As filed with the Securities and Exchange Commission on December 10, 2002.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NO. 0-33353
HARP & EAGLE, LTD.
(Exact name of small business issuer as specified in its charter)
WISCONSIN 39-1980178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1234 NORTH ASTOR STREET
MILWAUKEE, WISCONSIN 53202
(Address of principal executive offices) (Zip Code)
(414) 272-5273
(Issuer's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report)
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 [ ]
As of November 30, 2002, 717,766 shares of the small business issuer's common
stock, par value $0.0001 per share, were outstanding.
Transitional Small Business Disclosure Format (Check One:) Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
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)
June 30, 2002 December 31, 2001
------------- -----------------
ASSETS
Current assets
Cash and cash equivalents $ 368,623 $ 105,383
Accounts receivable - 3,639
Due from related party 39,871 16,883
Inventory 12,997 11,925
Prepaid expenses 116,213 25,106
---------- ----------
Total current assets 537,704 162,936
---------- ----------
Property and equipment
Land 214,464 218,750
Buildings and improvements 1,266,951 1,006,709
Furniture, fixtures and equipment 311,964 351,448
---------- ----------
1,793,379 1,576,907
Less accumulated depreciation 195,487 160,255
---------- ----------
Net property and equipment 1,597,892 1,416,652
---------- ----------
Other assets
Goodwill, net of accumulated amortization of $3,537 at
June 30,2002 and $3,101 at December 31,2001 13,901 14,337
Amounts receivable from shareholder 19,411 19,411
Costs of issuing stock - 201,396
Deferred tax asset 13,500 25,000
Investment in affiliated company 330,350 326,300
---------- ----------
Total other assets 377,162 586,444
---------- ----------
$2,512,758 $2,166,032
========== ==========
See notes to consolidated financial statements
3
(Unaudited)
June 30, 2002 December 31, 2001
------------- -----------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Notes payable - related parties $ 50,000 $ 112,700
Notes payable - other - 33,000
Current maturities of long-term debt 375,220 371,252
Accounts payable 66,540 152,910
Accrued liabilities:
Interest 19,400 17,135
Other 66,912 71,420
Customer deposits 350,080 123,134
----------- -----------
Total current liabilities 928,152 881,551
Long-term debt, less current maturities 548,182 508,102
----------- -----------
Total liabilities 1,476,334 1,389,653
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock - -
Common stock 215 195
Additional paid-in capital 1,277,446 1,185,175
Retained earnings (accumulated deficit) (179,095) (212,556)
Foreign currency translation adjustment (62,142) (196,435)
----------- -----------
Total stockholders' equity 1,036,424 776,379
----------- -----------
$ 2,512,758 $ 2,166,032
=========== ===========
See notes to consolidated financial statements.
4
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited) (Unaudited)
Three months ended June 30, Six months ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Sales $ 383,802 $ 468,662 $ 635,735 $ 678,159
Cost of sales 60,409 32,936 104,667 54,610
Operating expenses 278,323 374,755 457,559 562,341
--------- --------- --------- ---------
Income from operations 45,070 60,971 73,509 61,208
--------- --------- --------- ---------
Other income (expense)
Interest income 1,225 957 1,676 4,302
Interest expense (13,853) (17,616) (30,224) (34,327)
--------- --------- --------- ---------
Other expense, net (12,628) (16,659) (28,548) (30,025)
--------- --------- --------- ---------
Income before provision for income taxes 32,442 44,312 44,961 31,183
Income tax expense 8,500 3,897 11,500 391
--------- --------- --------- ---------
Net income $ 23,942 $ 40,415 $ 33,461 $ 30,786
========= ========= ========= =========
Net income per common share $ 0.03 $ 0.08 $ 0.05 $ 0.06
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, 200l $ - $ 649,661 $ 195
Issuance of stock offering - 68,105 20
Comprehensive income:
Net income - - -
Foreign currency translation adjustment - - -
-------------- --------------- ------------
Total comprehensive income
Balance June 30,2002 $ - $ 717,766 $ 215
============== =============== ============
Common stock-par value of $.0003; 10,000,000 shares authorized, 717,766 and
649,661 shares issued and outstanding at June 30, 2002 and December 31, 2001,
respectively.
Preferred stock - 2,000,OOO shares authorized, no shares have been issued.
(Unaudited)
Six months ended June 30,2002
2002 2001
--------- ---------
Operating activities
Net income $ 33,461 $ 30,786
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Amortization of goodwill 436 581
Depreciation 34,966 16,268
Deferred tax expense 11,500 -
Noncash compensation of officer - 900
Decrease (increase) in
Accounts receivable 3,639 (863)
Inventory (1,072) (5,850)
Prepaid expenses (91,107) (62,385)
Increase (decrease) in:
Accounts payable 86,370 16,929
Accrued liabilities (2,243) (77,184)
Customer deposits 226,946 30,493
--------- ---------
Net cash provided (used) by
operating activities 130,156 (84,183)
--------- ---------
Investing activities
Purchases of property and
equipment (45,054) (201,048)
Investment in unconsolidated subsidiary (4,050) -
Decrease in amounts receivable
from shareholder (85,688) -
--------- ---------
Net cash used for investing
activities (134,792) (201,048)
--------- ---------
See notes to consolidated financial statements.
8
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)
Six months ended June 30,2002
2002 2001
-------------- --------------
Financing activities
Proceeds from long term debt $ - $ 248,577
Retirement of long term debt (64,770) (42,700)
Issuance of common stock 344,442 -
Costs of issuing stock (50,755) (39,573)
-------------- --------------
Net cash provided by financing activities 228,917 166,304
-------------- --------------
Effect of exchange rate changes
on cash 38,960 (17,848)
-------------- --------------
Cash and cash equivalents
Net increase (decrease) 263,240 (136,775)
Beginning of period 105,383 260,485
-------------- --------------
End of period $ 368,623 $ 123,710
============== ==============
Supplemental cash flow information
Cash paid for interest $ 27,959 $ 82,433
Cash paid for taxes $ - $ -
9
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Notes 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 June 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 June
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.
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 June 30, 2002 $ 23,942 706,310 $ .03
============= ==========
Three months ended June 30, 2001 $ 40,415 504,339 $ .08
============= ==========
Six months ended June 30, 2002 $ 33,461 678,142 $ .05
============= ==========
Six months ended June 30, 2001 $ 30,786 504,339 $ .06
============= ==========
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
second quarter 2002.
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 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 decreased in the second quarter of 2002 over the comparable period of
2001 from $468,662 to $383,802, a decrease of $84,860, or 18%. We believe that
this drop in sales reflects an increase in our tour price as of April 1, 2002,
resulting in a number of tour patrons choosing to travel during the first
quarter at the substantially lower price. Our tour volume was also adversely
affected by the continuing impact of the September 11 terrorist attack on travel
worldwide. We receive approximately 54% of our sales revenue from airline
tickets, 29% from room rentals, and 17% from food and beverage sales.
Cost of sales increased in the second quarter 2002 over the comparable
period of 2001 from $32,936 to $60,409, an increase of $27,473, or 83%, due
primarily to increased costs associated with the greater capacity of Castledaly
Manor, such as utilities, food/beverage and other expenses incurred to supply
and maintain the expanded facility.
11
As a result of decreased sales and increased cost of sales, gross profit
decreased $112,333, from $435,726 to $323,393, or 26%, for the period ended June
30, 2002 as compared to the period ended June 30, 2001.
Operating Expenses
Our operating expenses decreased in the second quarter of 2002 from the
comparable period in 2001 by $96,432, or 26%, from $374,755 to $278,323. For the
second quarter of 2002, 65% of our aggregate operating expenses were incurred
for airline tickets (which approximates our cost for such tickets), 24% 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, as described above. However, the enlarged
facility did not require 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
Due to decreased sales, coupled with increased costs of sales, as described
above, we reported net income for the second quarter of 2002 of $23,942,
compared to $40,415 for the second quarter of 2001, a decrease of $16,473, or
41%.
Changes in Assets and Liabilities
From December 31, 2001 to June 30, 2002, our liabilities rose
significantly, due principally to an increase in customer deposits from $123,134
at December 31, 2001 to $350,080 at June 30, 2002, an increase of $226,946, or
184%. 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 tendency of tour patrons to
postpone travel following the September 11 terrorist attack. While we
experienced a substantial increase in tour reservations during the second
quarter of 2002, many trips were delayed. However, these postponed tours are
anticipated to be reflected in increased sales during subsequent quarters.
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 have 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 U.S. prime rate plus
0.5%. Pursuant to the current agreement, the lending commitment terminates April
30, 2003, 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. Amounts outstanding under such credit facility are guaranteed
by County Clare, Ltd., a related party, and by a stockholder of Harp & Eagle. As
of June 30, 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. 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.
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.
The registrant secured the renewal until April 30, 2003 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: December 10, 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: December 10, 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 JUNE 30, 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 June 30, 2002.
(f)(4)(ii): As of June 30, 2002, 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 June 30, 2002, 68,105 shares were
sold in the Offering.
(f)(4)(v): From December 11, 2001 through June 30, 2002, the Company
incurred the following expenses in connection with the Offering:
Underwriting commissions $ 35,350
Underwriters' expense allowances 8,838
Other expenses 97,155 *
----------
Total expenses $ 141,343 *
==========
* Estimate
Approximately $26,500 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): After deducting the total expenses
reported above, net proceeds of the Offering received by the Company
from December 11, 2001 through June 30, 2002 were $267,287. Of such net
proceeds, $95,700 was applied to debt reduction (including $45,700 to
affiliates of the Company), $50,000 was applied to the purchase of real
estate, and the balance was held in Company accounts pending
application. Apart from the $45,700 applied to repay indebtedness to
affiliates, no net proceeds 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.
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 June 30, 2002, as filed with the Securities
and Exchange Commission on December 10, 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
December 10, 2002
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