEPENDENCE FROM MANAGEMENT It is the Board's view that the Board operates and functions independently of management as required. Although the President of the Company also serves as a Director, the Board is of the view that this does not impair the Board's ability to act independently of management. The Board's independence from management is principally derived from the fact that one of the two Board members is unrelated and an independent Director. Page 14 of 23 SHAREHOLDER COMMUNICATION The Company communicates regularly with its Shareholders through annual, as well as news releases and regulatory filings. In addition, the executive officers of the Company are responsible for addressing day-to-day Shareholder enquiries and other Shareholder communication issues. EXPECTATIONS OF MANAGEMENT The Board has delegated to the President, and other executives, responsibility for day-to-day management of the business and affairs of the Company, subject to compliance with directives and objectives established by the Board from time to time. The Board relies on management to provide the Board on a timely basis with information required by the Board to perform its duties. OUTSIDE ADVISORS The Company does not have in place any specific procedures pursuant to which an individual director may engage the services of an outside advisor at the expense of the Company. Any requests for the services of an outside advisor at the expense of the Company would be considered by the Board on a case-by-case basis. (D) EMPLOYEES Soil Biogenics Limited and its wholly owned subsidiaries employed 25 persons as of June 15, 2005, of which 0 were covered by collective bargaining agreements. (E) SHARE OWNERSHIP SHARE OWNERSHIP BY DIRECTORS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock by the Company's directors and officers in common as at June 15, 2005. As at June 15, 2005 the Company had 31,162,500 (December 31, 2004 - 30,162,500) shares of Common Stock issued and outstanding.
- ---------------------------------------------------------------------------- OFFICERS AND DIRECTORS SHARES OF APPROXIMATE COMMON PERCENTAGE NAME OF BENEFICIAL OWNER STOCK BENEFICIALLY OWNED OWNED - ---------------------------------------------------------------------------- Norbex Holdings Ltd. Drake Chambers, P.O. Box 3321, Road Town, Tortola, British Virgin Islands 2,000,000 6.418 % (Beneficially owned by Agustin Gomez de Segura) - ------------------------------------------ ------------------ ------------ Alexander Becker Komsomolsky Pr. 23/7, App. 25, Moscow, 2,084,040 6.688% Russia - ------------------------------------------ ------------------ ------------ Total - Officers and Directors (2 persons) 4,084,040 13.106% - ----------------------------------------------------------------------------
For information concerning options granted to the above-mentioned individuals see Item 6 Compensation - Options/SAR Grants Table on page 11. Page 15 of 23 Agustin Gomez de Segura and Alexander Becker were appointed to the Company's Board of Directors on July 1, 2003. ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS (A) MAJOR SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of June 15, 2005 by each person who is known by the Company to own beneficially more than five percent (5%) of the Company's outstanding Common Stock. As at June 15, 2005 there were 31,162,500 shares of Common Stock issued and outstanding.
- ------------------------------------------------------------------------------------- NAME AND ADDRESS OF AMOUNT AND PERCENTAGE OF BENEFICIAL OWNER NATURE OF CLASS BENEFICIAL OWNER - --------------------------------------------------- ---------------- -------------- Kastalia Ltd. 2,700,000 8.664 % Wickhams Cay 1, Road Town, Tortola, British Virgin Islands (Beneficially owned by Mr. Alexander Kleimionov) - --------------------------------------------------- ---------------- -------------- Alexei Y. Sementsow 2,312,000 7.419 % Baklayeva Str.11, App. 105, City of Kimry, Tver Region, Russia - --------------------------------------------------- ---------------- -------------- Alexander Becker 2,084,040 6.688 % Komsomolsky Pr. 23/7, App. 25, Moscow, Russia - --------------------------------------------------- ---------------- -------------- Norbex Holdings Ltd. 2,000,000 6.418 % Drake Chambers, P.O. Box 3321, Road Town, Tortola, British Virgin Islands (Beneficially owned by Agustin Gomez de Segura) - --------------------------------------------------- ---------------- -------------- Redbridge Minerals (Overseas) Ltd. 2,000,000 6.418 % Trident Chambers, PO Box 146, Road Town, Tortola, British Virgin Islands (Beneficially owned by Mrs. Antonina Tsykova) - -------------------------------------------------------------------------------------
The listed beneficial owner does not have the right to acquire any common shares within the next sixty days, through the exercise of options, warrants, rights, conversion privilege or similar obligations. All shareholders have the same voting rights. (B) RELATED PARTY TRANSACTIONS The proposed business of the Company raises potential conflicts of interests between the Company and certain of its officers and directors. Certain of the directors of the Company are directors of other companies and, to the extent that such other companies may participate in ventures in which the Company may participate, the directors of the Company may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation. In the event that such a conflict of interest arises at a meeting of the Page 16 of 23 directors of the Company, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases, the Company will establish a special committee of independent directors to review a matter in which several directors, or Management, may have a conflict. From time to time, several companies may participate in the joint ventures thereby allowing for their participation in larger programs, involvement in a greater number of programs and reduction of the financial exposure with respect to any one program. It may also occur that a particular company will assign all or a portion of its interest in a particular program to another of these companies due to the financial position of the company making the assignment. In determining whether the Company will participate in a particular program and the interest therein to be acquired by it, the directors will primarily consider the potential benefits to the Company, the degree of risk to which the Company may be exposed and its financial position at that time. Other than as indicated, the Company has no other procedures or mechanisms to deal with conflicts of interest. The Company is not aware of the existence of any conflict of interest as described herein. ITEM 8. FINANCIAL INFORMATION (A) CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION References are made to Part III, Item 17 Financial Statements and Item 18 Financial Statements. DIVIDEND RECORD AND POLICY The Company has not declared cash or share dividends on its common shares since the Company was incorporated in 1993 and has no present plans to pay any cash or share dividends. The Company will declare cash or share dividends in the future only if earnings and capital of the Company are sufficient to justify the payment of such dividend. SIGNIFICANT CHANGES No significant changes have occurred since the date of the annual financial statements included in this document. ITEM 9. THE OFFER AND LISTING OFFER AND LISTING DETAILS Not applicable PLAN OF DISTRIBUTION Not applicable MARKETS The Common Stock of the Company has been quoted on the NASD OTC Bulletin Board since May 1, 1997. The following tables sets forth the high and low bid prices for the Common Stock for the calendar quarters for the year ending December 31, 2004 and 2003 and the most recent six months as reported by the NASD OTC Bulletin Board. These prices represent quotations between dealers without adjustment for retail markup, markdown or commission and may not represent actual transactions. Page 17 of 23
- -------------------------------- MONTH HIGH ($) LOW ($) - ------------- -------- ------- June 2005 2.20 2.05 - ------------- -------- ------- May 2005 2.15 1.96 - ------------- -------- ------- April 2005 2.35 2.05 - ------------- -------- ------- March 2005 2.35 1.85 - ------------- -------- ------- February 2005 2.00 1.25 - ------------- -------- ------- January 2005 1.74 1.65 - --------------------------------
- ----------------------------------------------------------------------------- PERIOD FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER - --------------- ------------- -------------- ------------- -------------- 2004 - High ($) 1.95 1.95 1.75 1.85 - --------------- ------------- -------------- ------------- -------------- 2004 - Low ($) 1.30 0.75 1.28 1.45 - --------------- ------------- -------------- ------------- -------------- 2003 - High ($) 1.50 2.00 1.70 1.70 - --------------- ------------- -------------- ------------- -------------- 2003- Low ($) 0.75 1.40 0.90 0.75 - -----------------------------------------------------------------------------
ITEM 10 ADDITIONAL INFORMATION (A) SHARE CAPITAL The authorized capital of the Company is 50,000,000 shares of no par value. (B) MEMORANDUM AND ARTICLES OF ASSOCIATION The Company previously filed Exhibit 3.2.2b, Amended Memorandum and Articles of Association in its registration statement on Form 20-F and as the information has not changed it is incorporated herein by reference. (C) MATERIAL CONTRACTS Not applicable. (D) EXCHANGE CONTROLS The Company is limited in its ability to pay dividends on its Common Shares by limitations under British Virgin Island law relating to the sufficiency of profits from which dividends may be paid. Under the International Business Companies Act of the British Virgin Islands the declaration of a dividend is authorized by resolution of the board of directors The Company is an International Business Company ("IBC") incorporated under the provisions of the International Business Companies Act (the "Act") of the British Virgin Islands (the "BVI"). The transfer of shares between persons regarded as residents outside of the BVI is not subject to any exchange controls. Likewise, issues and transfers of the shares involving any person regarded as resident in the BVI are not subject to exchange control approval. There are no limitations on the rights of non-BVI owners of the Common Stock to hold or vote their shares. Because the Company is an IBC, there are no restrictions on its ability to transfer funds into and out of the BVI or to pay dividends to U.S. residents who are holders of the Common Stock. In accordance with the Company's Memorandum and Articles of Association, share certificates may be issued as either registered shares or shares issued to bearer as the directors may by resolution determine. In the case of a representative acting in a special capacity (for example, as an executor or trustee), share certificates should record the capacity in which the representative is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in respect of the proper administration of any such estate or Page 18 of 23 trust. The Company takes no notice of any trust applicable to any of its shares whether or not it had notice of such trust. As an IBC, the Company has no power: (i) carry on business with persons resident in the BVI; (ii) own an interest in real property situated in the BVI, other than a lease of property for the use as an office from which to communicate with the shareholders or where books and records of the Company are prepared and maintained; (iii) carry on banking or trust business, unless it is licensed under the BVI Banks and Trusts Companies Act of 1990; (iv) carry on business as an insurance or a reinsurance company, insurance agency or insurance broker, unless it is licensed under an enactment authorizing it to transact that business; (v) carry on the business of company management unless it is licensed under the BVI Company Management Act, of 1990; or (vi) carry on the business of providing a registered office or the registered agent for companies incorporated in the BVI. There are no restrictions on the degree of foreign ownership of the Company. The Company is subject neither to taxes on its income or dividends nor to any foreign exchange controls in the BVI. In addition, the Company is not subject to capital gains tax in the BVI, and profits can be accumulated by the Company, as deemed by management to be required, without limitation. (E) TAXATION The following discussion summarizes tax consequences to a holder of Common Stock of the Company under present British Virgin Islands tax laws. The discussion does not deal with all possible tax consequences relating to the Company's operations or the ownership of the Common Stock and does not purport to deal with the tax consequences applicable to particular investors, some of which (include banks, securities dealers, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other national (non-BVI) tax laws. The following discussion is based upon laws and relevant interpretations thereof in effect as of the date of this filing, all of which are subject to change. BRITISH VIRGIN ISLANDS TAXATION Under the International Business Companies Act of the British Virgin Islands (the "International Business Companies Act") as currently in effect, a holder of Common Stock paid with respect to the Common Stock of the Company. A holder of Common Stock of the Company is not liable for BVI income tax on gains realized on the sale or disposal of such shares. The BVI does not impose a withholding tax on dividends paid by the Company to its shareholders due to its incorporation under the International Business Companies Act. There are no capital gains or income taxes levied by the BVI on companies incorporated under the International Business Companies Act. In addition, the Common Stock of the Company is not subject to transfer taxes, stamp duties or similar charges. There is no income tax treaty or convention currently in effect between the United States and the BVI. As an exempted company, the Company is required to pay the BVI government an annual license fee based on the Company's stated authorized capital. This discussion is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of Common Shares of the Company and no opinion or representation with respect to the United Sates federal income tax consequences to any such holder or prospective holder is made. Holders and prospective holders should therefore consult their own tax advisors Page 19 of 23 with respect to their particular circumstances. ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has not entered into any derivative contracts either to hedge existing risks or for speculative purposes. The carrying amounts for cash and cash equivalents, marketable securities, deposits, advances and other, accrued interest and accounts payable and accrued expenses on the balance sheet approximate fair value because of the immediate or short-term maturity of these instruments. Fair value estimates are made at the balance sheet date based on relevant market information but involve uncertainties and therefore cannot be determined with precision. In order to limit its market risk, the Company diversifies its cash and investment holdings into U.S. treasury and agency obligations and major financial institutions and corporations. The fair values of investments in marketable securities are disclosed in Note 2 (g) to the Consolidated Financial Statements. See the notes to the Consolidated Financial Statements in Item 17 Financial Statements and Item 5 Management's Discussion and Analysis for additional information. ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not Applicable PART II ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not Applicable ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Not Applicable ITEM 15 CONTROLS AND PROCEDURES The principal executive and principal financial officers of the Company have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report (evaluation date) and have concluded that the disclosure controls and procedures are adequate and effective based upon their evaluation as of the evaluation date. ITEM 16 (RESERVED) ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT Messrs. Agustin Gomez de Segura and Alexander Becker comprise the Audit Committee. Mr. Alexander Becker is Chairman of the Audit Committee. Mr. Becker satisfies the current requirements of the NASD OTC Bulletin Board, relating to the independence and the qualification Page 20 of 23 of the members of the Audit Committee. Mr. Agustin Gomez de Segura is and officer and director of the Company. The Board of Directors of the Company has determined that Mr. Alexander Becker qualifies as an "audit committee financial expert". ITEM 16B CODE OF ETHICS As part of its stewardship responsibilities, the Board of Directors has approved formal "Standards of Ethical Conduct" that govern the behavior of the directors, officers and employees of the Company. The Board monitors compliance with these standards and is responsible for the granting of any waivers from these standards to directors or officers. Disclosure will be made by the Company of any waiver from these standards granted to the directors or officers of the Company in the quarterly report of the Company that immediately follows the grant of such waiver. No waiver has been granted to date. A copy of the "Corporate Governance Principles" is filed as Exhibit 11.1 to this Annual Report on Form 20-F. ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES (a) AUDIT FEES The aggregate fees billed for professional services rendered by Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.), the principal accountant for the Company, for the audit of the Company's annual financial statements and services normally provided by such accountants in connection with the Company's statutory and regulatory filings for the Company's fiscal year ended December 31, 2004, were $25,000 (2003 - $23,050). (b) AUDIT-RELATED FEES The aggregate fees billed for assurance and related services by Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.) that are reasonably related to the performance of the audit or review of the Company's financial statements were $Nil for the Company's fiscal year ended December 31, 2004 (2003 - $Nil). (c) TAX FEES The aggregate fees billed for products and services rendered by Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.) for tax compliance, tax advice and tax planning for the Company's fiscal ended December 31, 2004 were $Nil (2003 - $Nil). (d) ALL OTHER FEES There were no additional fees billed for professional services rendered by Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.) other than the fees reported in this Item 16C above for the Company's fiscal year ended December 31, 2004 (2003 - $Nil). (e) AUDIT COMMITTEE'S PRE-APPROVAL POLICIES The Audit Committee approves the engagement terms for all audit and non-audit services to be provided by the Company's accountants before such services are provided to the Company or any of its subsidiaries. The Audit Committee approved one hundred percent (100%) of the services provided to the Company and its subsidiaries described in Items 16C (b) through (d) above. Page 21 of 23 (f) AUDITORS USE OF NON-PERMANENT EMPLOYEES None of the hours expended by Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.) on its engagement to audit the Company's financial statements for the fiscal year ended December 31, 2004, were performed by persons other than fulltime permanent employees of Ernst & Young LLP (formerly Moore Stephens Ellis Foster Ltd.). ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS None. PART III ITEM 17 FINANCIAL STATEMENTS. The Company has elected to comply with the financial statement requirement of this Item rather than Item 18. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. INDEX TO FINANCIAL STATEMENTS
------------------------------------------------------------ FINANCIAL STATEMENTS PAGE ---------------------------------------------- ------------ Audited Financials - December 31, 2004 and December 31, 2003. F-1 ---------------------------------------------- ------------ Report of Independent Accountants F-2 ---------------------------------------------- ------------ Consolidated Balance Sheets F-3 ---------------------------------------------- ------------ Consolidated Statement of Stockholders' Equity F-4 ---------------------------------------------- ------------ Consolidated Statements of Operations F-5 ---------------------------------------------- ------------ Consolidated Statement of Cash Flows F-6 ---------------------------------------------- ------------ Notes to Financial Statements F-7 to F-19 ---------------------------------------------- ------------ ---------------------------------------------- ------------ Audited Financials - December 31, 2003 and December 31, 2002. F-20 ---------------------------------------------- ------------ Report of Independent Accountants F-21 ---------------------------------------------- ------------ Consolidated Balance Sheets F-22 ---------------------------------------------- ------------ Consolidated Statement of Stockholders' Equity F-23 ---------------------------------------------- ------------ Consolidated Statements of Operations F-24 ---------------------------------------------- ------------ Consolidated Statement of Cash Flows F-25 ---------------------------------------------- ------------ Notes to Financial Statements F-26 to F-38 ------------------------------------------------------------
Page 22 of 23 Consolidated Financial Statements SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) (Expressed in U.S. Dollars) December 31, 2004, 2003 and 2002 ERNST & YOUNG REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) We have audited the accompanying consolidated balance sheet of SOIL BIOGENICS LIMITED ("the Company") as of December 31, 2004 and the related consolidated statements of stockholders' equity, operations and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company for the years ended December 31, 2003 and December 31, 2002, were audited by other auditors whose report dated June 30, 2004, expressed an unqualified opinion on those statements. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 2004 financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2004 and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Vancouver, Canada, "ERNST & YOUNG LLP" June 29, 2005. Chartered Accountants F-2 A Member of Ernst & Young Global
SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) CONSOLIDATED BALANCE SHEETS As at December 31 (Expressed in U.S. Dollars) 2004 2003 $ $ - --------------------------------------------------------------------------- ASSETS CURRENT Cash and cash equivalents 1,105,836 39,986 Receivables 975,053 91,085 Marketable securities [note 3] 566,196 1,046,377 Inventories 136,703 62,767 Prepaid expenses and deposits 19,168 18,178 - --------------------------------------------------------------------------- TOTAL CURRENT ASSETS 2,802,956 1,258,393 Restricted cash 20,466 18,836 Equipment, net[note 4] 115,684 164,923 - --------------------------------------------------------------------------- TOTAL ASSETS 2,939,106 1,442,152 - --------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Bank loan [note 5] - 67,901 Accounts payable and accrued liabilities 679,480 35,407 Income taxes payable 42,290 - Notes payable [note 6] - 24,450 Notes payable - related parties[note 6] 173,044 263,796 - --------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 894,814 391,554 - --------------------------------------------------------------------------- Commitments and contingencies [note 10] STOCKHOLDER'S EQUITY Share capital Authorized 50,000,000 common shares without par value Issued 30,162,500 [2003 - 30,162,500] common shares Paid-in capital [note 7] 1,915,959 915,959 Accumulated deficit (142,865) (351,569) Accumulated other comprehensive income 271,198 486,208 - --------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 2,044,292 1,050,598 - --------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,939,106 1,442,152 ===========================================================================
See accompanying notes Approved by the Directors: "AGUSTIN GOMEZ DE SEGURA" "ALEXANDER BECKER" ------------------------- ------------------ Agustin Gomez de Segura Alexander Becker F-3
SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) ACCUM- ULATED OTHER COMPRE- TOTAL TOTAL PAID- ACCUM- HENSIVE STOCK- COMPRE- COMMON STOCK IN ULATED INCOME HOLDERS' HENSIVE ------------------- SHARES AMOUNT CAPITAL (DEFICIT) (LOSS) EQUITY INCOME # $ $ $ $ $ $ - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 AS RESTATED 16,940,000 - 105,817 (18,517) - 87,300 - Shares issued to effect the acquisition of subsidiary 60,000 - - - - - - Components of comprehensive income - Net income for the year - - - 13,550 - 13,550 13,550 - Foreign currency translation adjustments - - - - 6,322 6,322 6,322 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2002 17,000,000 - 105,817 (4,967) 6,322 107,172 19,872 Recapitalization [note 1] 12,912,500 - 607,079 - - 607,079 - Shares issued for the settlement of debt 250,000 - 200,000 - - 200,000 - Imputed interest - related parties - - 3,063 - - 3,063 - Components of comprehensive income (loss) - Net income (loss) for the year - - - (346,602) - (346,602) (346,602) - Foreign currency translation adjustments - - - - 9,490 9,490 - - Unrealized gains on marketable securities - - - - 470,396 470,396 470,396 - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2003 30,162,500 - 915,959 (351,569) 486,208 1,050,598 123,794 Cash for share subscription - - 1,000,000 - - 1,000,000 - Components of comprehensive income (loss) - Net income (loss) for the year - - - 208,704 - 208,704 208,704 - Foreign currency translation adjustments - - - - 5,612 5,612 - - Unrealized gains on marketable securities - - - - 13,132 13,132 13,132 - Reversal of unrealized gain on disposition of marketable securities - - - - (233,754) (233,754) - - -------------------------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2004 30,162,500 - 1,915,959 (142,865) 271,198 2,044,292 221,836 ================================================================================================================================
See accompanying notes F-4
SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31 (Expressed in U.S. Dollars) 2004 2003 2002 $ $ $ - ------------------------------------------------------------------------------------------------- [Reclassified - [Reclassified - notes 12 and 13] notes 12 and 13] SALES 1,809,715 369,200 151,977 Cost of sales 1,148,653 327,155 115,790 - ------------------------------------------------------------------------------------------------- Gross profit 661,062 42,045 36,187 - ------------------------------------------------------------------------------------------------- SELLING EXPENSES 33,019 57,641 1,212 General and administrative 380,806 174,559 15,427 Depreciation 6,954 1,347 - Research and development 61,304 23,358 - - ------------------------------------------------------------------------------------------------- Income (loss) from operations 178,979 (214,860) 19,548 - ------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSES) Other income 25,274 604 4,243 Realized gain (loss) on disposition of marketable securities 120,175 (85,172) - Interest expense (14,794) (46,615) (5,009) Write-off of marketable securities - (1,341) - - ------------------------------------------------------------------------------------------------- 130,655 (132,524) (766) - ------------------------------------------------------------------------------------------------- Income (loss) before income taxes 309,634 (347,384) 18,782 Income tax provision[note 8] (100,930) 782 (5,232) - ------------------------------------------------------------------------------------------------- NET INCOME (LOSS) FOR THE YEAR 208,704 (346,602) 13,550 ================================================================================================= Income (loss) per share - basic and diluted 0.01 (0.01) 0.00 ================================================================================================= Weighted average number of common shares outstanding - Basic and diluted 30,162,500 28,539,726 16,950,027 =================================================================================================
See accompanying notes F-5
SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31 (Expressed in U.S. Dollars) 2004 2003 2002 $ $ $ - ---------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) for the year 208,704 (346,602) 13,550 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 43,685 29,215 471 Imputed interest - related party - 3,063 - Realized gain (loss) on sale of marketable securities (120,175) 85,172 - Write-off of marketable securities - 1,341 - Changes in assets and liabilities: (Increase) in receivables (883,968) (8,740) (32,578) (Increase) in inventories (73,936) (29,229) (15,522) (Increase) in prepaid expenses and deposit (990) (18,178) - Increase in income taxes payable 42,290 - - Increase (decrease) in accounts payable 644,074) (78,929 (28,919) - ---------------------------------------------------------------------------------------------------- CASH USED IN OPERATING ACTIVITIES (140,316) (362,887) (62,998) - ---------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds from disposition of marketable securities 379,733 - - Purchase of equipment 5,554 (36,150) (4,678) - ---------------------------------------------------------------------------------------------------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 385,287 (36,150) (4,678) - ---------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of common stock 1,000,000 - 6,281 Increase (decrease) of bank loan (67,901 36,440) 31,461 Increase (decrease) of notes payable (115,202 377,038) 64,307 - ---------------------------------------------------------------------------------------------------- CASH PROVIDED BY FINANCING ACTIVITIES 816,897 413,478 102,049 - ---------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 5,612 9,031 48 - ---------------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 1,067,480 23,472 34,421 Cash and cash equivalents, beginning of year 58,822 35,350 929 - ---------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR 1,126,302 58,822 35,350 ==================================================================================================== CASH AND CASH EQUIVALENTS ARE COMPRISED OF Cash 1,105,836 39,986 35,350 Restricted cash 20,466 18,836 - - ---------------------------------------------------------------------------------------------------- 1,126,302 58,822 35,350 ==================================================================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Interest paid 15,490 45,721 3,215 Income taxes paid 60,928 - 5,232 ==================================================================================================== NON-MONETARY TRANSACTIONS Transfer of marketable securities for payment of note payable [note 9] 379,733 - - ====================================================================================================
See accompanying notes F-6 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 1. NATURE OF ORGANIZATION The consolidated financial statements presented are those of Soil Biogenics Limited (formerly Patagonia Gold (BVI) Limited) (SB (BVI)) and its wholly own subsidiaries, Soil Biogenics Ltd. (SB Bermuda), Soil Biogenics S.L. (SB Spain), PIKSA Inter LLC (PIKSA) and NPO PIKSA LLC (NPO). Collectively, they are referred to here in as "the Company". The Company is in the business of bio-organic fertilizer production and distribution in Russia. The Company's business is considered as operating in one segment based upon the Company's organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. SB (BVI) was incorporated under the laws of the British Virgin Islands on August 23, 2002 and changed its name to Soil Biogenics Limited on February 11, 2003. On November 2, 2002, SB Bermuda, a company incorporated in Bermuda on October 19, 2000, entered into a Plan and agreement of reorganization with PIKSA. Under the terms of the Plan, SB Bermuda acquired all of the issued and outstanding common stock of PIKSA in exchanged for 16,940,000 of its shares of common stock. In connection with the Plan, the Board of Directors of SB Bermuda approved and increased the authorized shares of SB Bermuda to 3,4000,000, followed by a stock split of 5 common stock for one common stock totalling 17,000,000 common stock issued and outstanding after the completion of the Plan. PIKSA was accounted for as the acquirer and as the surviving accounting entity because the former stockholders of PIKSA received approximately 100% of the voting rights in the combined corporation. The shares issued by SB Bermuda have been accounted for as if those shares comprised the historical share capital of PIKSA. The outstanding capital stock of SB Bermuda, at the date of the 2002 acquisition, has been accounted for as shares issued by PIKSA to acquire the net assets of SB Bermuda. The transaction was treated, for accounting purposes, as an acquisition (purchase) of control of the assets and business of SB Bermuda by PIKSA. At the date of transaction, SB Bermuda has nil assets and liabilities. On February 13, 2003, SB (BVI) completed an Agreement For The Exchange of Common Stock ("Agreement") with SB Bermuda, whereby SB (BVI) issued 17,000,000 shares of its common stock in exchange for all of the outstanding common stock of SB Bermuda. Immediately prior to the Agreement, SB (BVI) had 12,912,500 shares of common stock issued and outstanding. The acquisition was accounted for as a recapitalization of SB Bermuda because the shareholders of SB Bermuda controlled SB (BVI) after the acquisition. SB Bermuda was treated as the acquiring entity for accounting purposes and SB (BVI) was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities of SB Bermuda. F-7 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 1. NATURE OF ORGANIZATION (CONT'D.) Prior to the completion of the agreement and acquisition, SB (BVI) had no significant operations, and was considered a development stage entity. A summary of the net assets of SB (BVI) acquired as at February 13, 2003 is as follows:
$ - -------------------------------------------------------------------------------- Current assets 819,472 Current liabilities (212,393) - -------------------------------------------------------------------------------- Net assets 607,079 ================================================================================
SB (BVI) had minimal operations from January 1, 2003 to February 12, 2003 except a $200,000 compensation accrued to a director of the Company. On March 7, 2003, the Company acquired and reactivated SB Spain (formerly Aam Empreendimentos, S.L.), a company incorporated in Spain. Prior to the acquisition, SB Spain had no assets and liabilities. 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries; Soil Biogenics Ltd., Soil Biogenics S.L., PIKSA Inter LLC and NOP PIKSA LLC, and 61% owned subsidiary Biogrunt. All significant inter-company balances and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. F-8 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) CASH EQUIVALENTS Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. There were no cash equivalents as of December 31, 2004 and 2003. MARKETABLE SECURITIES Available-for-sale securities are carried at fair market value with unrealized holding gains and losses included in stockholders' equity. Realized gains and losses are determined on an average cost basis when securities are sold. INVENTORIES Inventories are stated at the lower of cost and net realizable value. Net realizable value represents the anticipated selling prices less all further costs for distribution. REVENUE RECOGNITION Revenue from sales of fertilizers is recognized on the delivery of goods to customers and when collection of revenue proceeds is reasonably assured. RESTRICTED CASH The Company's wholly owned subsidiary Soil Biogenics S.L., ("SB Spain") under the terms of its lease agreements, is required to collateralize its lease obligation and commitment. SB Spain has collateralized its lease obligation and commitment by assigning certificates of deposit to a respective institution. At December 31, 2004, the Company holds certificates of deposit under the lease agreement of $20,466 [2003 - $18,836]. F-9 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) EQUIPMENT Equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives: Office and production equipment 5 - 20 years FOREIGN CURRENCY TRANSLATIONS The Company and SB Bermuda's functional currencies are US dollars. In the accounts of subsidiaries: SB Spain (whose functional currency is Euro) is considered to be an integrated operation, and its accounts are translated into US dollars using the temporal method. PIKSA Inter LLC and NPO PIKSA LLC (whose functional currency are Russian Rouble (RUR)) are considered to be self-sustaining foreign operations and their accounts are translated into US dollars using the current rate method. Under the temporal method: At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into U.S. dollars by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. Under the current rate method: Assets and liabilities are translated at the year end exchange rates. Revenues and expenses are translated at average exchange rates during each reporting period. Exchange gains and losses from foreign currency translations are recorded in other comprehensive income until they are realized by a reduction in the investment. Transactions denominated in foreign currencies are translated into US dollars at the exchange rates prevailing at transaction dates. CONCENTRATION OF CREDIT RISK The Company places its cash and cash equivalents with high credit quality financial institutions. The Company had no funds deposited in a financial institution beyond the insured limits as of December 31, 2004 and 2003. The Company sold its goods predominantly to a limited number of companies. Sales to three companies represented 41%, 38% and 14% of total sales respectively. The Company purchased the majority of the raw materials from one supplier in 2004. F-10 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) LONG-LIVED ASSETS IMPAIRMENT The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. Long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. COMPREHENSIVE INCOME The Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. Research and development costs for the years ended December 31, 2004 were $61,304 [2003 - $23,358; 2002 - $nil]. ADVERTISING EXPENSES The Company expenses advertising costs as incurred. The Company incurred advertising costs of $33,019 in 2004 [2003 - $57,641; 2002 - $nil]. INCOME TAXES The Company adopted SFAS No. 109, Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. F-11 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) LOSS PER SHARE The Company adopted SFAS No. 128, Earnings Per Share. Loss per share is computed using the weighted average number of shares outstanding during the year. Diluted earnings (loss) per share is equal to the basic loss per share for 2004, 2003 and 2002 as there are no dilutive securities. FAIR VALUE OF FINANCIAL INSTRUMENTS The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash and cash equivalents, receivables, marketable securities, restricted cash, accounts payable and accrued liabilities and notes payable. Fair values were assumed to approximate carrying values for these financial instruments, as they are short term in nature. The Company is exposed to currency risk as its subsidiaries' functional currency is denominated in a foreign currency. Unfavourable changes in the applicable exchange rate may result in a decrease or increase in the translation adjustment. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. STOCK-BASED COMPENSATION The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (No. 123 (revised 2004) (FAS 123R), Accounting for Stock-based Compensation. FAS 123R encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. The Company did not grant any stock options during the period. F-12 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4", which is the result of the FASB's project to reduce differences between U.S. and international accounting standards. SFAS No. 151 requires idle facility costs, abnormal freight, handling costs, and amounts of wasted materials (spoilage) be treated as current-period costs. Under this concept, if the costs associated with the actual level of spoilage or production defects are greater than the costs associated with the range of normal spoilage or defects, the difference would be charged to current-period expense, not included in inventory costs. SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 does not have an impact on the Company's consolidated financial statements. In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based Compensation". SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of this new accounting pronouncement does not have a material impact on the Company's consolidated financial statements. F-13 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) In May 2005, the FASB issued Statement of Financial Accounting Standards SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of AFB Opinion No. 20 and FASB Statement No. 3." SFAS 154 requires retrospective application to prior periods' financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The adoptions of this new accounting pronouncement does not have a material impact on its consolidated financial position, results of operations or cash flows. 3. MARKETABLE SECURITIES Marketable securities consist of available-for-sale securities and are summarized as follows:
GROSS GROSS ACCUMULATED UNREALIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES GAINS/(LOSSES) VALUE $ $ $ $ $ - ------------------------------------------------------------------------------------------- Recapitalization 819,296 - - - 819,296 Change in the year (243,315) 537,421 67,025 470,396 227,081 - ------------------------------------------------------------------------------------------- December 31, 2003 575,981 537,421 67,025 470,396 1,046,377 Change in the year (259,559) (270,010) (49,388) (220,622) (480,181) - ------------------------------------------------------------------------------------------- December 31, 2004 316,422 267,411 17,637 249,774 566,196 ===========================================================================================
F-14 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 4. EQUIPMENT
ACCUMULATED NET BOOK COST DEPRECIATION VALUE $ $ $ - ---------------------------------------------------------------------- 2004 Office and production equipment 191,585 75,901 115,684 ====================================================================== 2003 Office and production equipment 197,139 32,216 164,923 ======================================================================
5. BANK LOAN The bank loan is unsecured, bearing interest at 18% per annum and due February 2004. The bank loan was fully repaid during 2004 [2003 - RUR 2,000,000]. 6. NOTES PAYABLE NOTES PAYABLE
2004 2003 $ $ - -------------------------------------------------------------------- Interest calculated at rates of 16% to 24% per annum, unsecured and due within March 4, 2003 to February 3, 2004. Various non-related parties. - 21,762 Accrued interest - 2,688 - -------------------------------------------------------------------- Total - 24,450 ====================================================================
F-15 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 6. NOTES PAYABLE (CONT'D.) NOTES PAYABLE RELATED PARTIES
2004 2003 $ $ - -------------------------------------------------------------------------------- i. Interest at 6.0% per annum, unsecured and due in December 2004: - Public Overseas - related to a director and a major shareholder 30,000 30,000 - -------------------------------------------------------------------------------- ii. Non-interest bearing, unsecured and no stated terms of repayment: - Carrington International Ltd. - a major shareholder 117,774 221,796 - A. Gomez de Segura - a director and a major shareholder 3,255 12,000 - Other 22,015 - - -------------------------------------------------------------------------------- 143,044 233,796 - -------------------------------------------------------------------------------- TOTAL 173,044 263,796 ================================================================================
7. SHARE CAPITAL On December 29, 2004, the Company received $1,000,000 for common stock to be issued. Subsequent to year end 1,000,000 shares of common stock were issued. F-16 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 8. INCOME TAX PROVISION The Company and its subsidiaries operate in several tax jurisdictions, and its income is subject to various rates of taxation. The Company and its subsidiary SB Bermuda are not subject to income taxes because of the countries in which they were incorporated, while the Russian subsidiaries (PIKSA, NPO and Biogrunt) and Spanish subsidiary (SB Spain) are subject to income tax in Russia and Spain, respectively. The following is a reconciliation of the Company's provision for income taxes and is based on the tax rates applicable to the parents or subsidiaries jurisdiction of incorporation.
2004 2003 2002 $ $ $ - ------------------------------------------------------------------------- Income taxes at statutory rate - - 5,232 Foreign tax rate differences 126,934 (67,495) - Utilization of previously unrecognized losses 26,004 - - Non recognition of benefit of losses - 66,713 - - ------------------------------------------------------------------------- Provision for (benefit from) income taxes 100,930 (782) 5,232 =========================================================================
A summary of future income tax assets is as follows:
2004 2003 2002 $ $ $ - ------------------------------------------------------------------------ Loss carryforwards 91,000 70,000 2,000 Valuation allowance (91,000) (70,000) (2,000) - ------------------------------------------------------------------------ Provision for (benefit from) income taxes - - - ========================================================================
The Company has established the above valuation allowances as of December 31, 2004 due to uncertainty of future realization of future income tax assets. At December 31, 2004, the Company has approximately $303,000 [2003 - $200,000] of loss carryforwards which can be used against future earnings in Spain. 9. RELATED PARTY TRANSACTION During the year, the Company settled a liability of $379,733 due to a shareholder of the Company by transferring certain marketable securities it owned at a fair value of $379,733. F-17 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 10. COMMITMENT AND CONTINGENCIES [a] The Company's subsidiary has entered into an office lease agreement with minimum lease payments for the next four (4) years as follows:
$ --------------------------------------------------------------------------- 2005 37,381 2006 37,381 2007 37,381 2008 18,690 --------------------------------------------------------------------------- Total 130,833 ===========================================================================
[b] The Company's Russian subsidiaries - PIKSA, NPO and Biogrunt are subject to significant exposure to the Russian business and fiscal environment. Russia currently has a number of laws related to various taxes imposed by both federal and regional governmental authorities. Applicable taxes include value added tax, corporate income (profits tax), a number of turnover based taxes, and payroll (social) taxes. Laws related to these taxes have not been in force for significant periods, in contrast to more developed market economies; therefore, implementing regulations are often unclear or nonexistent. Accordingly, few precedents with regard to tax related issues have been established. Often, different opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose extremely severe fines, penalties and interest charges. These facts create tax risks in Russia substantially more significant than those typically found in countries with more developed tax systems. Generally, tax declarations remain subject to inspection for a period of three years. The fact that a year has been reviewed does not preclude the Russian Tax Service from performing a subsequent inspection of that year. Management believe that, based on current year results, it has adequately provided for tax liabilities in the accompanying financial statements; however, the risk remains as those relevant authorities could take different positions with regard to interpretive issues. F-18 SOIL BIOGENICS LIMITED (FORMERLY PANTAGONIA GOLD (BVI) LIMITED) NOTES TO CONSOLODATED FINANCIAL STATEMENTS December 31, 2004, 2003 and 2002 (Expressed in U.S. Dollars) 11. GEOGRAPHICAL INFORMATION The Company's business is considered as operating in one segment and the geographical information is as follows:
CORPORATE SPAIN RUSSIA TOTAL $ $ $ $ - -------------------------------------------------------------------- 2004 Sales - - 1,809,715 1,809,715 Net income (loss) 6,587 (222,388) 424,505 208,704 Assets 1,540,943 113,045 1,285,118 2,939,106 ==================================================================== 2003 Sales - - 369,200 369,200 Net income (loss) (153,759) (80,817) (112,026) (346,602) Assets 1,065,567 63,867 312,718 1,442,152 ====================================================================
In 2002, the Company's operations and assets were all located in Russia. 12. COMPARATIVE FIGURES Certain prior year balances have been reclassified to conform to the presentation adopted in the current year. 13. RECLASSIFIED FIGURES The cost of sales for the years ended December 31, 2004 and 2003 have been revised to include depreciation expense attributable to the cost of sales. The depreciation expense has been reclassified from Depreciation (December 31, 2004) and General and Administrative (December 31, 2003). F-19 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Consolidated Financial Statements (EXPRESSED IN U.S. DOLLARS) December 31, 2003 and 2002 Index Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Stockholders' Equity Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements F20 MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 734-1112 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.com ------------------------------- - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND STOCKHOLDERS SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) We have audited the consolidated balance sheets of SOIL BIOGENICS LIMITED ("the Company") as at December 31, 2003 and 2002 and the consolidated statements of stockholders' equity, operations and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." June 30, 2004 Chartered Accountants F21 - -------------------------------------------------------------------------------- EF A partnership of incorporated professionals An independently owned and operated member of Moore Stephens North America Inc., a member of Moore Stephens International Limited - members in principal cities throughout the world F21
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Consolidated Balance Sheets December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ======================================================================= 2003 2002 - ----------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 39,986 $ 35,350 Receivables 91,085 82,345 Marketable securities 1,046,377 - Inventories 62,767 33,538 Prepaid expenses and deposits 18,178 - - ----------------------------------------------------------------------- TOTAL CURRENT ASSETS 1,258,393 151,233 RESTRICTED CASH 18,836 - EQUIPMENT 164,923 161,174 - ----------------------------------------------------------------------- TOTAL ASSETS $1,442,152 $312,407 ======================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Bank loan $ 67,901 $ 31,461 Accounts payable and accrued liabilities 35,407 107,673 Notes payable 24,450 42,978 Notes payable - related parties 263,796 23,123 - ----------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 391,554 205,235 - ----------------------------------------------------------------------- STOCKHOLDERS' EQUITY SHARE CAPITAL Authorized: 50,000,000 common shares without par value Issued: 30,162,500 (2002: 17,000,000) common shares - - PAID-IN CAPITAL 915,959 105,817 ACCUMULATED DEFICIT (351,569) (4,967) ACCUMULATED OTHER COMPREHENSIVE INCOME 486,208 6,322 - ----------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 1,050,598 107,172 - ----------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,442,152 $312,407 =======================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. F22
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Consolidated Statements of Stockholders' Equity Years Ended December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ========================================================================================================================== Accumulated Total other Total compre- Common stock compre- stock- hensive ------------------- Paid-in Accumulated hensive holders' income Shares Amount capital (deficit) income (loss) equity (loss) - -------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2001, as restated 16,940,000 $ - $105,817 $ (18,517) $ - $ 87,300 $ - Shares issued to effect the acquisition of subsidiary 60,000 - - - - - - Components of comprehensive income - - Net income for the year - - - 13,550 - 13,550 13,550 - - Foreign currency translation adjustments - - - - 6,322 6,322 6,322 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2002 17,000,000 - 105,817 (4,967) 6,322 107,172 $ 19,872 ========== Recapitalization (Note 1) 12,912,500 - 607,079 - - 607,079 - Shares issued for the settlement of debt 250,000 - 200,000 - - 200,000 - Imputed interest - related parties - - 3,063 - - 3,063 - Components of comprehensive income (loss) - - Net income (loss) for the year - - - (346,602) - (346,602) (346,602) - - Foreign currency translation adjustments - - - - 9,490 9,490 - - - Unrealized gains on marketable securities - - - - 470,396 470,396 470,396 - -------------------------------------------------------------------------------------------------------------------------- BALANCE, December 31, 2003 30,162,500 $ - $915,959 $ (351,569) $ 486,208 $1,050,598 $ 123,794 ==========================================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. F23
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Consolidated Statements of Operations Year Ended December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ============================================================================= 2003 2002 - ----------------------------------------------------------------------------- SALES $ 369,200 $ 151,977 COST OF SALES 327,155 115,790 - ----------------------------------------------------------------------------- GROSS PROFIT 42,045 36,187 SELLING EXPENSES 57,641 1,212 GENERAL AND ADMINISTRATIVE 174,559 15,427 DEPRECIATION 1,347 - RESEARCH AND DEVELOPMENT 23,358 - - ----------------------------------------------------------------------------- INCOME (LOSS) FROM OPERATIONS (214,860) 19,548 - ----------------------------------------------------------------------------- OTHER INCOME (EXPENSES) Other income 604 4,243 Realized loss on sale of marketable securities (85,172) - Interest expense (46,615) (5,009) Write off of marketable securities (1,341) - - ----------------------------------------------------------------------------- (132,524) (766) - ----------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES (347,384) 18,782 - ----------------------------------------------------------------------------- INCOME TAX PROVISION 782 (5,232) - ----------------------------------------------------------------------------- NET INCOME (LOSS) FOR THE YEAR $ (346,602) $ 13,550 ============================================================================= INCOME (LOSS) PER SHARE - basic and diluted $ (0.01) $ 0.00 ============================================================================= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - basic and diluted 28,539,726 16,950,027 =============================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. F24
SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Consolidated Statements of Cash Flows Year Ended December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================================= 2003 2002 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income (loss) for the year $(346,602) $ 13,550 Adjustments to reconcile net income (loss) to net cash used in operating activities: - depreciation 29,215 471 - imputed interest - related party 3,063 - - realized loss on sale of marketable securities 85,172 - - write-off of marketable securities 1,341 - Changes in assets and liabilities: - (increase) in receivables (8,740) (32,578) - (increase) in inventories (29,229) (15,522) - (increase) in prepaid expenses and deposit (18,178) - - (decrease) in accounts payable (78,929) (28,919) - ------------------------------------------------------------------------------------------------- (362,887) (62,998) - ------------------------------------------------------------------------------------------------- CASH FLOWS (USED IN) INVESTING ACTIVITIES Purchase of equipment (36,150) (4,678) - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stocks - 6,281 Increase of bank loan 36,440 31,461 Increase of notes payable 377,038 64,307 - ------------------------------------------------------------------------------------------------- 413,478 102,049 - ------------------------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 9,031 48 - ------------------------------------------------------------------------------------------------- INCREASE IN CASH AND CASH EQUIVALENTS 23,472 34,421 CASH AND CASH EQUIVALENTS, beginning of year 35,350 929 - ------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 58,822 $ 35,350 ================================================================================================= CASH AND CASH EQUIVALENTS ARE COMPRISED OF Cash $ 39,986 $ 35,350 Restricted cash 18,836 - - ------------------------------------------------------------------------------------------------- $ 58,822 $ 35,350 ================================================================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Interest paid $ 45,721 $ 3,215 Income taxes paid $ - $ 5,232 ================================================================================================= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F25 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 1. NATURE OF ORGANIZATION The consolidated financial statements presented are those of Soil Biogenics Limited (formerly Patagonia Gold (BVI) Limited) (SB (BVI)) and its wholly own subsidiaries, Soil Biogenics Ltd. (SB Bermuda), Soil Biogenics S.L. (SB Spain), PIKSA Inter LLC (PIKSA) and NPO PIKSA LLC (NPO). Collectively, they are referred to here in as "the Company". The Company is in the business of bio-organic fertilizer production and distribution in Russia and Europe. The Company's business is considered as operating in one segment based upon the Company's organizational structure, the way in which the operation is managed and evaluated, the availability of separate financial results and materiality considerations. SB (BVI) was incorporated under the laws of the British Virgin Islands on August 23, 2002 and changed its name to Soil Biogenics Limited on February 11, 2003. On November 2, 2002, SB Bermuda, a company incorporated in Bermuda on October 19, 2000, entered into a Plan and agreement of reorganization with PIKSA. Under the terms of the Plan, SB Bermuda acquired all of the issued and outstanding common stock of PIKSA in exchanged for 16,940,000 of its shares of common stock. In connection with the Plan, the Board of Directors of SB Bermuda approved and increased the authorized shares of SB Bermuda to 3,4000,000, followed by a stock split of 5 common stock for one common stock totalling 17,000,000 common stock issued and outstanding after the completion of the Plan. PIKSA was accounted for as the acquirer and as the surviving accounting entity because the former stockholders of PIKSA received approximately 100% of the voting rights in the combined corporation. The shares issued by the SB Bermuda have been accounted for as if those shares comprised the historical share capital of PIKSA. The outstanding capital stock of the SB Bermuda, at the date of the 2002 acquisition, has been accounted for as shares issued by PIKSA to acquire the net assets of SB Bermuda. The transaction was treated, for accounting purposes, as an acquisition (purchase) of control of the assets and business of SB Bermuda by PIKSA. At the date of transaction, SB Bermuda has nil assets and liabilities. On February 13, 2003, SB (BVI) completed an Agreement for the Exchange of Common Stock ("Agreement") with SB Bermuda, whereby SB (BVI) issued 17,000,000 shares of its common stock in exchange for all of the outstanding common stock of SB Bermuda. Immediately prior to the Agreement, SB (BVI) had 12,912,500 shares of common stock issued and outstanding. The acquisition was accounted for as a recapitalization of SB Bermuda because the shareholders of SB Bermuda controlled SB (BVI) after the acquisition. SB Bermuda was treated as the acquiring entity for accounting purposes and SB (BVI) was the surviving entity for legal purposes. There was no adjustment to the carrying value of the assets or liabilities of SB Bermuda. F26 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 1. NATURE OF ORGANIZATION (continued) Prior to the completion of Agreement and acquisition, SB (BVI) had no significant operations, and was considered a development stage entity. A summary of net assets of SB (BVI) acquired as at February 13, 2003 as follows: ---------------------------------------------------------------------- Current assets $ 819,472 Current liabilities (212,393) ---------------------------------------------------------------------- Net assets $ 607,079 ====================================================================== SB (BVI) had minimal operations from January 1, 2003 to February 12, 2003 except a $200,000 compensation accrued to a director of the Company (See Note 9 (a)). On March 7, 2003, the Company acquired and reactivated SB Spain (formerly Aam Empreendimentos, S.L.), a company incorporated in Spain. Prior to the acquisition, SB Spain has no assets and liabilities. 2. SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The consolidated financial statements include accounts of the Company and its wholly-owned subsidiaries; Soil Biogenics Ltd., Soil Biogenics S.L., PIKSA Inter LLC and NOP PIKSA LLC, and 61% owned subsidiary Biogrunt. All significant inter-company balances and transactions have been eliminated. During the fiscal year 2003, Biogrunt was inactive and has no asset and liabilities as at December 31, 2003. (b) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. (c) Cash Equivalents Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. There were no cash equivalents as of December 31, 2003 and 2002. F27 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Marketable Securities Available-for-sale securities are carried at fair market value with unrealized holding gains and losses included in stockholders' equity. Realized gains and losses are determined on an average cost basis when securities are sold. (e) Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value represents the anticipated selling prices less all further costs for distribution. (f) Revenue Recognition Revenue from sales of fertilizers are recognized on the delivery of goods to customers and collection of revenue proceeds is reasonable assured. (g) Restricted Cash The Company's wholly owned subsidiary Soil Biogenics S.L., ("SB Spain") under the terms of its lease agreements, is required to collateralize its lease obligation and commitment. SB Spain has collateralized its lease obligation and commitment by assigning certificates of deposit to a respective institution. At December 31, 2003, the Company holds certificates of deposit under the lease agreement of $18,836. (h) Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives: Office and production equipment 5 - 20 years Depreciation expense for the years ended December 31, 2003 and 2002 was $29,215 and $471, respectively. (i) Intangible Assets The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combination" and SFAS No. 142, "Goodwill and Intangible Assets". SFAS 141 requires companies to disaggregate and report separately from goodwill certain intangible assets. SFAS 142 establishes new guidelines for accounting for intangible assets, which require that certain intangible assets be reviewed annually for impairment rather than amortized. As at December 31, 2003 and 2002, the Company did not have any goodwill and intangible assets. F28 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (j) Foreign Currency Translations The Company and SB Bermuda's functional currencies are US dollars. In the accounts of subsidiaries: SB Spain (whose functional currency is Euro) is considered to be integrated operation, and its accounts are translated into US dollars using the temporal method. PIKSA Inter LLC and NPO PIKSA LLC (whose functional currency are Russian Rouble (RUR)) are considered to be self-sustaining foreign operations and their accounts are translated into US dollars using the current rate method. Under the temporal method: At the transaction date, each asset, liability, revenue and expense is translated into U.S. dollars by the use of the exchange rate in effect at that date. At the period end, monetary assets and liabilities are translated into U.S. dollars by using the exchange rate in effect at that date. The resulting foreign exchange gains and losses are included in operations. Under the current rate method: Assets and liabilities are translated at the year end exchange rates. Revenues and expenses are translated at average exchange rates during each reporting period. Exchange gains and losses from foreign currency translations are recorded in other comprehensive income until they are realized by a reduction in the investment. Transactions denominated in foreign currencies are translated into US dollars at the exchange rates prevailing at transaction dates. (k) Concentration of Credit Risk The Company places its cash and cash equivalents with high credit quality financial institutions. The Company had no funds deposited in a financial institution beyond the insured limits as of December 31, 2003 and 2002. The Company sold its goods predominantly to one customer which accounted for 88% of sales in 2003. The Company purchased the majority of the raw materials from one supplier in 2003. (l) Long-lived Assets Impairment The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. Long-term assets of the Company are reviewed when changes in circumstances require as to whether their carrying value has become impaired. Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets will be written down to fair value. F29 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Comprehensive Income The Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders' Equity. (n) Research and Development Research and development costs are expensed as incurred. Research and development costs for the years ended December 31, 2003 was $23,358 (2002: $nil). (o) Advertising Expenses The Company expenses advertising costs as incurred. The Company incurred advertising costs of $57,641 in 2003 (2002: $ nil). (p) Income Taxes The Company adopted SFAS No. 109, Accounting for Income Taxes, which requires the Company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. (q) Loss Per Share The Company adopted SFAS No. 128, Earnings Per Share. Loss per share is computed using the weighted average number of shares outstanding during the year. Diluted earnings (loss) per share is equal to the basic loss per share for 2003 and 2002 as there are no dilutive securities. (r) Fair Value of Financial Instruments The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, receivables, marketable securities, restricted cash, bank loans, accounts payable and accrued liabilities and short-term loans. Fair values were assumed to approximate carrying values for these financial instruments, as they are short term in nature. Management is of the opinion that the Company is not exposed to significant credit risk arising from these financial instruments. F30 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (r) Fair Value of Financial Instruments (continued) The Company is exposed to currency risk as its subsidiaries' functional currency is denominated in foreign currency. Unfavourable changes in the applicable exchange rate may result in a decrease or increase in translation adjustment. The Company does not use derivative instruments to reduce its exposure to foreign currency risk. The Company is exposed to interest risks arising from the bank loan. Unfavourable changes in the applicable interest rate may result in an increase in interest expenses. The Company does not use derivative instruments to reduce its exposure to interest risk. (s) Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based Compensation. SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The Company accounts for stock-based compensation issued to employees and directors using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. The Company did not grant any stock options during the period. (t) New Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issued No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity. SFAS No. 146 generally requires a liability for a cost associated with an exit or disposal activity to be recognized and measured initially at its fair value in the period in which the liability is incurred. The pronouncement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of SFAS No.146 does not have an impact on the Company's financial statements. F31 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (t) New Accounting Pronouncements (continued) In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of indebtedness of Others - An Interpretation of FASB Statements of No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. This interpretation clarifies the requirements for a guarantor's accounting for and disclosures of certain guarantees issued and outstanding. FIN 45 also clarifies the requirements related to the recognition of a liability by a guarantor at the inception of a guarantee. FIN 45 is effective for guarantees entered into or modified after December 31, 2002. The adoption of FIN 45 does not have impact on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods for voluntary transition to SFAS No. 123's fair value method of accounting for stock-based employee compensation. SFAS No. 148 also requires disclosure of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income (loss) and earnings (loss) per share in annual and interim financial statements. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 does not have an impact on the Company's financial statements. In January 2003, the FASB released FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities. FIN 46 requires that all primary beneficiaries of variable interest entities consolidate that entity. FIN 46 is effective immediately for variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest it acquired before February 1, 2003. In December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of the interpretation and to defer the effective date of implementation for certain entities. Under the guidance of FIN 46R, entities that do not have interests in structures that are commonly referred to as special purpose entities are required to apply the provisions of the interpretation in financial statements for periods ending after March 14, 2004. The Company did not create a variable interest entity after January 31, 2003 and does not have a variable interest entity as of December 31, 2003. The Company expects that the full adoption of FIN 46R in 2004 will not have a material impact on the Company's financial position or results of operations. F32 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (t) New Accounting Pronouncements (continued) In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133. This Statement is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 does not have an impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 30, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 does not have an impact on the Company's financial statements. In December 2003, the FASB issued SFAS No. 132(R), a revision to SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits. SFAS No. 132(R) requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132(R) is effective for financial statements with fiscal years ending after December 15, 2003, with the exception of disclosure requirements related to foreign plans and estimated future benefit payments which are effective for fiscal years ending after June 15, 2004. The adoption of SFAS No. 132(R) does not impact our consolidated financial position or results of operations. F33 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (t) New Accounting Pronouncements (continued) In a December 11, 2003 speech at the American Institute of Certified Public Accountants the Securities and Exchange Commission ("SEC") expressed the opinion that rate-lock commitments represent written put options, and therefore should be valued as a liability. The SEC expressed that they expect registrants to disclose the effect on the financial statement of recognizing the rate-lock commitments as written put options, for quarters commencing after March 15, 2004. Additionally, the SEC recently issued Staff Accounting Bulletin (SAB) No. 105. SAB No. 105 clarifies the SEC's position that the inclusion of cash flows from servicing or ancillary income in the determination of the fair value of interest rate lock commitments is not appropriate. The Company has not yet determined the impact on the consolidated financial statements of SAB No. 105, which must be implemented for loan commitments entered into on or after April 1, 2004. The Company is currently analyzing the impact of the SEC's position and will, if required, account for its loan origination commitments as prescribed. 3. MARKETABLE SECURITIES Marketable securities consist of available-for-sale securities and are summarized as follows:
- ----------------------------------------------------------------------------------------- Gross Gross Accumulated unrealized unrealized unrealized Market Cost gains losses gains/ (losses) value - ----------------------------------------------------------------------------------------- Recapitalization $ 819,296 $ - $ - $ - $ 819,296 Change in the year (243,315) 537,421 67,025 470,396 227,081 - ----------------------------------------------------------------------------------------- December 31, 2003 $ 575,981 $ 537,421 $ 67,025 $ 470,396 $1,046,377 =========================================================================================
4. EQUIPMENT
- ----------------------------------------------------------------------- 2003 -------------------------------------- Cost Accumulated Net book Depreciation Value - ----------------------------------------------------------------------- Office and production equipment $ 197,139 $ 32,216 $ 164,923 ======================================================================= - ----------------------------------------------------------------------- 2002 -------------------------------------- Cost Accumulated Net book Depreciation Value - ----------------------------------------------------------------------- Office and production equipment $ 2,079 $ 471 $ 1,608 Construction in progress 159,566 - 159,566 - ----------------------------------------------------------------------- $ 161,645 $ 471 $ 161,174 =======================================================================
F34 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 5. BANK LOAN The RUR 2,000,000 (2002: RUR 1,000,000) bank loan is unsecured, bearing interest at 18% per annum (2002: 28% per annum) and due in February 2004. The loan has been renewed for another year subsequent to the year-end. 6. NOTES PAYABLE (a) Notes Payable
---------------------------------------------------------------------- 2003 2002 ---------------------------------------------------------------------- Interest at range of 16% to 24% per annum, unsecured and due within March 4, 2003 to February 3, 2004: Various non related parties $21,762 $41,184 Accrued interest 2,688 1,794 ---------------------------------------------------------------------- Total $24,450 $42,978 ======================================================================
(b) Notes Payable Related Party
---------------------------------------------------------------------- 2003 2002 ---------------------------------------------------------------------- i. Interest at 6.0% per annum, unsecured and due in December 2004: - Public Overseas - related to a director and a major shareholder $ 30,000 $ - ---------------------------------------------------------------------- ii. Non-interest bearing, unsecured and no stated terms of repayment: - Carrington International Ltd. - related to a major shareholder 208,325 - - Dr. G. Shnura - a major shareholder 13,471 - - A. Gomez de Segura - a director and a major shareholder 12,000 11,293 - A. Semencov - a major shareholder - 11,830 ---------------------------------------------------------------------- Total $263,796 $23,123 ======================================================================
7. SHARE CAPITAL On February 14, 2003, the Company issued 250,000 common stock for the settlement of the debt of $200,000. F35 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 8. INCOME TAXES The Company and its subsidiaries operate in several tax jurisdictions, and its income is subject to various rates of taxation. The Company and its subsidiary SB Bermuda are not subject to income taxes because of the countries in which they were incorporated, while the Russian subsidiaries (PIKSA, NPO and Biogrunt) and Spanish subsidiary (SB Spain) are subject to income tax in Russia and Spain, respectively. The following is a reconciliation of the Company's provision for income taxes and is based on the tax rates applicable to the parents or subsidiaries jurisdiction of incorporation.
--------------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------------- Income taxes at statutory rate $(67,495) $5,232 Non recognition of benefit of losses 66,713 - --------------------------------------------------------------------------- Provision for (benefit from) income taxes $ (782) $5,232 ===========================================================================
A summary of future income tax asset is as follows:
--------------------------------------------------------------------------- 2003 2002 --------------------------------------------------------------------------- Net operating loss carryforward $ 70,000 $ 2,000 Valuation allowance (70,000) (2,000) --------------------------------------------------------------------------- Future income tax asset $ - $ - ===========================================================================
The Company has established the above valuation allowances as of December 31, 2003 due to uncertainty of future realization of deferred income tax assets. At December 31, 2003, the Company has approximately $200,000 of non-operating loss carryforwards which can be used against future earnings. 9. RELATED PARTY TRANSACTIONS (a) During the year and prior to the acquisition of SB Bermuda, SB (BVI) accrued a $200,000 compensation to a director of the Company. The amount was settled with issuance of 250,000 common stock of the Company after the acquisition of SB Bermuda. The $200,000 was expensed and included in the computation of the net assets of SB (BVI) acquired. (See Note 1 and Note 7) (b) During the year, the Company settled a liability due to a shareholder of the Company by transferring certain marketable securities it owned at a fair value of $156,763. (c) See Note 6 (b). F36 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 10. NON-CASH TRANSACTIONS See Note 9 (a) and (b). 11. COMMITMENT AND CONTINGENCIES (a) The Company's subsidiary has entered into an office lease agreement with minimum lease payments for the next five (4) years as follows:
------------------------------------------------- 2004 $37,381 2005 37.381 2006 37,381 2008 18,690 ------------------------------------------------- 130,833 =================================================
(b) The Company's Russian subsidiaries - PIKSA, NPO and Biogrunt are subject to significant exposure to the Russian business and fiscal environment. Russia currently has a number of laws related to various taxes imposed by both federal and regional governmental authorities. Applicable taxes include value added tax, corporate income (profits tax), a number of turnover based taxes, and payroll (social) taxes. Laws related to these taxes have not been in force for significant periods, in contrast to more developed market economies; therefore, implementing regulations are often unclear or nonexistent. Accordingly, few precedents with regard to tax related issues have been established. Often, different opinions regarding legal interpretation exist both among and within government ministries and organizations; thus creating uncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of authorities, who are enabled by law to impose extremely severe fines, penalties and interest charges. These facts create tax risks in Russia substantially more significant than those typically found in countries with more developed tax systems. Generally, tax declarations remain subject to inspection for a period of three years. The fact that a year has been reviewed does not preclude the Russian Tax Service performing a subsequent inspection of that year. Management believe that, based on current year results, it has adequately provided for tax liabilities in the accompanying financial statements; however, the risk remains as those relevant authorities could take different positions with regard to interpretive issues. (c) See Note 2 (g). F37 SOIL BIOGENICS LIMITED (formerly Patagonia Gold (BVI) Limited) Notes to Consolidated Financial Statements December 31, 2003 and 2002 (EXPRESSED IN U.S. DOLLARS) ================================================================================ 12. GEOGRAPHICAL INFORMATION The Company's business is considered as operating in one segment and the geographical information is as follows:
--------------------------------------------------------------------------- 2003 ----------------------------------------------- Corporate Spain Russia Total --------------------------------------------------------------------------- Sales $ - $ - $ 369,200 $ 369,200 Net income (loss) $ (153,759) $(80,817) $(112,026) $ (346,602) Assets $1,065,567 $ 63,867 $ 312,718 $1,442,152 ---------------------------------------------------------------------------
In 2002, the Company's operations and assets were all located in Russia. F38 ITEM 18 FINANCIAL STATEMENTS The Company has elected to comply with the financial statement requirement of Item 17 rather than this Item. ITEM 19 EXHIBITS INDEX TO EXHIBITS Exhibits
1.1 Certificate of Incorporation* 1.2 Certificate of Restoration and Renewal of Certificate of Incorporation* 1.3 Amended and Restated Memorandum of Association* 1.4 Amended and Restated Articles of Association* 1.5 Plan of Merger* 1.6 Articles of Merger* 1.7 By-laws* 8.1 Significant subsidiaries* 11.1 Corporate Governance Principles* 12.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 13.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15.1 Letter on change in certifying accountant* 15.2 Consent of Independent Accountants - -------- * Previously Filed
SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this registration statement [annual report] on its behalf. AURORA METALS (BVI) LIMITED (Registrant) Date: July 11, 2005 BY: /s/ Agustin Gomez de Segura --------------------------- Agustin Gomez de Segura Director, President and CFO Date: July 11, 2005 BY: /s/ Alexander Becker -------------------- Alexander Becker Director Page 23 of 23 EX-12.1 2 ex12_1.txt EXHIBIT 12.1 EXHIBIT 12.1 SECTION 302 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER I, Agustin Gomez de Segura, President, Chief Executive Officer and Chief Financial Officer of Soil Biogenics Limited, certify that: 1) I have reviewed this Annual Report on Form 20-F of Soil Biogenics Limited; 2) Based on my knowledge, this 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 report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4) The Company's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the Company's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and 5) The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. July 11, 2005 (s) Agustin Gomez de Segura --------------------------- Name: Agustin Gomez de Segura Title: President, Chief Financial Officer and Director EX-13.1 3 ex13_1.txt EXHIBIT 13.1 EXHIBIT 13.1 SECTION 906 CERTIFICATION of Periodic Financial Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. (Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) I, Agustin Gomez de Segura, President, Chief Executive Officer and Chief Financial Officer of Soil Biogenics Limited, hereby certify that the Annual Report on Form 20-F for the Fiscal Year ended December 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of Soil Biogenics Limited July 11, 2005 (s) Agustin Gomez de Segura --------------------------- Name: Agustin Gomez de Segura, Title: President, Chief Financial Officer and Director This certification is made solely for the purposes of 18 U.S.C. Section 1350, subject to the knowledge standard set forth therein, and not for any other purpose. It is not being filed as part of the Annual Report or as a separate disclosure document. EX-15.2 4 ex15_2.txt EXHIBIT 15.2 EXHIBIT 15.2 CONSENT OF INDEPENDENT ACCOUNTANTS MOORE STEPHENS ELLIS FOSTER LTD. CHARTERED ACCOUNTANTS 1650 West 1st Avenue Vancouver, BC Canada V6J 1G1 Telephone: (604) 737-8117 Facsimile: (604) 714-5916 E-Mail: generaldelivery@ellisfoster.bc.ca --------------------------------- - -------------------------------------------------------------------------------- CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to use in the Annual Report on Form 20-F for the fiscal Year Ended December 31, 2004, being filed by Soil Biogenics Limited, of our report dated June 30, 2004, related to the consolidated balance sheets of Soil Biogenics Limited as at December 31, 2003 and 2002 and the consolidated statements of stockholders' equity, operations and cash flows for the years then ended. Vancouver, Canada "MOORE STEPHENS ELLIS FOSTER LTD." June 29, 2005 Chartered Accountants - -------------------------------------------------------------------------------- MS An independently owned and operated member of Moore Stephens North America Inc., a member of Moore Stephens International Limited - members in principal cities throughout the world -----END PRIVACY-ENHANCED MESSAGE-----