ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, 2002 December 31, 2001
------------------ -----------------
ASSETS
Current assets
--------------
Cash and cash equivalents $ 185,289 $ 105,383
Accounts receivable 6,599 3,639
Due from related party 38,671 16,883
Inventory 12,089 11,925
Prepaid expenses 54,161 25,106
---------- ----------
Total current assets 296,809 162,936
---------- ----------
Property and equipment
----------------------
Land 204,309 218,750
Buildings and improvements 1,263,343 1,006,709
Furniture, fixtures and equipment 312,204 351,448
Construction in progress 30,000 -
---------- ----------
1,809,856 1,576,907
Less accumulated depreciation 209,949 160,255
---------- ----------
Net property and equipment 1,599,907 1,416,652
---------- ----------
Other assets
------------
Goodwill, net of accumulated amortization of $3,755 at
September 30, 2002 and $3,101 at December 31, 2001 14,337 14,337
Amounts receivable from shareholder 19,411 19,411
Costs of issuing stock - 201,396
Deferred tax asset 12,500 25,000
Investment in affiliated company 330,350 326,300
---------- ----------
Total other assets 376,598 586,444
---------- ----------
$2,273,314 $2,166,032
========== ==========
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See notes to consolidated financial statements.
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(Unaudited)
LIABILITIES AND September 30, 2002 December 31, 2001
--------------- ------------------ -----------------
STOCKHOLDERS' EQUITY
--------------------
Current liabilities
-------------------
Notes payable - related parties $ 25,000 $ 112,700
Notes payable - other 5,534 33,000
Current maturities of long-term debt 374,812 371,252
Accounts payable 15,028 152,910
Accrued liabilities:
Interest 19,400 17,135
Other 76,223 71,420
Customer deposits 203,684 123,134
----------- -----------
Total current liabilities 719,681 881,551
Long-term debt, less current maturities 528,359 508,102
----------- -----------
Total liabilities 1,248,040 1,389,653
----------- -----------
Commitments and contingencies
Stockholders' equity
--------------------
Preferred stock - -
Common stock 72 65
Additional paid-in capital 1,267,934 1,185,305
Retained earnings (accumulated deficit) (175,562) (212,556)
Foreign currency translation adjustment (67,170) (196,435)
----------- -----------
Total stockholders' equity 1,025,274 776,379
----------- -----------
$ 2,273,314 $ 2,166,032
=========== ===========
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3
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited) (Unaudited)
Three months ended September 30, Nine months ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
Sales $ 457,505 $ 406,949 $ 1,093,240 $ 1,085,108
Cost of sales 77,549 34,502 182,216 89,112
Operating expenses 362,691 338,652 820,250 900,993
----------- ----------- ----------- -----------
Income from operations 17,265 33,795 90,774 95,003
----------- ----------- ----------- -----------
Other income (expense)
Interest income 738 1,349 2,414 5,651
Interest expense (13,470) (19,403) (43,694) (53,730)
----------- ----------- ----------- -----------
Other expense, net (12,732) (18,054) (41,280) (48,079)
----------- ----------- ----------- -----------
Income before provision for income taxes 4,533 15,741 49,494 46,924
Income tax expense 1,000 8,915 12,500 9,312
----------- ----------- ----------- -----------
Net income $ 3,533 $ 6,826 $ 36,994 $ 37,612
=========== =========== =========== ===========
Net income per common share $ 0.00 $ 0.01 $ 0.05 $ 0.07
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See notes to consolidated financial statements.
4
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Common
Preferred Shares Common
Stock Outstanding Stock
----- ----------- -----
Balance December 31, 2001 $ -- 649,661 $ 65
Issuance of stock offering 68,105 7
Comprehensive income:
Net income -- -- --
Foreign currency translation adjustment -- -- --
------- ------- -------
Total comprehensive income
Balance September 30, 2002 $ -- 717,76 $ 72
======= ======= =======
Common stock - par value of $.0001; 10,000,000 shares authorized, 717,766 and
649,661 shares issued and outstanding at September 30, 2002 and December 31,
2001, respectively.
Preferred stock - 2,000,000 shares authorized, no shares have been issued.
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See notes to consolidated financial statements.
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Retained Accumulated
Additional Stock earnings/ Other
Paid-In Subscriptions (Accumulated Comprehensive
Capital Receivable Deficit) Loss Total
------- ---------- -------- ---- -----
$ 1,185,305 $ -- $ (212,556) $ (196,435) $ 776,379
----------
82,629 82,636
----------
-- -- 36,994 36,994
-- -- -- 129,265 129,265
----------- ---------- ---------- ---------- ----------
166,259
----------
$ 1,267,934 $ -- $ (175,562) $ (67,170) $1,025,274
=========== ========== ========== ========== ==========
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HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
2002 2001
---- ----
Operating activities
--------------------
Net income $ 36,994 $ 37,612
Adjustments to reconcile net income to net
cash used by operating activities:
Amortization of goodwill -- 872
Depreciation 52,449 55,661
Deferred tax expense 12,500 9,312
Noncash compensation of officer -- 900
Decrease (increase) in:
Accounts receivable (2,960) 722
Inventory (164) (6,257)
Prepaid expenses (29,055) (27,324)
Increase (decrease) in:
Accounts payable (137,882) (10,602)
Accrued liabilities 7,068 1,441
Customer deposits 80,550 (106,787)
--------- ---------
Net cash used by
operating activities 19,500 (44,450)
--------- ---------
Investing activities
--------------------
Purchases of property and
equipment (64,553) (371,574)
Investment in unconsolidated subsidiary (4,050) --
Decrease in amounts due to/from
related parties (109,488) --
--------- ---------
Net cash used for investing
activities (178,091) (371,574)
--------- ---------
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See notes to consolidated financial statements.
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HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Nine months ended September 30,
2002 2001
---- ----
Financing activities
--------------------
Proceeds from long term debt $ -- $ 307,796
Retirement of long term debt (79,467) (40,000)
Issuance of common stock 344,442 --
Costs of issuing stock (60,410) (59,325)
--------- ---------
Net cash provided by financing activities 204,565 208,471
--------- ---------
Effect of exchange rate changes
on cash 33,932 (6,133)
--------- ---------
Cash and cash equivalents
-------------------------
Net increase (decrease) 79,906 (213,686)
Beginning of period 105,383 260,485
--------- ---------
End of period $ 185,289 $ 46,799
========= =========
Supplemental cash flow information
----------------------------------
Cash paid for interest $ 41,429 $ 48,955
Cash paid for taxes $ -- $ --
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HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Basis of presentation
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting of normal recurring adjustments) necessary for a
fair presentation of the financial information as of and for the three month
periods ended September 30, 2002 and 2001, in conformity with accounting
principles generally accepted in the United States of America. The financial
statements include the accounts of Harp & Eagle, Ltd. (Company), was formed in
September 1999 under the laws of the state of Wisconsin for the purpose of
acquiring all of the issued and outstanding common stock of Castledaly
Acquisition Corporation (Castledaly). In 2000, the Company acquired
approximately 63% of the outstanding common stock of Castledaly in a series of
transactions. The acquisition of Castledaly has been accounted for in a manner
similar to a pooling of interest since it was acquired from a company under
joint control and common management. In 2001, the Company acquired the remaining
37% ownership interest of Castledaly. Castledaly owns 100% of its subsidiary,
Castledaly Manor Limited (Manor), which owns and operates an Irish manor house
inn located in the village of Castledaly, Ireland. Operating results for the
three-month period ended September 30, 2002 are not necessarily indicative of
the results that may be expected for future periods.
The business of the Company, accounting policies followed, and other information
are contained in the notes to the consolidated financial statements for the
Company as of and for the years ended December 31, 2001 and 2000, filed as part
of the Company's annual report on Form 10-KSB. These consolidated financial
statements should be read in conjunction with the annual consolidated financial
statements.
In June 2001, the Financial Accounting Standards Board (FASB) issued two
Statements of Financial Accounting Standards, No. 141, Business Combinations
(SFAS No. 141), and No. 142, Goodwill and Other Intangible Assets (SFAS No.
142). SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, Business Combinations, and FASB
Statement No. 38, Accounting for Preacquisition Contingencies of Purchased
Enterprises. All business combinations in the scope of SFAS No. 141 are to be
accounted for using one method, the purchase method. The provisions of SFAS No.
141 apply to all business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method for those business combinations is prohibited. The
Company adopted this statement effective July 1, 2001. The adoption of the
provisions of this statement did not have a material impact on the consolidated
financial statements of the Company.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, Intangible
Assets. It addresses how intangible assets that are acquired individually or
with a group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition. SFAS No.
142 also addresses how goodwill and other intangible assets should be accounted
for after they have been initially recognized in the financial statements. Under
SFAS No. 142, goodwill and intangible assets that have indefinite useful lives
will not be amortized but rather will be tested at least annually for
impairment. Intangible assets that have finite useful lives will continue to be
amortized over their useful lives, but without the constraint of the 40-year
maximum life required by SFAS No. 142. The provisions of SFAS No. 142 are
required to be applied starting with fiscal years beginning after December 15,
2001. The Company adopted the provisions of SFAS No. 142 effective January 1,
2002. The adoption of the provisions of this statement did not have a material
impact on the consolidated financial statements of the Company.
In August, 2001, the FASB issued the Statement of Financial Accounting
Standards, No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144). The Statement supercedes FASB Statement 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and APB Opinion No. 30, Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 also amends ARB No.
51,
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Consolidated Financial Statements. SFAS No.144 establishes a single accounting
model, to dispose of by sale, for disposal of long-lived assets. The provisions
of this Statement are effective for fiscal years beginning after December 15,
2001. The Company adopted the provisions of SFAS No. 144 effective January 1,
2002. The adoption of the provisions of this statement did not have a material
impact on the consolidated financial statements of the Company.
Note 2 - Earnings per share
Earnings per share has been computed based on the weighted average shares
outstanding for the periods below:
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic income per common share:
Income available to common stockholders:
Three months ended September 30, 2002 $ 3,533 717,766 $ .00
------------ ============
Three months ended September 30, 2001 $ 6,826 649,661 $ .01
------------ ============
Nine months ended September 30, 2002 $ 36,994 691,495 $ .05
------------ ============
Nine months ended September 30, 2001 $ 37,612 532,332 $ .07
------------ ============
During December, 2000 the Company granted options to purchase approximately
33,332 shares of common stock to four individuals, all of whom are officers,
directors and/or employees of the Company. These options were granted pursuant
to a plan adopted by the board of directors. All of these options are
exercisable for a period of ten years, at the price of $3.00 per share; however,
such options will not become fully vested and exercisable until July 1, 2007.
The exercise price of these options was determined by the Company to reflect the
fair value of the common stock as of December 31, 2000. These options have been
cancelled.
Note 3 - Reclassification
For comparability, prior period figures have been reclassified, where
appropriate, to conform with the financial statement presentation used for the
third quarter 2002.
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