-----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, I3/kZeN1doFlVzd30fBWezg/0/gdjHGsgw5cqIp6KeJ/awSeib7dIGlBtXPEDr+l GVtoR3yRzc0QQKKtoqw4Jg== 0001096906-03-000187.txt : 20030414 0001096906-03-000187.hdr.sgml : 20030414 20030414172529 ACCESSION NUMBER: 0001096906-03-000187 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030414 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GARUDA CAPITAL CORP CENTRAL INDEX KEY: 0001116539 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 980209053 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30927 FILM NUMBER: 03649220 BUSINESS ADDRESS: STREET 1: 1895 26TH STREET STREET 2: XXX CITY: VANCOUVER BC CANADA STATE: A1 ZIP: V7V4K2 BUSINESS PHONE: 6044820111 MAIL ADDRESS: STREET 1: XXX STREET 2: XXX CITY: XXX FORMER COMPANY: FORMER CONFORMED NAME: VANSTAR FILMS INC DATE OF NAME CHANGE: 20000613 8-K/A 1 garuda8ka_april2003.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934 Date of Report April 14, 2003 --------------- Garuda Capital Corp. ------------------------------------- (Exact name of registrant as specified in its chapter) Nevada 0 - 30927 980209053 - ---------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (IRS Employer ID #) of incorporation) #502 - 1978 Vine Street, Vancouver, B.C., Canada V6K 4S1 - ------------------------------------------------ ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 604-675-7643 ------------ ---------------------------------------------------------------- (Former name or former address, if changed since last report) Explanatory Note on the Amendment On May 1, 2002 an 8-K was filed announcing the acquisition by Garuda Capital Corp. of all the outstanding shares of Hagensborg Foods Ltd. and Natural Program Inc. Audited financial statements of Hagensborg Foods Ltd. for the period ended June 30, 2000 and June 30, 2001, the audited financial statements of Natural Program Ltd. for the period ended June 30, 2001 and the pro forma financial statements for Garuda Capital Corp. as at March 31, 2002 giving effect to the purchases as if they had occurred on July 1, 2000 were filed on June 17, 2002. An amendment to the June 17, 2002 8-K was filed on January 21, 2003 which disclosed the reporting currency of Hagensborg Foods Ltd., and filed unaudited financial statements for the nine month period ended March 31, 2001. This amendment files audited financial statements of Hagensborg Foods Ltd., for the nine month period ending March 31, 2001 which thereby provides the U.S. GAAP reconciliation disclosures referred to in the Amended 8-K filed January 21, 2003. This Amendment has revised the following section: Item 7. Financial Statements SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Garuda Capital Corp. -------------------------- (Registrant) /s/ C. Robin Relph -------------------------- (Signature) Date April 14, 2003 C. Robin Relph, President Item 3.1: Interim financial statements for the 6 months ending December 31, 2001 Hagensborg Foods Ltd. Statement of Operations for the period from July 1, 2001 to December 2001 (US Dollars) Jul.1-Dec.31 Jul.1-Dec.31 2001 2000 - -------------------------------------------------------------------------------- REVENUE Sales $ 1,017,515 $ 1,135,223 Cost of goods sold 725,046 863,531 - -------------------------------------------------------------------------------- 292,469 271,692 EXPENSES Premises and equipment leases 62,397 42,394 General and administrative 91,940 194,636 Depreciation 32,599 29,189 Sales and marketing 50,350 28,392 - -------------------------------------------------------------------------------- 237,285 294,611 - -------------------------------------------------------------------------------- Income before extraordinary loss 55,183 (22,919) Extraordinary loss (13,333) -- - -------------------------------------------------------------------------------- NET LOSS $ 41,850 $ (22,919) - -------------------------------------------------------------------------------- Item 3.2: Interim financial statements for the 6 months ending December 31, 2001 NATURAL PROGRAM LTD. STATEMENTS OF OPERATIONS AND DEFICIT For the period from July 1, 2001 to December 31, 2001 - -------------------------------------------------------------------------------- REVENUE Sales $33,815 -------------------------------------------------------------------- EXPENSES Purchases 14,940 Commissions 12,022 -------------------------------------------------------------------- 26,962 -------------------------------------------------------------------- GROSS PROFIT 6,853 - -------------------------------------------------------------------------------- EXPENSES Advertising and promotions 19,956 Amortization 6,743 Consulting fees 8,699 Dues, fees and licenses 925 Freight 3,370 Insurance 3,090 Interest and bank charges 3,690 Occupancy costs 5,636 Office and administrative services 5,887 Professional fees 2,916 Salaries and benefits 10,162 -------------------------------------------------------------------- 71,074 -------------------------------------------------------------------- LOSS FOR THE YEAR 64,221 DEFICIT, BEGINNING OF YEAR -- - -------------------------------------------------------------------------------- DEFICIT, END OF YEAR $64,221 - -------------------------------------------------------------------------------- Item 4.1 PRICEWATERHOUSECOOPERS - -------------------------------------------------------------------------------- Hagensborg Foods, Ltd. (formerly Celestial Chocolates Corporation) Financial Statements (Canadian Dollars) June 30, 2000 PricewaterhouseCoopers LLP Chartered Accountants 5611 Cooney Road Suite 100 Richmond British Columbia Canada V6X 3J6 Telephone +1 (604) 806 7000 Facsimilie +1 (604) 806 7217 September 15, 2000 Auditors' Report To the Shareholders of Hagensborg Foods Ltd. We have audited the balance sheet of Hagensborg Foods Ltd. as at June 30, 2000 and the statements of loss and deficit 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. We conducted our audit in accordance with, Canadian generally accepted auditing standards. These 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. Art audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In, our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at June 30, 2000 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. As required by the British Columbia Company Act, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. /s/ PricewaterhouseCoopers LLP Chartered Accountants PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization. Hagensborg Foods Ltd. Balance Sheet As at June 30, 2000 All in Canadian Dollars - -------------------------------------------------------------------------------- 2000 1999 $ $ Assets Current assets Accounts receivable (note 10(a)) 452,754 132,371 Income taxes receivable -- 24,800 Inventory (note 3) 135,841 632,988 Prepaid expenses 51,740 53,422 Loan receivable -- 7,131 ---------- ---------- 640,335 850,712 Capital assets (note 4) 592,202 670,359 ---------- ---------- 1,232,537 1,521,071 ---------- ---------- Liabilities Current liabilities Bank overdraft (note 5) 7,248 139,390 Bank operating loan (note 5) 237,000 250,000 Accounts payable and accrued liabilities 520,907 366,041 Current portion of long-term debt (note 6) 132,060 155,292 Current portion of capital lease obligation (note 7) 15,227 13,739 Loan payable (note 10(b)) 30,000 30,000 ---------- ---------- 942,442 954,462 Long-term debt (note 6) 80,233 212,293 Capital lease obligation (note 7) 29,244 44,471 Advances from related parties (note 8) 452,500 125,000 ---------- ---------- 1,504,419 1,336,226 ---------- ---------- Shareholders' Deficiency Capital stock (note 9) 900,000 600,000 Deficit (1,171,882) (415,155) ---------- ---------- (271,882) 184,845 ---------- ---------- 1,232,537 1,521,071 ---------- ---------- Going concern (note 1) Approved by the Board of Directors /s/ C. Robin Relph PricewaterhouseCoopers Hagensborg Foods Ltd. Statement of Loss and Deficit For the year ended June 30, 2000 All in Canadian Dollars - ------------------------------------------------------------------------------- 2000 1999 $ $ Sales 2,565,380 2,219,793 Cost of goods sold 2,105,767 1,715,922 ---------- ---------- Gross profit 459,613 503,871 ---------- ---------- Expenses Amortization 78,157 76,522 Bad debts 19,051 37,566 Commissions 57,749 80,760 Insurance 33,130 50,369 Interest and bank charges 26,921 29,599 Interest on long-term obligation 46,660 61,799 Memberships and trade shows 23,184 13,873 Office and general 104,830 45,382 Premises and equipment leases 151,918 171,110 Professional fees 63,091 29,331 Repairs and maintenance 70,116 52,894 Research and development 2,066 4,700 Salaries, benefits and management fees 278,141 290,655 Telephone 12,395 17,183 Travel and promotion 28,893 129,972 Write-off of discontinued packaging 211,317 -- ---------- ---------- 1,207,619 1,091,715 ---------- ---------- Loss before income taxes (748,006) (587,844) ---------- ---------- Recovery of (provision for) income taxes Current (8,721) 8,000 Deferred -- 33,200 ---------- ---------- (8,721) 41,200 ---------- ---------- Loss for the near (756,727) (546,644) Retained earnings (deficit) - Beginning; of year (415,155) 131,489 ---------- ---------- Deficit - End of year (1,171,882) (415,155) ---------- ---------- PricewaterhouseCoopers Hagensborg Foods Ltd. Statement of Cash Flows For the year ended June 30, 2000 All in Canadian Dollars - -------------------------------------------------------------------------------- 2000 1999 $ $ Cash flows from operating activities Loss for the year (756,727) (546,544) Items not affecting working capital AmortizAtion 78,157 76,522 Deferred income taxes -- (33,200) Write-off of discontinued packaging 211,317 -- -------- -------- (467,253) (503,322) -------- -------- Net change in non-cash working capital balances Accounts receivable (320,383) 101,985 Income taxes receivable 24,800 (8,000) Inventory 285,830 (78,666) Prepaid expenses 1,682 7,727 Accounts payable and accrued liabilities 154,866 38,154 Loan payable -- 30,000 -------- -------- 146,795 91,200 -------- -------- (320,458) (412,122) -------- -------- Cash flows from investing activities Purchase of capital assets -- (118,518) Reduction of loan receivable 7,131 1,700 -------- -------- 7,131 (116,818) -------- -------- Cash flows from financing activities Advances from related parties 327,500 71,800 Increase (decrease) in bank operating loan (13,000) 32,942 Repayment of long-term debt (155,292) (155,292) Proceeds from (repayment of) capital lease obligation (13,739) 58,210 Proceeds from issuance of shares 300,000 360,000 -------- -------- 445,469 367,660 -------- -------- Increase (decrease) in cash during the year 132,142 (161,280) Cash (bank overdraft) - Beginning of year (139,390) 21,890 -------- -------- Bank overdraft - End of year (7,248) (139,390) -------- -------- Interest paid -- 61,799 -------- -------- Income taxes paid -- -- -------- -------- PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- 1 Going concern During the years ended June 30, 20O0 and 1999, the company incurred significant losses. As at June 30, 2000, there is a deficit of $1,171,882 (1999 - $415,155) and a working capital deficiency of $302,108 (1999 - $103,750). The company was also in contravention of certain covenants included in its banking agreement. These conditions create doubt about the company's ability to carry on as a going concern without further support of the shareholders. These financial statements have been prepared on a going concern basis, which assumes that the company will realize its assets and discharge its liabilities in the normal course of business. If the company is not able to achieve profitable operations and receive the continued financial support of its lenders and shareholders, assets may be realized and liabilities discharged at significantly different amounts to those presented in the financial statements. 2 Significant accounting policies Inventory Inventory is recorded at the lower of average cost and market. Cost includes materials, labour and applicable factory overhead. Market is replacement cost for raw materials and supplies and net realizable value for finished goods. Capital assets Capital assets are recorded at cost less accumulated amortization. Amortization is provided for over the estimated useful lives of the assets on the following basis: Manufacturing equipment 15 years straight-line Furniture and fixtures 15 years straight-line Computer hardware and software 15 years straight-line Manufacturing tools 15 years straight-line Leasehold improvements 20% straight-line Trademarks 20% declining balance Foreign currency translation Transactions in foreign currencies are initially recorded in Canadian dollars at exchange rates in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the year-end exchange rates. The resultant gain or loss is included in net earnings Income taxes The company records income taxes by the deferral method. (1) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- Use of estimates A precise determination of many assets and liabilities is dependent upon future events, and therefore, the preparation of financial statements in conformity, with Canadian generally accepted accounting principles requires management to use estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and the 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. 3 Inventory 2000 1999 $ $ Raw materials 72,430 163,374 Finished goods 57,049 100,282 Packaging supplies -- 361,702 Other supplies 6,361 7,630 ------- ------- 135,840 632,988 ------- ------- The ability of the company to realize the cost of its packaging supplies is dependent on the level of future sales of certain products. In management's estimate, these levels will be met. However, if the assumptions used by management in making this determination are not borne out by the actual results, it is reasonably possible, based on existing knowledge, that the net recoverable amount could be less than the carrying cost by a material amount.
4 Capital assets 2000 1999 --------------------------------------------------- -------- Accumulated Cost amortization Net Net $ $ $ $ Manufacturing equipment 649,808 173,479 476,329 511,319 Furniture and fixtures 41,960 17,506 24,454 27,946 Computer hardware and software 83,006 54,185 28,821 43,232 Manufacturing tools 14,181 5,357 8,824 10,084 Leasehold improvements 125,982 83,459 42,523 63,924 Trademarks 25,672 14,421 11,251 13,854 --------------------------------------------------- -------- 940,609 348,407 592,202 670,359 --------------------------------------------------- --------
Capital assets include manufacturing equipment under capital lease with a cost of $67,000 less accumulated amortization of $67,000 (1999 - $2,233). (2) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- 5 Bank indebtedness The company has a $250,000 demand line of credit facility, subject to limitations based on the level of accounts receivable and inventory. Outstanding advances bear interest at prime plus 1.75%. See note 6 for security on the facility. 6 Long-term debt
2000 1999 $ $ Bank of Nova Scotia term loan, payable at $7,291 per month plus interest at prime plus 2.25%, due March 22, 2002 167,725 255,217 Bank of Nova Scotia term loan, payable at $5,650 per month plus interest at prime plus 3%, due August 22, 2000 44,568 112,368 ------- ------- 212,293 367,585 Less: Current portion 132,060 155,292 ------- ------- 80,233 212,293 ------- -------
The following have been provided as security for the amounts owing to the Bank of Nova Scotia: - a general security agreement over all present and future persona[ property with appropriate insurance coverage loss, if any, payable to the bank - a general assignment of book debts and security under Section 427 of the Bank Act - commercial creditor life insurance of $200,000 on each of the lives of Vincent van den Bosch and Marijke van den Bosch - guarantees by certain shareholders and related individuals and a collateral mortgage providing a third fixed charge for an unspecified amount over a residence - a postponement agreement covering an amount of $37,000 supported by respective promissory note(s). Subsequent to year end, the bank term loans and bank indebtedness were repaid. (3) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- 7 Capital lease obligation Minimum payments under the capital lease obligation are as follows: 2000 1999 $ $ 2000 -- 21,710 2001 19,044 21,710 2002 19,044 9,046 2003 7,936 21,710 ------- ------- Total minimum lease payments 46,024 74,176 Less: Computed interest (1,553) (15,966) ------- ------- 44,471 58,210 Less: Current portion (15,227) (13,739) ------- ------- 29,244 44,471 ------- ------- Interest expense on the capital lease obligation amounts to $5,305 (1999 - $3,167). 8 Advances from related parties Advances from related parties are unsecured, non-interest bearing, and without specific terms of repayment. During the year, the directors of the company agreed to issue 40,000 Class A common shares as consideration for the repayment of a $50,000 advance. 9 Capital stock Authorized 1,000,000 Class A voting common shares without par value 10,000 Class B non-voting common shares without par value 1,000,000 Class A non-voting preferred shares with no par value, redemption value of $1 and preferential cumulative dividend at a rate of 1999 - 10,000) Issued and outstanding 2000 1999 $ $ 800,000 Class A common shares (1999 - 300,000) 660,000 360,000 240,000 Class A preferred shares 240,000 240,000 -------------------------- 900,000 600,000 (4) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- At year end, cumulative undeclared dividends on the Class A preferred shares were $25,600 (1999 - $6,400) During the year, the company: o altered its authorized share capital by an increase in authorized Class A preferred shares from 10,000 to 1,000,000 shares o issued to Hagensborg Limited, a related company 500,000 Class A common shares for $300,000. 10 Related party transactions During the year, the company had: a) product sales in the normal course of business and transferred $179,443 of packaging inventory, at cost, to Hagensborg Foods Corporation (HFC). At year end, $307,947 owing from HFC is included in accounts receivable b) sales of $nil (1999 - $5,988) to a company related to a former shareholder. At year end, $4,242 (1999 - $4,262) owing from this company is in accounts receivable and $13,617 (1999 - $17,355) of packaging materials is held in inventory for this company. Subsequent to year end, the company received payment for the receivable and inventory and repaid the loan payable. Accounts payable and accrued liabilities include $nil (1999 - $53,882) due to related parties. 11 Commitments Premises and equipment leases The company leases certain premises and equipment. Annual minimum lease payments are due as follows: $ 2001 161,300 2002 161,300 Inventory purchases The company has entered into a forward purchase, contract expiring December 31, 2001 for the purchase of specified quantities of chocolate at a fixed price denominated in Canadian dollars. (5) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- 12 Financial instruments Interest rate risk The company is exposed to interest rate risk on the bank indebtedness and long-term debt, which bear interest at floating rates as described in notes 5 and 6. Credit risk The company does not have any concentration of credit risk as revenues are earned from a diversified customer base. Exchange risk The company is exposed to foreign exchange risk, as a significant portion. of its sales are denominated in U.S. currency. 13 Income taxes The company has non-capital losses for tax purposes of approximately 51,332,000, the benefit of which has not been recognized in the financial statements, The losses are available to reduce taxable income in future years. If not utilized, these losses will expire as follows: $ June 30 2006 597,000 2007 735,000 14 Subsequent events a) Effective September 7, 2000, the company altered its authorized share capital by an increase in Class A common shares from 1,000,000 to 100,000,000 shares. b) On September 21, 2000, the company issued 5,000,000 Class A common shares to Hagensborg Limited, a related company, for $500,000 c) Effective August 1, 2000, the company, issued to Hagensborg Limited and Madrona Investments Ltd. convertible debentures of $300,000 each. The debentures bear interest at 8% per annum and are payable in full on September 1, 2003. At any time while principal or accrued interest is outstanding, the debenture holder may convert any portion of the outstanding amount into Class A common shares at the price of $0.20 per share. (6) PricewaterhouseCoopers Hagensborg Foods Ltd. Notes to Financial Statements June 30, 2000 All in Canadian Dollars - ----------------------------------------------------------------------- 15 Contingencies In March 1998, two former employees of the company filed a statement of claim against the company and its shareholders. The company filed a statement of defence and the outcome of this matter is not determinable. Item 4.2 CONSOLIDATED FINANCIAL STATEMENTS HAGENSBORG FOODS LTD. VANCOUVER, BRITISH COLUMBIA, CANADA MARCH 31, 2002 1. INDEPENDENT AUDITORS' REPORT 2. CONSOLIDATED BALANCE SHEET 3. CONSOLIDATED STATEMENT OF OPERATIONS 4. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY 5. CONSOLIDATED STATEMENT OF CASH FLOWS 6. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT To the Shareholders of Hagensborg Foods Ltd. We have audited the accompanying consolidated balance sheet of Hagensborg Foods Ltd. as of March 31, 2002 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the nine months ended March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 audit provides a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Hagensborg Foods Ltd. as of March 31, 2002 and the results of its operations and its cash flows for the period then ended in accordance with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a large deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ SPICER, JEFFRIES & CO. Denver, Colorado April 10, 2003 1 Hagensborg Foods Ltd. CONSOLIDATED BALANCE SHEET March 31, 2002 (US Dollars) 2002 - -------------------------------------------------------------------------------- ASSETS Current Accounts receivable $ 203,259 Inventory [Note 3] 225,402 Prepaid expenses 12,167 - -------------------------------------------------------------------------------- Total current assets 440,828 Property and equipment [Note 4] 283,262 - -------------------------------------------------------------------------------- $ 724,090 ================================================================================ LIABILITIES Current Bank indebtedness [Note 5] $ 52,038 Accounts payable and accrued expenses 184,871 Advance from related party (Note 12) 450,000 - -------------------------------------------------------------------------------- Total current liabilities 686,909 Amounts due to shareholders [Note 6] 28,000 - -------------------------------------------------------------------------------- 714,909 STOCKHOLDERS' EQUITY Share capital, Class A, 1,000,000,000 authorized, issued and outstanding, 6,894,000 shares [Note 7] 736,667 Preferred stock, Class A, 1,000,000 shares authorized, issued and outstanding 240,000 shares 160,000 Contributed surplus [Note 7] 120,000 Deficit (1,007,486) - -------------------------------------------------------------------------------- 9,181 - -------------------------------------------------------------------------------- $ 724,090 ================================================================================ The accompanying notes are an integral part of this statement. 2 Hagensborg Foods Ltd. CONSOLIDATED STATEMENT OF OPERATIONS Nine months ended March 31, 2002 (US Dollars) 2002 - -------------------------------------------------------------------------------- REVENUE Sales $ 1,168,522 Cost of goods sold 960,966 - -------------------------------------------------------------------------------- Gross profit 207,556 EXPENSES Premises and equipment leases 92,978 Salaries and benefits 58,551 Depreciation 44,089 Interest and bank charges 31,770 Office and general 26,366 Professional fees 14,858 Telephone and utilities 5,382 Repairs and maintenance 5,129 Insurance 4,786 Travel and promotion 2,706 Other 614 - -------------------------------------------------------------------------------- 287,229 - -------------------------------------------------------------------------------- Net loss before loss on disposition of equipment (79,673) Loss on disposition of equipment (15,566) - -------------------------------------------------------------------------------- NET LOSS (95,239) Deficit, beginning of period (925,457) - -------------------------------------------------------------------------------- DEFICIT, end of period $(1,020,696) ================================================================================ The accompanying notes are an integral part of this statement. 3
Hagensborg Foods Ltd. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY March 31, 2002 (US Dollars) - -------------------------------------------------------------------------------------------------------------------- Accumulated Deficit and Other Share Capital Contributed Comprehensive Common Preferred Surplus Income Total - -------------------------------------------------------------------------------------------------------------------- Balance, June 30, 2001 $ 672,400 $ 160,000 $ 117,600 $ (925,457) $ 24,543 2002 Common stock issued for debt 66,667 - - - 66,667 Common stock cancelled (2,400) - 2,400 - - Translation adjustment - - - 13,210 13,210 Net loss - - - (95,239) (95,239) - -------------------------------------------------------------------------------------------------------------------- Balance, March 31, 2002 $ 736,667 $ 160,000 $ 120,000 $ (1,007,486) $ 9,181 ==================================================================================================================== The accompanying notes are an integral part of this statement. 4
Hagensborg Foods Ltd. CONSOLIDATED STATEMENT OF CASH FLOWS Nine months ended March 31, 2002 (US Dollars) 2002 - -------------------------------------------------------------------------------- OPERATIONS Net loss $ (95,239) Items not involving cash: Depreciation 44,089 Loss on disposition of equipment 15,566 Foreign currency translation 13,210 Changes in non-cash working capital items: Increase in accounts receivable 12,719 Decrease in prepaid expenses 2,005 Decrease in accounts payable and accrued expenses (59,885) Increase in inventory (37,398) - -------------------------------------------------------------------------------- (104,933) FINANCING Advance from related party 450,000 Increase in amounts due to shareholders 19,669 Repayment of capital lease obligations (23,597) Repayment of convertible debenture (400,000) - -------------------------------------------------------------------------------- 46,072 INVESTING Proceeds from sale of property and equipment 6,029 - -------------------------------------------------------------------------------- Decrease in cash (52,832) Cash, beginning of period 794 - -------------------------------------------------------------------------------- CASH (BANK INDEBTEDNESS), end of period $ (52,038) ================================================================================ The accompanying notes are an integral part of this statement. 5 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nine months ended March 31, 2002 (US Dollars) 1. NATURE OF OPERATIONS - -------------------------------------------------------------------------------- Hagensborg Foods Ltd., incorporated in British Columbia, Canada, is a privately held Company which sells and processes specialty food products. The Company sells its products to wholesale and retail customers in North America. For the year ended March 31, 2002 the Company incurred an operating loss of $95,239 . The Company's ability to continue its operations and to realize assets at their carrying values is dependent upon the continued support of its shareholders, obtaining additional financing and generating revenues sufficient to cover its operating costs. Management's plans in regard to these matters are to raise additional equity funds as to meet any operating needs. The financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities at amounts different from those reflected in these consolidated financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- Basis of consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Hagensborg Seafoods Ltd. All significant inter-company items have been eliminated in consolidation. Inventory - Inventory is recorded at the lower of average cost and market. Cost includes materials, labor and applicable warehouse overhead. Market is replacement cost for raw materials and supplies and net realizable value for finished goods. Revenue recognition - Revenue from the sale of products to customers is recognized at the time goods are shipped. Property and equipment - Property and equipment is recorded at cost less accumulated amortization. Amortization is provided for over the estimated useful lives of the assets on the following basis and annual rates: Asset Basis Rate - -------------------------------------------------------------------------------- Manufacturing equipment Straight-line 15 years Manufacturing tools Straight-line 15 years Furniture and fixtures Straight-line 15 years Leasehold improvements Straight-line 20% Computer hardware and software Straight-line 15 years Trademarks Declining balance 20% Foreign currency translations - Transactions in Canadian currency are initially recorded in US dollars at exchange rates in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the year-end exchange rates. All exchange gains and losses are deferred in shareholders equity. Leases - Leases are classified as capital or operating leases. Leases which transfer substantially all of the benefits and risks incident to ownership of property are accounted for as capital leases. All other leases are accounted for as operating leases and the related lease payments are charged to expense as incurred. 6 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Nine months ended March 31, 2002 (US Dollars) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) - -------------------------------------------------------------------------------- Financial instruments - Substantially all of the Company's assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Estimates of fair value are made at a specific point in time, based on relative market information and information about each financial instrument, specifically, the value of the underlying financial instrument. Assets that are recorded at fair value consist largely of short-term receivables and other assets, which are carried at contracted amounts that approximate fair value. Similarly, the Company's liabilities consist of short term liabilities recorded at contracted amounts that approximate fair value. It is management's opinion that the company is not exposed to significant interest, credit risk or currency risks arising from its financial instruments. Future income taxes - Future income taxes are recognized for the future income tax consequences attributable to temporary differences between the carrying values of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using enacted income tax rates expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in rates is included in earnings in the period the includes the enactment date. Future income tax assets are recorded in the financial statements if realization is considered more likely than not. Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles 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. 3. INVENTORY - -------------------------------------------------------------------------------- 2002 - ------------------------------------------------------------------------- Packaging supplies $ 163,192 Raw materials 20,601 Finished goods 37,368 Other supplies 4,241 - ------------------------------------------------------------------------- $ 225,402 ========================================================================= 7 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Nine months ended March 31, 2002 (US Dollars) 4. PROPERTY AND EQUIPMENT - -------------------------------------------------------------------------------- Accumulated Net Book Value Cost Depreciation 2002 - -------------------------------------------------------------------------------- Manufacturing equipment $ 385,990 $ 151,047 $ 234,943 Manufacturing tools 33,328 13,668 19,660 Furniture and fixtures 33,176 17,752 15,424 Leasehold improvements 83,988 80,981 3,007 Computer hardware and software 60,179 53,871 6,308 Trademarks 16,546 12,626 3,920 - -------------------------------------------------------------------------------- $ 613,207 $ 329,945 $ 283,262 ================================================================================ 5. BANK INDEBTEDNESS - -------------------------------------------------------------------------------- The company has a $250,000 overdraft facility. It is personally guaranteed by a shareholder of the company. Outstanding advances bear interest at prime plus 1.75%. 6. AMOUNTS DUE TO SHAREHOLDERS - -------------------------------------------------------------------------------- Advances due to shareholders are unsecured, non-interest bearing, and have no specific terms of repayment. 8 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Nine months ended March 31, 2002 (US Dollars) 7. SHARE CAPITAL The Company has authorized share capital as follows: 100,000,000 Class A voting common shares without par value 10,000 Class B non-voting common share without par value 1,000,000 Class A non-voting preferred shares with no par value, redemption value of CDN$1 and preferential cumulative dividend at a rate of 8% The shares issued and outstanding are as follows: 2002 Number Amount - -------------------------------------------------------------------------------- Common shares - Class A Balance, beginning of period 5,903,000 $ 672,400 Shares issued (cancelled): for debt 1,000,000 66,667 cancelled (9,000) (2,400) - -------------------------------------------------------------------------------- Balance, end of period 6,894,000 $ 736,667 Class A preferred shares Balance, beginning and end of period 240,000 $ 160,000 - -------------------------------------------------------------------------------- $ 896,667 ================================================================================ No Class B shares have been issued. As of March 31, 2002 cumulative undeclared dividends on the Class A preferred shares amounted to $29,867. 9 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Nine months ended March 31, 2002 (US Dollars) 8. RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- During the year the Company had the following related party transactions: The Company had product sales of $276,590 in the normal course of business and purchased $12,504 of packaging inventory, at cost, from Hagensborg Food Corporation ("HFC"). HFC and the Company are controlled by common shareholders. Accounts receivable includes $24,723 due from HFC. Accounts payable includes $18,248 due to HFC. The Company is indebted to its shareholders as described in Note 6. 9. COMMITMENTS - -------------------------------------------------------------------------------- The Company leases certain premises and equipment. Annual minimum lease payments are due as follows: 2003 $ 93,822 2004 1,212 2005 303 - -------------------------------------------------------------------------------- $ 95,337 =============================================================================== 10. INCOME TAXES - -------------------------------------------------------------------------------- The Company has non-capital losses of $1,105,000 which may be available to be applied against any future taxable income. The future income tax asset in respect of these losses has not been recognized in the financial statements. 2002 - -------------------------------------------------------------------------------- Income taxes based on a combined basic federal and provincial income tax rate of 45.1% $ (42,953) Decrease in taxes resulting from: Losses for which an income tax benefit has not been recognized 42,953 - -------------------------------------------------------------------------------- Income tax expense $ - ================================================================================ 10 Hagensborg Foods Ltd. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued Nine months ended March 31, 2002 (US Dollars) 11. INCOME TAXES (continued) - -------------------------------------------------------------------------------- The Company's tax losses will expire, if not used, as follows: 2006 $ 398,000 2007 490,000 2008 135,000 2009 82,000 - -------------------------------------------------------------------------------- $ 1,105,000 ================================================================================ 12. SUBSEQUENT EVENT - -------------------------------------------------------------------------------- On April 19, 2002, the Company acquired all the assets of HFC, excluding the cash and accounts receivable, for $1,000,000. HFC shares certain common shareholders and directors with the Company. On April 1, 2002, the Company was acquired by Garuda Capital Corp. (Garuda) for $700,000. As of March 31, 2002, Garuda advanced $450,000 toward the purchase price to the Company. 11 -----END PRIVACY-ENHANCED MESSAGE-----