HARP & EAGLE LTD - 10QSB - 20020917 - FINANCIAL_STATEMENTS
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
2
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, 2002 December 31, 2001
-------------- -----------------
ASSETS
------
Current assets
--------------
Cash and cash equivalents $ 119,065 $ 105,383
Accounts receivable 4,977 3,639
Due from related party 33,502 16,883
Inventory 11,247 11,925
Prepaid expenses 57,087 25,106
---------- ----------
Total current assets 225,878 162,936
---------- ----------
Property and equipment
----------------------
Land 194,256 218,750
Buildings and improvements 1,118,158 1,006,709
Furniture, fixtures and equipment 264,759 351,448
---------- ----------
1,577,173 1,576,907
Less accumulated depreciation 176,565 160,255
---------- ----------
Net property and equipment 1,400,608 1,416,652
---------- ----------
Other assets
------------
Goodwill, net of accumulated amortization of $3,319 at
March 31, 2002 and $3,101 at December 31, 2001 14,119 14,337
Amounts receivable from shareholder 19,411 19,411
Costs of issuing stock 207,896 201,396
Deferred tax asset 22,000 25,000
Investment in affiliated company 326,300 326,300
---------- ----------
Total other assets 589,726 586,444
---------- ----------
$2,216,212 $2,166,032
========== ==========
See notes to consolidated financial statements.
3
(Unaudited)
LIABILITIES AND March 31, 2002 December 31, 2001
--------------- -------------- -----------------
STOCKHOLDERS' EQUITY
--------------------
Current liabilities
-------------------
Bank overdraft $ 22,356 $ 25,224
Notes payable - related parties 112,700 112,700
Notes payable - other 33,000 33,000
Current maturities of long-term debt 370,661 371,252
Accounts payable 63,572 127,686
Accrued liabilities:
Interest 19,075 17,135
Other 49,187 71,420
Customer deposits 273,062 123,134
----------- -----------
Total current liabilities 943,613 881,551
Long-term debt, less current maturities 490,038 508,102
----------- -----------
Total liabilities 1,433,651 1,389,653
----------- -----------
Commitments and contingencies
Stockholders' equity
--------------------
Preferred stock -- --
Common stock 195 195
Additional paid-in capital 1,185,175 1,185,175
Accumulated deficit (203,037) (212,556)
Foreign currency translation adjustment (199,772) (196,435)
----------- -----------
Total stockholders' equity 782,561 776,379
----------- -----------
$ 2,216,212 $ 2,166,032
=========== ===========
See notes to consolidated financial statements.
4
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three months ended March 31,
2002 2001
---- ----
Sales $ 251,933 $ 209,497
Cost of sales 44,258 21,674
Operating expenses 188,242 187,586
--------- ---------
Income from operations 19,433 237
--------- ---------
Other income (expense)
----------------------
Interest income 451 3,345
Interest expense (7,365) (16,711)
--------- ---------
Other expense, net (6,914) (13,366)
--------- ---------
Income (loss) before provision for income taxes 12,519 (13,129)
Income tax expense (benefit) 3,000 (3,500)
--------- ---------
Net income (loss) $ 9,519 $ (9,629)
========= =========
Net income (loss) per common
share $ 0.01 $ (0.02)
See notes to consolidated financial statements.
5
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 $ 195
Comprehensive income:
Net income -- -- --
Foreign currency translation adjustment -- -- --
-------- -------- --------
Total comprehensive income
Balance March 31, 2002 $ -- 649,661 $ 195
======== ======== ========
Common stock - par value of $.0003; 10,000,000 shares authorized, 649,661 shares
issued and outstanding.
Preferred stock - 2,000,000 shares authorized, no shares have been issued.
(Unaudited)
Three months ended March 31,
2002 2001
---- ----
Operating activities
--------------------
Net income (loss) $ 9,519 $ (9,629)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Amortization of goodwill 218 291
Depreciation 16,044 16,268
Deferred tax expense (benefit) 3,000 (3,500)
Decrease (increase) in:
Accounts receivable (1,338) (14,126)
Inventory 678 (5,735)
Prepaid expenses (31,981) (32,592)
Increase (decrease) in:
Bank overdraft (2,868) (10,923)
Accounts payable (64,114) (4,847)
Accrued liabilities (20,293) (57,703)
Customer deposits 149,928 139,327
--------- ---------
Net cash provided by operating activities 58,793 16,831
--------- ---------
Investing activities
--------------------
Purchases of property and
equipment -- (43,643)
Increase in amounts receivable
from shareholder (16,619) --
--------- ---------
Net cash used for investing activities (16,619) (43,643)
--------- ---------
See notes to consolidated financial statements.
8
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Three months ended March 31,
2002 2001
---- ----
Financing activities
--------------------
Proceeds from long term debt $ -- $ 39,903
Retirement of long term debt (18,655) (54,488)
Costs of issuing stock (6,500) (21,041)
--------- ---------
Net cash used by financing activities (25,155) (35,626)
--------- ---------
Effect of exchange rate changes
on cash (3,337) 50,810
--------- ---------
Cash and cash equivalents
Net increase (decrease) 13,682 (11,628)
Beginning of period 105,383 260,485
--------- ---------
End of period $ 119,065 $ 248,857
========= =========
Supplemental cash flow information
----------------------------------
Cash paid for interest $ 5,425 17,575
Cash paid for taxes $ -- $ --
9
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 March 31, 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 March
31, 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.
Note 2 - Earnings per share
Earnings per share has been computed based on the weighted average shares
outstanding for the periods below:
Income (loss) Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic income (loss) per common share:
Income (loss) available to common stockholders:
Three months ended March 31, 2002 $ 9,519 649,661 $ .01
------------ ============
Three months ended March 31, 2001 $ (9,629) 504,339 $ (.02)
------------ ============
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 Company's 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.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following commentary in conjunction with the financial
statements and related notes contained elsewhere in this report.
FORWARD-LOOKING STATEMENTS
Certain information in this report, including the following discussion, may
include forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
We intend the disclosure in these sections and throughout this report on Form
10-QSB to be covered by the safe harbor provisions for forward-looking
statements. All statements regarding our expected financial position and
operating results, business strategy, financing plans, and the outcome of any
contingencies are forward-looking statements. These statements can sometimes by
identified by our use of words such as "may", "believe", "plan", "will",
"anticipate", "estimate", "expect", "intend", and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. Forward-looking information is based on various factors and was
derived using numerous assumptions.
BACKGROUND
Our Castledaly Manor inn and restaurant facility, located on 37 acres
outside of Athlone, in County Westmeath, Ireland, is housed in a renovated manor
house and stable blocks which were originally constructed as a working estate in
the early 18th Century. During 1997, a group of Wisconsin investors organized
Castledaly Acquisition Corporation which purchased one-half of the outstanding
"ordinary shares" of Castledaly Manor, Ltd., an Irish limited company; an Irish
entrepreneur owned the balance. Castledaly Manor, Ltd. owns 100% of the equity
in Castledaly Manor. An Irish limited company, which is comparable to a typical
business corporation in the United States, provides limited liability to its
shareholders; its equity shares, which are comparable to common stock, are
referred to as "ordinary shares."
During 1999, Castledaly Acquisition Corporation acquired 100% ownership of
Castledaly Manor, Ltd. During 2000 and 2001, Harp & Eagle acquired all of the
outstanding common stock of Castledaly Acquisition Corporation, thereby becoming
the sole owner of Castledaly Manor.
Originally, Castledaly Manor had 11 rooms available for rent. Early in
2001, it expanded by renovation of the stable blocks behind the manor house,
thereby adding an additional 12 guest rooms; with these additional rooms, the
inn now has 23 guest rooms available for rent. We opened the new rooms for
occupancy in April 2001.
RESULTS OF OPERATIONS
Sales and costs of sales
Sales increased in the first quarter 2002 over the comparable period of
2001 from $209,497 to $251,933, an increase of $42,436, or 20%. Sales increased
over the prior year due principally to the increased capacity of our facility,
described above, and corresponding increased occupancy and patronage.
Additionally, we increased the price of our rooms/tours and benefitted from
additional travel volume generally, following the decline experienced in the
aftermath of the September 11, 2001 attack on the World Trade Center.
We receive approximately 56% of our sales revenue from airline tickets, 33%
from room rentals, and 11% from food and beverage sales.
Cost of sales increased in the first quarter 2002 over the comparable
period of 2001 from $21,674 to $44,258, due to increased costs associated with
the greater capacity and increased usage described above.
11
As a result of increased sales revenues, offset somewhat by increased cost
of sales, gross profit increased $19,852, from $187,823 to $207,675, or 11%, for
the period ended March 31, 2002 as compared to the period ended March 31, 2001.
Operating Expenses
Our operating expenses remained substantially unchanged, growing in the
first quarter of 2002 over the comparable period in 2001 by only $656, or 0.3%,
from $187,586 to $188,242. Generally, our operating expenses are comprised of
62% for airline tickets (approximates our cost for such tickets), 27% for room
rentals, 9% for food and beverage sales, and 2% for other miscellaneous
expenses. Commencing as of April 1, 2001, the rentable-room capacity of
Castledaly Manor more than doubled and sales increased, as described above.
However, such revenue growth was not accompanied by comparable increases in
costs, predominantly due to certain "economies of scale." The same number of
employees as had been required to operate the pre-expansion Castledaly Manor
were able to operate and maintain the enlarged facility in approximately the
same amount of time at substantially equal cost, and our expenses associated
with the operation of 11 rooms, principally wages of housekeeping personnel, did
not increase materially when we grew to 23 rooms.
Net Income
Based on our improved occupancy rate and increased room/tour prices,
described above, we achieved net income for the first quarter of 2002 of $9,519,
compared to a net loss of $9,629 for the comparable 2001 period, an increase of
$19,148, or 199%.
Changes in Assets and Liabilities
Assets and liabilities remained substantially unchanged from March 31, 2001
to March 31, 2002, except for an increase in liabilities due principally to the
increase in customer deposits from $123,134 at December 31, 2001 to $273,062 at
March 31, 2002, an increase of $149,928, or 122%. We believe that such increase
in customer deposits was due to factors described above, including our greater
capacity at Castledaly Manor, the increase in our room and tour charges and the
general improvement in travel-related business after the September 11 attack.
FINANCIAL CONDITION
Our principal source of liquidity from operations has been and remains cash
earnings from rental of hotel rooms, and food and liquor sales.
To provide additional liquidity, we obtained a revolving term loan credit
facility from a U.S. commercial bank, under which we may borrow up to a maximum
of $350,000 at a rate of interest equal to the prime rate plus 0.5%. Pursuant to
the current agreement, the lending commitment terminates April 30, 2002, and any
loan balance outstanding shall be paid on that date; however, we have not
experienced difficulty in renewing and extending previous credit agreements and
anticipate that the current agreement will be extended on acceptable terms.
(Also see Part II, Item 5 of this report concerning the renewal of such credit
facility subsequent to March 31, 2002 but prior to the filing date of this
report.) Amounts outstanding under such credit facility are guaranteed by County
Clare, Ltd., a related party, and by a stockholder of Harp & Eagle. As of March
31, 2002, approximately $338,117 was outstanding under this credit facility, all
of which we intend to repay with proceeds of our ongoing initial public
offering, provided that the required 60,000-share minimum offering is sold on or
before April 11, 2002. (Also see Part II, Item 5 of this report concerning the
sale of such minimum offering amount subsequent to March 31, 2002 but prior to
the filing date of this report.) Following any such repayment, we may if we
choose to do so, re-borrow up to $350,000 on the same terms described above.
INFLATION AND OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS.
We have not been affected by inflation in the past, and do not expect
inflation to have a significant effect on operations in the foreseeable future.
12
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
See Schedule A, attached.
ITEM 5. OTHER INFORMATION.
Subsequent Events.
(a) Subsequent to March 31, 2002, but prior to the filing of this
report, the registrant completed the sale of the required 60,000-share minimum
offering within the period provided under the terms of its initial public
offering. The first disbursement of escrowed offering proceeds occurred on April
11, 2002, and the registrant's initial public offering remains ongoing as of the
filing date of this report.
(b) Subsequent to March 31, 2002, but prior to the filing of this
report, the registrant secured the renewal of the credit facility provided by a
commercial bank, as described under Part I, Item 2 of this report, on the same
terms which existed prior to April 30, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
99.1 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.
(b) Reports on Form 8-k
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARP & EAGLE, LTD.
Dated: September 17, 2002 By: /s/ CARY JAMES O'DWANNY
--------------------------------------------
Cary James O'Dwanny, President and Treasurer
(Principal Executive Officer
and
Principal Financial Officer)
13
CERTIFICATIONS
I, Cary James O'Dwanny, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Harp & Eagle,
Ltd.;
2. Based on my knowledge, this quarterly 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 quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. *
5. *
6. *
Date: September 17, 2002
/S/ CARY JAMES O'DWANNY
---------------------------------------
Cary James O'Dwanny,
President (Chief Executive Officer)
and Treasurer (Chief Financial Officer)
* Omitted pursuant to transition provisions described in Section V of
Securities Act Release No. 33-8124.
14
SCHEDULE A
HARP & EAGLE, LTD.
FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Pursuant to Securities Act Rule 463, the following information (as
identified in paragraphs (f)(2) through (f)(4) of Regulation S-B Item 701) is
provided concerning the initial public offering ("Offering") of its common
stock, par value $0.0001 per share ("Common Stock"), conducted by Harp & Eagle,
Ltd. ("Company"), pursuant to a registration statement on Form SB-2 under the
Securities Act of 1933 (File No. 333-55088), which initially became effective as
of December 11, 2001:
(f)(2) through (f)(4)(i): The Offering commenced as of December 11,
2001, and remained ongoing as of March 31, 2002.
(f)(4)(ii): The managing underwriter of the Offering is J.E. Liss &
Company, Inc. d/b/a Liss Financial Services, of Milwaukee, Wisconsin.
(f)(4)(iii) through (f)(4)(iv): 1,000,000 shares of Common Stock were
registered on Form SB-2, all of which are included in the Offering; all
such shares were registered for the account of the Company; the
aggregate price of the Common Stock registered (calculated at $6.00 per
share, the initial public offering price) was $6,000,000; during the
period from December 11, 2001 through March 31, 2002, no shares were
sold in the Offering inasmuch as the 60,000-share minimum offering
requirement which must be met on or before April 11, 2002 had not been
satisfied as of that date.
(f)(4)(v): From December 11, 2001 through March 31, 2002, the Company
incurred the following expenses in connection with the Offering:
Legal and accounting fees and expenses $ 32,500 *
Other expenses 400 *
-------------
Total expenses $ 32,900 *
=============
* Estimate
Approximately $6,500 of the above expenses consisted of fees and
expense reimbursements paid to Kranitz & Philipp, counsel to the
Company. Richard A. Kranitz, a partner in Kranitz & Philipp, is the
Secretary and a director of the Company. Apart from the foregoing, none
of the above expenses were paid, directly or indirectly, to directors
or officers of the Company, or to their affiliates, or to persons
owning ten percent or more of any class of equity securities of the
Company, or to affiliates of the Company.
(f)(4)(vi) through (f)(4)(vii): As noted above, the Company will not
receive any proceeds of the Offering unless and until the minimum
60,000-share minimum offering requirement is met on or before April 11,
2002. (See Part II, Item 5 of this report.)
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
99.1 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.
Exhibit Index
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Harp & Eagle, Ltd. ("Company")
on Form 10-QSB for the period ending March 31, 2002, as filed with the
Securities and Exchange Commission on September 4, 2002 ("Report"), I, Cary
James O'Dwanny, Chief Executive Officer and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)),
except that such Report was not timely filed; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
/s/ CARY JAMES O'DWANNY
----------------------------
Cary James O'Dwanny
Chief Executive Officer and
Chief Financial Officer
September 17, 2002
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