SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: January 21, 2000
LAREDO INVESTMENT CORP.
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(Exact name of registrant as specified in its charter)
Nevada 77-0517964
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 1450, 1075 West Georgia Street, Vancouver, British Columbia V6B 3C9
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(Address of principal executive offices)(Zip Code)
604-460-8440
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(Registrant's telephone number, including area code)
Item 1. Changes in Control
On December 15, 1999, Shirley Bethurum, the Company's sole officer and director
appointed Lois Couston as a director of the Company and as President and Stella
Schreiner as Secretary and director. Immediately thereafter, Ms Bethurum
resigned all positions with the Company.
On January 21, 2000, the Company entered into an Acquisition Agreement with GFR
Nutritionals, Ltd., a British Columbia corporation, (GFR), Richard Pierce and
Lucretia Schanfarber (the GFR Majority Shareholders) to acquire their shares
representing 100% of the outstanding common stock of GFR in exchange for
19,000,000 shares of the Company's restricted common stock.
DESCRIPTION OF BUSINESS OF GFR
Business Development
GFR was incorporated in March 1997 as Helm Developments Ltd. In June 1998, the
Company formally changed its name to GFR Nutritionals Ltd.
Business operations began in October 1998 after acquiring manufacturing
equipment and arranging to manufacture nutritional supplements under a private
label contract.
GFR was 100% owned by the President and CEO, Richard Pierce from inception until
January 17, 2000, when a 10% interest was acquired by Lucretia Schanfarber.
On January 21, 2000, the Company entered into an Acquisition Agreement with GFR
Nutritionals, Ltd., a British Columbia corporation, (GFR), Richard Pierce and
Lucretia Schanfarber (the GFR Majority Shareholders) to acquire their shares
representing 100% of the outstanding common stock of GFR in exchange for
19,000,000 shares of the Company's restricted common stock.
NARRATIVE DESCRIPTION OF THE BUSINESS
GFR Nutritionals Ltd. is an established manufacturer of quality nutritional
supplement products. The Company operates a full service manufacturing facility
that produces natural-source nutritional, vitamin, mineral, herbal and sports
nutrition products which are sold on a private label basis to wholesale
distributors.
Nutritional supplements are being increasingly recognized by the medical and
scientific communities as an integral component of a healthy lifestyle. Much of
the growth in this industry is driven by six key factors:
-2-
- - Positive publicity - For several years, medical journals and news reports
have widely and consistently publicized the positive effects of nutritional
supplements. Many of these reports focus on the correlation between
consumed nutrients and the reduced incidence of certain diseases. As a
result, the nutritional supplement industry has experienced greater
acceptance and popularity.
- - Increased research - The more the scientific community learns about the
human body, more is proved that an individual's diet and health are
undoubtedly connected. Government agencies, universities, and private
companies are increasing their sponsorship of research assessing the
benefits of nutritional supplements and herbs.
- - Favorable regulatory environment - The US Dietary Supplement Health and
Education Act (DSHEA) created a set of guidelines specific to the
supplement industry and established a regulatory environment which allows
responsible nutrition companies to thrive and allows the industry to
regulate itself with supervision by the FDA. Health Canada has followed
suit and defined Good Manufacturing Practices, with which compliance in the
industry is voluntary.
- - Mass market distribution - Nutritional supplements, including all-natural
products, vitamins, minerals and herbs, are increasingly sold in mass
volume retail stores. Due to this new market channel, millions of shoppers
are exposed to these products as they are introduced into the mainstream.
- - Ageing of the population - The largest demographic group in the history of
North America is now turning 50 years old. Over the next 15 years,
approximately 80 million more "baby boomers" will join this group of
individuals who are concerned with preserving their health and fitness,
directly increasing the demand for nutritional supplements.
- - Trend toward preventative care - The collective health consciousness of the
population that began over 20 years ago is gaining momentum and, along with
regular exercise, it embraces nutritional supplements.
According to the Nutrition Business Journal, the US nutrition industry, which
includes natural foods, dietary supplements, and natural personal care products,
has grown 14-16% annually over the past two years and is expected to sustain
double digit growth for the near future. The Nutrition Business Journal states
that the US nutrition industry generated $23.3 billion of consumer sales in
1997. Canadian sales tend to approximate 10% of the US market.
Principal Products: GFR currently manufactures 70 different products by
formulation and capsule size. Principal products that the Company manufactures
are:
-3-
- - Multiple vitamin/mineral product - 90/180 and 360 caps
- - Methyl sulfonyl methan ecaps or powder
- - Glucosamine sulfate
- - Devil's claw root extract St.
- - John's Wort extract
- - Kava Kava
- - Ginkgo Biloba leaf extract
- - Coenzyme Q10
- - Echinacea
- - L-Glutamine
- - Grapeseed extract
- - Vitamin C
- - Garlic
- - Ginseng
MARKETS: Established market channels for nutritional products within the
industry include distribution through health food retail stores, mass market
retail through department and grocery stores, multi-level marketing, mail order,
health practitioners, and the Internet.
Currently, the Company only manufactures nutritional supplements under private
label contracts with wholesale distributors. To date, one private label customer
has comprised 97% of the Company's sales.
The Company's primary goal is to achieve a level of annual revenues in excess of
$20 million by the fiscal year ended 2001 resulting from expanded marketing
efforts and vertical integration through acquisitions and expansion into new
markets. The Company is also pursing opportunities to market direct sales to
consumers through the Internet.
COMPETITION: The main competitors in the Canadian natural health product
industry are privately owned corporations. A couple of larger companies that
manufacture their products for retail distribution are Jamieson Laboratories and
Stanley Pharmaceuticals. There are also many companies which manufacture only
for private label sales. Many smaller manufacturers have their products sold
strictly in specialty health food and nutrition stores. NatraCeuticals Inc. is
the only publicly held natural health product company in Canada and had
approximately $23 million of sales in its 1998 fiscal year.
Natural health product manufacturing has significant cost barriers for new start
up companies. Start up costs include set up of manufacturing facilities through
purchase of equipment, acquiring skilled labor and research and implementation
of processes acceptable to government standards.
REGULATION: In both the US and Canada, the natural health products industry is
self regulating. In Canada, products are not required to be approved prior to
introduction to the market, however Health Canada has defined Good Manufacturing
Practices, with which compliance is voluntary. Health Canada has indicated that
stricter regulations for natural health products will be enacted in future
years.
-4-
In 1996, US Congress enacted the Dietary Supplement Health and Education Act
(DSHEA) which included a set of guidelines specific to the supplement industry
and established a self regulatory environment for the industry.
EMPLOYEES: The Company currently has 15 employees. Executive management and
office administration personnel are comprised of 5 individuals. Operations
personnel is made up of 10 individuals, including the Quality Control Director
and Production Manager. Future employees will be hired as dictated by increases
in business volume.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
Plan of Operations
The Company is currently working on securing additional private label
manufacturing contracts. The key target for private label sales are wholesale
distributors of health food nutrition products. The Company is also pursuing
opportunities for direct sales to consumers through the Internet.
Liquidity and Capital Resources
The Company's working capital ratio was 0.72:1 as at December 31, 1998 and
improved to 0.86:1 by December 31, 1999. Key contributing factors for this
change were the increase in sales to Prairie Naturals Inc., a related party,
which comprised $240,000 of the $279,279 ending accounts receivable balance for
1999. Finished goods inventory balances at December 31, 1999 were minimal.
Generally, the Company has been shipping goods immediately upon completion. As
business volumes increase, finished goods inventory will be required to be kept
on hand.
Current liabilities include a $85,000 promissory note payable to a party related
to the shareholder, which bears interest at 12% annually. These funds are
repayable on demand however, the request for repayment occurring at this time is
not expected.
The Company has a small business loan outstanding with a balance of $204,848 as
at December 31, 1999. This loan bears interest at 10.15% over a 5 year term.
Only the principal portion of this loan that is repayable in the next fiscal
year has been included in the working capital calculations.
The Company anticipates acquiring an additional $300,000 of manufacturing
equipment in fiscal 2000 in order to meet demands for new private label sales.
Plant renovations costing $50,000 are also expected to be completed in fiscal
2000. These expenditures will be financed through private placement of shares.
Increased sales volumes will also necessitate hiring additional operations ,
sales and administrative personnel.
-5-
Results of Operations
1999 1998
- -------------------------------------------------------------------------
Sales $2,423,456 $312,994
Cost of Sales 1,761,963 262,527
Gross Profit 661,493 50,467
Gross Profit Margin 27.3% 16.1%
Administrative Expenses 553,088 109,359
Administrative Expenses as a % of sales 22.8% 35.0%
- ------------------------------------------------------------------------
For the 12 months ended December 31, 1999, sales were $2.1 million higher than
1998 due to the fact that operations had only been started in October 1998. 96%
of 1999 sales (98% - 1998) were to Prairie Naturals Inc., a related party
wholesale distributor for which the Company manufactures private label products.
The Company has an verbal arrangement to manufacture, on an as-ordered basis,
private label products that Prairie Naturals Inc. distributes under the Prairie
Naturals Inc. name. The Company also has an exclusive written contract to
manufacture one product that Prairie Naturals Inc, distributes for a third party
private label.
1999 results are significantly different from 1998 due to 1999 being the first
full year of operations as well as the Company starting to realize economies of
scale on some production. Operating margins in 1999 were 27% of sales revenue,
11% higher than 1998. Cost of Sales includes the cost of raw materials used in
manufacturing, production labor costs and an applicable share of overhead
expenses. General and administrative expenses were 23% of sales in 1999, 11%
lower than 1998.
The Company anticipates realizing further economies of scale as production
volumes increase. Administrative expenses include advertising expenses which
will increase due to the Company's plan to expand marketing efforts.
Effect of Inflation
The Company does not anticipate any financial impact, whether beneficial or
detrimental, as a result of inflation.
PROPERTIES
GFR Nutritionals Ltd.'s operations are located in a building that is owned by
the Company's majority shareholder and his parents. The lease agreement is for a
two year term ending January 1, 2002. Under the terms of the lease agreement,
the monthly rent charge is $5,000 and the Company is responsible for paying the
property taxes, utility charges, and any costs of repair and maintenance. Any
repairs and maintenance expenses paid for by the landlords are required to be
reimbursed by the Company at cost plus 15%. The agreement includes a 2 year
renewal option. All other terms are consistent with those standard to lease
agreements.
Both the Company's administration office and manufacturing operations are
located in the same premises. The total square footage of the building is
10,000. The area used by manufacturing currently comprises 3,625 of that total.
In management's opinion, the space leased is sufficient to support operational
growth for the foreseeable future. Currently, production is only run on one
shift per day for five days each week. Production shifts can be increased to a
maximum of three shifts per day for seven days each week and still be
accommodated within the current space. The only potential requirement for
additional space could arise due to stock held on hand as business volumes
increase.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information gives effect to the issuance of the 19,000,000 to the
GFR Majority Shareholders upon closing of the Acquisition Agreement.
(a)(b) Security Ownership of Management and Certain Beneficial Owners holding
five percent or greater of the 29,000,000 shares of common stock
outstanding as of date of Closing of the Acquisition Agreement.
Title of Name and Address Amount and Nature % of
Class of Beneficial Owner of Beneficial Ownership Class
Common Richard Pierce 17,100,000 59.0%
President, CEO, Director
c/o Suite 1450, 1075 W. Georgia St.
Vancouver, British Columbia V6B 3C9
Lucretia Schanfarber 1,900,000 6.6%
Director
c/o Suite 1450, 1075 W. Georgia St.
Vancouver, British Columbia V6B 3C9
Marc Casavant 0 0%
Chief Financial Officer
All officers and Directors 19,000,000 55.6%
as a Group (3 persons)
(1) c/o Suite 1450, 1075 W. Georgia St. Vancouver, British Columbia V6B 3C9
-6-
BUSINESS EXPERIENCE OF MANAGEMENT
Richard Pierce, President and CEO
Mr. Pierce is the President and Chief Executive Officer of GFR Nutritionals Ltd.
In his role he oversees all aspects of operations, administration and financing
of the Company.
Mr. Pierce has almost 15 years experience in the natural health industry. From
1997 to 1998, prior to founding GFR Nutritionals Ltd., Mr. Pierce worked as a
Business Development Coordinator for Integrated Equity Management. He was
involved in marketing bridge financing arrangements to private corporations. For
one year spanning 1996 and 1997, Mr. Pierce worked as an Industry Consultant for
Natraceuticals Inc.. He specialized in the development and marketing of new
sports nutrition products.
For ten years prior to joining Natraceuticals Inc, Mr. Pierce founded and acted
as President and CEO of NHF (Nutrion Health and Fitness Inc.). This company
researched, designed, formulated, manufactured and marketed four sports
nutrition product lines throughout Canada.
In 1983, Mr. Pierce founded Natural Health Products and acted as President and
CEO. Natural Health Products designed, formulated, manufactured and marketed the
first sports nutrition line in Atlantic Canada.
Marc Casavant, Chief Financial Officer
Mr. Casavant joined the Company as Chief Financial Officer in April 2000. From
March 1998 to April 2000, he was Vice President of Operations for Basic Sports
Nutrition, Surrey, British Columbia. During 1996 to March 1998 Mr. Casavant
served as Plant Manager for Nu-Life Nutrition, Maple Ridge, British Columbia.
During 1995 through 1997 he was Controller of Nutrion Health & Fitness, Maple
Ridge, British Columbia. During 1993 to 1995, Mr. Casavant was Controller of
Majestic Marketing Ltd., White Rock, British Columbia. From 1989 to 1993, he was
the Senior Accountant for Ebco Industries, Ltd., in Richmond, British Columbia.
Mr. Casavant obtained a Business Administration Diploma in 1985 from Okanagan
College, Kellowna, British Columbia.
Lucretia Schanfarber, Director
Ms Schanfarber has served as Vice President of Sales and Marketing of GFR
Nutritionals since inception. She has over 25 years of marketing experience in
all sectors of the Natural Health Products Industry. She is the host and writer
of the Healthy Stuff with Lucretia Radio Show and the host and writer of Health
Experts On Call Radio Show of CFUN 1410 AM Vancouver, British Columbia. She is
also a contributing editor to the Encyclopedia of Natural Healing published by
Alive Books in 1998 and is a regular contributing writer to Alive Magazine and
Healthy Living Guide Magazine. From 1993 to 1996, Ms Schanfarber served as
National Director of Sales and Marketing of Nutrion Health and Fitness, Maple
Ridge, British Columbia.
-7-
EXECUTIVE COMPENSATION
The Company's President and CEO did not receive any compensation in 1998. For
the 12 months ended December 31, 1999, the President and CEO received $152,000
in compensation.
Mr. Pierce is the Company's only officer at the current time and holds the
positions of President and Secretary.
Item 2. Acquisition or Disposition of Assets
Upon closing of the Acquisition Agreement, the Company owns 100% of the common
stock of GFR. GFR is a manufacturer of dietary supplements and vitamins which
are privately labeled and sold to wholesalers who retail the products . GFR
manufactures its products at a 10,000 square foot facility near Vancouver,
British Columbia and has approximately ten full time employees engaged in
production.
Item 7. Financial Statements and Exhibits.
(a) Audited Financial Statements of Laredo Investment Inc.
(b) Audited Financial Statements of GFR Nutritionals, Ltd.
(c) Pro Forma Financial Information giving effect to the acquisition.
(d) Exhibits
10.1 Acquisition Agreement
-8-
CONTENTS
Page
Independent Auditor's Report...........................................F - 1
Balance Sheets
December 31, 1999and 1998............................................F - 2
Statements of Operations for the
Years Ended December 31, 1999 and 1998...............................F - 3
Statement of Stockholders' Equity
Since December 18, 1996 (inception) to December 31, 1999..............F - 4
Statements of Cash Flows for the
Years Ended December 31, 1999 and 1998...............................F - 5
Notes to Financial Statements..........................................F - 6
-9-
((LETTERHEAD))
RH
- --------------------------------------------------------------------------------
ROBISON, HILL & CO. Certified Public Accountants
A Professional Corporation BRENT M. DAVIES, CPA
DAVID O. SEAL, CPA
W. DALE WESTENSKOW, CPA
BARRY D. LOVELESS, CPA
----------------------------
W. LAMONTE ROBISON, CPA
E. MORTON HILL, CPA
INDEPENDENT AUDITOR'S REPORT
Laredo Investment Corp.
(A Development Stage Company)
We have audited the accompanying balance sheets of Laredo Investment
Corp. (a development stage company) as of December 31, 1999 and 1998, and the
related statements of operations and cash flows for the two years ended December
31, 1999 and the statement of stockholders' equity from December 18, 1996
(inception) to December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Laredo Investment
Corp. (a development stage company) as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the two years ended December
31, 1999 in conformity with generally accepted accounting principles.
Respectfully submitted
/s/ Robison, Hill & Co.
-----------------------
Certified Public Accountants
Salt Lake City, Utah
February 25, 2000
Members of American Institute of Certified Public Accountants
Members of the Private companies Practice Section
1366 East Murray-Holladay Road, Sale Lake City, UT 84117-5050
Telephone 801/272-8045 Facsimile 801/277-9942
F-1
-10-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
BALANCE SHEETS
--------------
December 31,
---------------------------------------
1999 1998
------------------- -------------------
Assets: $ - $ -
=================== ===================
Liabilities - Accounts Payable $1,350 $200
------------------- -------------------
Stockholders' Equity:
Common Stock, Par value $.001
Authorized 100,000,000 shares,
Issued 15,000,000 shares at
December 31, 1999 and 1998 15,000 15,000
Paid-In Capital (12,515) (14,000)
Retained Deficit (1,200) (1,200)
Deficit Accumulated During the
Development Stage (2,635) -
------------------- -------------------
Total Stockholders' Equity (1,350) (200)
------------------- -------------------
Total Liabilities and
Stockholders' Equity $ - $ -
=================== ===================
The accompanying notes are an integral part of these financial statements.
F-2
-11-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF OPERATIONS
------------------------
Cumulative
since
July 9, 1999
For the year ended Inception of
December 31, development
---------------------------------- stage
1999 1998
-------------- ------------------- -------------------
Revenues: $ - $ - $ -
Expenses: 2,635 100 2,635
-------------- ------------------- -------------------
Net Loss $(2,635) $ (100) $ (2,635)
============== =================== ===================
Basic & Diluted loss per share $ - $ -
============== ===================
The accompanying notes are an integral part of these financial statements.
F-3
-12-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
SINCE DECEMBER 18, 1996 (INCEPTION) TO DECEMBER 31, 1999
--------------------------------------------------------
Cumulative
Since
July 9, 1999
Inception of
Common Stock Paid-In Retained Development
Shares Par Value Capital Deficit Stage
--------------- -------------- ------------- -------------- ------------------
Balance at December 18, 1996 (inception)
- $ - $ - $ - $ -
Net Loss - - - (1,000) -
--------------- -------------- ------------- -------------- ------------------
Balance at December 31, 1996
As originally reported - - - (1,000) -
January 6, 1997 Issuance of Stock
for Services and payment of
Accounts payable 1,000 1,000 - - -
Retroactive adjustment for 1,000
to 1 stock split May 6, 1999 999,000 - - - -
--------------- -------------- ------------- -------------- ------------------
Restated balance January 1, 1997 1,000,000 1,000 - (1,000) -
Net Loss - - - (100) -
--------------- -------------- ------------- -------------- ------------------
Balance at December 31, 1997 1,000,000 1,000 - (1,100) -
Net Loss - - - (100) -
--------------- -------------- ------------- -------------- ------------------
Balance at December 31, 1998
As originally reported 1,000,000 1,000 - (1,200) -
November 15, 1999 shares canceled (400,000) (400) 400 - -
Retroactive adjustment for 25 to 1
stock split November 15, 1999 14,400,000 14,400 (14,400) - -
--------------- -------------- ------------- -------------- ------------------
Restated balance January 1, 1999 15,000,000 15,000 (14,000) (1,200) -
Capital contributed by shareholder - - 1,485 - -
Net Loss - - - - (2,635)
--------------- -------------- ------------- -------------- ------------------
Balance at December 31, 1999 15,000,000 $15,000 $(12,515) $(1,200) $(2,635)
=============== ============== ============= ============== ==================
The accompanying notes are an integral part of these financial statemen
F-4
-13-
LAREDO INVESTMENT CORP.
-----------------------
(A Developement Stage Company)
------------------------------
STATEMENT OF CASH FLOWS
-----------------------
Cumulative
Since
July 9, 1999
For the years ended Inception of
December 31, Development
---------------------------- Stage
1999 1998
------------- --------------- ------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $(2,635) $(100) $(2,635)
Increase in Accounts Payable 1,150 100 1,150
------------- --------------- ------------------
Net Cash Used in operating activities (1,485) - (1,485)
------------- --------------- ------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash provided by investing activities - - -
------------- --------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Capital contributed by shareholder 1,485 - 1,485
------------- --------------- ------------------
Net cash provided by Financing Activities 1,485 - 1,485
------------- --------------- ------------------
Net (Decrease) Increase in
Cash and Cash Equivalents - - -
Cash and Cash Equivalents
at Beginning of Period - - -
------------- --------------- ------------------
Cash and Cash Equivalents
at End of Period $ - $ - $ -
============= =============== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Franchise and income taxes $250 $ - $250
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
None
The accompanying notes are an integral part of these financial statements.
F-5
-14-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
This summary of accounting policies for Laredo Investment Corp. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Organization and Basis of Presentation
- --------------------------------------
The Company was incorporated under the laws of the State of Nevada on
December 18, 1996. The Company ceased all operating activities during the period
from December 18, 1996 to July 9, 1999 and was considered dormant. On July 9,
1999, the Company obtained a Certificate of renewal from the State of Nevada.
Since July 9, 1999, the Company is in the development stage, and has not
commenced planned principal operations.
Nature of Business
- ------------------
The company has no products or services as of December 31, 1999. The
Company was organized as a vehicle to seek merger or acquisition candidates. The
Company intends to acquire interests in various business opportunities, which in
the opinion of management will provide a profit to the Company
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
- --------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles required 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.
F-6
-15-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Loss per Share
- --------------
The reconciliations of the numerators and denominators of the basic loss
per share computations are as follows:
Per-Share
Income Shares Amount
(Numerator) (Denominator)
For the year ended December 31, 1999
------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $(2,635) 15,000,000 $ -
========== ============ ==========
For the year ended December 31, 1998
------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $(100) 15,000,000 $ -
========== =========== =========
The effect of outstanding common stock equivalents would be anti-dilutive
for December 31, 1999 and 1998 and are thus not considered.
NOTE 2 - INCOME TAXES
- ---------------------
As of December 31, 1999, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $3,500 that may be offset
against future taxable income through 2014. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. No tax benefit has been reported in the financial
statements, because the Company believes there is a 50% or greater chance the
carryforwards will expire unused. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
F-7
-16-
LAREDO INVESTMENT CORP.
-----------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
THE YEARS ENDED DECEMBER 31, 1999 AND 1998
------------------------------------------
(Continued)
-----------
NOTE 3 - DEVELOPMENT STAGE COMPANY
- ----------------------------------
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage.
NOTE 4 - COMMITMENTS
- --------------------
As of December 31, 1999 all activities of the Company have been conducted
by corporate officers from either their homes or business offices. Currently,
there are no outstanding debts owed by the company for the use of these
facilities and there are no commitments for future use of the facilities.
NOTE 5 - STOCK SPLIT
- --------------------
On May 6, 1999 the Board of Directors authorized a 1,000 to 1 stock split,
changed the authorized number of shares to 100,000,000 shares and the par value
to $.001 for the Company's common stock. As a result of the split, 999,000
shares were issued. All references in the accompanying financial statements to
the number of common shares and per-share amounts for 1998 and 1997 have been
restated to reflect the stock split.
On November 15, 1999 the majority shareholder returned 400,000 shares to
the Company. On the same day the Company's Board of Directors authorized a 25 to
1 stock split of the remaining 600,000 shares of the Company's $.001 par value
common stock. As a result of the split, 14,400,000 shares were issued, and
Paid-In Capital was reduced by $14,400.
All references in the accompanying financial statements to the number of
common shares and per-share amounts for 1999 and 1998 have been restated to
reflect the stock split.
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
On January 21, 2000, the Company entered into an Acquisition Agreement with
GFR Nutritionals, Ltd., a British Columbia corporation, (GFR), Richard Pierce
and Lucretia Schanfarber (the GFR Majority Shareholders) to acquire their shares
representing 100% of the outstanding common stock of GFR in exchange for
19,000,000 newly issued shares of the Company's restricted common stock.
F-8
-17-
GFR NUTRITIONALS LTD.
Financial Statements
Years ended December 31, 1999 and 1998
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Earnings 3
Statement of Retained Earnings 4
Statement of Cash Flows 5
Notes 6
-18-
((LETTERHEAD))
KPMG
KPMG LLP
Chartered Accountants Telephone (604) 527-3600
400-625 Agnes Street Telefax (604) 527-3636
New Westminster BC www.kpmg.ca
Canada V3M 5Y4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
We have audited the accompanying balance sheets of GFR Nutritionals Ltd. as at
December 31, 1999 and 1998 date and the statements of earnings, retained
earnings and cash flows for the year ended December 31, 1999 and the period from
commencement of operations on July 1, 1998 to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and
December 31, 1998 and the results of its operations and its cash flows for the
year ended December 31, 1999 and the period ended December 31, 1998 in
accordance with generally accepted accounting principles in the United States.
/s/ KPMG LLP
- ------------
Chartered Accountants
New Westminster, Canada
February 29, 2000
1
-19-
GFR NUTRITIONALS LTD.
Balance Sheet
December 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------
Assets
Current assets:
Accounts receivable $ 279,279 $ 92,431
Inventory (note 2) 203,311 222,617
Prepaid expenses 1,245 1,154
- ---------------------------------------------------------------------------------------
483,835 316,202
Fixed assets (note 3) 288,660 274,429
Deferred income taxes - 11,854
- ---------------------------------------------------------------------------------------
$ 772,495 $ 602,485
=======================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ 48,419 $ 48,852
Accounts payable and accrued liabilities 387,867 242,635
Promissory note (note 5) 92,175 125,000
Current portion of long-term debt (note 6) 29,736 19,258
- ---------------------------------------------------------------------------------------
558,197 435,745
Long-term debt (note 6) 175,112 213,777
Deferred income taxes 390 -
Shareholders' equity:
Share capital (note 7) 1 1
Retained earnings (deficit) 38,795 (47,038)
- ---------------------------------------------------------------------------------------
38,796 (47,037)
- ---------------------------------------------------------------------------------------
$ 772,495 $ 602,485
=======================================================================================
Commitments (note 9)
Subsequent events (note 10)
See accompanying notes to financial statements.
On behalf of the Board:
/s/ Richard Pierce, Director /s/ Lucretia Schanfarber, Director
- ------------------ ------------------------
2
-20-
GFR NUTRITIONALS LTD.
Statement of Earnings
- --------------------------------------------------------------------------
Period from date of
commencement
of operations on
Year ended July 1, 1998 to
December 31, December 31,
1999 1998
- --------------------------------------------------------------------------
Sales $ 2,423,456 $ 312,994
Cost of sales 1,761,963 262,527
- --------------------------------------------------------------------------
661,493 50,467
Expenses:
Advertising 6,122 627
Amortization 33,382 8,631
Automobile and travel 17,286 4,241
Equipment leases 980 1,513
Insurance 4,421 825
Interest 32,269 13,457
Management fee (note 4) 152,000 -
Marketing 15,000 -
Office and general 21,408 4,197
Professional fees 75,736 3,135
Rent 52,580 29,644
Repairs and maintenance 18,515 14,152
Telephone 9,125 3,498
Utilities 9,426 3,114
Wages and benefits 104,838 22,325
- --------------------------------------------------------------------------
553,088 109,359
- --------------------------------------------------------------------------
Earnings (loss) before income taxes 108,405 (58,892)
Income taxes:
Current 10,328 -
Deferred (reduction) 12,244 (11,854)
- --------------------------------------------------------------------------
22,572 (11,854)
- --------------------------------------------------------------------------
Net earnings (loss) $ 85,833 $ (47,038)
==========================================================================
See accompanying notes to financial statements
3
-21-
GFR NUTRITIONALS LTD.
Statement of Retained Earnings
- --------------------------------------------------------------------------------
Period from date of
commencement
of operations on
Year ended July 1, 1998 to
December 31, December 31,
1999 1998
- --------------------------------------------------------------------------------
Deficit, beginning of period $ 47,038 $ -
Net earnings (loss) 85,833 (47,038)
- -----------------------------------------------------------------------------------
Retained earnings (deficit), end of period $ 38,795 $ (47,038)
===================================================================================
See accompanying notes to financial statements.
4
-22-
GFR NUTRITIONALS LTD.
Statement of Cash Flows
Period from date of
commencement
of operations on
Year ended July 1, 1998 to
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $ 85,833 $ (47,038)
Items not involving cash:
Amortization 33,382 8,631
Deferred income tax expense 12,244 (11,854)
Change in non-cash operating working capital:
Increase in accounts receivable (186,848) (92,431)
(Increase) decrease in inventory 19,306 (222,617)
Increase in accounts payable and accrued liabilities 145,232 242,635
Increase in prepaid expenses (91) (1,154)
- -----------------------------------------------------------------------------------------------------
109,058 (123,828)
Financing:
Increase (decrease) in promissory note (32,825) 125,000
Increase (decrease) in long-term debt (28,187) 233,035
Issue of share capital - 1
Increase (decrease) in bank indebtedness (433) 48,852
- -----------------------------------------------------------------------------------------------------
(61,445) 406,888
Investments:
Purchase of fixed assets (47,613) (283,060)
- -----------------------------------------------------------------------------------------------------
Change in cash - -
Cash, beginning of period - -
- -----------------------------------------------------------------------------------------------------
Cash, end of period $ - $ -
=====================================================================================================
Supplementary information:
Interest paid during the period $ 25,094 $ 13,457
=====================================================================================================
5
See accompanying notes to financial statements.
-23-
GFR NUTRITIONALS INC.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
GFR Nutritionals Ltd. (the "Company") is incorporated in the province of
British Columbia, Canada. The Company specializes in formulating, blending,
encapsulating and packing nutritional products. The Company's operations
are located in the province of British Columbia, Canada.
1. Significant accounting policies:
(a) Inventories:
Raw materials inventory is stated at a lower of weighted average cost
and replacement value. Inventories of work in progress is stated at the
lower of weighted average cost and net realizable value.
(b) Fixed assets:
Fixed assets are stated at cost. Amortization is calculated on a
straight-line basis over the estimated useful lives of the assets as
follows:
-----------------------------------------------------------------
Asset Rate
-----------------------------------------------------------------
Manufacturing equipment 10 years
Furniture and fixtures 5 years
Office equipment 5 years
Leasehold improvements Term of lease
Automobile 3 years
-----------------------------------------------------------------
(c) Revenue recognition:
Revenue is recognized from sales of product at the time of shipment to
customers.
(d) Income taxes:
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the deferred tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and for operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
When the recovery of deferred tax assets cannot be considered by
management to be more likely than not, a valuation allowance is
provided.
6
-24-
GFR NUTRITIONALS INC.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
Significant accounting policies (continued):
(e) Foreign currency translation:
The Company's primary functional currency is the Canadian dollar.
Monetary assets and liabilities resulting from transactions with
foreign suppliers and customers are translated at year-end exchange
rates while income and expense accounts are translated at average rates
in effect during the year. Gains and losses on translation are included
in income.
(f) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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 reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Inventory:
1999 1998
-------------------------------------------------
Raw materials $ 155,016 $ 222,617
Work in process 48,295 -
-------------------------------------------------
$ 203,311 $ 222,617
=================================================
3. Fixed assets:
Accumulated Net book
1999 Cost amortization value
----------------------------------------------------------------------------
Manufacturing equipment $ 300,564 $ 34,576 $ 265,988
Furniture and fixtures 1,809 273 1,536
Office equipment 15,877 3,078 12,799
Leasehold improvements 5,118 3,071 2,047
Automobile 7,305 1,015 6,290
----------------------------------------------------------------------------
$ 330,673 $ 42,013 $ 288,660
============================================================================
7
-25-
GFR NUTRITIONALS INC.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Fixed assets:
Accumulated Net book
1998 Cost amortization value
-------------------------------------------------------------------------
Manufacturing equipment $ 269,155 $ 6,729 $ 262,426
Office equipment 8,280 828 7,452
Furniture and fixtures 508 51 457
Leasehold improvements 5,118 1,024 4,094
-------------------------------------------------------------------------
$ 283,061 $ 8,632 $ 274,429
=========================================================================
4. Related party transactions:
During the year, the Company accrued $152,000 (1998 - $Nil) for management
fees and paid $60,000 (1998 - $29,300) for rent to the Company's major
shareholder. As at December 31, 1999, accounts payable includes $122,509
owing to the Company's major shareholders.
5. Promissory note:
------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------
Promissory note, repayable upon demand,
including interest at 12% $ 92,175 $ 125,000
========================================================================
6. Long-term debt:
-------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------
TDBank Small Business loan, repayable
in monthly instalments of $3,972,
including interest at 10.15% (1998 - 9.15%),
maturing March 15, 2004, secured by certain
manufacturing equipment of the Company $ 204,848 $ 233,035
Less current portion of long-term debt 29,736 19,258
------------------------------------------------------------------------
$ 175,112 $ 213,777
========================================================================
8
-26-
GFR NUTRITIONALS INC.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
6. Long-term debt (continued):
Principal payments due on long-term debt for each of the five years
subsequent to December 31, 1999 and thereafter are as follows:
------------------------------------------------------------
Year ending:
2000 $ 29,736
2001 31,432
2002 34,775
2003 38,474
2004 70,431
-----------------------------------------------------------
7. Share capital:
-----------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------
Authorized:
100 common shares with no par value
Issued and outstanding:
1 common share $ 1 $ 1
-----------------------------------------------------------------------
8. Economic dependence:
During 1999, the Company sold approximately $2,337,140 or 96% of sales to
Prairie Naturals Inc. In 1998, sales to Prairie Naturals Inc. were $306,223
or 98% of the Company's sales. Future operations of the Company depend on
continuation of the manufacturing arrangement with Prairie Naturals Inc.
9. Commitments:
The Company has entered into a lease agreement for its manufacturing and
office facilities with the Company's major shareholder and other parties.
The rental charges are $60,000 per year plus property taxes. The lease
expires December 31, 2001.
9
-27-
GFR NUTRITIONALS INC.
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
10. Subsequent events:
(a) On January 17,2000, the Company issued 99 shares of common stock at a
price of $.01 each.
(b) On January 21, 2000, the Company entered into a share exchange
agreement with Laredo Investment Corp. ("Laredo"). In exchange for
100% of the shares of the Company, shareholders of GFR Nutritionals
Ltd. will receive 66% of the common shares of Laredo. Laredo is
incorporated in the state of Nevada, and is registered with the
Securities and Exchange Commission. Laredo had never and will not on
the closing of this transaction, have ever conducted business, owned
assets, employed persons or incurred any liabilities other than
professional fees which are incurred in connection with this
transaction.
10
-28-
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On January 17, 2000 GFR Nutritionals Ltd. ("GFR") and Laredo Investment
Corp. ("Laredo") executed the Merger Agreement that provides for the reverse
Merger of GFR with and into Laredo. See "The Merger." The following unaudited
pro forma condensed combined financial statements are based on the December 31,
1999 historical consolidated financial statements of GFR and Laredo contained
elsewhere herein, giving effect to the transaction under the purchase method of
accounting, with Laredo treated as the acquiring entity for financial reporting
purposes. The unaudited pro forma condensed combined balance sheet presenting
the financial position of the Surviving Corporation assumes the purchase
occurred as of December 31, 1999. The unaudited pro forma condensed combined
statement of operations presents the results of operations of the Surviving
Corporation, assuming the merger was completed on January 1, 1999.
The unaudited pro forma condensed combined financial statements have
been prepared by management of GFR and Laredo based on the financial statements
included elsewhere herein. The pro forma adjustments include certain assumptions
and preliminary estimates as discussed in the accompanying notes and are subject
to change. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future. These pro forma financial
statements should be read in conjunction with the accompanying notes and the
historical financial information of both GFR and Laredo (including the notes
thereto) included in this Form 8-K Current Report. (See Item 7.
"Financial Statements and Exhibits.")
-29-
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
-------------------------------------------
December 31, 1999
-----------------
GFR Laredo Pro Forma
Nutritionals Investment Pro Forma Combined
Ltd. Corp. Adjustments Balance
------------- ---------- ------------- -------------
ASSETS
Current Assets $333,217 $ - $ - $333,217
Fixed Assets (net) 198,800 - - 198,800
------------- ---------- ------------- -------------
Total Assets $532,017 $ - $ - $532,017
============= ========== ============= =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Bank Indebtedness 33,346 - - 33,346
Accounts Payable & Accrued Expenses 267,124 1,350 - 268,474
Promissory Notes 63,481 - - 63,481
Current Portion of Long-Term Debt 20,479 - - 20,479
-------------- ---------- ------------- -------------
Total Current Liabilities 384,430 1,350 - 385,780
Long-Term Debt 120,600 - - 120,600
Deferred Income Taxes 268 - - 268
-------------- ---------- ------------- -------------
Total Liabilities 505,298 1,350 - 506,648
-------------- ---------- ------------- -------------
Stockholders' Equity:
Common Stock 1 15,000 13,999 A 29,000
Additional Paid in Capital - (12,515) 12,719 A 204
Retained Earnings (Deficit) 26,718 (3,835) (26,718) A (3,835)
-------------- ---------- --------------- ------------
Total Stockholders' Equity (Deficit) 26,719 (1,350) - 25,369
-------------- ---------- --------------- ------------
Total Liabilities and Stockholders' Equity $532,017 $ - $ - $532,017
============== ========== =============== ============
See accompanying notes to unaudited pro forma condensed combined financial
statements.
-30-
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
--------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------
GFR Laredo Pro Forma
Nutritionals Investment Pro Forma Combined
Ltd. Corp. Adjustments Balance
------------------- ------------------- ------------------ ------------------
Revenues:
Sales $1,669,034 $ - $ - $1,669,034
Cost of Sales 1,213,464 - - 1,213,464
------------------- ------------------- ------------------ ------------------
Gross Profit 455,570 - - 455,570
Expenses:
General & Administrative 358,688 2,635 - 361,323
Other Expense - Interest 22,224 - - 22,224
------------------- ------------------- ------------------ ------------------
Earnings (Loss) Before Income Taxes 74,658 (2,635) - 77,294
------------------- ------------------- ------------------ ------------------
Income Taxes:
Current 7,113 - - 7,113
Deferred 8,432 - - 8,432
Net Loss $59,113 $(2,635) - $56,478
=================== =================== ================== ==================
Loss per share $ 0.00 $ 0.00 $ (0.01)
=================== =================== ==================
Weighted average shares outstanding 19,000,000 10,000,000 29,000,000
=================== =================== ==================
See accompanying notes to unaudited pro forma condensed
combined financial statements.
-31-
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
- ---------------------------------------------------------
STATEMENTS
- ----------
(1) General
In the reverse merger, GFR will be merged with and into Laredo, with the shares
of outstanding GFR Common Stock converted into an aggregate of approximately
19,000,000 shares. Subsequent to the Merger, GFR will hold 19,000,000 shares or
approximately 66% of the New Common Stock outstanding subsequent to the Merger,
subject to certain adjustments. Immediately preceding the merger 5,000,000
shares of Laredo restricted Common Stock held by officers with be canceled in
accordance with the merger agreement. Each remaining share of Laredo Stock
issued and outstanding prior to the Effective Time will be converted into one
share of New Common Stock for an aggregate of 10,000,000 shares of New Common
Stock or approximately 44% of the New Common Stock outstanding subsequent to the
Merger.
(2) Pro Forma Adjustments
The adjustments to the accompanying unaudited pro forma condensed
combined balance sheet as of December 31, 1999, are described below:
(A) Record merger by converting Laredo Common stock and GFR Stock to
newly issued shares of New Common Stock, par value $0.001 per share.
The adjustments to the accompanying unaudited pro forma condensed
combined statements of operations are described below:
There are no anticipated adjustments to the statements of operations as
a result of the merger.
-32-
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.
LAREDO INVESTMENT CORP.
Dated: April 28, 2000
/s/ RICHARD PIERCE
- -------------------
Richard Pierce, President
-33-