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**UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION**
  Washington, D.C. 20549

FORM 10-KSB

xANNUAL REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2005

 ̈ TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ___________ to ___________.

Commission file number 0-30927

GARUDA CAPITAL CORP.(Exact name of registrant
  as specified in its charter)

|NEVADA                                                         | 980209053                           
|-------------------------------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of Incorporation of Organization) | (I.R.S. Employer Identification No.)

|502-1978 Vine Street, Vancouver, BC      | V6K 4S1   
|---------------------------------------- | ----------
|(Address of principal executive offices) | (ZIP Code)

604.737.0203(Registrant?s telephone number, including area code)

|Securities registered pursuant to Section 12(b) of the
      Act | None            
|---------------------------------------------------------------- | ----------------
|                                                                 | (Title of Class)

|Securities registered pursuant to Section 12(g) of the
      Act: | Common Shares   
|----------------------------------------------------------------- | ----------------
|                                                                  | (Title of Class)

Indicate by check mark whether the registrant (1) has filed all
  reports required to be filed by Section 13 or 15(d) of the Securities Exchange
  Act of 1934 during the preceding 12 months (or for shorter period that the registrant
  as required to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days. Yes xNo
   ̈

Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation S-B contained in this form, and no disclosure will
  be contained, to the best of registrants knowledge, in definitive proxy
  or information statements incorporated by reference in Part III of this Form-10KSB
  or any amendment to Form 10-KSB.  ̈

Indicate by check mark whether the registrant is an accelerated
  filer (as defined in Rule 12b-2 of the Act). Yes  ̈
  No x

Indicate by check mark whether the registrant is a shell company
  (as defined in Rule 12b-2 of the Act). Yes  ̈
  No x

Issuers revenues for its most recent fiscal year: $
701,637

Aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant at September 23, 2005 (computed by
reference to average of the bid and asked price on the NASD OTC Bulletin Board
of the common shares on such date): $4,635,231

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Number of common shares outstanding at September 23, 2005:
36,655,620

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TABLE OF CONTENTS

|Part I   |      |    |                                                                                                                             |   
|-------- | ---- | -- | --------------------------------------------------------------------------------------------------------------------------- | --
|         |      |    |                                                                                                                             |   
|         | Item | 1  | Description of Business                                                                                                     | 1 
|         | Item | 2  | Description of Property                                                                                                     | 15
|         | Item | 3  | Legal Proceedings                                                                                                           | 16
|         | Item | 4  | Submission of Matters to a Vote of Security
      Holders                                                                   | 16
|         |      |    |                                                                                                                             |   
|         |      |    |                                                                                                                             |   
|Part II  |      |    |                                                                                                                             |   
|         |      |    |                                                                                                                             |   
|         | Item | 5  | Market for Common Equity
      and Related Stockholder Matters                                                              | 17
|         | Item | 6  | Managements Discussion and Analysis
      or Plan of Operation                                                             | 19
|         | Item | 7  | Financial Statements                                                                                                        | 21
|         | Item | 8  | Changes In and Disagreements with
      Accountants on Accounting and Financial Disclosure                                  | 21
|
|         | Item | 8A | Controls and Procedures                                                                                                     | 21
|         | Item | 8B | Other Information                                                                                                           | 22
|         |      |    |                                                                                                                             |   
|         |      |    |                                                                                                                             |   
|PART III |      |    |                                                                                                                             |   
|         |      |    |                                                                                                                             |   
|         | Item | 9  | Directors, Executive Officers,
      Promoters and Control Persons; Compliance with Section 16(a) of the Exchange
      Act | 22
|
|         | Item | 10 | Executive Compensation                                                                                                      | 25
|         | Item | 11 | Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters                        | 25
|
|         | Item | 12 | Certain Relationships and Related Transactions                                                                              | 27
|         | Item | 13 | Exhibits                                                                                                                    | 28
|         | Item | 14 | Principal Accountant Fees and Services                                                                                      | 29

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 1 

PART I

Item 1. Description of Business.

Cautionary Statement

Certain statements contained in this Annual Report on Form
10-KSB (Report), including, without limitation, statements containing the
words believes, anticipates, estimates, expects, and words of similar
import, constitute forward-looking statements. Readers should not place undue
reliance on these forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements for many
reasons, including risks described in this Report, including the Risk Factors
section contained in this Item 1, and the other documents we file with the
United States Securities and Exchange Commission (SEC).

Currency

All currency references in this Report are in US dollars unless
otherwise noted. Any US dollar equivalents appearing beside Canadian dollar
amounts are approximates and were calculated using the exchange rate of 0.8542,
the Bank of Canada Noon Rate for September 26, 2005.

Introduction

We are Garuda Capital Corp. (Garuda, the Company,
  the Registrant we, our, us),
  and are based in Vancouver, British Columbia, Canada. We have seven wholly-owned
  subsidiaries, Hagensborg Foods Ltd. (Hagensborg), Hagensborg Seafoods
  Ltd., Natural Program Inc. (Natural Program), Natural Program Ltd.,
  Garuda Gold Corporation (Garuda Gold), Garuda Minerals Inc. (Garuda
  Minerals) and Garuda Ventures Canada Inc. (Garuda Ventures).
  We have recently acquired mining interests through Garuda Gold and Garuda Minerals.
  Garuda Ventures is active only in holding investments in securities.

Hagensborg is in the business of manufacturing and marketing
gourmet foods. Through Hagensborg we manufacture and market both branded and
private label chocolates as well as seafood pâtés and we serve wholesale and
retail customers both in Canada and the US. All products are directly shipped
from our warehouse in Vancouver, British Columbia, Canada.

Natural Program is in the business of developing and marketing
herbal remedies. Through Natural Program we operate a Chinese herbal pharmacy to
dispense high quality Chinese herbs to practitioners and market a wholesale line
of herbal remedies under the Natural Program name.

Natural Programs main assets are its proprietary formulations
which are developed in-house. Please see the section titled Natural Program
Inc., page 6 for a complete description of Natural Programs history and
business.

HAGENSBORG FOODS LTD.

Through our subsidiary Hagensborg, we are in the business of
manufacturing and marketing of gourmet chocolates and other gourmet foods.
Hagensborg has re-packaged its entire product lines using a fairyland theme as
its marketing and promotional concepts. Our sales personnel have each adopted
the title of Chocolate Princess. We market the gourmet chocolate

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products throughout North America and serve high-end
departmental and specialty stores both in Canada and the US. The gourmet food
products are also targeted at the specialty stores and the mass market
retailers. All products are currently shipped direct from our warehouse in
Vancouver, British Columbia, Canada.

Products of Hagensborg - Chocolate Division

We manufacture and market both branded and private label
chocolates. The three main Hagensborg chocolate brands are Kiss Me®
truffle frogs, Leone® the King of Belgian Chocolate and Snuffly the
Truffle Pig chocolate bars.

Kiss Me® is a European chocolate truffle in the shape of a frog
with a melting truffle center. The product is marketed in a gift box
presentation containing nine chocolates shaped as frogs. The target market for
Kiss Me truffles consists of upscale gift box chocolate consumers, both male and
female between 25 and 54 years of age with medium to higher household incomes.
We launched this product in July 2005.

Leone® is a high end gift box confection. The King of
Belgian Collection, the first item of this line, contains a total of 24
individual pieces milk, dark and white champagne truffles made of Belgian
chocolate. This brand is targeted at the top end of the chocolate consumer and
is being sold in unique gift box. The product was launched at both the Fancy
Food Shows in San Francisco in January 2005 and New York in July 2005.

Snuffly the Truffle Pig bars are manufactured in six flavours
Orange, Mint, Mocha, Peanut Butter, Milk Chocolate and Raspberry Chocolate.
Snuffly the Truffle Pig bars are marketed in a single size 50g package. These
bars are made from all natural ingredients. We intend to add a no
sugar added variety to the product line. The target market of this product
is the indulgent chocolate consumer. Men between the ages of 25 and 44 years are
the largest consumers of the bars in the mid to higher household income bracket.

A large part of the chocolate divisions revenue is generated
through the sales of the private label brands. We currently supply a large
grocery chain store in Canada. In addition we have recently negotiated a supply
agreement, commencing September 2005, with a charity fund raising company in
Canada. Hagensborg is also currently working on developing and marketing its own
bar with a charity organization.

Products of Hagensborg  Seafood Division

Hagensborg seafood pâtés are marketed in six flavors, namely
smoked salmon, salmon, shrimp, rainbow trout with dill, crab and lobster. The
products are packed in 3-oz tins and are sold either individually or inside a
decorative retail box. These product lines are marketed and sold mainly through
distributors to the specialty stores and large grocery chains.

Market

Gourmet foods consumption is affected by many factors,
including climate, purchasers disposable income, the economic development of
the country and its distribution and marketing facilities. As the chocolates
have a limited shelf life with the plant located in Vancouver, British Columbia,
Canada, this has an impact on our market penetration. The developed nations
generally have high levels of gourmet food consumption in comparison to the
developing or emerging nations. We have therefore limited our market to North
America.

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Competition

Hagensborg can be considered a niche marketer of specialty food
products. Our competition consists of Canadian and US based manufacturers and
marketers of gourmet confectionary products and canned seafood pâtés.
Competition is based upon brand recognition, taste and cost. Most of our
competitors are enjoying a greater portion of the market share as they have
greater resources and brand recognition, among other things.

Marketing Trends

Increasingly health conscious shoppers look for high
quality, health-friendly products

This trend is largely a response to the general increase in
health consciousness of both the aging baby-boomers and their descendants.
Hagensborgs no-sugar added, all natural chocolates and all natural seafood
pâtés are marketed to this growing segment.

Upscale packaging makes higher prices acceptable

An unprecedented array of creative, unique and upscale
packaging options attracts consumers to the higher cost of gourmet products. We
hope that our new packaging will interest consumers who are not familiar with
the quality of our product, as well as consumers shopping for a pre-wrapped
gift.

Small packages encourage impulse offerings

Specialty foods marketers are making their products easier to
purchase by selling them individually wrapped, or in small packages suitable for
placement at the register. To this end, we have developed three piece KissMe
truffle packages and the Truffle Pig bars.

Marketing

Trade Shows

Trade shows are a key forum for meetings with brokers, retail
buyers and distributors. We are currently represented at two annual Fancy Food
Shows, January in San Francisco and July in New York. Other potential annual
trade shows that we may attend are: the Natural Products Show in March in
Chicago and the Private Label Manufacturers Association Private Label Show in
November. In addition, we attend distributor shows such as the Gourmet Award
show held each Summer.

Trade Advertising

We selectively place ads in key trade press publications
including Gourmet Retailer and Gourmet News.

Press Releases

We distribute press releases to trade publications and have
achieved coverage in Fancy Food Magazine, Gourmet Business, Confectioner
Magazine and Gourmet Retailer.

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 4 

Sales Manager Contacts

Our sales managers have been developing contacts with brokers,
high-end department stores, specialty stores, gift basket distributors and major
retailers. Our sales managers work with the retailers to place products in their
permanent displays, provide promotional support and ensure supply.

Product Information

Our design consultants have developed selling presentations for
each product/brand, including market information. To this, our sales team has
added key selling points. As well as using the visual selling presentations for
direct customer advertising and customer meetings, our sales persons (Chocolate
Princesses) provide this information to brokers who work on our behalf to
distribute our gourmet chocolate products. We try to ensure our brokers are
educated about our products so that they are able to discuss the reasons why
potential customers should carry the Hagensborg lines. We believe that our
visual sales presentations and newly designed packaging will garner the
attention of retailers who are inundated with new products to choose from and
therefore win us new sales contracts.

Website

The Hagensborg website address www.hagensborg.com appears on
all packaging and printed materials. The site gives details of all products with
information for consumers, retailers and specialty buyers. We believe that a
well designed website can be used as a selling tool, and we have used our
website in making presentations to potential retail buyers.

Market Penetration

Focusing on marketing and promotional activities is a low risk
strategy Hagensborg has currently adopted to expand its business. Hagensborg
intends to eventually partner with a marketing company to assist in taking its
products into the global markets.

In order to further penetrate our existing markets, we are
focusing on our core competency, the production of high quality truffles. We are
currently developing new packaging concepts for our truffles to be able to offer
products tailored to specific seasons. For example, the Spring season which
includes Valentines Day, Easter and Mothers Day is the second most important
chocolate consumption season after Christmas.

Market Expansion

Broadening our distribution base, including finding new markets
for existing products, is another strategy we plan to apply in order to expand
our business. Although it involves more risk than sole market penetration,
developing new markets has a greater potential for revenue generation.

We are currently developing a variety of concepts to attract
new markets for our existing products. We are also pursuing a variety of private
label opportunities to add to our bottom line by manufacturing for large
national retail chains.

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 5 

Reliance on Major Customer

During the year ended June 30, 2005, the Company recognized revenue
  from unrelated entities which individually comprised greater than 10% of total
  revenues. Revenues are mainly recognized from three entities, each provided
  13%, 12%, and 11%, amount to 36% of total revenue.

Research

During the last year, we redesigned the packaging for our
gourmet chocolate products so that they would appeal to a different type of
purchaser, namely chocolate connoisseurs who we thought would pay a premium
price for high quality chocolate. We obtained information on who was spending
money on purchasing high quality chocolate by researching where high end
chocolate products were being sold. We sent marketing personnel to those stores
that were carrying high end chocolates and we conducted market surveys within
those stores regarding the type of people who were there, what kind of
chocolates they were likely to purchase, at what price and in what quantity.
This kind of research we conducted in New York, San Francisco, Vancouver,
British Columbia, Canada and Toronto, Ontario, Canada. Our research revealed
that persons between the ages of 25  54 with medium to high incomes were most
likely to become purchasers of our chocolates. During the past year, we also
obtained and reviewed market research reports which described regional areas of
chocolate sales and types and prices of chocolates sold.

Product/Market Development

The development of new products for new markets is the most
cost-intensive, high risk method for growth within the specialty food industry.
However, the risk can be minimized by acquiring existing businesses with
products complementary to our Hagensborg line of products. The advantage of
acquiring existing companies with established products is the development cost
savings and reduced time to market.

Other Projects

In addition to the product/market-related strategies discussed
above we are currently evaluating the automation of the production facilities
and new manufacturing equipment to decrease its cost of production and thereby
be able to offer competitive pricing.

Stated Business Objectives

Expand product line

Our strategic focus for the next 12 months will be developing
and marketing its existing proprietary brands and private label business in
Canada and the US as well as expanding its product range through in-house
product development and acquisitions of suitable gourmet foods manufacturers.
The key focus will be placed on identifying new products to generate revenue in
Fiscal 2006.

Expand distribution to increase volumes

In order to take advantage of economies of scale, we are
seeking to expand our national distribution in Canada and the US over the course
of the next 12 months. This will be achieved

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by selecting a pick and pack logistics company in the US to
service our smaller customers and brokers that specialize in servicing the
department stores, specialty stores, gift basket suppliers and health food
chains, by developing sales channels for the club and private label business and
by hiring key sales personnel.

Our first priority will be the expansion of distribution. To
sustain growth over the longer term, we intend to generate a continuing flow of
distinctively different, new products through in-house product development and
by way of acquisitions and market these new products on a North America wide
basis.

NATURAL PROGRAM INC.

We have a wholly-owned subsidiary, Natural Program, Inc., which
was incorporated as a Nevada company on July 7, 2000 (Natural Program).
Natural Program also has a wholly owned subsidiary, Natural Program Ltd.,
through which it carries on business in British Columbia. Natural Program is in
the business of developing and distributing herbal remedies. Through Natural
Program we operate a Chinese herbal pharmacy to dispense Chinese herbs to
practitioners and we market a whole-sale line of herbal remedies under the
Natural Program name. To date, we have completed the development of the first
complete product line which is being distributed in Vancouver, British Columbia,
Canada.

Products and Services

Our product line includes the Rescue Line and Travel Line. The
Rescue Line currently consists of five products: Memory, Sleep, Headache, Stress
and Energy Rescue. The first product of our new Travel Line is Thrombosin. The
remedies are marketed as improving the quality of day-today life and offering
solutions for common health problems. No independent studies have been performed
to evaluate the effectiveness of the formulations.

Stress Rescue

Designed to offer immediate relief of stress, trauma and shock,
our Stress Rescue formula is marketed for use in times of emergency, as a
restorative tonic, or as a preventative measure. We believe Stress Rescue helps
the body adapt to increased demands and is particularly useful in preventing
anxiety attacks, relieving fatigue and easing tension and pain.

Energy Rescue

Energy Rescue is a caffeine-free herbal formulation used to
increase endurance, improve athletic performance, restore sexual vitality and
invigorate the body and mind. Energy Rescue can also be used to alleviate the
effects of jet lag, nervous exhaustion, Chronic Fatigue Syndrome and is designed
to help restore the body in cases of depression and physical weakness.

Sleep Rescue

Sleep Rescue is designed to promote a deep, relaxing and
revitalizing sleep. We believe Sleep Rescue reduces evening restlessness,
restores the nervous system and relieves anxiety, tension and sleeplessness
without habit forming or addictive properties.

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Headache Rescue

Headache Rescue is intended to alleviates headaches and
migraines caused by various factors through its anti-inflammatory and pain
relieving properties. We believe Headache Rescue helps to relax muscular
tension, promotes rapid recovery, and can be used as a preventative measure.

Memory Rescue

Formulated to enhance memory and concentration, Memory Rescue
is marketed as an enhancement to cognitive function and mental abilities. It
also claims to counteract mental dullness and depression.

Thrombosin

Thrombosin is a herbal formula which we believe helps prevent
the formation of blood clots as a result of lack of circulation. The formation
of blood clots, or deep-vein thrombosis or DVT, has been dubbed economy class
syndrome because it results from long hours of minimal movement suffered
especially but not exclusively by air travel passengers on long-haul flights.
Taken several days before and after flying, Thrombosin is intended to help the
prevention of blood clots.

Herbal Laboratories

In addition to the wholesale product lines described above,
Natural Program has a division which operates as a Chinese herbal pharmacy
called Natural Program Herbal Laboratories which dispenses Chinese herbal
extracts including traditional Chinese herbal formulas, custom herbal formulas
and single herbal extracts in granulated form. Doctors of traditional Chinese
medicine prescribe herbal formulas just like traditional physicians prescribe
medications. Patients of Chinese medical practitioners drop off their
prescriptions at the Natural Program laboratory where the formulations are mixed
by professional herbalists. As an incentive for practitioners to refer their
patients to Natural Program, they receive a commission related on the value of
herbs sold.

We carry over 400 single Chinese herbal extracts and more than
350 of the most commonly used formulas. Both are packed in 50g and 100g bottles
and may be special ordered in larger quantities.

Distribution

Natural Programs products are currently distributed through
direct sales to natural health food store and pharmacies on a test market basis
in Vancouver, British Columbia, Canada. To expand our distribution to the rest
of Canada, the US and ultimately Europe and to include general grocery and mass
food chains, Natural Program is identifying specialized distributors for each of
its geographical markets. To date we do not have any agreements with any
distributors located outside of British Columbia, Canada.

In order to support retail sales, we provide product
information and educational seminars to sales personnel in order to enable them
to effectively sell our products. We also provide point of purchase displays and
informational brochures for end-consumers. In the future, we intend to advertise
in trade publications and attend industry trade shows.

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Competition

The herbal products market is currently dominated by
traditional, grass-roots products sold as raw herbs which require preparation
such as drying or boiling. The market is underserved by professional products
which are safe, easy to use and effective. This is mainly due to the complex
regulatory environment and the start-up capital requirements for developing and
dispensing herbal remedies.

As a manufacturer and wholesaler of herbal remedies, Natural
Program competes with manufacturers of natural medicine products. Other
competition includes allopathic pharmaceutical drug companies and natural
therapists who supply professional lines of natural health products.

Most competitors can be categorized in the following three
groups:

- Small to medium sized Chinese herbal dispensaries that fill custom formula
  prescriptions through direct sales and over the Internet.
- Medium sized manufacturers of Western herbal remedies, minerals, vitamins,
  etc.
- Large pharmaceutical drug companies who offer natural remedies in addition
  to traditional drugs.

Our focus is to capture the segments of the markets which do
not buy from large corporations but prefer smaller, specialized providers. We
are also targeting people in today's health-conscious marketplace that prefer to
prevent and treat illness with natural remedies as part of a holistic approach
to health and well-being instead of taking chemically prepared medications with
unwanted side effects.

Governmental Regulations

The Food and Drug Administration in the US currently requires
that manufacturers, processors and packagers of food, drugs, medical equipment
and blood follow Good Manufacturing Practices (GMP). GMP is a
regulatory process which was implemented for consumer protection. It ensures
that all aspects of the business are monitored allowing consumers to feel
confident that the products they receive are safe, pure and effective. Some of
the aspects involved in the GMP regulatory process are sanitation, cleanliness,
personnel qualifications and recordkeeping. These procedures are followed on a
daily basis. GMP protects consumers against weak or super potent products,
contamination, inconsistency in appearance, improper packaging and mislabeling.
Dietary supplements are not yet required, by law, to follow GMP practices.
However, GMP regulations should soon apply to dietary supplements. Natural
Program already abides by these requirements and can therefore ensure customers
of the high quality and purity of the products it delivers.

As of January 1, 2004 the Natural Health Products Directorate
(NHPD) has become the regulating body for natural health products
(NHP) in Canada. Previous regulations were defined by the Food and Drug
Regulations. The new regulations will affect manufacturers, distributors,
importers, labelers and packagers of NHP. The new regulations require all NHP
have a product license in order to be sold pre-packaged and in open selection
areas. Locations which are involved in the production, distribution, importation
and sale of NHP will be required to hold a site license and comply using Good
Manufacturing Practices (GMP).

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 9 

Companies which import goods from foreign sites must also
provide evidence showing that the imported products meet GMP standards. GMP must
be created, implemented and regulated by a qualified Quality Assurance
officer.

The transition period for site license compliance applies only
to companies which have an establishment license (which Natural Program has
already obtained) and have been conducting business before January 1, 2004.
Sites with a valid establishment license must be compliant with site license and
GMP requirements by January 1, 2006. Sites without a valid Establishment License
must have been compliant by January 1, 2004.

All NHPs that are prepacked, and not sold by prescription will
require a product license and in turn a NHP number. The purpose of this license
is to provide standards of evidence for the quality of the NHP purchased. The
Natural Health Products Directorate have provided clearly defined criteria to
evaluate each product type. Each product sold by a company must go through the
application process. There are different submission types for products. These
include Compendial and Non-Compendial. The Compendial submission refers to an
application for which a monograph is available. There will be a compilation of
over 100 monographs of common NHPs for reference.

Non-Compendial describes an application in which a full review
is required. Some of the general requirements for application include: completed
product license application form, proposed label text, quality summary report
and evidence of safety and efficacy. Once all product information has been
gathered and sent to the NHPD, the product will be reviewed. If quality, purity
and safety can be demonstrated, a product license will be submitted.

Health Canada has instituted a transitional period to help all
affected to work towards a full understanding of the requirements for
compliance. The transition periods apply to NHP with and without drug
identification numbers (DIN). A NHP with a DIN will have until December
31, 2009 to obtain a NHP number. A NHP without a DIN will have until December
31, 2007. Any new NHP introduced to the market after January 1, 2004 must have a
NHP number and therefore a product license.

Natural Program will require a site license, will need to be
GMP compliant and will require product licenses for its Rescue Line. However,
Natural Program also qualifies for the transition periods which mean that the
product license will not be required until December 31, 2007. A site license and
GMP compliance will be required by January 2006.

Sources of Raw Materials

Our main Natural Program assets are our proprietary
formulations for our liquid herbal remedies which have been developed in-house.
Both our herbal extracts and raw materials for our liquid herbal remedies come
from international sources. We outsource the manufacturing of our products to
specialized providers who comply with Good Manufacturing Practices standards.

Mining Interests

Garuda has two wholly owned subsidiaries incorporated for the
purpose of pursuing opportunities in the mining business. These are Garuda Gold
Corporation (Garuda Gold), a company incorporated in British Columbia on June
3, 2002 and Garuda Minerals Inc. (Garuda Minerals), a Nevada company
incorporated on May 6, 2005.

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 10 

On May 18, 2005, Garuda Minerals obtained an option to acquire
a 65% interest in an exploration license in Ghana. On the same date, Garuda Gold
obtained an option to acquire a 65% interest in the contract mining of a
different property in Ghana. For more information on the mining interests of
Garuda Gold and Garuda Minerals please see Mining Interests, page 15. Neither
Garuda Mining nor Garuda Gold have any employees in Ghana. Garuda does have one
consultant in Ghana to oversee both projects.

Garuda is aware of environmental requirements in the
exploration and mining on properties in Ghana. Garuda is comfortable with the
requirements and regulations and will abide by them.

Employees

Our employees are engaged as follows:

Administration/ Accounting
      Sales/ Marketing
      Production/ Operations
      TotalGaruda Capital Corp.
      1
      -
      -
      1Hagensborg Foods Ltd.
      3
      4
      15
      22Natural Program Inc.
      2
      2
      2
      6


Critical Accounting Policies

Our discussion and analysis of our financial condition and
results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the US.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate these estimates, including those related to customer
programs and incentives, bad debts, inventories, investments, intangible assets,
income taxes, warranty obligations, impairment or disposal of long-lived assets,
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We consider the following accounting policies to be both those
most important to the portrayal of our financial condition and that require the
most subjective judgment:

- Revenue recognition
- Accounting for marketable securities
- Impairment or disposal of long-lived assets
- Inventory valuation and related reserves
- Deferred taxes

Revenue recognition

The Company recognizes revenue from sales when there is
persuasive evidence that an arrangement exists, products have been rendered, the
sellers price to the buyer is determinable, and collectibility is reasonably
assured.

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 11 

Accounting for marketable securities

We classify our investments in marketable securities as
available for sale. We carry these investments at fair value, based on
quoted market prices, and unrealized gains and losses are included in
accumulated other comprehensive income (loss), which is reflected upon the sale
of our marketable securities in the statements of operations.

Impairment or disposal of long-lived assets

Long-lived assets are reviewed in accordance with Statement of
  Financial Accounting Standard (SFAS) 144. Impairment or disposal
  of long-lived assets losses are recognized in the period the impairment or disposal
  occurs. Long-lived assets are reduced to their estimated fair value.

Inventory valuation and related reserves

Inventories are valued at the lower or average cost of net realizable
  value. We use a standard cost system for purposes of determining cost where
  standards are adjusted as necessary to ensure they approximate actual costs.
  We write down or reserve for estimated obsolete or excess inventory based upon
  assumptions about future demand and market conditions. We compare current inventory
  levels on a product basis to our current sales forecast in order to assess our
  inventory reserve balance. The sales forecasts are based on economic conditions
  and trends (both current and projected), anticipated customer demand and acceptance
  of our products, current products, expected future products and various other
  assumptions. If actual market conditions are less favorable than those projected
  by management, additional write-downs may be required.

Deferred income taxes

We record a valuation allowance to reduce deferred income tax
  assets when it is more likely than not that some portion of the amount may not
  be realized.

RISK FACTORS

Set forth below and elsewhere in this Report are risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained in this
Report.

Garuda Risk Factors

We will need additional capital and this may result in
dilution of existing shareholders

In order to carry out our business plans it is likely that we
will need additional capital. It is also likely that we will raise additional
capital by issuing additional equity securities. As a result, current
shareholders are likely to experience dilution. If adequate funds are not
available, or are not available on acceptable terms, we may not be able to carry
out our business plans. This could result in our not being profitable and
remaining in business.

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 12 

The price and trading volume of our common stock has been
highly volatile and could adversely affect an investors ability to sell the
shares and the available price for the shares when sold.

The price and trading volume of our common stock has been
highly volatile. The price range since September 2002 has been from $0.06 per
share to $0.71 per share. In addition, the daily trading volume has varied from
no shares to 1,200,000 shares. Investors need to consider this volatility, which
could result in lower prices being available to the investor if the investor
desires to sell their shares at a given time.

Our common stock may be classified as a penny stock
which could adversely affect an investors ability to sell the shares and the
available price for the shares when sold.

We believe that our common stock would be characterized as
penny stock under U.S. Securities and Exchange Commission regulations. As
such, broker-dealers dealing in our common stock will be subject to the
disclosure rules for transactions involving penny stocks, which require the
broker-dealer to determine if purchasing our common stock is suitable for a
particular investor. The broker-dealer must also obtain the written consent of
purchasers to purchase our common stock. The broker-dealer must also disclose
the best bid and offer prices available for our stock and the price at which the
broker-dealer last purchased or sold our common stock. These additional burdens
imposed upon broker-dealers may discourage them from effecting transactions in
our common stock, which could make it difficult for an investor to sell their
shares.

We are dependent on our key personnel and may not be able
to easily replace such personnel.

Our success depends, to a significant extent, upon the efforts
and abilities of a small number of key management personnel and the loss of the
services of one or more of these individuals could adversely affect our
businesses. The particular areas of expertise we are dependent upon include
overall business planning and finance, the manufacture and marketing of gourmet
chocolates and foods and Chinese herbal medicine. Our success is also dependent
upon our ability to attract and retain qualified employees and personnel.
Competition for such personnel is intense and we may not be able to attract and
retain the personnel necessary for the development and operations of our
businesses. Our competition for qualified personnel may be hindered by our lack
of capital or fringe benefits which larger, more established competitors can
provide. We have no key man life insurance with respect to any of its
key management personnel.

We use Canadian currency and fluctuations in exchange
rates could adversely affect our sales and operations.

Much of our sales and supplies of raw materials are denominated
in foreign currencies, usually the Canadian dollar. Fluctuations in exchange
rates, i.e., between US and Canadian dollar as well as other currencies could
result in circumstances where our supplies and our products suddenly become more
expensive to us or to consumers which would adversely affect our costs, our
sales and our results of operations. Due to the recent fluctuations between
Canadian and US prices, our revenues from US customers have been affected
proportionately. While our cost of goods purchased in Canadian dollars and our
revenues from US sales have remained static, once the US funds are converted
into Canadian dollars, revenues have decreased due to the decreased value of the
US dollar.

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 13 

The number of shares issuable upon exercise of
outstanding common stock purchase warrants and options may adversely affect the
market price for our shares.

Derivative securities to acquire up to 10,535,022 shares of
common stock at a price of $0.20 per share are outstanding as of September 23,
2005. Exercise of common stock purchase warrants and options could have an
adverse effect on the market for the shares.

We do not anticipate paying dividends to shareholders in
the foreseeable future.

We have not paid dividends on our common shares and intend, for
the foreseeable future, to invest any earnings in the further development of our
business. Accordingly, shareholders should not expect to receive any dividends
on their shares.

Hagensborg Risk Factors

The business of our subsidiary, Hagensborg, is subject to a
number of risks due to the nature of the business and its present state of
development. Prospective purchasers should consider carefully, among other
factors set forth in this Report, the following:

Our new products will be competing against well
established chocolate and gourmet food companies.

Our chocolate and gourmet food products compete in markets
dominated by extremely large, well financed and internationally recognized
companies. Our ability to compete will depend upon developing our brand
recognition and distribution methods, while our competitors already have well
established brands and distribution and many times our financial ability.
Focused competition by such giants could substantially limit our potential
market and ability to profit from these products. Such competition may result in
reduced sales, reduced margins or both.

We may face product liability for the products we
manufacture and sell.

As a business which manufactures and markets products for use
by consumers, we may become liable for any damage caused by our products when
used in the manner intended. Any such claim of liability, whether meritorious or
not, could be time-consuming and result in costly litigation. Although we
maintain general liability insurance, our insurance may not cover potential
claims of the types described above or may not be adequate to indemnify us for
all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could harm our
business.

We are a niche marketing business and can be greatly
affected by overall economic trends.

Hagensborg may be considered to be a niche marketer of gourmet
foods. Gross sales of gourmet foods are affected by the overall economic
environment which in turn governs consumer spending. As a result, downturns in
the overall economic environment could result in a decrease in demand for such
products and a reduction in both gross sales and margins of Hagensborg.

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 14 

Our sales can be greatly affected by changes in consumer
tastes and preferences.

Consumer tastes in gourmet foods are inherently volatile.
Hagensborg is dependent upon its ability to gauge the taste of consumers and
provide products that satisfy that demand. Consumer tastes may change rapidly
and Hagensborg may not be able to market foods which consumers wish to purchase,
resulting in a significant reduction in sales and resultant revenues.

Our ability to succeed is dependent upon our ability to
grow as well as our ability to manage growth.

The growth of Hagensborg is dependent to a significant degree
on its ability to expand the marketing and sales activity to generate additional
sales, and our ability to update and expand its product line. In the past two
years Hagensborg has introduced several new products. The financial performance
of Hagensborg is also dependent upon managements ability to successfully
administer the resulting expanded operations. Hagensborg may not increase its
sales of existing products or develop and sell new products on a profitable
basis.

Natural Program Risk Factors

The business of Natural Program is subject to a number of risks
due to the nature of the business and its present state of development.
Prospective purchasers should consider carefully, among other factors set forth
in this Report, the following

We may face product liability for the products we
manufacture and sell.

As a business that manufactures and markets products for use by
consumers, we may become liable for any damage caused by our products when used
in the manner intended. Any such claim of liability, whether meritorious or not,
could be time-consuming and result in costly litigation. Although we maintain
general liability insurance, our insurance may not cover potential claims of the
types described above or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could harm our business.

We may become subject to government regulation of herbal
remedies, which could adversely affect our ability to sell our
products.

The regulatory environment governing herbal remedies varies
from country to country and changes at an unpredictable rate. The success of
Natural Program is dependent to a significant degree on its ability to comply
with industry regulations for product labeling, testing, and the like. If
Natural Program is unsuccessful in identifying and complying with changing
industry regulations, there may be a material adverse effect on its results. The
Food and Drug Administration in the US currently requires that manufacturers,
processors and packagers of food, drugs, medical equipment and blood follow Good
Manufacturing Practices. As of January 1, 2004 the Natural Health Products
Directorate became the regulating body for natural health products in Canada.
Previous regulations were defined by the Food and Drug Regulations. The new
regulations will affect manufacturers, distributors, importers, labelers and
packagers of NHP.

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 15 

Item 2. Description of Property.

Our properties are as follows:

Garuda

Garudas head office is located at 1978 Vine Street, Suite 502,
Vancouver, British Columbia, V6K 4S1, Canada. Our head office is currently
located in the private residence of C. Robin Relph, President of Garuda. No
consideration is being paid to Mr. Relph for the use of space in his private
residence. A commercial office space will be leased in due course as needed.

Hagensborg

Hagensborgs head office is located at 1576 Rand Avenue,
Vancouver, British Columbia, V6P 3G2, Canada and is 20,200 square feet in size.
Until March 31, 2005 the monthly lease amount was CDN$10,100 (US$8,627.42) .
Commencing April 1, 2005, the monthly lease amount was CDN$10,520 (US$8,986.18)
.. The lease expires on March 31, 2007.

Natural Program

Natural Programs head office is located at 2245 West Broadway,
Suite 102, Vancouver, British Columbia, V6K 2E4, Canada and is 765 square feet
in size. The monthly lease is CDN$1,474 (US$1,259.09) and expires on February
28, 2007.

Mining Interests

Ho Property

On May 18, 2005, Garuda Minerals entered into a binding letter
of intent with Newhaven Resources Ltd. (Newhaven) and Aquarian Gold
Corporation (Aquarian) and obtained an option to acquire a 65% interest in an
exploration license in the form of an Environmental Permit for Mineral
Exploration (the Permit) on an area of approximately 200 km2located near the town of Ho, in the Volta region of Ghana (the Ho
Property). A copy of the Permit has been included as an exhibit to this Report.
Pursuant to the agreement, Garuda Minerals has until May 17, 2006 to spend
$300,000 on direct or indirect exploration expenses in order to exercise its
option on the Ho Property, and after exercise must spend a further $200,000
before Newhaven is required to contribute to expenses. Once Garuda Minerals
exercises the option, Newhaven will retain a 25% interest and Aquarian will have
a 10% interest in the Ho Property. Aquarian previously had the Ho Property under
option, but has disclaimed any rights other than its right to a 10% interest.
After Garuda Minerals has spent $500,000 on the exploration of the Ho Property,
each of Newhaven, Aquarian and Garuda Minerals will be required to contribute
towards expenses according to their respective percentage of ownership. Jurgen
Wolf, a director of Garuda, is also a director of Aquarian.

Garuda Minerals has not yet begun geophysical surveys or soil
sampling on the Ho Property, and has not yet invested in plant or equipment to
explore the Ho Property.

Rocks of the Togo and Dahomeyan series cut by intrusives
underlie the regional area of the concession on the Ho Property. Previous work
in the area has been a systematic geological mapping and prospecting by the
Ghana governments geological survey department. Within the concession area
occurrences of chromites have been associated with the pyroxenite intrusions.

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 16 

Of these prospects, Agbeau-Afubu received some attention with
the Ghana governments geological survey department reporting a chrome oxide
occurrence of about 30%. Garuda Minerals will undertake its own geochemistry,
geophysics and a substantial trenching program to further define the geology and
pinpoint drill targets. The Ho Property is without known reserves and the mining
program is exploratory in nature. A copy of the proposed work program prepared
by Newhaven has been attached as an exhibit to this Report.

Prestia Property

On May 18, 2005, Garuda Gold entered into an agreement with
Newhaven and Aquarian whereby Garuda Gold obtained an option to acquire a 65%
interest in the contract mining of an open pit property with an exposed vein
system in a property in Prestia, Ghana (the Prestia Property). Newhavens
interest consists of a contract for mining services with Robert Appiah and
Group, whereby Newhaven has the right to receive 90% of the proceeds of the
total value of any mined gold, in consideration for the provision of mining
services which include project administration, exploration, sampling,
documentation of existing mineral resources and other services related to mining
operations on the Prestia Property (the Interest). A copy of the agreement
between Robert Appiah and Group with Newhaven granting Newhaven the Interest is
included as an exhibit to this Report. The Interest includes any mining rights
that Newhaven acquires in the areas surrounding the Prestia Property. The
Prestia Property lies in the Western Province of Ghana. Garuda must spent
$300,000 on mining operations on the Prestia Property prior to May 17, 2006 in
order to exercise its option to acquire 65% of the Interest. If the option is
exercised, Newhaven will retain 25% and Aquarian will have 10% of the interest,
and each party will be required to contribute to ongoing expenses according to
its percentage interest. Garuda Gold has not yet begun to assess or survey the
Prestia Property, and has not yet invested in any plant or equipment for its
exploration.

The Prestia Property lies in the Western Province of Ghana
within the Axim-Konogo gold belt which hosts the Obussi mine of Anglogold
Ashanti. Garuda has the option of making a work commitment of $300,000 over the
next 12 months to earn its interest. The Prestia Property is without known
reserves and the mining program is exploratory in nature.

The exploration and development team on both the Prestia
Property and the Ho Property consists of several experienced Canadian miners and
mining engineers who will be in charge of day-to-day operations in Ghana. The
geological team will be under the direction of Dr. Johnson Manu. Dr. Manu is a
Ghanaian geologist and author of widely referenced publications on the Birimian
gold belt. Dr. Manu is a senior lecturer in geology at the University of Ghana.
Dr. Manu was primarily responsible for acquiring these two projects on the
Prestia Property and the Ho Property now under option from Newhaven, where he
serves as a director.

Item 3. Legal Proceedings.

We know of no material, active or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceedings or
pending litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholders are an
adverse party or have a material interest adverse to us.

Item 4. Submission of Matters to a Vote of Security
Holders.

The following matters were submitted to a vote of our
stockholders, and passed by resolution at our Annual General Meeting (the AGM)
which took place on June 27, 2005:

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 17 

|1. | To elect C. Robin Relph, G. Arnold Armstrong and Jurgen
      Wolf as directors to serve for the ensuing year and until their successors
      are elected;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                            
|2. | To increase the authorized share capital of Garuda from
      50,000,000 to 100,000,000 shares of common stock;                                            
|   |                                                                                                                                                            
|3. | To approve Garudas 2005 Inventive Stock Option Plan;
      and                                                                                            
|   |                                                                                                                                                            
|4. | To ratify the issuance of 800,000 shares to Garudas
      directors in April 2005 as compensation for their
  services.                                   

Of the 28,228,620 common shares eligible for voting at the AGM,
14,345,990 shares were voted, and all were voted in favour of each of the
matters submitted to a vote of the stockholders.

PART II

Item 5. Market for Common Equity and Related Stockholder
Matters.

There is a limited public market for our common shares. Our
common shares are quoted for trading on the NASD OTC Bulletin Board under the
symbol GRUA.

The following table shows the high and low prices of our common
shares on the NASD OTC Bulletin Board. The following quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions:

Period
      High
      LowFirst Quarter  September 30, 2003
      0.22
      0.10Second Quarter  December 31, 2003
      0.20
      0.06Third Quarter  March 31, 2004
      0.16
      0.15Fourth Quarter  June 30, 2004
      0.16
      0.08July 1, 2004  Sept 30, 2004
      0.10
      0.02Oct 1, 2004  Dec 31, 2004
      0.10
      0.05Jan 1, 2005  Mar 31, 2005
      0.25
      0.10Apr 1, 2005  Jun 30, 2005
      0.22
      0.09


As of June 30, 2005, there were 34,655,619 common shares outstanding,
  held by approximately 108 shareholders of record.

On June 27, 2005, the shareholders of the Company approved to
increase the authorized common stocks to 100,000,000 units, $0.001 per par
value, at the Companys Annual General Meeting.

To date, we have not paid any dividends on Garudas common
shares and do not expect to declare or pay any dividends on our common shares in
the foreseeable future. Payment of any dividends will depend upon future
earnings, if any, our financial condition, and other factors as deemed relevant
by our Board of Directors.

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 18 

Equity Compensation Plans

On March 22, 2005, Garuda filed with the SEC a Registration
Statement on Form S-8 registering 3,000,000 common shares issuable to employees
and consultants pursuant to Garudas 2005 Non-Qualified Stock Compensation Plan
approved by the Board on March 4, 2005. As of June 30, 2005, 3,000,000 shares
had been issued under the plan.

On April 29, 2005, Garuda filed with the SEC a Form S-8
registering 4,000,000 common shares to be issued to employees and consultants
pursuant to Garudas April 2004 Non-Qualified Stock Compensation Plan approved
by the Board on April 26, 2005. As of June 30, 2005, 3,007,000 shares have been
issued under the plan.

On May 11, 2005, Garudas Board approved Garudas 2005
  Incentive Stock Option Plan, to issue up to 8,000,000 options, and the plan
  was approved by the shareholders at the AGM on June 27, 2005. The 2005 Stock
  Option Plan has not yet been registered in SEC Form S-8. To date, no options
  have been issued under the 2005 Stock Option Plan.

Equity Compensation Plan Information

Year Ended June 30, 2005Number of Shares to
      be Issued Upon Exercise of Outstanding
      Options, Warrants and Rights
      Weighted- Average
      Exercise Price ofOutstanding Options,
      Warrants and Rights
      Number of Shares
      **Remaining Available**  for Future
      Issuance Under Equity Compensation PlansEquity compensation plans not approved by
           shareholders
      0
      0
      8,000,000Equity compensation plans approved by  
         shareholders
      0
      0
      993,000Total
      0
      0
      8,993,000


Recent Sales of Unregistered Securities

On June 30, 2005, Garuda entered into private placements
subscription agreements for the sale of 3,500,000 units at a price of $0.10 per
unit (the Units). Each unit consisting of one share of common stock and a
one-half non-transferable warrant, with each warrant to purchase one share in
Garuda at an exercise price of $0.20 per share, exercisable for a period of two
years from the date of issuance.

On April 20, 2005, Garuda issued, to compensate its directors
and officer for the quarter ended March 31, 2005, at a deemed price of $0.10 per
share:

|a. | 500,000 shares of Garudas common stock to C. Robin
      Relph, Garudas President;                   
|-- | -------------------------------------------------------------------------------------------------------
|   |                                                                                                        
|b. | 50,000 shares of Garudas common stock to Arnold
      Armstrong, a director of Garuda at the time; and
|   |                                                                                                        
|c. | 250,000 shares of Garudas common stock to Jurgen Wolf, a
      director.                              

Garuda did not employ an underwriter in connection with the
issuance of the securities described above. We believe that the issuance of the
foregoing securities was exempt from

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 19 

registration under Section 4(2) of the Securities Act, as
transactions not involving a public offering. Each of the recipients acquired
the securities for investment purposes only and not with a view to distribution
and each recipient had adequate information about Garuda.

Item 6. Management's Discussion and Analysis or Plan of
Operation.

Overview

Hagensborg, Natural Program, Garuda Gold, Garuda Ventures and
  Garuda Minerals are all wholly owned subsidiaries of Garuda. Hagensborg manufactures
  and distributes chocolate and has been active during the past year in redeveloping
  and re-launching its product line. Hagensborg also sells canned seafood products
  through its wholly owned subsidiary, Hagensborg Seafoods Limited. Natural Program
  sells herbal remedies through its wholly owned subsidiary Natural Program Ltd.
  in Vancouver, British Columbia, Canada. Garuda Ventures is not active except
  that it has investments in the form of securities in other companies. Garuda
  Minerals and Garuda Gold each have recently entered into binding letters of
  intent agreements to acquire options to participate in mining properties located
  in Ghana, Africa.

Forward Looking Statements

This Report contains certain forward-looking statements within
the meaning of Section 21(e) of the Securities Exchange Act of 1934, as
amended, and other applicable securities laws. All statements other than
statements of historical fact are forward-looking statements for purposes of
these provisions, including any projections of earnings, revenues, or other
financial items; any statements of the plans, strategies, and objectives of
management for future operation; any statements concerning proposed new
products, services, or developments; any statements regarding future economic
conditions or performance; statements of belief; and any statement of
assumptions underlying any of the foregoing. Such forward-looking statements are
subject to inherent risks and uncertainties and actual results could differ
materially from those anticipated by the forward-looking statements.

Results of Operations for the year ended June 30, 2005
compared to June 30, 2004

During the fiscal year ended June 30, 2005, we realized total
revenues of $701,637 with a net loss for the year of $1,365,993. During the
fiscal year ended June 30, 2004, we realized total revenues of $1,236,079 with a
net loss of $844,595. The 43% decrease in revenues was the result of decreased
sales for Hagensborg and the 62% increase in net loss for Fiscal 2005 was a
result of product and package re-design expenses that were incurred for
Hagensborgs operations.

We are subject to seasonal effects on chocolate purchases.
Approximately 40% of our sales of chocolate products in the fiscal year ended
June 30, 2005 were generated during the Christmas season. The Spring season
which includes Valentines Day, Easter and Mothers Day is the second most
important chocolate consumption season after Christmas. We anticipate that
during the next fiscal year, our greatest sales of our chocolates will take
place during the Christmas season and in the Spring.

Gross profit for the year ended June 30, 2005 was $77,451,
compared to $182,355 for the same period in 2004.

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 20 

Our general and administrative costs for the year ended June
30, 2005 were $929,111 compared to $573,281 for the year ended June 30, 2004.
The general and administrative expenses consisted primarily of personnel costs,
professional and legal costs, consulting fees, and general office costs. The
increase in general and administrative costs in Fiscal 2005 is largely the
result of increased accounting, legal and consulting fees.

Our premises leases for both Hagensborg and Natural Program were
  $164,290 and $146,812 for the year ended June 30, 2005 and June 30, 2004, respectively.
  Effective March 31, 2004, we renewed the lease for the premises for both Hagensborg
  and Natural Program the lease costs have not increased significantly.

We anticipate that we will have increased sales in the coming
year from increased product sales through both Hagensborg and Natural Program.
We also anticipate that we will need to incur greater expenses for marketing
costs, hiring sales personnel, broker fees and trade show attendance fees as we
implement our business growth strategies for Hagensborg and Natural Program.

Liquidity and Capital Resources for the year ended June 30,
2005 compared to June 30, 2004

We believe that sales from Hagensborg and Natural Program will
  not provide sufficient capital resources to sustain our operations and fund
  product development throughout the fiscal year ended June 30, 2006. Management
  has been able, thus far, to finance the operations through a series of equity
  and debt financings. While we have received a going concern opinion
  from our auditors, management plans to continue to seek other sources of financing
  on favorable terms; however, there are no assurances that any such financing
  can be obtained on favorable terms, if at all. Management believes it has implemented
  significant cost reductions and expects to keep it's operating costs to a minimum
  until cash is available through financing or operating activities. There is
  no assurance that the company will be successful in achieving these goals. We
  continually evaluate opportunities to sell additional equity or debt securities,
  or obtain credit facilities from lenders to strengthen our financial position.
  The sale of additional equity or convertible debt securities could result in
  additional dilution to our stockholders.

We have financed Hagensborgs operations partly through
revenues from operations and bank credit facilities, and partly through the
issuance of equity shares and convertible debentures. Hagensborg has not been
able to reach the break-even point for the last four fiscal years and has had to
rely on Garuda for capital resources. We believe that sales from Hagensborgs
new product lines will add new capital resources over the coming year, but may
not be sufficient to sustain operations and fund new product launches throughout
the fiscal year ending June 30, 2006. If we are to pursue the options in mining
interests granted to Garuda Gold and Garuda Minerals, we will need to invest
approximately $500,000 during the next year in the mining properties subject to
those interests.

We have financed Natural Programs operations partly through
revenues and bank credit facilities, and partly through the issuance of equity
shares. Natural Program has not yet able to reach the break-even point and has
had to rely on Garuda for capital resources. We believe that additional sales
resulting from Natural Programs increased marketing efforts will add new
capital resources, but may not be sufficient to sustain operations and fund new
product launches throughout the fiscal year ending June 30, 2006.

During the year ended June 30, 2005, our current assets to
current liabilities ratio increased to 0.59 from 0.30 for the same period in
2004. Current assets increased $96,669 from $583,162 in 2004 to $679,831 in
2005, primarily as a result of increased sellable securities and prepaid
expenses in 2005. Current liabilities decreased $795,519 from $1,947,098 in 2004
to $1,151,579 in 2005, primarily as a result of the decrease of bank
indebtedness and notes payable to related party.

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 21 

Non-current assets for the year ended June 30, 2005 were
$219,833 net of depreciation.

Total liabilities decreased from $1,962,068 for the year ended
June 30, 2004 to $1,164,971 for the year ended June 30, 2005. For the year ended
June 30, 2005, this includes $1,151,579 in current liabilities, including
short-term loans of $185,000.

Garuda is considering a reorganization of its corporate
structure and subsidiaries which would involve spinning off Hagensborg and
Natural Program as separately owned companies through a declaration of dividends
to existing shareholders, to allow Garuda to focus on its mining interests. If
Garuda does pursue such reorganization, Garuda anticipates that it would reduce
the value of its assets significantly, but would allow Garuda to focus on
raising capital for its mining interests.

Our independent accountants, in their report accompanying our
audited financial statements for the year ended June 30, 2005, have stated that
there is substantial doubt about our ability to continue as a going concern. We
will require an additional $1,000,000 to finance operations for Fiscal year
2005/6 and intend to obtain such financing through sales of Garudas equity
securities. The threat to our ability to continue as a going concern will be
removed only when revenues have reached a level that sustains Garudas business
operations.

We have no binding commitments or arrangements for additional
financing and there is no assurance that management will be able to obtain any
additional financing on acceptable terms, if at all.

Item 7. Financial Statements.

Our consolidated financial statements for the year ended June
30, 2005, together with the Report of Independent Registered Public Accounting
Firm thereon, are included in this Report commencing on page F-1.

Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure

On July 11, 2005, Williams & Webster, P.S. (“Williams”)
  informed Garuda that it would no longer represent Garuda as its accountants,
  effective immediately. Williams last reported on Garuda’s financial statements
  as of October 14, 2004. Garuda’s financial statements for the year ended
  June 30, 2004, as audited by Williams, included an independent auditor's report
  containing an explanatory paragraph describing substantial doubt as to Garuda’s
  ability to continue as a going concern. During Garuda’s most recent fiscal
  year and the subsequent interim period through July 11, 2005, there were no
  disagreements with Williams on any matter of accounting principles or practices,
  financial statement disclosure, or auditing scope or procedure, which, if not
  resolved, to Williams's satisfaction, would have caused it to make reference
  to the subject matter of the disagreement in connection with its report. However,
  Williams's reports on Garuda’s consolidated financial statements contained
  an explanatory paragraph describing substantial doubt as to Garuda’s ability
  to continue as a going concern.

On August 8, 2005, Garuda engaged Ernst & Young LLP, Chartered Accountants
  to serve as its independent public accounting firm.

Item 8A. Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

As of June 30, 2005, we evaluated the effectiveness of the design
  and operation of our disclosure controls and procedures. We are responsible
  for establishing and maintaining adaquate internal controls and procedures for
  the financial reporting of Garuda. Disclosure controls and procedures are the
  controls and other procedures that we designed to ensure that we record, process,
  summarize and report in a timely manner the information we must disclose in
  reports that we file with or submit to the SEC. Our Chief Executive Officer
  and Chief Financial Officer participated in this evaluation. Based on this evaluation,
  our Chief Executive Officer and Chief Financial Officer concluded that, as of
  the date of his evaluation, our disclosure controls and procedures were effective.
  We evaluate the internal controls on a regular bases to ensure that we are in
  compliance with our policies.

There have been no changes in our internal control over
financial reporting that occurred during our fourth fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

---

 22 

Item 8B. Other Information.

None.

PART III

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.

|(a) | The following table sets forth the name, age, and
      position of the executive officers and directors of Garuda as of September
      24, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

Name and Age
    Position(s) Held
      (1)
    Principal
      Occupation(s) During Past 5 Years
    Other Directorships
      Held by DirectorC. Robin Relph, 55
    Director, President, CFO, CEO
      from April 2002 Director of Hagensborg Foods Ltd. from 1998
      Director of Natural Program Inc. and Natural Program Ltd.
      from July 2000 Director of Garuda Gold Corporation from
      May 2004 Director and President of Garuda Ventures Canada Inc.
      from February 2002 Director and President of Hagensborg
      Seafoods Limited from April 2001
    President of Garuda from May
      2002 Director of Hagensborg Food Corporation from 1998 to
      March 2003
    n/aJurgen Wolf, 70
    Director from October 2002
      Director of Hagensborg Foods Ltd. from 1999
    President of US Oil and Gas
      Resources Inc. (TSX: USR) from 1999 to present
    Tasty Fries (OTC BB: TFRY),
      Shoreman Resources (TSX: SMH), August Energy Corp. (PK:
      OENC)


|(1) | Hagensborg Foods Ltd, Natural Program Inc., Natural
      Program Ltd., Garuda Gold Corporation, Garuda Ventures Canada Inc. and
      Hagensborg Seafoods Limited, are all wholly owned subsidiaries of
      Garuda.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Significant Employees

There are no individuals other than our executive officers who
are expected to make a significant contribution to the business.

---

 23 

Family Relationships

There are no family relationships among directors, executive
officers, or persons nominated or chosen by Garuda to become directors or
executive officers.

No Legal Proceedings

None of our directors, executive officers, promoters or control
persons have been involved in any of the following events during the past five
years:

|1. | any bankruptcy petition filed by or against any business
      of which such person was a general partner or executive officer either at
      the time of the bankruptcy or within two years prior to that
  time;                                                                                                            
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                
|2. | any conviction in a criminal proceeding or being subject
      to a pending criminal proceeding (excluding traffic violations and other
      minor offenses);                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                
|3. | being subject to any order, judgment, or decree, not
      subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his involvement in any type of business, securities or
      banking activities; or
|   |                                                                                                                                                                                                                                                                                                                                
|4. | being found by a court of competent jurisdiction (in a
      civil action), the SEC or the Commodity Futures Trading Commission to have
      violated a federal or state securities or commodities law, and the
      judgment has not been reversed, suspended, or
vacated.                                                  

Board of Directors and Its Committees

The Board of Directors met in person or via telephone regularly
during Garudas fiscal year ended June 30, 2005. Each member of the Board of
Directors attended at least 75% of the meetings. The Board of Directors
currently does not have a nominating committee or a compensation committee.

The Board of Directors of Garuda has an audit committee that is
currently composed of two members, Jurgen Wolf and C. Robin Relph (Mr. Armstrong
was also a member until his resignation on August 18, 2005.) The audit committee
met two times during the past fiscal year. The audit committee is responsible
for the selection and retention of independent auditors, audit reports and
management recommendations made by Garudas independent auditors. Garudas Board
of Directors has determined that each audit committee member has sufficient
knowledge in financial and accounting matters to serve on the committee and that
each member is an audit committee financial expert as defined by the rules of
the Securities and Exchange Commission (the SEC). The Board of Directors has
not adopted a written charter for the audit committee.

Director Nominees

Garuda does not have a nominating committee. The Board of
Directors, sitting as a Board, selects those individuals to stand for election
as members of our Board. Since the Board of Directors does not include a
majority of independent directors, the decision of the Board as to director
nominees is made by persons who have an interest in the outcome of the
determination. The Board will consider candidates for directors proposed by
security holders,

---

 24 

although no formal procedures for submitting candidates have
been adopted. Until otherwise determined, not less than 90 days prior to the
next annual Board of Directors' meeting at which the slate of Board nominees is
adopted, the Board accepts written submissions that include the name, address
and telephone number of the proposed nominee, along with a brief statement of
the candidate's qualifications to serve as a director and a statement of why the
shareholder submitting the name of the proposed nominee believes that the
nomination would be in the best interests of shareholders. If the proposed
nominee is not the security holder submitting the name of the candidate, a
letter from the candidate agreeing to the submission of his or her name for
consideration should be provided at the time of submission. The letter should be
accompanied by a résumé supporting the nominee's qualifications to serve on the
Board of Directors, as well as a list of references.

The Board identifies director nominees through a combination of
referrals, including by management, existing Board members and security holders,
where warranted. Once a candidate has been identified, the Board reviews the
individual's experience and background and may discuss the proposed nominee with
the source of the recommendation. If the Board believes it to be appropriate,
Board members may meet with the proposed nominee before making a final
determination whether to include the proposed nominee as a member of
management's slate of director nominees submitted to shareholders for election
to the Board.

Among the factors that the Board considers when evaluating
proposed nominees are their knowledge of and experience with and knowledge of
and experience in business matters, finance, capital markets and mergers and
acquisitions. The Board may request additional information from the candidate
prior to reaching a determination. The Board is under no obligation to formally
respond to all recommendations, although as a matter of practice, it will
endeavor to do so.

Code of Ethics

Garuda has not yet adopted a code of ethics that applies to
Garudas principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions
because it has not yet finalized the content of such a code. Companies whose
equity securities are listed for trading on the OTCBB are not currently required
to do so.

Section 16(a) Beneficial Ownership Reporting
Compliance

Section 16(a) of the Securities Exchange Act of 1934, as
amended (Section 16), requires that reports of beneficial ownership of capital
stock and changes in such ownership be filed with the SEC by Section 16
reporting persons, including directors, certain officers, and holders of more
than 10% of the outstanding common shares. We are required to disclose in this
Report each reporting person whom we know to have failed to file any required
reports under Section 16 on a timely basis during the fiscal year ended June 30,
2005.

To our knowledge, based solely on a review of copies of Forms
3, 4 and 5 furnished to us and written representations that no other reports
were required, during the fiscal year ended June 30, 2005, our officers,
directors and 10% shareholders complied with all Section 16 filing requirements
applicable to them, except that some of the Form 4s were filed late.

---

 25 

Item 10. Executive Compensation.

The following table sets forth compensation awarded to, earned
by or paid to our Chief Executive Officer (CEO), and to other persons serving as
executive officers as of June 30, 2005, whose salary and bonus for such year
exceeded $100,000 (collectively, the Named Executive Officers) for the last
two completed fiscal years.

Long Term
      CompensationSummary Compensation 
        Annual Compensation
      Awards
      PayoutsName and Principal Position
      Year
      Salary $
      Bonus $
      Other Annual
       Compensation $
      Restricted 
        Stock Award(s)
      $
      Securities 
        Underlying
      Options/SARs (#)
      LTIP Payouts $
      All Other
      Compensation $C. Robin Relph
      2005
      72,000(1)
      Nil
      Nil
      56,000(2)
      Nil
      Nil
      NilPresident and 
        CEO
      2004
      72,000(1)
      Nil
      18,000
      Nil
      Nil
      Nil
      Nil


|(1) | Represents consulting fees paid to Mr. Relph as
      President.                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                     
|(2) | Represents 500,000 shares of Garuda common stock issued
      at $0.10 per share and 300,000 shares of common stock issued at $0.02 per
      share.

Employment Agreements

We have no written employment agreements with executive
officers at this time. Consulting fees in the amount of $72,000 per year were
paid to C. Robin Relph, President during the last fiscal year:

Compensation of Directors

Directors are entitled to receive reimbursement for all
out-of-pocket expenses incurred for attendance at Board of Directors meetings.

Other Arrangements

There are no other arrangements.

Termination of Employment and Change of Control
Arrangement

There is no compensatory plan or arrangement with respect to
any individual named above which results or will result from the resignation,
retirement or any other termination of employment with us, or from a change in
our control.

Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of June 30, 2005
by: (i) each of our directors; (ii) each of our named executive officers; (iii)
officers and directors as a group; and (iv) each person or group is known by us
to beneficially own more than 5% of our outstanding shares of common

---

 26 

stock. Unless otherwise indicated, the shareholders listed
possess sole voting and investment power with respect to the shares shown to our
knowledge.

Directors and
      Officers**Title of
      Class**
    Name, position & address
      of beneficial owner (1)
    Number of Shares of
      Common Stock (2)
    Percentage of Common
      Stock (3)Common Stock
    C. Robin Relph, President &
      Chief Executive Officer #4, Old Fort Bay, New Providence,
      Bahamas
    6,339,032 (4)
    17.78%Common Stock
    G. Arnold Armstrong, Director
      2080 - 777 Hornby Street Vancouver, BC, V6Z 1S4 Canada
    3,150,066 (5)
    8.83%Common Stock
    Jurgen Wolf, Director 103  1285
       17thAvenue Surrey, BC, V4A 1T8 Canada
    3,410,000 (6)
    9.56%Common Stock
    All Officers and Directors as aGroup (4
      persons)
    12,999,098
    36.18%


|(1) | Unless otherwise noted, the address for all persons shall
      be the principal executive office of Garuda.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | The number and percentage of shares beneficially owned is
      determined under rules of the SEC and the information is not necessarily
      indicative of beneficial ownership for any other purpose.                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Under such rules, beneficial ownership includes any
      shares as to which the individual has sole or shared voting power or
      investment power and also any shares which the individual has the right to
      acquire within 60 days through the exercise of any stock option or other
      right. The persons named in the table have sole voting and investment
      power with respect to all shares of Common Stock shown as beneficially
      owned by them, subject to community property laws where applicable and the
      information contained in the footnotes to this table.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | Based on 34,655,619 issued and outstanding shares of common
        stock as of June 30, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(4) | Includes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | a. | 3,043,574 shares held directly and 950,000 shares
      issuable upon exercise of warrants;                                                                                                        
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                    
| | b. | in the name of Buckingham Securities Ltd., of which Mr.
      Relph is managing director, 935,200 shares and 250,000 shares issuable to
      Buckingham Securities Ltd. upon exercise of warrants;
| |    |                                                                                                                                                                                                    
| | c. | 86,000 shares in the name of Hagensborg Foods Corp., a
      company of which Mr. Relph owns 13% of the outstanding and issued
      shares;                                                       
| |    |                                                                                                                                                                                                    
| | d. | 582,258 shares in the name of Garuda Ventures Ltd., of
      which Mr. Relph is a director and of which Mr. Relph disclaims any
      beneficial ownership;                                        
| |    |                                                                                                                                                                                                    
| | e. | 192,000 shares in the name of Rigpa Foundation, of which
      Mr. Relph is the Chair of the Board of Trustees and of which Mr. Relph
      disclaims any beneficial ownership; and                
| |    |                                                                                                                                                                                                    
| | f. | 300,000 shares in the name of Zambala Ventures Ltd., of
      which Mr. Relph is a director and of which Mr. Relph disclaims any
      beneficial ownership.                                       

---

 27 

|(5) | Includes:
|--- | ---------
|    |          
|    | a.       
|    |          
|    | b.       
|    |          
|    | c.       
|    |          
|    | d.       
|    |          
|(6) | Includes:
|    |          
|    | a.       
|    |          
|    | b.       

Item 12. Certain Relationships and Related
Transactions.

During the fiscal year ended June 30, 2005, we entered into the
following transactions in which certain of our officers or directors have a
direct or indirect material interest.

On November 9, 2004 Garuda issued 500,000 shares of its common
stock at a deemed price of $0.02 per share, fair market value, as compensation
to directors as follows:

|1. | C. Robin Relph received 300,000 shares;                                      
|-- | -----------------------------------------------------------------------------
|   |                                                                              
|2. | G. Arnold Armstrong, a director of Garuda, received
      100,000 shares; and
|   |                                                                              
|3. | Jurgen Wolf, a director of Garuda, received 100,000
      shares.            

On March 15, 2005, Garuda sold units at $0.10 per unit, each
unit consisting of one share of common stock and a one-half non-transferable
warrant. Each full warrant allows the purchase one share at an exercise price of
$0.20 per share, exercisable for a period of two years from the date of
issuance, to the following directors/control persons:

|1. | C. Robin Relph - 900,000 units;                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                   
|2. | Buckingham Securities, a company controlled by C. Robin
      Relph - 300,000 units;                                                                                              
|   |                                                                                                                                                                                   
|3. | August Energy Corp., a company controlled by Jurgen Wolf
      - 1,500,000 units;                                                                                                 
|   |                                                                                                                                                                                   
|4. | Jurgen Wolf  500,000 units; and                                                                                                                                                  
|   |                                                                                                                                                                                   
|5. | International Cetec Investments Inc., Armada Investments
      Ltd. and Kelvin Grove Estates Ltd., all companies controlled by Arnold
      Armstrong, - in total 1,520,044 units.

On April 20, 2005, Garuda issued, to compensate its directors
and officer for the quarter ended March 31, 2005, at a deemed price of $0.10 per
share:

---

 28 

|1. | 500,000 shares of Garudas common stock to C. Robin
      Relph, Garudas President;            
|-- | ------------------------------------------------------------------------------------------------
|   |                                                                                                 
|2. | 50,000 shares of Garudas common stock to Arnold
      Armstrong, a director of the Company; and
|   |                                                                                                 
|3. | 250,000 shares of Garudas common stock to Jurgen Wolf, a
      director of Garuda.             

On June 30, 2005, Garuda sold units at $0.10 per unit, each
unit consisting of one share of common stock and a one-half non-transferable
warrant. Each full warrant allows the purchase one share at an exercise price of
$0.20 per share, exercisable for a period of two years from the date of
issuance, to the following directors/control persons:

|1. | C. Robin Relph - 1,000,000 units; and                                               
|-- | ------------------------------------------------------------------------------------
|   |                                                                                     
|2. | Buckingham Securities Ltd., a company controlled by Mr.
      Relph - 200,000 units.

During the fiscal year ended June 30, 2005, we incurred
consulting fees of $72,000 to C. Robin Relph, our President for his acting as
President.

Item 13. Exhibits.

|Exhibits
|--------
|        
|3.1     
|
|        
|3.2     
|
|        
|3.3     
|
|        
|3.4     
|        
|10.1    
|
|
|        
|10.2    
|
|
|        
|10.3    
|
|
|        
|10.4    
|
|        
|10.5    
|        
|10.6    

---

 29 

|10.7 | Agreement for Mining Services
        between Robert Appiah and Newhaven dated May 6, 2005
|---- | ------------------------------------------------------------------------------------------
|     |                                                                                           
|21   | Subsidiaries of the Registrant                                                            
|     |                                                                                           

| | Name                        | State of Incorporation
| | --------------------------- | ----------------------
| |                             |                       
| | Hagensborg Foods Ltd.       | British Columbia      
| | Hagensborg Seafoods Ltd.    | British Columbia      
| | Natural Program Inc.        | Nevada                
| | Natural Program Ltd.        | British Columbia      
| | Garuda Ventures Canada Inc. | British Columbia      
| | Garuda Gold Corporation     | British Columbia      
| | Garuda Minerals Inc.        | Nevada                

|31.1 | Certification of the Chief Executive
        Officer and Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14
        of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act
        of 2002
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                 
|32.1 | Certification of the Chief Executive
        Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
        as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                

Item 14. Principal Accountant Fees and Services.

Audit and Non-Audit Fees

The following table represents fees for the professional audit
services and fees billed for other services rendered by our current auditors,
Ernst & Young, LLP for the audit of our annual financial statements for the
year ended June 30, 2005 and any other fees billed for other services rendered
by Ernst & Young LLP during that period. Also set forth below is a table
representing fees for the professional audit services rendered by our former
auditors, Williams & Webster, P.S., Certified Public Accountants, for the
audit of our annual financial statements for the year ended June 30, 2004, and
any other fees billed for other services by Williams & Webster, P.S. during
that period.

Ernst & Young LLPYear Ended June 30, 2005Audit fees
      CDN$52,000
      
      US$42,000Audit-related fees
      CDN$8,000
      
      US$ 6,400Tax fees
      0
      
      0All other fees
      0
      
      0Total
      CDN$60,000
      
      US$48,400


---

 30 

Williams & Webster, P.S., Certified
      Public AccountantsYear ended June 30, 2004Audit fees
      US$66,529Audit-related fees
      0Tax fees
      0All other fees
      0Total
      US$66,529


Beginning in Fiscal 2004, the Audit Committee reviews all audit
and non-audit related fees at least annually. The Audit Committee pre-approved
all audit related services in Fiscal 2005.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Exchange Act, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.

GARUDA CAPITAL CORP.

|                        | By: /s/ C. Robin Relph           
|----------------------- | ---------------------------------
|                        |                                  
|Date: November 10, 2005 | C. Robin Relph,                  
|                        | President, Chief Executive       
|                        | Officer, Chief Financial Officer,
|                        | Director,                        
|                        | Principal Accounting Officer     

Pursuant to the requirements of 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.

|Signature          | Title                             | Date             
|------------------ | --------------------------------- | -----------------
|                   |                                   |                  
|/s/ C. Robin Relph | President, Chief Executive        | November 10, 2005
|C. Robin Relph     | Officer, Chief Financial Officer, |                  
|                   | Director and Principal Accounting |                  
|                   | Officer                           |                  
|                   |                                   |                  
|/s/ Jurgen Wolf    | Director                          | November 10, 2005
|Jurgen Wolf        |                                   |                  

---

Consolidated Financial Statements

Garuda Capital Corp.
  (Expressed in United States dollars)
  June 30, 2005

F-i

---

|REPORT OF INDEPENDENT REGISTERED
|--------------------------------
|PUBLIC ACCOUNTING FIRM          

|To the Board of Directors and Stockholders of
|---------------------------------------------
|Garuda Capital Corp.                         

We have audited the accompanying consolidated balance sheet
  of Garuda Capital Corp.as of June 30, 2005 and the related consolidated
  statement of operations and comprehensive loss, stockholders deficiency
  and cash flows statement for the year ended June 30, 2005. 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 audit.

We conducted our audit in accordance with auditing standards
  of the Public Company Oversight Board (United States). Those standards require
  that we plan and perform an audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. We were not engaged
  to perform an audit of the Companys internal control over financial reporting.
  Our audit included consideration of internal control over financial reporting
  as a basis for designing audit procedures that are appropriate in the circumstances,
  but not for the purpose of expressing an opinion on the effectiveness of the
  Companys internal control over financial reporting. Accordingly, we express
  no such opinion. An audit also includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements, assessing
  the accounting principles used and significant estimates made by management,
  and evaluating the overall financial statement presentation. We believe that
  our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
  present fairly, in all material respects, the consolidated financial position
  of Garuda Capital Corp. at June 30, 2005, and the consolidated results of its
  operations and its cash flows for the year ended June 30, 2005, in conformity
  with U.S. generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Companys
  recurring net losses and working capital deficiency raise substantial doubt
  about its ability to continue as a going concern. Managements plans as
  to these matters are also described in Note 1. These financial statements do
  not include any adjustments that might result from the outcome of this uncertainty.

The financial statements of Garuda Capital Corp. as of June
  30, 2004 were audited by other auditors whose report dated October 15, 2004,
  except for Note 12, which is dated November 10, 2005, expressed an unqualified
  opinion on those statements.

|November, Canada, | /s/ Ernst & Young LLP
|----------------- | ---------------------
|October 28, 2005. | Chartered Accountants

F-1

---

Garuda Capital Corp.

|CONSOLIDATED BALANCE SHEETS         
|------------------------------------
|[Basis of presentation - see note 1]

|As at June 30 | (Expressed in U.S. dollars)
|------------- | ---------------------------

|                                                         |  | 2005       |   |  | 2004       |  
|-------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                         |  | $          |   |  | $          |  
|                                                         |  |            |   |  |            |  
|ASSETS                                                   |  |            |   |  |            |  
|Current                                                  |  |            |   |  |            |  
|Marketable securities [note 3]                           |  | 291,315    |   |  | 168,655    |  
|Accounts receivable [note 16]                            |  | 84,096     |   |  | 126,970    |  
|Inventory [note 4]                                       |  | 277,952    |   |  | 272,191    |  
|Prepaid expenses                                         |  | 26,468     |   |  | 15,346     |  
|Total current assets                                     |  | 679,831    |   |  | 583,162    |  
|Machinery and equipment [note 5]                         |  | 204,591    |   |  | 240,178    |  
|Patents and trademarks [note 6]                          |  | 15,242     |   |  | 13,671     |  
|Total assets                                             |  | 899,664    |   |  | 837,011    |  
|                                                         |  |            |   |  |            |  
|LIABILITIES AND STOCKHOLDERS DEFICIENCY                 |  |            |   |  |            |  
|Current                                                  |  |            |   |  |            |  
|Bank indebtedness [note 8]                               |  | 94,754     |   |  | 206,653    |  
|Accounts payable and accrued expenses                    |  | 344,892    |   |  | 413,316    |  
|Bank loan [note 8]                                       |  | 185,000    |   |  | 128,600    |  
|Notes payable [note 9]                                   |  |           |   |  | 22,058     |  
|Notes payable - related party [note 13]                  |  | 524,558    |   |  | 1,174,184  |  
|Capital lease obligation [note 17]                       |  | 2,375      |   |  | 2,287      |  
|Total current liabilities                                |  | 1,151,579  |   |  | 1,947,098  |  
|Capital lease obligation [note 17]                       |  |           |   |  | 2,758      |  
|Government loan [note
      10]                          |  | 13,392     |   |  | 12,212     |  
|Total liabilities                                        |  | 1,164,971  |   |  | 1,962,068  |  
|                                                         |  |            |   |  |            |  
|Commitments and contingencies [notes 17
      and 18]    |  |            |   |  |            |  
|                                                         |  |            |   |  |            |  
|Stockholders deficiency                                 |  |            |   |  |            |  
|Preferred stock, $0.01 par value; 10,000,000 shares      |  |            |   |  |            |  
|authorized, none issued and outstanding                  |  |            |   |  |            |  
|Common stock, $0.001 par value; 50,000,000 shares        |  |            |   |  |            |  
|authorized, 34,655,619 and 6,373,575
      shares issued |  |            |   |  |            |  
|and outstanding [note 12]                                |  | 34,656     |   |  | 6,374      |  
|Additional paid-in capital                               |  | 5,181,587  |   |  | 2,444,715  |  
|Contra equity [note 14]                                  |  | (395,424   | ) |  |           |  
|Accumulated deficit                                      |  | (4,938,748 | ) |  | (3,572,755 | )
|Accumulated other
      comprehensive loss               |  | (147,378   | ) |  | (3,391     | )
|Total stockholders deficiency                           |  | (265,307   | ) |  | (1,125,057 | )
|Total liabilities
      and stockholders deficiency     |  | 899,664    |   |  | 837,011    |  

See accompanying notes

On behalf of the Board:

|/s/ C. Robin Relph | Director | /s/ Jurgen Wolf | Director
|------------------ | -------- | --------------- | --------

F-2

---

Garuda Capital Corp.

|CONSOLIDATED STATEMENTS OF OPERATIONS
|-------------------------------------
|AND COMPREHENSIVE LOSS               
|[Basis of presentation - see note 1] 

|Year ended June 30 | (Expressed in U.S. dollars)
|------------------ | ---------------------------

|                                                      |  | 2005       |   |  | 2004      |  
|----------------------------------------------------- |  | ---------- | - |  | --------- | -
|                                                      |  | $          |   |  | $         |  
|                                                      |  |            |   |  |           |  
|REVENUE                                               |  |            |   |  |           |  
|Sales                                                 |  | 701,637    |   |  | 1,236,079 |  
|Cost of sales                                         |  | 624,186    |   |  | 1,053,724 |  
|Gross profit                                          |  | 77,451     |   |  | 182,355   |  
|                                                      |  |            |   |  |           |  
|EXPENSES                                              |  |            |   |  |           |  
|General and administrative                            |  | 929,111    |   |  | 573,281   |  
|Depreciation [notes 5 and 6]                          |  | 11,925     |   |  | 7,603     |  
|Advertising and promotion                             |  | 252,789    |   |  | 84,676    |  
|Premises leases                                       |  | 164,290    |   |  | 146,812   |  
|                                                      |  | 1,358,115  |   |  | 812,372   |  
|Loss from operations                                  |  | (1,280,664 | ) |  | (630,017  | )
|Other income (expense)                                |  |            |   |  |           |  
|Foreign currency transaction income
      (loss)      |  | 7,659      |   |  | (76,744   | )
|Gain (loss) on sale of marketable securities          |  | 32,808     |   |  | (14,821   | )
|Other income                                          |  | 17,894     |   |  |          |  
|Interest
      expense [note 13]                      |  | (143,690   | ) |  | (123,013  | )
|                                                      |  | (85,329    | ) |  | (214,758  | )
|Net loss                                              |  | (1,365,993 | ) |  | (844,595  | )
|                                                      |  |            |   |  |           |  
|Other comprehensive income (loss)                     |  |            |   |  |           |  
|Loss on foreign currency translation                  |  | (55,710    | ) |  | (8,116    | )
|Unrealized
      gain (loss) on marketable securities |  | (88,277    | ) |  | 51,770    |  
|                                                      |  | (143,987   | ) |  | 43,654    |  
|Comprehensive loss                                    |  | (1,509,980 | ) |  | (800,941  | )
|                                                      |  |            |   |  |           |  
|Net loss per common
      share, basic and diluted    |  | (0.11      | ) |  | (0.13     | )
|                                                      |  |            |   |  |           |  
|Weighted average number of common shares              |  |            |   |  |           |  
|outstanding, basic and diluted                        |  | 12,468,284 |   |  | 6,355,076 |  

See accompanying notes

F-3

---

Garuda Capital Corp.

|CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIENCY
|---------------------------------------------------
|[Basis of presentation - see note 1]               

|Year ended June 30 | (Expressed in U.S. dollars)
|------------------ | ---------------------------

|                                                        |  |              |  |  |         |  |  |             |  |  |               |   |  | Accumulated |   |  |               |   |  |            |  
|------------------------------------------------------- |  | ------------ |  |  | ------- |  |  | ----------- |  |  | ------------- | - |  | ----------- | - |  | ------------- | - |  | ---------- | -
|                                                        |  |              |  |  |         |  |  | Additional  |  |  |               |   |  | other       |   |  |               |   |  | Total      |  
|                                                        |  | Common stock |  |  | paid-in |  |  | Accumulated |  |  | comprehensive |   |  | Contra      |   |  | Stockholders' |  
|                                                        |  | Shares       |  |  | Amount  |  |  | capital     |  |  | deficit       |   |  | loss        |   |  | equity        |   |  | equity     |  
|                                                        |  | #            |  |  | $       |  |  | $           |  |  | $             |   |  | $           |   |  | $             |   |  | $          |  
|                                                        |  |              |  |  |         |  |  |             |  |  |               |   |  |             |   |  |               |   |  |            |  
|Balance, June 30, 2003                                  |  | 6,299,575    |  |  | 6,300   |  |  | 2,437,389   |  |  | (2,728,160    | ) |  | (47,045     | ) |  |              |   |  | (331,516   | )
|Shares issued for services at $0.30 per share           |  | 74,000       |  |  | 74      |  |  | 7,326       |  |  |              |   |  |            |   |  |              |   |  | 7,400      |  
|Gain/loss on foreign currency translation               |  |             |  |  |        |  |  |            |  |  |              |   |  | (8,116      | ) |  |              |   |  | (8,116     | )
|Unrealized gain on available for sale securities        |  |             |  |  |        |  |  |            |  |  |              |   |  | 51,770      |   |  |              |   |  | 51,770     |  
|Net loss for the year ended June 30, 2004               |  |             |  |  |        |  |  |            |  |  | (844,595      | ) |  |            |   |  |              |   |  | (844,595   | )
|Balance, June 30, 2004                                  |  | 6,373,575    |  |  | 6,374   |  |  | 2,444,715   |  |  | (3,572,755    | ) |  | (3,391      | ) |  |              |   |  | (1,125,057 | )
|Shares issued for compensation at $0.02 per
      share |  | 1,555,000    |  |  | 1,555   |  |  | 29,545      |  |  |              |   |  |            |   |  |              |   |  | 31,100     |  
|Shares issued for compensation at $0.10 per share       |  | 800,000      |  |  | 800     |  |  | 79,200      |  |  |              |   |  |            |   |  |              |   |  | 80,000     |  
|Shares issued for services at $0.10 per share           |  | 2,980,000    |  |  | 2,980   |  |  | 295,020     |  |  |              |   |  |            |   |  |              |   |  | 298,000    |  
|Shares issued for services at $0.12 per share           |  | 3,000,000    |  |  | 3,000   |  |  | 357,000     |  |  |              |   |  |            |   |  |              |   |  | 360,000    |  
|Shares issued for services at $0.15 per share           |  | 27,000       |  |  | 27      |  |  | 4,023       |  |  |              |   |  |            |   |  |              |   |  | 4,050      |  
|Shares issued for debt at $0.10 per share               |  | 11,170,044   |  |  | 11,170  |  |  | 1,105,834   |  |  |              |   |  |            |   |  |              |   |  | 1,117,004  |  
|Shares issued for cash at $0.10 per share               |  | 8,750,000    |  |  | 8,750   |  |  | 866,250     |  |  |              |   |  |            |   |  |              |   |  | 875,000    |  
|Gain/loss on foreign currency translation               |  |             |  |  |        |  |  |            |  |  |              |   |  | (55,710     | ) |  |              |   |  | (55,710    | )
|Unrealized loss on available for sale securities        |  |             |  |  |        |  |  |            |  |  |              |   |  | (88,277     | ) |  |              |   |  | (88,277    | )
|Net loss for the year
      ended June 30, 2005         |  |             |  |  |        |  |  |            |  |  | (1,365,993    | ) |  |            |   |  |              |   |  | (1,365,993 | )
|                                                        |  | 34,655,619   |  |  | 34,656  |  |  | 5,181,587   |  |  | (4,938,748    | ) |  | (147,378    | ) |  |              |   |  | 130,117    |  
|Contra equity                                           |  |             |  |  |        |  |  |            |  |  |              |   |  |            |   |  | (395,424      | ) |  | (395,424   | )
|Balance, June 30, 2005                                  |  | 34,655,619   |  |  | 34,656  |  |  | 5,181,587   |  |  | (4,938,748    | ) |  | (147,378    | ) |  | (395,424      | ) |  | (265,307   | )

See accompanying notes

F-4

---

Garuda Capital Corp.

|CONSOLIDATED STATEMENTS OF CASH FLOWS
|-------------------------------------
|[Basis of presentation - see note 1] 

|Year ended June 30 | (Expressed in U.S. dollars)
|------------------ | ---------------------------

|                                                                   |  | 2005       |   |  | 2004     |  
|------------------------------------------------------------------ |  | ---------- | - |  | -------- | -
|                                                                   |  | $          |   |  | $        |  
|                                                                   |  |            |   |  |          |  
|OPERATING ACTIVITIES                                               |  |            |   |  |          |  
|Net loss                                                           |  | (1,365,993 | ) |  | (844,595 | )
|Adjustments to reconcile net loss to net cash:                     |  |            |   |  |          |  
|Depreciation                                                       |  | 46,015     |   |  | 48,402   |  
|Common stock issued for services                                   |  | 377,726    |   |  | 7,400    |  
|Common stock issued for interest                                   |  | 23,487     |   |  |         |  
|(Gain) loss from sale of marketable securities                     |  | (32,808    | ) |  | 14,821   |  
|Changes in operating assets and liabilities:                       |  |            |   |  |          |  
|Decrease (increase) in accounts receivable                         |  | 42,874     |   |  | (26,531  | )
|Decrease (increase) in prepaid
      expenses                      |  | (11,122    | ) |  | 10,471   |  
|Decrease (increase) in inventory                                   |  | (5,761     | ) |  | 21,031   |  
|Increase (decrease) in accounts payable and
      accrued expenses |  | (68,424    | ) |  | 112,328  |  
|Net cash used in
      operating activities                        |  | (994,006   | ) |  | (656,673 | )
|                                                                   |  |            |   |  |          |  
|INVESTING ACTIVITIES                                               |  |            |   |  |          |  
|Purchase of equipment and intangibles                              |  | (11,998    | ) |  | (19,830  | )
|Proceeds from sale of marketable securities                        |  | 570,933    |   |  | 114,371  |  
|Purchase of marketable securities                                  |  | (748,778   | ) |  | (168,655 | )
|Net cash used in
      investing activities                        |  | (189,843   | ) |  | (74,114  | )
|                                                                   |  |            |   |  |          |  
|FINANCING ACTIVITIES                                               |  |            |   |  |          |  
|Decrease in bank indebtedness                                      |  | (111,899   | ) |  | (56,826  | )
|Decrease in capital lease obligations                              |  | (2,670     | ) |  | (2,358   | )
|Increase (decrease) in bank loan                                   |  | 56,400     |   |  | (40,800  | )
|Increase (decrease) in notes payable                               |  | (8,133     | ) |  | 22,059   |  
|Common stock issued for cash                                       |  | 875,000    |   |  |         |  
|Advances from shareholders                                         |  | 429,966    |   |  | 850,940  |  
|Net cash provided by financing activities                          |  | 1,238,664  |   |  | 773,015  |  
|                                                                   |  |            |   |  |          |  
|Effect of exchange rate changes on cash and cash equivalents       |  | (54,815    | ) |  | (42,228  | )
|                                                                   |  |            |   |  |          |  
|Net increase (decrease) in cash and cash
      equivalents         |  |           |   |  |         |  
|Cash, beginning of
      period                                    |  |           |   |  |         |  
|Cash, end of period                                                |  |           |   |  |         |  
|                                                                   |  |            |   |  |          |  
|Non-cash financing and investing activities                        |  |            |   |  |          |  
|Common stock issues for services                                   |  | 377,726    |   |  | 7,400    |  
|Common stock issued for debt                                       |  | 1,093,517  |   |  |         |  
|Common stock issued
      for interest                             |  | 23,487     |   |  |         |  

See accompanying notes

F-5

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of business

Garuda Capital Corp. (hereinafter Garuda or the
  Company) was incorporated in the State of Nevada on July 8, 1997 as Vanstar
  Films Inc. for the purpose of establishing itself in the film industry. Those
  efforts were abandoned in September 2001. On February 14, 2002, the corporate
  name was changed to Garuda Capital Corp.

In April 2002, Garuda acquired Hagensborg Foods Ltd., a manufacturer
  and marketer of fine chocolates and other gourmet foods and its wholly owned
  subsidiary Hagensborg Seafoods Ltd., and Natural Program Inc., an inactive company
  that owns 100% of the outstanding shares of Natural Program Ltd., a manufacturer
  and distributor of nutraceuticals. The Company, through these four wholly owned
  subsidiaries, sells and processes specialty food products and herbal medication
  to wholesale and retail customers in North America. The Company has other wholly
  owned subsidiaries, Garuda Minerals Inc. and Garuda Gold Corporation, which
  have each signed Letter of Intent agreements regarding the exploration of minerals
  in Ghana [see notes 17[d] and 17[e]]. The Company also has a wholly owned subsidiary,
  Garuda Ventures Canada Inc., whose only activity is the trading of marketable
  securities.

The Companys year end is June 30. The Company is headquartered
  in Vancouver, B.C., Canada.

Basis of presentation

The financial statements have been prepared by management
  in accordance with United States generally accepted accounting principles on
  a going concern basis, which contemplates the realization of assets and the
  discharge of liabilities in the normal course of business for the foreseeable
  future.

The Company incurred a net loss of $1,365,993 for the year
  ended June 30, 2005 [2004 - 844,595] and, as at June 30, 2005 had a working
  capital deficiency of $471,748 and a stockholders’ deficiency of $265,307
  that raises substantial doubt about its ability to continue as a going concern.
  Management has been able, thus far, to finance the operations through a series
  of equity and debt financings. In fiscal 2005, the Company received net proceeds
  of $875,000 in connection with the issuance of equity. Management plans to continue
  to seek other sources of financing on favorable terms; however, there are no
  assurances that any such financing can be obtained on favorable terms, if at
  all. Management believes it has implemented significant cost reductions and
  expects to keep its operating costs to a minimum until cash is available through
  financing or operating activities. There are no assurances that the Company
  will be successful in achieving these goals.

F-6

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation (cont’d.)

These financial statements do not give effect to any adjustments
  to the amounts and classifications of assets and liabilities that might be necessary
  in the event the Company is unable to continue its operations as a going concern.

The financial statements are presented in United States dollars
  and have been prepared by management in accordance with accounting principles
  generally accepted in the United States.

The following is a summary of significant accounting policies
  used in the preparation of these consolidated financial statements.

Principles of consolidation

The accompanying consolidated financial statements include
  the accounts of the Company and its wholly-owned subsidiaries, Hagensborg Foods
  Ltd., Hagensborg Seafoods Ltd., Natural Program Inc., Garuda Minerals Inc.,
  Garuda Gold Corporation and Garuda Venture Canada Inc.

Use of estimates

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
  disclosures of contingent assets and liabilities at the date of the financial
  statements and the reported amounts of revenues and expenses during the period.
  Actual results could differ from those estimates.

Revenue recognition

The Company ships its products by common carrier and also
  sells products through brokers, distributors and directly to specialty stores.
  The Company receives its product sales price in the form of cash, credit card
  or on approved terms. Sales revenue and related discounts or volume incentives
  are recorded when the products are in the hands of the common carrier. The Companys
  reserve on accounts receivable takes into consideration future potential credits,
  if any, from the sale of products to customers. The Company recognizes revenue
  from sales when there is persuasive evidence that an arrangement exists, products
  have been rendered, the sellers price to the buyer is determinable, and
  collectibility is reasonably assured.

F-7

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Foreign currency translation

These financial statements, prepared in accordance with United
  States generally accepted accounting principles, are expressed in United States
  dollars as the reporting currency. The functional currency of the Company is
  the Canadian dollar.

In these financial statements, assets and liabilities are
  translated into United States dollars at the rate of exchange in effect at the
  balance sheet date. Revenues and expenses are translated at the average rate
  of exchange for the reporting period. Translation gains and losses are recorded
  as a separate component of stockholders deficiency, and transaction gains
  and losses are reflected in determining net loss. The cumulative foreign currency
  translation adjustment is reported as a separate component of stockholders
  deficiency.

Cash and cash equivalents

The Company considers all highly liquid investments (or short-term
  debt) with original maturities of three months or less to be cash equivalents.

Accounts receivable

The Company carries its accounts receivable at cost less an
  allowance for doubtful accounts. On a periodic basis, the Company evaluates
  its accounts receivable and establishes an allowance for doubtful accounts,
  based on a history of past write-offs and collections and current credit conditions.
  The Companys policy is not to accrue interest on overdue trade receivables.

Advertising expenses

Advertising expenses consist primarily of costs incurred in
  the design, development, and printing of Company literature and marketing materials.
  The Company expenses all advertising expenditures as incurred. The Company incurred
  advertising expenses of $252,789 in the year ended June 30, 2005 [2004 -$84,676].

Bad debts

The Company estimates bad debts utilizing the allowance method,
  based upon past experience and current market conditions. At June 30, 2005 the
  allowance for doubtful accounts was $nil [2004 - $9,300].

F-8

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Marketable securities

Pursuant to Statement of Financial Accounting Standards No. 115,
  the Companys investments in marketable securities are considered as available
  for sale.

Available for sale securities consist of debt and equity securities
  not classified as trading securities or as securities to be held to maturity.
  Unrealized holding gains and losses, net of tax, on securities available for
  sale are reported as a net amount in a separate component of other comprehensive
  income. When the investment is sold, the realized gain or loss is reported as
  other income or expense on the income statement.

Gains and losses on the sale of securities available for sale
  are determined using the specific identification method and are included in
  earnings.

Inventory

Inventories are stated at the lower of average cost or net realizable
  values. The cost of finished goods includes the cost of raw material, direct
  and indirect labor, and other indirect manufacturing costs. The Company has
  not recorded an allowance for inventory obsolescence in either of the years
  ended June 30, 2005 and 2004.

Property and equipment

Property and equipment is carried at cost. Amortization is provided
  using the straight line method over the assets estimated useful lives
  as follows:

Manufacturing equipment
      15 yearsManufacturing tools
      15 yearsFurniture and fixtures
      15 yearsComputers
      5 yearsLeasehold improvements
      Term of the lease


F-9

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Impairment of long-lived assets

The Company reviews long-lived assets, including amortizable
  intangible assets, for impairment whenever events or changes in business circumstances
  indicate that the carrying amount of the assets may not be fully recoverable.
  The Company performs undiscounted operating cash flow analyses to determine
  if an impairment exists. For purposes of recognition and measurement of an impairment
  for assets held for use, the Company groups assets and liabilities at the lowest
  level for which cash flows are separately identifiable. If an impairment is
  determined to exist, any related impairment loss is calculated based on fair
  value. Impairment losses on assets to be disposed of, if any, are based on the
  estimated proceeds to be received, less costs of disposal.

Patents and trademarks

In the year ended June 30, 2002, the Company acquired rights
  to the patents and trademarks held by Hagensborg Foods, Ltd., its subsidiary.
  These patents are for a process used in food production.

Patents and trademarks are stated at cost. Amortization is provided
  using the straight-line method over the remaining estimated useful lives of
  the assets, which is ten years.

Leases

Leases are classified as capital or operating leases. Leases
  which transfer substantially all benefits and risks incidental to ownership
  of property are accounted for as capital leases. All other leases are accounted
  for as operating leases and the related lease payments are charged to expense
  as incurred.

Cost of sales

Cost of sales consists of the purchase price of products sold,
  inbound and outbound shipping charges, packaging supplies and costs associated
  with revenues and marketplace business. Included in cost of sales for the year
  ended June 30, 2005 is manufacturing equipment depreciation expense of $34,090
  [2004 -$40,799].

F-10

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Comprehensive income

Effective January 1, 1998, the Company adopted SFAS No. 130,
  Reporting Comprehensive Income (hereinafter SFAS No. 130),
  which was issued in June 1997. SFAS No. 130 establishes rules for the reporting
  and display of comprehensive income and its components. SFAS No. 130 requires
  foreign currency translation and unrealized gains and losses on the Companys
  available for sale securities, which prior to adoption were reported separately
  in stockholders equity, to be included in comprehensive income.

Earnings per share

On January 1, 1998, the Company adopted Statement of Financial
  Accounting Standards No. 128, which provides for calculation of basic
  and diluted earnings per share. Basic earnings per share includes
  no dilution and is computed by dividing net income available to common shareholders
  by the weighted average common shares outstanding for the period. Diluted earnings
  per share reflect the potential dilution of securities that could share in the
  earnings of an entity similar to fully diluted earnings per share. Although
  there were common stock equivalents outstanding at June 30, 2005 and 2004, they
  were not included in the calculation of earnings per share because they would
  have been considered anti-dilutive.

Provision for taxes

Income taxes are provided based upon the liability method
  of accounting pursuant to Statement of Financial Accounting Standards No. 109
  (hereinafter SFAS No. 109), Accounting for Income Taxes.
  Under this approach, deferred income taxes are recorded to reflect the tax consequences
  in future years of differences between the tax basis of assets and liabilities
  and their financial reporting amounts at each year-end. A valuation allowance
  is recorded against deferred tax assets if management does not believe the Company
  has met the more likely than not standard imposed by SFAS No. 109
  to allow recognition of such an asset.

Fair value of financial instruments

The Companys financial instruments as defined by Statement
  of Financial Accounting Standards No. 107, Disclosures about Fair Value
  of Financial Instruments, include marketable securities, accounts receivable,
  prepaid expenses, accounts payable, capital lease, government loan and notes
  payable. All instruments are accounted for on a historical cost basis, which,
  due to the short maturity of these financial instruments, approximates fair
  value.

F-11

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Stock based compensation

The Company accounts for stock issued for compensation in accordance
  with Accounting Principles Board No. 25, Accounting for Stock Issued to
  Employees. Under this standard, compensation cost is the difference between
  the fair market of the underlying stock and the exercise price of the option
  on the grant date. In accordance with Statement of Financial Accounting Standards
  No. 123, Accounting for Stock Based Compensation, the Company discloses
  the pro forma effects on net income and earnings per share as if compensation
  had been measured using the fair value method described therein.

Reclassification

Certain amounts from prior periods have been reclassified
  to conform to the current period presentation. This reclassification has resulted
  in no changes to the Companys accumulated deficit or net losses presented.

Recent accounting pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory
  Costs  an amendment of ARB No. 43, Chapter 4, which is the result
  of the FASBs project to reduce differences between U.S. and international
  accounting standards. SFAS No. 151 requires idle facility costs, abnormal freight,
  handling costs, and amounts of wasted materials (spoilage) be treated as current-period
  costs. Under this concept, if the costs associated with the actual level of
  spoilage or production defects are greater than the costs associated with the
  range of normal spoilage or effects, the difference would be charged to current-period
  expense, not included in inventory costs. SFAS No. 151 will be effective for
  inventory costs incurred during fiscal years beginning after June 15, 2005 The
  adoption of SFAS No. 151 does not have a material impact on the Companys
  consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123(R), Accounting
  for Stock-Based Compensation. SFAS 123(R) establishes standards for the
  accounting for transactions in which an entity exchanges its equity instruments
  for goods or services. This Statement focuses primarily on accounting for transactions
  in which an entity obtains employee services in share-based payment transactions.
  SFAS 123(R) requires that the fair value of such equity instruments be recognized
  as expense in the historical financial statements as services are performed.
  Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were
  required. SFAS 123(R) shall be effective for the Company as of the beginning
  of the first interim or annual reporting period that begins after December 15,
  2005. The adoption of this new accounting pronouncement may have a material
  impact on the Companys consolidated financial statements.

F-12

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

2. SIGNIFICANT ACCOUNTING POLICIES (contd.)

Recent accounting pronouncements (contd.)

In May 2005, the FASB issued Statement of Financial Accounting
  Standards SFAS No. 154, Accounting Changes and Error Corrections, a replacement
  of AFB Opinion No. 20 and FASB Statement No. 3. SFAS 154 requires retrospective
  application to prior periods financial statements for changes in accounting
  principle, unless it is impracticable to determine either the period-specific
  effects for the cumulative effect of the change. SFAS 154 also requires that
  retrospective application of a change in accounting principle be limited to
  the direct effects of the change. Indirect effects of a change in accounting
  principle, such as a change in non-discretionary profit-sharing payments resulting
  from an accounting change, should be recognized in the period of the accounting
  change. SFAS 154 also requires that a change in depreciation, amortization,
  or depletion method for long-lived, non-financial assets be accounted for as
  a change in accounting estimate effected by a change in accounting principle.
  SFAS 154 is effective for accounting changes and corrections of errors made
  in fiscal years beginning after December 15, 2005. Early adoption is permitted
  for accounting changes and corrections of errors made in fiscal years beginning
  after the date this Statement is issued. The adoptions of this new accounting
  pronouncement does not have a material impact on its consolidated financial
  position, results of operations or cash flows.

3. MARKETABLE SECURITIES

At June 30, 2005, the Company owned securities classified as
  available for sale with a market value of $291,315 [2004 - $168,655]. The unrealized
  loss for the securities on hand was $88,277 at June 30, 2005 [2004 - $nil].
  The Company disposed of securities during the year ended June 30, 2005 and realized
  a gain of $32,808 [2004 - a loss of $14,821].

4. INVENTORY

The components of inventory at June 30, 2005 and 2004 are as
  follows:

|                   |  | 2005    |  |  | 2004    | 
|------------------ |  | ------- |  |  | ------- | 
|                   |  | $       |  |  | $       | 
|                   |  |         |  |  |         | 
|Packaging supplies |  | 175,553 |  |  | 173,251 | 
|Finished goods     |  | 59,140  |  |  | 57,291  | 
|Raw materials      |  | 37,666  |  |  | 36,547  | 
|Other supplies     |  | 5,593   |  |  | 5,102   | 
|                   |  | 277,952 |  |  | 272,191 | 

F-13

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

5. MACHINERY AND EQUIPMENT

The following is a summary of machinery, equipment, and accumulated
  depreciation:

|                              |  | 2005     |   |  | 2004     |  
|----------------------------- |  | -------- | - |  | -------- | -
|                              |  | $        |   |  | $        |  
|                              |  |          |   |  |          |  
|Manufacturing equipment       |  | 406,544  |   |  | 405,820  |  
|Manufacturing tools           |  | 45,977   |   |  | 45,784   |  
|Furniture and fixtures        |  | 45,242   |   |  | 45,242   |  
|Leasehold improvements        |  | 91,033   |   |  | 91,033   |  
|Computers                     |  | 82,799   |   |  | 76,659   |  
|Total assets                  |  | 671,593  |   |  | 664,538  |  
|Less accumulated depreciation |  | (467,004 | ) |  | (424,360 | )
|Total                         |  | 204,591  |   |  | 240,178  |  

Included in property and equipment is manufacturing equipment
  under capital leases with a cost of $12,278 [2004 - $12,278] and net book value
  of $9,870 [2004 - $10,573].

Depreciation expense for the year ended June 30, 2005 was $42,644
  [2004 - $44,198], of which $34,090 [2004 - $40,799] is manufacturing equipment
  depreciation included in cost of sales.

6. PATENTS AND TRADEMARKS

The following is a summary of patents, trademarks and accumulated
  amortization:

|                              |  | 2005    |   |  | 2004    |  
|----------------------------- |  | ------- | - |  | ------- | -
|                              |  | $       |   |  | $       |  
|                              |  |         |   |  |         |  
|Patents and trademarks        |  | 38,019  |   |  | 33,023  |  
|Less accumulated amortization |  | (22,777 | ) |  | (19,406 | )
|                              |  | 15,242  |   |  | 13,671  |  

Amortization expense for the year ended June 30, 2005 was $3,371
  [2004 - $4,204].

F-14

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

7. INCOME TAXES

The Company is subject to United States federal and state income
  taxes at an approximate rate of 35%. The reconciliation of the provision (recovery)
  for income taxes at the United States federal statutory rate compared to the
  Companys income tax expense is as follows:

|                                     |  | 2005     |  
|------------------------------------ |  | -------- | -
|                                     |  | $        |  
|                                     |  |          |  
|Tax recovery at U.S. statutory rates |  | 461,000  |  
|Change in valuation allowance        |  | (425,000 | )
|Other                                |  | (36,000  | )
|Income tax expense
      (recovery)  |  |         |  

Deferred income taxes reflect the net tax effects of temporary
  differences between the carrying amounts of assets and liabilities for financial
  reporting purposes and the amounts used for income tax purposes. The Company
  has recognized a valuation allowance for those deferred tax assets for which
  it is more likely than not that realization will not occur.

Significant components of the Companys deferred tax assets
  as of December 31 are as follows:

|                                    |  | 2005       |   |  | 2004       |  
|----------------------------------- |  | ---------- | - |  | ---------- | -
|                                    |  | $          |   |  | $          |  
|                                    |  |            |   |  |            |  
|US net operating loss carryforwards |  | 423,000    |   |  | 268,000    |  
|Canadian non-capital
      losses   |  | 1,165,000  |   |  | 895,000    |  
|Total deferred tax assets           |  | 1,588,000  |   |  | 1,163,000  |  
|Valuation allowance                 |  | (1,588,000 | ) |  | (1,163,000 | )
|Net deferred tax assets             |  |           |   |  |           |  

The Company has Canadian non-capital losses of approximately
  $3,573,000 expiring June 2006 - 2015 and US net operating losses of approximately
  $1,281,000 expiring through June 2025.

Pursuant to Section 382 of the Internal Revenue Code, use of
  the Companys US net operating loss carryforwards may be limited if the
  Company experiences a cumulative change in ownership of greater than 50% in
  a moving three-year period. Ownership changes could impact the Companys
  ability to utilize net operating losses and credit carryforwards remaining at
  the ownership change date. The limitation will be determined by the fair market
  value of common stock outstanding prior to the ownership change, multiplied
  by the applicable federal rate.

F-15

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

8. BANK INDEBTEDNESS AND BANK LOANS

Demand loan

The Company has a demand loan facility from a bank in the amount
  of $200,000. Outstanding advances bear interest at prime plus 2% per annum.
  At June 30, 2005 the Company had an outstanding balance of $185,000 [2004 -
  $128,600]. The loan is payable on demand by the bank and is collateralized by
  a charge on all present and future property of Hagensborg Foods Ltd.

Overdraft

The Company has a bank overdraft facility in the amount of $100,000.
  Outstanding advances bear interest at prime plus 2% per annum, payable monthly.
  At June 30, 2005 the Company had an outstanding balance of $94,754 [2004 - $206,653]
  on this overdraft facility. The facility is personally guaranteed by a shareholder
  of the Company and all present and future property of Hagensborg Foods Ltd.

9. NOTES PAYABLE

|                                                                |  | 2005 |  |  | 2004   | 
|--------------------------------------------------------------- |  | ---- |  |  | ------ | 
|                                                                |  | $    |  |  | $      | 
|                                                                |  |      |  |  |        | 
|Note totalling Cdn $30,000, bearing interest
      at 12%,      |  |      |  |  |        | 
|due July 10, 2004 collateralized by account receivable
      of |  |      |  |  |        | 
|the Company                                                     |  |     |  |  | 22,058 | 
|                                                                |  |     |  |  | 22,058 | 

10. GOVERNMENT LOAN

In 2003 and 2004 the Company received monies totalling Cdn $16,608
  from the Canadian Department of Foreign Affairs and International Trade under
  a government sponsored program to fund costs incurred by the Company on eligible
  activities. Repayment of the funds would only commence if the Company earned
  annual sales outside of Canada in excess of Cdn $2,440,000.

Because the Company has been unable to generate the minimum level
  of sales revenue outside of Canada, there are no requirements to repay any of
  these monies during the year ending June 30, 2006.

F-16

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

11. STOCK OPTIONS

On January 10, 2005, the Company entered into an employment agreement
  whereby it agreed to issue stock options to purchase up to 250,000 common shares
  at a price of $0.10 per share, exercisable to January 10, 2010, which options
  would vest 16% 90 days after the date of granting and 14% every three months
  thereafter. As of June 30, 2005, 40,000 options had vested and been granted.

On May 11, 2005, the Companys board of directors cancelled
  the Companys 2002 Stock Option Plan since this plan was never approved
  by the shareholder.

On May 11, 2005, the Companys board of directors approved
  the Companys 2005 Incentive Stock Option Plan, subject to shareholder
  approval, which authorized a maximum of 8,000,000 of shares for issuance pursuant
  to options that could be issued to employees and consultants of the Company
  and its subsidiaries (the 2005 Stock Option Plan). On June 27, 2005
  the shareholders of the Company approved the 2005 Stock Option Plan at the Companys
  Annual General Meeting. The 2005 Stock Option Plan has not yet been registered
  on SEC Form S-8. To date, no options have been issued under the 2005 Stock Option
  Plan.

At June 30, 2005, 8,000,000 share options were available for
  future grant under the 2005 Stock Option Plan and 210,000 stock options were
  available for grant (subject to vesting requirements) pursuant to the employment
  agreement.

|                            |  |           |  |  |          |   |  | Options outstanding |  |  |                  | 
|--------------------------- |  | --------- |  |  | -------- | - |  | ------------------- |  |  | ---------------- | 
|                            |  | Shares    |  |  | Number   |   |  | Price               |  |  | Weighted         | 
|                            |  | available |  |  | of       |   |  | per                 |  |  | average exercise | 
|                            |  | for grant |  |  | shares   |   |  | share               |  |  | price            | 
|                            |  | #         |  |  | #        |   |  | $                   |  |  | $                | 
|                            |  |           |  |  |          |   |  |                     |  |  |                  | 
|                            |  |           |  |  |          |   |  |                     |  |  |                  | 
|Balance, June 30, 2003      |  | 1,325,000 |  |  | 675,000  |   |  | 0.15                |  |  | 0.15             | 
|Options granted             |  |           |  |  |         |   |  |                    |  |  |                 | 
|                            |  |           |  |  |          |   |  |                     |  |  |                  | 
|Options forfeited           |  |           |  |  | (275,000 | ) |  | 0.15                |  |  | 0.15             | 
|Balance June 30, 2004       |  | 1,600,000 |  |  | 400,000  |   |  | 0.15                |  |  | 0.15             | 
|Options forfeited           |  |           |  |  | (400,000 | ) |  | 0.15                |  |  | 0.15             | 
|Options vested and granted  |  |           |  |  | 40,000   |   |  | 0.10                |  |  | 0.10             | 
|Options exercised           |  |           |  |  |         |   |  |                    |  |  |                 | 
|Balance June 30,
      2005 |  | 8,210,000 |  |  | 40,000   |   |  | 0.10                |  |  | 0.10             | 

F-17

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

11. STOCK OPTIONS (contd.)

The Company applies APB Opinion No. 25 in accounting for options
  and, accordingly, recognized no compensation cost for its stock options vested
  and granted in the years ended June 30, 2005 and 2004. The following reflects
  the Companys pro forma net loss and net loss per share as if the Company
  had determined compensation costs based upon fair market values of options vested
  at the grant date, as well as the related disclosures required by SFAS 148:

|                                                      |  | 2005       |   |  | 2004     |  
|----------------------------------------------------- |  | ---------- | - |  | -------- | -
|                                                      |  | $          |   |  | $        |  
|                                                      |  |            |   |  |          |  
|Net loss as reported                                  |  | (1,365,993 | ) |  | (844,595 | )
|Compensation expense determined under the             |  |            |   |  |          |  
|fair value method                                     |  | (5,200     | ) |  |         |  
|Pro forma net loss                                    |  | (1,371,193 | ) |  | (844,595 | )
|                                                      |  |            |   |  |          |  
|Pro forma net loss
      per share, basic and diluted |  | (0.11      | ) |  | (0.13    | )

The fair value of the options vested and granted was estimated
  using the Black-Scholes Option Price Calculation. The following assumptions
  were made to value the stock options:

Risk-free interest rate
      3.68%Expected life
      4.8 yearsExpected volatility
      107%Dividend yields
      nil


The Black-Scholes option valuation model was developed for use
  in estimating the fair value of traded options, which have no vesting restrictions
  and are fully transferable. The weighted average fair value of stock options
  under employer stock option plans vested and granted during the year was $5,200
  [2004 -$nil].

In addition, option valuation models require the input of highly
  subjective assumptions including the expected stock price volatility. Because
  the Companys employee stock options have characteristics significantly
  different from those of traded options, and because changes in the subjective
  input assumptions can materially affect the fair value estimate, in managements
  opinion, the existing models do not necessarily provide a reliable single measure
  of the fair value of its employee stock options.

F-18

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

12. COMMON STOCK

|[a] | Authorized                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                 
|    | The Company is authorized to issue up to 50,000,000
        shares of common stock, par value $0.001 per share. The Company is also
        authorized to issue up to 10,000,000 shares of preferred stock, par value
        $0.01 per share. See subsequent note 19.                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                 
|[b] | Issued and outstanding                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                 
|    | During the year ended June 30, 2004, the Company issued
        74,000 shares of common stock at $0.30 per share to consultants as compensation
        for services rendered.                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                 
|    | During the year ended June 30, 2005, the Company issued
        8,362,000 shares of common stock to employees and consultants of the Company
        for services and compensation rendered: 1,555,000 shares at $0.02 per
        share, 3,780,000 shares at $0.10 per share, 3,000,000 shares at $0.12
        per share and 27,000 shares at $0.15 per share.

|    | During the year ended June 30, 2005, the Company issued
        11,170,044 units for a fair market value of $0.10 per unit
        to settle outstanding notes payable to related parties. Each unit consists
        of one share of common stock and one half warrant, with each warrant to
        purchase one share of common stock at an exercise price of $0.20 per share.
        The warrants are exercisable for a period of two years from issuance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the year ended June 30, 2005, the Company issued
        8,750,000 of the aforementioned units for cash of $875,000.                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|[c] | Warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As at June 30, 2005, the Company had issued 9,960,022
        warrants that had not been exercised. Each warrant allows the purchase
        of one share of common stock at an exercise price of $0.20 per share,
        exercisable for two years from issuance. The outstanding warrants expire
        as follows:                                                                                                                                          

| | No. of    | Expiry    
| | --------- | ----------
| | warrants  | date      
| |           |           
| | 8,210,022 | March 2007
| | 1,750,000 | June 2007 
| | 9,960,022 |           

F-19

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

12. COMMON STOCK (cont'd)

Any value associated with the outstanding warrants was included
  in the original common stock price and included in the additional paid-in capital.

During the year ended June 30, 2005, there were 4,302,000 warrants
  with an exercise price of $0.70 per share that expired without being exercised.

13. RELATED PARTY TRANSACTIONS

The Company is indebted to certain shareholders as follows:

|                                                   | 2005    | 2004     
|-------------------------------------------------- | ------- | ---------
|                                                   | $       | $        
|                                                   |         |          
|Shareholder convertible note bearing interest at   |         |          
|1% per month due June 30, 2006                     | 100,000 | 100,000  
|Shareholder notes bearing interest at 10%,         |         |          
|no specific due dates, collateralized
      by all |         |          
|personal property of HFL and GGC                   | 54,670  | 110,000  
|Shareholder note bearing interest at 15%,          |         |          
|no specific due dates, unsecured                   | 260,056 | 215,032  
|Advances from shareholders, unsecured,             |         |          
|bearing interest at 10% with no specific due dates | 109,832 | 558,438  
|Advances from shareholder, unsecured,              |         |          
|non-interest bearing with no specific due dates    |        | 168,655  
|Shareholder note totalling Cdn $30,000 bearing     |         |          
|interest
      at 12%, due July 10, 2004           |        | 22,059   
|                                                   | 524,558 | 1,174,184

|[a] | The holder of the convertible note, at its option, may
        invest all or a portion of the value of the note into units at a value
        of $0.10 per unit. Each unit consists of one share of common stock of
        the Company and one half warrant, with each warrant to acquire an additional
        share of common stock at an exercise price of $0.20 per share. See subsequent
        note 19.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|[b] | Total interest expense on the related party loans totaled
        $108,565 [2004 - $73,675] and is included in interest expense.
|--- | --------------------------------------------------------------------------------------------------------------------------------

F-20

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

13. RELATED PARTY TRANSACTIONS (contd.)

|[c] | During the year the Company entered into the following
        related party transactions in the normal course of business which were
        recorded at exchange amount:                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                          
|    | During the year ended June 30, 2005, the Company paid
        $72,000 [2004 - $90,000] in cash and issued $56,000 [2004 - $nil] in common
        stock to the President of the Company for his services.
|    |                                                                                                                                                                                                          
|    | During the year ended June 30, 2005, the Company issued
        $34,000 [2004 - $nil] in common stock to two directors of the Company
        for their services.                                        
|    |                                                                                                                                                                                                          
|    | During the year ended June 30, 2005 the Company issued
        11,170,044 common stock at $0.10 per share to settle outstanding notes
        payable to related parties.                                

14. CONTRA EQUITY

During the year the Company issued common stock for services
  [see note 12[b]], some of which services will be rendered to the Company subsequent
  to year end. The value of the services to be rendered subsequent to June 30,
  2005 totalled $395,424 [2004 - $nil].

15. SEGMENT INFORMATION

The Company has adopted Statement of Financial Accounting Standards
  No. 131, Disclosures about Segments of an Enterprise and Related Information,
  (hereinafter SFAS No. 131). SFAS No. 131 established standards for
  reporting information about operating segments in annual financial statements
  and requires selected information about operating segments in interim financial
  reports issued to stockholders. It also established standards for related disclosures
  about products and services and geographic areas. Operating segments are defined
  as components of an enterprise about which separate financial information is
  available, evaluated regularly by the chief operating decision makers, or a
  decision making group, in deciding how to allocate resources and in assessing
  performance for the company. These segments are defined by product line.

Revenue from external customers, by location of customer, is
  as follows:

|     | Canada  | U.S.    | Total    
|---- | ------- | ------- | ---------
|     | $       | $       | $        
|     |         |         |          
|2005 | 281,057 | 420,580 | 701,637  
|2004 | 554,777 | 681,302 | 1,236,079

F-21

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

15. SEGMENT INFORMATION (cont'd.)

The Company has substantially all its assets in Canada and its
  current and planned future operations are, and will be, located in Canada.

The following table reflects certain information for the Companys
  segments:

|                      | Hagensborg | Hagensborg    | Natural      | Corporate        |            
|--------------------- | ---------- | ------------- | ------------ | ---------------- | -----------
|                      | Foods Ltd. | Seafoods Ltd. | Program Inc. | and Eliminations | Total      
|                      | $          | $             | $            | $                | $          
|2005 Revenues         |            |               |              |                  |            
|Gross profit          | 38,745     | 61,790        | (23,017)     | (67)             | 77,451     
|Other income(expense) |           |              |             | (85,329)         | (85,329)   
|Net loss              | (815,105)  | (13,598)      | (63,957)     | (473,333)        | (1,365,993)
|Segment assets        | 494,300    | 57,399        | 43,472       | 304,493          | 899,664    
|                      |            |               |              |                  |            
|2004 Revenues         |            |               |              |                  |            
|Gross profit          | 71,817     | 75,618        | 34,920       |                 | 182,355    
|Other income(expense) |           |              |             | (214,758)        | (214,758)  
|Net loss              | (464,845)  | (5,378)       | (94,157)     | (280,215)        | (844,595)  
|Segment assets        | 1,088,622  | 4,200         | 54,830       | (310,641)        | 837,011    

16. MAJOR CUSTOMERS

During the year ended June 30, 2005 Company recognized revenue
  from unrelated entities which individually comprised greater than 10% of total
  revenues. Revenue recognized from these three entities was 36% in 2005 [2004
  - 25%]. These revenues were recorded with the segments of Hagensborg Foods Ltd.
  [note 15].

Major customers accounted for 40% of total receivables at June
  30, 2005 [2004 - 66%].

F-22

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

17. COMMITMENTS AND CONTINGENCIES

|[a] | Pursuant to the Companys loan agreement [see note
        8], the Company ratio of current assets to current liabilities cannot
        exceed 1.2 to 1.0. At June 30, 2005 and 2004, the Company was in violation
        of this condition. The bank has waived any action until December 31, 2005.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                       
|[b] | Future minimum payments and the obligations due under
        the capital leases are as follows:                                                                                                                                                                                                      

| |                      | $      
| | -------------------- | -------
| |                      |        
| | 2006                 | 2,375  
| | Less current portion | (2,375)
| |                      |       

|[c] | Rent expense for the year ended June 30, 2005 was $164,290
        [2004 - $146,812].                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | The Company leases premises which expire in 2007. Base
        annual lease payments are $131,300.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|[d] | During the year ended June 30, 2005, Garuda Minerals
        Inc., a wholly-owned subsidiary, entered into a Letter of Intent to earn
        the exclusive right and option to acquire a 65% right, title and interest
        in and to an exploration license on an area of approximately 200 km2located near the town of Ho in the Volta region of Ghana.                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | In order to have the option exercised, Garuda Minerals
        Inc. must, on or before May 17, 2006, incur direct or indirect expenses
        totalling $300,000 on a program of work in respect of this particular
        property.                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    | No expenses have been incurred on this property to date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|[e] | During the year ended June 30, 2005, Garuda Gold Corporation,
        a wholly-owned subsidiary, entered into a Letter of Intent to earn the
        exclusive right and option to acquire a 65% right and interest in and
        to the Mining Rights to mine a hard rock vein system in an area in Prestia,
        Ghana.
      In order to have the option exercised, Garuda Gold Corporation
        must on or before May 17, 2006, incur direct or indirect expenses totalling
        $300,000 on a program of work in respect of this particular mining
        rights.
      No expenses have been incurred on this mineral rights
        to date.

F-23

---

Garuda Capital Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Expressed in U.S. dollars)

June 30, 2005

18. LAWSUIT COMMENCED AGAINST HAGENSBORG

A lawsuit was commenced against Hagensborg, the Companys
  wholly owned subsidiary, in the Ontario Superior Court of Justice bearing Court
  File No. 04-CV-269496CM1 by Kraft Foods Schweiz AG and Kraft Canada Inc.

Pursuant to the Rules of Civil Procedure in the Ontario
  courts, the Company attended a mediation session on February 28, 2005, at which
  time the matter was settled. The terms of the settlement were confidential,
  but the Company has no further liability pursuant to the settlement.

19. SUBSEQUENT EVENTS

In July 2005, the Company increased its authorized common
  stock from 50,000,000 shares to 100,000,000 shares pursuant to the vote of stockholders
  held on June 27, 2005.

On August 11, 2005 the shareholder convertible note was converted
  to 1,000,000 units with a price of $0.10 per unit [see note 13].

During August 2005, the Company sold 930,000 units of marketable
  securities for proceeds of $153,670 and realized a gain on sale of approximately
  $3,600.

F-24

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