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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2002
[ ] Transition report under section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________________ to ______________
Commission File Number 333-69006
WOODLAND HATCHERY, INC.
(Name of small business issuer in its charter)
NEVADA 84-1407365
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1442 LOWER RIVER ROAD, WOODLAND, UT 84036
(Address and Zip Code of principal executive offices)
Issuer's telephone number, including area code: (801) 380-0247
Former telephone number, including area code: (801) 367-7197
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
$.001 par value, common voting shares
Check whether the Issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenue for its most recent fiscal year was: $-0-
There is no active market for the issuer's common stock. Therefore, the
aggregate market value of the issuer's voting stock held as of December 31,
2002, by non-affiliates of the issuers is deemed to be $-0-.
As of December 31, 2002, issuer had 11,470,000 shares of its $.001 par value
common stock outstanding.
Transitional Small Business Format: Yes [ ] No [ X ]
Documents incorporated by reference: none
FORM 10-KSB
WOODLAND HATCHERY, INC.
INDEX
Page
PART I . Item 1. Description of Business 3
Item 2. Description of Property 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II. Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 7
Item 7. Financial Statements 8
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure 8
PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act 8
Item 10. Executive Compensation 9
Item 11. Security Ownership of Certain Beneficial Owners and Management 9
Item 12. Certain Relationships and Related Transactions 9
Item 13. Exhibits and Reports on Form 8-K 9
Item 14. Controls and Procedures 10
Signatures 10
Certification 11
(Inapplicable items have been omitted)
2
PART I
FORWARD-LOOKING STATEMENT NOTICE
When used in this report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," and similar expressions are
intended to identify 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 regarding events, conditions, and financial trends that may affect the
Company's future plans of operations, business strategy, operating results, and
financial position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties and that actual results may differ materially
from those included within the forward-looking statements as a result of various
factors.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
We were formed as a Nevada corporation on May 15, 1997 as Kafco Corp. On April
11, 2001 we changed our name to Woodland Hatchery, Inc. We are developing a
fish hatchery to provide fish for private fly-fishing enterprises and the
wholesale and retail sales of organic fish. The Utah Department of Agriculture
is implementing an organic agriculture program. The program will include
guidelines and rules to raising organic fish. We intend to comply with the
requirements to have our fish certified as organic. Our hatchery is located in
Utah and we will market and sell our fish initially in Utah. We may consider
marketing and selling fish in the nearby states of Wyoming, Idaho and Colorado
once we have proven operations.
OUR BUSINESS
Our hatchery is located in Woodland, Utah, a location approximately twenty
minutes east of Park City in the Upper Provo River Valley. The address is 1442
Lower River Road, Woodland, Utah. It is our intent to provide rainbow and brown
trout for private fly-fishing enterprises and also to provide organically grown
fish for wholesale and retail customers.
We are leasing ground and water rights from Seth Winterton, father of Cody
Winterton, our president, on which we have constructed our hatchery and will
initiate our operations. Our lease payments are $1,200 per year. The lease
allows us unrestricted use of approximately one acre of land through which the
hatchery waterways run. We are also granted unrestricted access rights to the
property. The lease is for an initial period of twenty years as of June 2001
and is renewable annually after expiration unless either party gives notice to
terminate the lease. All improvements to the land will belong to the owner of
the property upon termination of the lease. We have selected the Woodland, Utah
site because rainbow trout require large amounts of high quality water with a
minimum dissolved oxygen concentration of 5 mg/L. The selected site is ideal
for a fish hatchery because of the quality, volume and temperature of the water.
We have chosen to raise trout species including German brown and Kamaloop
rainbow trout. These species were chosen based on our environment including
water temperature, seasons and water flows.
Trout production facilities usually consist of indoor rearing facilities and
outdoor raceways and ponds. The rearing facilities are usually used for
producing trout from the fertilized eggs to fingerlings. Trout farmers who have
brood stock can produce their own fertilized eggs or purchase them from
commercial trout egg producers. After trout eggs are fertilized, they are
placed in a flow through incubator and are not disturbed until the eye spot
appears in the eggs. After hatching, the sac fry are raised in shallow troughs
3
and they contain a large yolk sac, which provides nutrition for three to six
weeks. When most of the yolk sac is absorbed, they begin to swim to the water
surface to begin feeding. It is at this time that the fry are fed an artificial
starter diet. They are moved to production raceways and ponds when they reach
the fingerling stage which is about 3 inches. As trout grow they are fed
various sizes of food with specific protein percentages.
We have completed construction of the hatchery which consists of two concrete
raceways with free flowing water, including two small incubators. A flowing
stream has been diverted to run through the raceways to simulate a natural
stream or riverbed. Total cost for construction was $23,500. The concrete
design of the raceways aids in the quality of the fish hatchery while making the
walls and floors easy to clean. At times water may be diverted away from the
raceways to allow them to sun-dry and kill diseases that may potentially exist.
Our breeding operations commenced with the purchase of 2,000 pounds of six inch
trout, weighing eight ounces per fish. The initial purchase consisted of 1,000
pounds of German Browns purchased from The Wyoming Trout Ranch and 1,000 pounds
of Kamaloop Rainbow Trout purchased from Black Canyon Trout Farm in Idaho. By
starting with six inch trout we had hoped to have fish ready to sell in the fall
of 2002, however, the fish have taken longer to mature than we anticipated. As
a result, we do not expect to begin selling trout until the summer or fall of
2003.
In addition to purchasing fingerling trout, we will breed our own fish. Twenty
or so of the largest and strongest of each species will be kept for breeding.
These brood fish will provide the eggs for subsequent generations. Once our
breeding stock is established we do not anticipate having to purchase additional
fish. Our goal is to produce sufficient fingerlings to have 17,000 pounds of
six inch marketable trout ready to sell in 2003.
We have contracted to sell the initial 2,000 pounds of fish to Winterton
Ranches. At the time of sale, the fish will have increased in size to
approximately 14 to 18 inches and will have doubled in weight. Winterton
Ranches will use the fish to stock ponds already existing on their property. We
currently lease our property from Winterton Ranches who has adjoining property
with ours. Winterton Ranches has an existing fish permit from the State of Utah
which will allow us to transfer fish to their facilities without restriction.
Our goal is to increase our fish production to 30,000 pounds in 2004 and at that
time to further expand the hatchery facilities.
FISH PURCHASE AGREEMENT
Winterton Ranches, an entity controlled by Seth Winterton who is our president's
father, entered into a purchase agreement with us on July 1, 2001. The original
agreement provided that Winterton Ranches would purchase 10,000 pounds of trout
at market price, subject to availability, beginning on July 1, 2002 through July
1, 2004. Target production dates were as follows:
2,000 pounds at or about July 1, 2002
4,000 pounds at or about July 1, 2003
4,000 pounds at or about July 1, 2004
Unfortunately, it has taken longer for the fish to mature than we anticipated.
Consequently, we were unable to deliver any fish to Winterton Ranches during
2002. Because of the delay in achieving our target production levels, on
December 15, 2002, Winterton Ranches modified the purchase agreement. Winterton
has agreed to accept as many fish as we can produce beginning in the summer of
4
2003. A copy of the modified agreement is attached as an exhibit to this report.
Should Winterton Ranches fail to purchase our entire inventory of trout, we
believe that other outlets exist for our fish. However, we are not seeking
additional customers at the present time. Should we sell to parties other than
Winterton Ranches, we will apply for the appropriate transportation permit.
MARKETING AND ADVERTISING
Once we have established our breeding operations, we intend to associate the
Woodland name with quality fish that will be made available to existing fly
fishing facilities. We will list our facility with the State of Utah who
provides a list of facilities to people seeking to purchase fish for private
stocking of fish. This method will comprise most of the marketing relating to
transporting fish off our facility since there is a demand for certified State
fish. We also intend to advertise in local and regional outdoor magazines and
related publications.
We will be able to advertise our fish as certified State fish once we have the
appropriate tests conducted by the State of Utah and they certify our fish are
disease free. We hope to be certified sometime in 2003.
COMPETITION
Our main competition will come from Wyoming Trout Ranch, Black Canyon in Idaho,
Gary Stringham in Utah, Trout Lodge in Washington, Mt. View Trout Ranch in Utah,
and Spring Lake in Utah. Though there are other facilities in Utah, the
hatcheries identified hold current permits with the state of Utah for
transporting fish.
We believe we can be competitive because of the demand for fish in Utah, our
location, and our limited overhead costs. Specifically, we have free flowing
water without a need to pump water, thus reducing our costs and eliminating
risks from electrical power failure.
GOVERNMENTAL REGULATION
To prevent the spread of disease and the destruction of habitat by non-native
species, the State of Utah strictly regulates live fish sales. Utah requires
two types of permits. The first allows us to receive fish into our facility and
raise them. The second permit allows us to transport fish away from our
facility to another property. We have been issued the first permit. The second
permit, that allows us to transport fish away from our facility is more complex
and will be filed for in 2003. This permit requires that 60 randomly chosen
live fish be transported to the state laboratory where they conduct several
tests, checking for disease that would be harmful to other facilities. Approval
for a permit can take up to a week while the tests are being conducted. We will
not require a transport permit to transport fish to Winterton Ranches. Our
hatchery is on leased land owned by Winterton Ranches who currently has a permit
to receive fish. The permit applies to the entire 100 acres of Winterton
Ranches. We will require a transport permit to transport fish to locations
outside of Winterton Ranches. We do not anticipate any problems in obtaining
the permit.
If the State of Utah finds disease during an inspection, all fish infected by
the disease are destroyed and the hatchery raceways drained, cleaned and
sanitized. The hatchery raceways would be inspected again by the state before
more fish could be raised.
Should our operations reach 50,000 pounds, we will then have to obtain permits
from the Environmental Protection Agency for our hatchery. At the current time,
we are not subject to any EPA regulations and do not anticipate reaching
production of 50,000 pounds in the near future. We are not aware of any other
governmental regulation with which we must comply in order to operate our
hatchery.
5
EMPLOYEES
Our president, Cody Winterton is our only employee. We do not intend on hiring
additional personnel unless our operations grow to a point where we require
help. We estimate that Mr. Winterton devotes approximately 20 hours per week to
managing our operations. We do not have a formal employment agreement with Mr.
Winterton and he has agreed to not take any salary until our operations are
profitable.
ITEM 2. DESCRIPTION OF PROPERTY.
We do not own any real property. Our hatchery is on approximately one acre of
leased property and consists of two concrete raceways within a tributary course
of the Provo River. We have a small storage facility that houses fish food and
miscellaneous tools and equipment. The terms of our lease are $1,200 per year
for a period of twenty years, expiring in June of 2021. We utilize office space
provided at no cost by our president, Cody Winterton. We anticipate that this
arrangement will continue indefinitely as our current operations do not require
independent office facilities.
ITEM 3. LEGAL PROCEEDINGS.
To the best of our knowledge, no legal proceedings are threatened or pending
against our Company or our sole officer and director. None of our affiliates
are parties against Woodland or have any material interests in actions that are
adverse to our interests.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is listed on the Over the Counter Bulletin Board under the
symbol WLDH. As of December 31, 2002, we had approximately 63 shareholders
holding 11,470,000 shares of common stock. Of the issued and outstanding common
stock, 1,470,000 are free trading, the balance are restricted stock as that term
is used in Rule 144. A table detailing the high and low bid and ask prices
during the past year is provided below.
CLOSING BID CLOSING ASK
2002 HIGH LOW HIGH LOW
April 23 (first available)
Through June 28. . . . . . . . .35 .20 .65 50
July 1 through September 38. . .21 .20 .60 60
October 1 through December 31. .20 .20 .60 60
The above quotations, as provided by the National Quotation Bureau, LLC,
represent prices between dealers and do not include retail markup, markdown or
commission. In addition, these quotations do not represent actual transactions.
6
We have not paid, nor declared, any dividends since inception and do not intend
to declare any such dividends in the foreseeable future. Our ability to pay
dividends is subject to limitations imposed by Nevada law. Under Nevada law,
dividends may be paid to the extent that a corporation's assets exceed its
liabilities and it is able to pay its debts as they become due in the usual
course of business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
YEARS ENDED DECEMBER 31, 2002 AND 2001
We did not generate any revenue during the years ended December 31, 2002 and
2001. We anticipate that we will begin generating revenue under our agreement
with Winterton Ranches as soon as our initial generation of fish reaches
maturity and a breeding stock is established. During the year ended December
31, 2002 our expenses were $34,272. Expenses in 2002 consisted of general and
administrative costs. During the year ended December 31, 2001, our general and
administrative costs were $12,844. We also had interest expense of $1,394 in
2001 resulting in net loss of $14,238. Higher administrative costs in 2002 were
largely due to expenses associated with conducting a public offering that closed
in January of 2002. Legal, accounting and professional fees relating to our
public offering were approximately $20,000. General and administrative costs in
2001 were largely the result of professional fees and expenses relating to our
public reporting responsibilities. As a result of these factors, we realized
net losses of $34,272 for the year ended December 31, 2002 and $14,238 for the
year ended December 31, 2001. Cumulative loss from inception on May 15, 1997
through December 31, 2002 is $51,220.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002 we had total assets of $35,372. Current assets consisted
of $5,623 in cash, $4,087 in prepaid expenses and $942 in inventory. Other
assets consisted of property and equipment valued at $24,720. Current assets at
December 31, 2001 consisted of $53,974 in cash and $746 in inventory. Other
assets at December 31, 2001 consisted of property and equipment valued at
$14,943. Total current liabilities at December 31, 2002 consisted of $1,842 in
accounts payable compared to liabilities at December 31, 2001 of $20,611 in
accounts payable.
In November of 2001, we initiated a public offering that closed in January of
2002, generating $75,000. The majority of proceeds went to paying debts,
covering offering costs and developing our hatchery facilities. We do not
anticipate any substantial property or equipment expenditures over the next
twelve months since our hatchery is operational and we have secured an inventory
of trout. On September 20, 2002 we issued 75,000 restricted shares as reported
on Form S-8 for future legal and consulting services valued at $18,750. We do
not anticipate any similar expenditures in the next twelve months.
PLAN OF OPERATION
We estimate that general and administrative expenses for the next twelve months
will be approximately $14,000. This estimate is based on our average costs less
offering expenses and consulting fees over the past two years. We hope to cover
these costs with cash on hand and with expected proceeds from fish sales under
our purchase agreement. Winterton Ranches has agreed to purchase at market
value as many fish as we can produce beginning in 2003. Winterton Ranches is
currently our only customer. We are not seeking additional customers at the
present time and do not have a contingency plan if Winterton does not purchase
our fish.
Our auditors have expressed substantial doubt about our ability to continue as a
growing concern because of our history of losses and lack of revenue.
Additional delays in fish production could force us to seek additional sources
of operating capital. If we should find it necessary to raise additional
capital, we may sell common stock or enter into debt financing arrangements.
7
We intend to continue complying with our duties as public company. To
demonstrate our commitment to operating fairly and ethically, we have recently
adopted a Corporate Code of Ethics that is attached as an exhibit to this
report.
ITEM 7. FINANCIAL STATEMENTS.
Our financial statements appear at the end of this report beginning with the
Index to Financial Statements on page 12.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The following table sets forth the name, age, position and office term of each
executive officer and director of the Company.
NAME AGE POSITION SINCE
- -------------- --- ------------------------------------- -------------
Cody Winterton 30 President, Secretary, Vice President, Jan. 25, 2001
Treasurer and Director
The following is a brief biography of our officer and director.
CODY WINTERTON, PRESIDENT AND DIRECTOR. Mr. Winterton began studies in 1996 at
Brigham Young University and graduated in 2001 with a major in Political Science
and a minor in Business Management. While attending BYU, Mr. Winterton worked
at the Utah Valley Regional Medical Center as a Phlebotomist and Psychiatric
Technician from 1997 until 2000. During the summer of 2000, Mr. Winterton
worked in marketing for Realxchange, an Internet company that built a platform
on online real estate transactions. Since 1997 he has also worked for the
Springville Ambulance Service as a volunteer Intermediate Emergency Medical
Technician. During that same period, he assisted his father, Seth Winterton, in
developing and maintaining a Fly Fishing business utilizing the existing
Winterton Ranch facilities. Mr. Winterton has conducted extensive research in
trout hatchery construction and operation. Areas of research include water
quality and temperature, climates, food sources and trout species. Mr.
Winterton is actively engaged in stocking, breeding and monitoring our fish.
Our former director, Mr. Christian Holmes, resigned on October 8, 2002 to attend
graduate school.
ITEM 10. EXECUTIVE COMPENSATION
Our executive officer has not received any salary or compensation. Woodland
does not have an employment contract with our executive officer and we have
agreed that no salaries will be paid until we have profitable operations.
8
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of December 31, 2002, the number and
percentage of the 11,470,000 shares of outstanding common stock which, according
to the information supplied to the Company, were beneficially owned by (i) each
person who is currently a director of the Company, (ii) each executive officer,
(iii) all current directors and executive officers of the Company as a group and
(iv) each person who, to the knowledge of the Company, is the beneficial owner
of more than 5% of the outstanding common stock. Except as otherwise indicated,
the persons named in the table have sole voting and dispositive power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
NAME AND ADDRESS AMOUNT PERCENTAGE
Cody Winterton (1). . . . . . 10,000,000 87.18
1491 East 450 South
Springville, UT 84663
Officers, Directors and . . . 10,000,000 87.18
Nominees as a Group:
1 person
(1) Officer and/or director.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Cody Winterton provides our office space at his residence at no charge.
Seth Winterton holds the lease on our hatchery property and is the owner of
Winterton Ranches who has agreed to purchase our fish for the first three years
of operation. Seth Winterton is the father of Cody Winterton, our president.
Under the terms of the lease agreement, Seth Winterton will receive $1,200
annually. Under the terms of the fish purchase agreement, Seth Winterton will
pay us market price at the date of purchase.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER TITLE LOCATION
10.1 Modified Purchase Agreement, December 15, 2002 . . Attached
99.1 Certification of Chief Executive Officer and Chief Attached
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Corporate Code of Ethics . . . . . . . . . . . . . Attached
Woodland did not file any reports on Form 8-K during the last three months of
the period reflected by this report.
9
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, we evaluated the
effectiveness and operation of our disclosure controls and procedures pursuant
to Rule 13a-14 of the Securities Exchange Act of 1934. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures are effective. There have
been no significant changes in internal controls or other factors that could
significantly affect internal controls subsequent to the date we carried out our
evaluation.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WOODLAND HATCHERY, INC.
Date: March 14, 2003 By: /s/Cody Winterton
-----------------------
Cody Winterton
CEO and CFO
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 14, 2003 By: /s/Cody Winterton
-----------------------
Cody Winterton
Director
10
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Cody Winterton, the Chief Executive Officer and Chief Financial Officer of
Woodland Hatchery, Inc. (the "Company"), certify that:
1. I have reviewed this annual report on Form 10-KSB of the Company;
2. Based on my knowledge, this 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
March 14, 2003 /s/Cody Winterton
-------------------------
Chief Executive Officer
Chief Financial Officer
11
WOODLAND HATCHERY, INC.
-------------------------
(A Development Stage Company)
--------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report . . . 13
Balance Sheets . . . . . . . . . . 14
Statements of Operations . . . . . 15
Statements of Stockholders' Equity 16
Statements of Cash Flows . . . . . 17
Notes to Financial Statements. . . 18
12
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of
Woodland Hatchery, Inc.
We have audited the accompanying balance sheet of Woodland Hatchery, Inc. (a
development stage company), as of December 31, 2002 and 2001 and the related
statements of operations, stockholders' equity, and cash flows for the years
then ended and the cumulative amounts since inception. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Woodland Hatchery, Inc. (a
development stage company), as of December 31, 2002 and 2001 and the results of
its operations and its cash flows for the years then ended and the cumulative
amounts since inception, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's revenue generating activities are not in
place and the Company has incurred a loss. These conditions raise substantial
doubt about its ability to continue as a going concern. Management's plans
regarding those matters also are described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/JONES SIMKINS LLP
- -----------------------
Logan, Utah
February 24, 2003
13
WOODLAND HATCHERY, INC
(A Development Stage Company)
BALANCE SHEETS
December 31 2002 and 2001
2002 2001
--------- --------
ASSETS
- ---------------------------------------------------------
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . $ 5,623 53,974
Prepaid expenses. . . . . . . . . . . . . . . . . . . 4,087 -
Inventories . . . . . . . . . . . . . . . . . . . . . 942 746
--------- --------
Total current assets. . . . . . . . . . . . . . . . 10,652 54,720
Property and equipment, net . . . . . . . . . . . . . . . 24,720 14,943
--------- --------
Total assets. . . . . . . . . . . . . . . . . . $ 35,372 69,663
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------
Current liabilities - accounts payable. . . . . . . . . . $ 1,842 20,611
--------- --------
Commitments . . . . . . . . . . . . . . . . . . . . . . . - -
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding. . . . - -
Common stock, $.001 par value, 50,000,000 shares
authorized, 11,470,000 and 11,395,000 shares issued
and outstanding, respectively . . . . . . . . . . . 11,470 11,395
Additional paid-in capital. . . . . . . . . . . . . . 73,280 54,605
Deficit accumulated during the development stage. . . (51,220) (16,948)
--------- --------
Total stockholders' equity. . . . . . . . . . . 33,530 49,052
--------- --------
Total liabilities and stockholders' equity. . . $ 35,372 69,663
========= ========
See accompanying notes to financial statements
14
WOODLAND HATCHERY, INC
(A Development Stage Company)
STATEMENTS OF OPERATIONS
December 31 2002 and 2001
Cumulative
2002 2001 Amounts
------------ ----------- ----------
Revenue . . . . . . . . . . . . . . . . . $ - - -
------------ ----------- ----------
General and administrative costs. . . . . 34,272 12,844 49,826
Interest expense. . . . . . . . . . . . . - 1,394 1,394
------------ ----------- ----------
Loss before income taxes. . . . (34,272) (14,238) (51,220)
Provision for income taxes. . . . . . . . - - -
------------ ----------- ----------
Net Loss. . . . . . . . . . . . $ (34,272) (14,238) (51,220)
============ =========== ==========
Loss per common share - basic and diluted $ - -
============ ===========
Weighted average common shares -
basic and diluted . . . . . . . . . . . 11,418,000 10,055,000
============ ===========
See accompanying notes to financial statements
15
WOODLAND HATCHERY, INC
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
December 31 2002 and 2001
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-in Development
--------------------- -------------------
Shares Amount Shares Amount Capital Stage Total
------ ------------- ---------- ------- --------- ----------- ----------
- $ - - $ - $ - $ - $ -
Balance at May 15, 1997
(date of inception)
Issuance of common stock for cash. . . - - 1,006,000 1,006 1,494 - 2,500
Net loss . . . . . . . . . . . . . . . - - - - - (975) (975)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 1997 . . . . . - - 1,006,000 1,006 1,494 (975) 1,525
Issuance of common stock for cash. . . - - 14,000 14 3,486 - 3,500
Net loss . . . . . . . . . . . . . . . - - - - - (868) (868)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 1998 . . . . . - - 1,020,000 1,020 4,980 (1,843) 4,157
Net loss . . . . . . . . . . . . . . . - - - - - (442) (442)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 1999 . . . . . - - 1,020,000 1,020 4,980 (2,285) 3,715
Net loss . . . . . . . . . . . . . . . - - - - - (425) (425)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 2000 . . . . . - - 1,020,000 1,020 4,980 (2,710) 3,290
Issuance of common stock for:
Cash. . . . . . . . . . . . . . . - - 10,000,000 10,000 - - 10,000
Cash. . . . . . . . . . . . . . . - - 375,000 375 74,625 - 75,000
Offering costs . . . . . . . . . . . . - - - - (25,000) - (25,000)
Net loss . . . . . . . . . . . . . . . - - - - - (14,238) (14,238)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 2001 . . . . . - - 11,395,000 11,395 54,605 (16,948) 49,052
Issuance of common stock for services. - - 75,000 75 18,675 - 18,750
Net loss . . . . . . . . . . . . . . . - - - - - (34,272) (34,272)
------ ------------- ---------- ------- --------- ----------- ----------
Balance at December 31, 2002 . . . . . - $ - 11,470,000 $11,470 $ 73,280 $(51,220) $ 33,530
====== ============= ========== ======= ========= =========== ==========
See accompanying notes to financial statements
16
WOODLAND HATCHERY, INC
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
December 31 2002 and 2001
Cumulative
2002 2001 Amounts
--------- -------- ----------
Cash flows from operating activities:
- ----------------------------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . $(34,272) (14,238) (51,220)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation. . . . . . . . . . . . . . . . . 1,657 567 2,872
Loss on disposal of assets. . . . . . . . . . - 361 361
Common stock issued for services. . . . . . . 18,750 - 18,750
(Increase) decrease in:
Prepaid expenses . . . . . . . . . . . . . (4,087) - (4,087)
Inventories. . . . . . . . . . . . . . . . (196) (746) (942)
Increase (decrease) in accounts payable . . . (18,769) 20,611 1,842
--------- -------- ----------
Net cash provided by (used in)
operating activities . . . . . . . . . . (36,917) 6,555 (32,424)
--------- -------- ----------
Cash flows from investing activities:
- ----------------------------------------------------
Purchase of fixed assets . . . . . . . . . . . . . . (11,434) (15,510) (27,953)
--------- -------- ----------
Net cash used in investing activities. . . (11,434) (15,510) (27,953)
--------- -------- ----------
Cash flows from financing activities:
- ----------------------------------------------------
Proceeds from issuance of common stock, net. . . . . - 60,000 66,000
--------- -------- ----------
Net cash provided by financing activities. - 60,000 66,000
--------- -------- ----------
Net increase (decrease) in cash. . . . . . (48,351) 51,045 5,623
Cash, beginning of period. . . . . . . . . . . . . . 53,974 2,929 -
--------- -------- ----------
Cash, end of period. . . . . . . . . . . . . . . . . $ 5,623 53,974 5,623
========= ======== ==========
See accompanying notes to financial statements
17
WOODLAND HATCHERY, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31 2002 and 2001
Note 1 - Organization and Summary of Significant Accounting Policies
- -----------------------------------------------------------------------------
Organization
- ------------
Woodland Hatchery, Inc. (the Company) was organized under the laws of the State
of Nevada on May 15, 1997 (date of inception). From May 15, 1997 (date of
inception) until December 31, 2000, the Company's activities consisted of
seeking business ventures, which would allow for long-term growth. Subsequent
to December 31, 2000, the Company initiated plans to begin operating a fish
hatchery located in Woodland, Utah. Further, the Company is considered a
development stage company as defined in SFAS No. 7 and has not, thus far,
commenced planned principal operations.
Cash and Cash Equivalents
- ----------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with a maturity of three months or less to be cash
equivalents.
Income Taxes
- -------------
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to net operating loss carryforwards.
Earnings Per Share
- --------------------
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during the period.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the period plus the common stock
equivalents which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the period. Common stock equivalents are not included in the
diluted earnings per share calculation when their effect is antidilutive. The
Company does not have any stock options or warrants outstanding at December 31,
2002 and 2001.
Concentration of Credit Risk
- -------------------------------
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Use of Estimates in the Preparation of Financial Statements
- -------------------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
18
WOODLAND HATCHERY, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31 2002 and 2001
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
- --------------------------------------------------------------------
Inventories
- -----------
Inventories consist of fish and fish food and is valued at the lower of cost or
market using the first-in and first-out (FIFO) method.
Property and Equipment
- ------------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization is determined using the straight-line and
accelerated methods over the estimated useful lives of the assets. Expenditures
for maintenance and repairs are expensed when incurred and betterments are
capitalized. Gains and losses on sale of property and equipment are reflected
in operations.
Note 2 - Going Concern
- --------------------------
As of December 31, 2002, the Company's revenue generating activities are not in
place, and the Company has incurred a loss for the year then ended. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
Management intends to seek additional funding through increasing equity
ownership. There can be no assurance that such funds will be available to the
Company, or available on terms acceptable to the Company.
Note 3 - Property and Equipment
- ------------------------------------
Property and equipment consists of the following at December 31:
2002 2001
-------- -------
Hatchery. . . . . . . . . . . $23,503 14,002
Equipment . . . . . . . . . . 1,933 -
Office equipment. . . . . . . 1,508 1,508
-------- -------
26,944 15,510
Less accumulated depreciation (2,224) (567)
-------- -------
$24,720 14,943
======== =======
19
WOODLAND HATCHERY, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31 2002 and 2001
Note 4 - Income Taxes
- -------------------------
The difference between income taxes at statutory rates and the amount presented
in the financial statements is a result of the following:
Years Ended
December 31, Cumulative
-----------------
2002 2001 Amounts
-------- ------- --------
Income tax benefit at statutory rate $ 5,000 2,000 8,000
Change in valuation allowance. . . . (5,000) (2,000) (8,000)
-------- ------- --------
$ - - -
======== ======= ========
Deferred tax assets are as follows at December 31:
2002 2001
-------- -------
Operating loss carryforwards. $ 8,000 3,000
Valuation allowance . . . . . (8,000) (3,000)
-------- -------
. . . . . . . . . . . . . . - -
======== =======
The Company's net operating loss carryforwards of approximately $51,000, begin
to expire in the year 2017. The amount of net operating loss carryforwards that
can be used in any one year may be limited by significant changes in the
ownership of the Company and by the applicable tax laws which are in effect at
the time such carryforwards can be utilized.
Note 5 - Supplemental Cash Flow Information
- -------------------------------------------------
Actual amounts paid for interest and income taxes are as follows:
Cumulative
2002 2001 Amounts
----------- ----- -------
Interest . . $ - 1,394 1,394
=========== ===== =======
Income taxes
$ - - -
=========== ===== =======
During the year ended December 31, 2002, the Company issued 75,000 shares of
common stock in exchange for legal services valued at $18,750.
20
WOODLAND HATCHERY, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31 2002 and 2001
Note 6 - Stock Plan
- -----------------------
The Company has adopted a benefit plan (the Plan). The Plan provides for the
granting of up to 750,000 shares of stock. Under the Plan, the Company may
issue shares of the Company's common stock or grant options to acquire the
Company's common stock from time to time to employees, directors, officers,
consultants or advisors of the Company on the terms and conditions set forth in
the Plan. In addition, at the discretion of the Board of Directors, stock may
from time to time be granted under this Plan to other individuals, including
consultants or advisors, who contribute to the success of the Company but are
not employees of the Company.
As of December 31, 2002, no stock or stock options have been issued under this
plan.
Note 7 - Recent Accounting Pronouncements
- ----------------------------------------------
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146). This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. Management does not expect the adoption of SFAS 146 to have a
significant impact on the financial position or results of operations of the
Company.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS
145). This Statement changes the method for reporting gains on the
extinguishment of debt and eliminates an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. Management
does not expect the adoption of SFAS 145 to have a significant impact on the
financial position or results of operations of the Company.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144). The new guidance resolves significant
implementation issues related to FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
SFAS 144 is effective for fiscal years beginning after December 15, 2001. The
adoption of this statement is not expected to have a material effect on the
Company's financial position or results of operations.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The adoption of this statement is not expected to have
a material effect on the Company's financial position or results of operations.
21
WOODLAND HATCHERY, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31 2002 and 2001
Note 7 - Recent Accounting Pronouncements (continued)
- -----------------------------------------------------------
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." The statements eliminate the
pooling-of-interests method of accounting for business combinations and require
that goodwill and certain intangible assets not be amortized. Instead, these
assets will be reviewed for impairment annually with any related losses
recognized in earnings when incurred. The adoption of these statements is not
expected to have a material effect on the company's financial position or
results of operations.
22