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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10-KSB/A 
  Amendment #1

x ANNUAL REPORT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended June 30, 2004

OR

 ̈ TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ___________ to ___________.

Commission file number 0-30927

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

|NEVADA                                   | 980209053                           
|---------------------------------------- | ------------------------------------
|(State or Other Jurisdiction of          | (I.R.S. Employer Identification No.)
|Incorporation of Organization)           |                                     
|                                         |                                     
|502-1978 Vine Street, Vancouver, BC      | V6K 4S1                             
|(Address of principal executive offices) | (ZIP Code)                          

Registrants telephone number, including area code: (604)
737-0203

Securities registered pursuant to Section 12(b) of the Act
None

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 x No ̈

Indicate by check mark if disclosure of delinquent filers pursuant
  to Item 405 of Regulation S-K is not contained 
  herein and will not be contained, to the best of registrant's knowledge, in
  definitive proxy or information 
  statements incorporated by reference in Part III of this Form 10-K or any amendment
  to this Form 10-K ̈

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

Aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant at September 30, 2004 (computed by
reference to average of the bid and asked price on the NASD OTC Bulletin Board
of the common shares on such date): $637,357.50.

Number of common shares outstanding at October 31, 2004:
6,373, 575.

Documents Incorporated by Reference: NONE

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TABLE OF CONTENTS

|Part 1   |         |                                                                                                                     
|-------- | ------- | --------------------------------------------------------------------------------------------------------------------
|         | Item 1  | Business                                                                                                            
|         | Item 2  | Properties                                                                                                          
|         | Item 3  | Legal Proceedings                                                                                                   
|         | Item 4  | Submission of Matters to a Vote of Security
      Holders                                                           
|         |         |                                                                                                                     
|Part II  |         |                                                                                                                     
|         | Item 5  | Market for Registrations Common Equity,
      Related Stockholder Matters and Issuer Purchases of Equity Securities
|         | Item 6  | Managements Discussion and Analysis
      of Financial Condition and Results of Operation                          
|         | Item 7  | Financial Statements                                                                                                
|         | Item 8  | Changes in and Disagreements with Accountants
      on Accounting and Financial Disclosure                          
|         | Item 8A | Controls and Procedures                                                                                             
|         | Item 8B | Other Information                                                                                                   
|         |         |                                                                                                                     
|PART III |         |                                                                                                                     
|         | Item 9  | Directors and Executive Officers of the
      Registrant                                                            
|         | Item 10 | Executive Compensation                                                                                              
|         | Item 11 | Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters                
|         | Item 12 | Certain Relationships and Related Transactions                                                                      
|         | Item 13 | Exhibits and Reports on 8-K                                                                                         
|         | Item 14 | Principal Accountant Fees and Services                                                                              

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PART I

Item 1.    Description of Business

Cautionary Statement

Certain statements contained in this Annual Report on Form 10-K
("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
Securities and Exchange Commission ("SEC").

Introduction

We are Garuda Capital Corp., and are based in Vancouver,
Canada. In April 2002, we acquired two businesses, namely Hagensborg Foods Ltd.
(HFL) and Natural Program Inc. (NPI). HFL is in the business
of manufacturing and marketing gourmet foods. Through HFL we manufacture and
market both branded and private label chocolates as well as seafood pates and we
serve wholesale and retails customers both in Canada and the US. All products
are directly shipped from our warehouse in Vancouver.

NPI is in the business of developing and marketing herbal
remedies. Through NPI 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. To date, we have completed the
development of the first complete product line, which is being test marketed in
Vancouver-based health food stores and pharmacies. Our first complete 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.

NPIs main assets are its proprietary formulations which are
developed in-house. NPLs products are marketed in the US, Canada and Europe.
Please see the section titled The Business of Garuda on herein for a
complete description of NPIs history and business.

HAGENSBORG FOODS LTD.

History and general development of business of HFL

Through our subsidiary, HFL, we are in the business of
manufacturing and marketing gourmet chocolates and other gourmet foods. We
market our products throughout North America and serve wholesale and retail
customers both in Canada and the US. All products are directly shipped from our
warehouse in Vancouver, British Columbia.

Through our subsidiary HFL we acquired certain assets of
Hagensborg Food Corp. (HFC), a company domiciled in the U.S. that is in
the business of selling, marketing and distributing food products. Until March
2003, Robin Relph, our President and a director was a director of HFC and from
February to March 2003 he was the principal officer of HFC. There are 5
shareholders with more than ten percent of the outstanding shares, Robin Relph
(13%), Aran Asset Management (22%), LaMont Asset Management (36%), a Swiss asset
management company, Hagensborg Limited (10%) a Bahamas corporation, and Zambala
Ventures Ltd. (13%), a Bahamas trust.

Our objective is to develop the business of HFL and HFC by
providing missing key ingredients such as management expertise, strategic
planning, fund raising capabilities, and an extensive network of international
contacts.

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Products of HFL

We manufacture and market both branded and private label
chocolates. Our four main chocolate brands are Kiss Me truffle
frogs, Mountain Ridge, Peaks,
Leone and Truffles To Go.

Kiss Me® is a European chocolate truffle in the shape of a
frog, with a melting truffle center. The product is marketed in two gift box
presentations, containing either twelve individual chocolate frogs or three
individual chocolate frogs. Our target market for Kiss Me truffles consists of
upscale gift box chocolate consumers, both male and female, between the ages of
25 and 54 years of age with medium to higher household incomes.

Mountain Ridge® in the US, or Peaks® in Canada, is a Belgian
honey almond nougat bar consisting of chocolate peaks with white chocolate tips.
The product is marketed in 2 sizes, a king sized 300 gram bar and a snack sized
75 gram bar. National chains such as Seven Eleven in Canada have approved the
product for national distribution in their stores.

Leone® is a high end gift box confection. The Classic
Collection, the first item of this line, contains milk, dark and white
champagne truffles made of Belgian chocolate, and is sold in various gift boxes
as well as a keep sake tin. The product was launched at the Fancy Food Show in
New York in June 2003.

Truffles To Go® are manufactured in eight flavors: cappuccino,
orange, mint, mocha, peanut butter, milk chocolate, and chocolate eclipse.
Truffles To Go are marketed in two different size packages, a 2.5 ounce single
serve pack or a 5.4 ounce pack. In addition, we also manufacture several all
natural and no sugar added versions. Our target market for this
product is women between the ages of 25 and 44 years of age in the mid to high
household income bracket.

We also acquired through our subsidiary, HFL, a line of seafood
products including seafood pates and smoked salmon filets from HFC. The seafood
pâtés are marketed in six flavors, namely smoked salmon, salmon, shrimp, rainbow
trout with dill, crab and lobster. The products are packed in three ounce tins
and are sold either individually or inside a decorative retail box. We own the
proprietary recipe and the custom German food processor utilized to produce the
pâté. This equipment is installed at St. Jeans, a plant in Nanaimo, BC, which
produces the pâté on a contract basis for us.

Market

Gourmet foods consumption is affected by many factors,
including climate, consumers disposable income, the economic development of the
country and its distribution and marketing facilities. The developed nations
generally have high levels of gourmet foods consumption in comparison to the
developing or emerging nations.

Chocolate consumption during key holidays account for a
significant portion of all confectionery sold during the year, with Halloween,
Easter, and Christmas/Hanukkah being the top selling holidays.

Competition

Our HFL subsidiary 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
pates. Competition is based upon name recognition, taste and cost. A significant
portion of our competition is larger than we are with greater market share and
resources.

Marketing

Marketing Trends

Our main Hagensborg promotional activities are:

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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 pates 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. Our packaging helps to draw the consumers who are not familiar with
the quality of our product, as well as the consumer 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 truffle packages and other impulse offerings.

Marketing Activities

Our main promotional activities are:

Trade Shows:Trade shows are a key forum for meetings
with brokers, retail buyers and distributors. We are typically represented at
three Fancy Food Shows: January in San Francisco; March in Chicago; July in New
York. Other trade shows we have attended are the All Candy Expo in June in
Chicago; 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 for their customers held during
summer.

Trade Advertising:We regularly 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.

Sales Manager Contacts:Our sales agents have been
developing contacts with distributors, brokers and major retailers such as
Safeway, Albertsons and Kroger. Our sales agents work with the retailers to
place products in their permanent displays, provide promotional support and
ensure supply. To widen distribution of our products through the larger
retailers means gaining head office approval, then working with each regional
division to gain placement in stores.

Product Information:Our marketing department has
developed selling presentations for each product/brand, including market
information and key selling points. As well as using it for customer meetings,
our sales staff provides this information to brokers who work on our behalf to
ensure they use our strong selling points. This is part of our effort to ensure
our brokers and distributors are educated about our products and will therefore
do a better job with potential customers. Retailers are inundated with new
products from which to choose. Providing competitive arguments in a category
context makes it easier for them to choose our products.

Website:Our website address, www.hagensborg.com, appears on our packaging and
printed materials. Our website gives details of all products with information
for consumers, retailers and distributors. This is a useful tool for reaching
smaller customers.

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Growth Strategies

Market Penetration

Increasing the sales volume of existing products in existing
markets through focusing on marketing and promotional activities is a low risk
strategy to expand our HFL business. However, since this strategy has its
limitations, such as individual distribution channels that can only support a
certain sales volume, additional methods will have to be adopted.

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; that is, 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 also has a greater potential for revenue generation.

We are currently developing a variety of concepts to attract
new markets for our existing products. One approach is to repackage our high end
truffles to appeal to consumers with higher levels of price sensitivity. We are
also pursuing a variety of private label opportunities to add to our bottom line
by manufacturing for large national retail chains.

Product Development

New products are widely acknowledged by industry leaders as
being the lifeblood of the specialty food market. In the past, we have been very
successful in launching new products, including our latest introduction Kiss
Me chocolates. The main focus of our product development efforts will be
finding products to generate revenue in the historically revenue weak first and
second calendar quarters. Recent successful product launches include Mountain
Ridge and Leone.

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 HFL line of products. The advantage of acquiring
existing companies with established products is the development cost savings and
reduced time to market.

Stated Business Objectives

Our major objectives are threefold:

Expand product lineOur strategic focus for
the next 12 months will be developing and marketing our existing proprietary
brands and private label business in Canada and the US, as well as expanding our
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 increase revenues for the fiscal 2004/2005 year.

Expand distribution to increase volumesIn
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 24
months. This will be achieved by adding selected distributors and brokers in the
areas of general grocery, department stores and health food chains, by
developing sales channels for the club and private label business and by hiring
key sales personnel.

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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.

History and general development of business of Natural
Program Inc.

Natural Program Inc. (NPI) is a Nevada corporation
which we acquired in April 2002. In January 2002, NPI acquired Natural Program
Ltd., a British Columbia company which founded the business.

Through our subsidiary, NPI, we are in the business of
developing and marketing herbal remedies currently in a test market in
Vancouver, British Columbia with a view to ultimately marketing the products
throughout North America. Through NPI we operate a Chinese herbal pharmacy to
dispense high quality Chinese herbs to practitioners and market a wholesale line
of herbal remedies under the NPI name. To date, we have completed the
development of the first complete product line, which is being test marketed in
Vancouver-based health food stores and pharmacies.

Our main NPI assets are our proprietary formulations which are
developed in-house. Raw materials are sourced internationally to ensure the
highest possible quality. Large-scale manufacturing is currently outsourced to
specialized providers who comply with Good Manufacturing Practices standards.
Our NPI products are marketed in Canada and the US.

Products and services of NPI

Currently, our main NPI product line consists of five liquid
herbal remedies which we believe improve the quality of day-to-day life,
offering solutions for common health problems., although no independent studies
have been performed to evaluate the effectiveness of the formulations. The
formulas are sold in 2 oz./59.1ml bottles and retail for approximately $20 Cdn.

Stress Rescue.- Designed to offer immediate relief of
stress, trauma, and shock, this formula can be used 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.- 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.- A sedative and relaxing nervine blend,
this powerful formula 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.

Headache Rescue.- This formula 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 is effectively used as a preventative
measure.

Memory Rescue. - Formulated to enhance memory and
concentration, we believe Memory Rescue supports cognitive function, increases
mental abilities, and counteracts mental dullness and depression.

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 helps
the prevention of blood clots which can be fatal if not treated properly.

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Good Manufacturing Practices

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. NPI already
abides by these requirements and can therefore ensure customers of the high
quality and purity of the products it delivers.

As of January 1st, 2004 the Natural Health Products
Directorate (NHPD) became 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 GMP.

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 NPI has 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.

All NHPs that are prepacked, and not sold by prescription will
require a product license and in turn an 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 will provide 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.

NPI will require a site license, will need to be GMP compliant
and will require product licenses for its Rescue Line. However, NPI 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.

Herbal Laboratories

In addition to the wholesale product lines described above, our
NPI herbal laboratory specializes in dispensing 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 drop off their prescriptions at the NPI laboratory where
the

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formulations are mixed by professional herbalists. As an
incentive for practitioners to refer their patients to NPI they receive a
commission based 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.

Market

The 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.

Target Market

Our NPI remedies are targeted at the general public currently
in a test market in Vancouver, British Columbia, ultimately to be marketed
throughout North America and intended as part of everybodys home pharmacy. They
are typically used by environmentally conscious, socially responsible,
family-oriented and educated shoppers who:

| | Already use natural
        medicine and look for natural, non-habit forming remedies to common health
        problems; or                                                     
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|  |                                                                                                                                                                                 
| | Are first-time users
        of natural medicine who look for effective, easy-to-use starter
        products to familiarize themselves with the benefits of natural remedies.
|

Market Acceptance

Market acceptance of our NPI products is based on that fact
that people in today's health-conscious marketplace 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.

Competition

As a manufacturer and wholesaler of herbal remedies, our NPI
products compete 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 that do not
buy from large corporations but prefer smaller, specialized providers.

Marketing plans and strategies

Distribution

Our NPI products are currently distributed through direct sales
to natural health food store and pharmacies on a test market basis in Vancouver,
British Columbia. To expand our distribution to the rest of Canada and the US

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and to include general grocery and mass food chains, NPI is
identifying specialized distributors for each of its geographical markets.

Promotion

In order to support retail sales, we provide extensive product
information and educational seminars to sales personnel in order to enable them
to effectively sell its 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.

Stated business objectives

Our major objectives are threefold:

Expand product line:Our strategic focus is on
developing and marketing our existing products in Canada and the US, as well as
expanding our product range through in-house product development.

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 next twelve months. This
will be achieved by identifying suitable distribution partners and adding
selected distributors in the areas of natural pharmacies, health food chains and
general grocery. In addition, we intend to hire key sales personnel in each of
our main geographical target markets.

Establish production facility:We currently
outsource the manufacturing of our NPI products to specialized providers. Over
the course of the next three to five years, we are looking to establish our own
production facilities by way of acquiring selected suppliers.

Employees

Our employees are engaged as follows:

|                      | Administration/ | Sales/    | Production/ | Total
|--------------------- | --------------- | --------- | ----------- | -----
|                      | Accounting      | Marketing | Operations  |      
|Garuda Capital Corp.  | 1               | -         | -           | 1    
|Hagensborg Foods Ltd. | 3               | 3         | 6           | 11   
|Natural Program Inc.  | 2               | -         | 2           | 4    

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
United States. 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:

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

Revenue recognition. Our revenues are recognized in
accordance with the terms of the specific agreement, which is generally upon
delivery and when accepted by customer.

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 of cost or market on a first-in, first-out basis. We use
a standard cost system for purposes of determining cost; the 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 taxes.We record a valuation allowance to
reduce deferred 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 have limited operating history by which investors can
gauge our performance.

We have not had business operations up until our acquisition
  of HFL and NPI in April 2002 and therefore have a limited history of operations.
  We may never produce revenue, operate profitably or provide a return on investment
  in the future, which may affect our ability to continue with our operations.
  In the fiscal year ended June 30, 2004, we realized total revenues of $1,236,079
  and the net loss for the year ended June 30, 2004 was $844,595.

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. Our capital requirements for the next twelve months will
be $500,000.

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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
0 shares to 140,000 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 are dependent upon the following key personnel: Robin
  Relph, the President of Garuda; Dennis Moroney, Chief Operating Officer of HGL;
  Shelley Miller, Jim Zhao and Arita Rokin, of Hagensborg.

We use Canadian currency and changes 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. Changes 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 the Canadian and
US prices, our revenues from US customers have been affected proportionately;
that is, while our cost of goods purchased in Canadian and our revenues from US
sales have remained static, once the US funds are converted into Canadian
dollars, the revenues have decreased due to the decreased value of the US
dollar.

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

Common stock purchase warrants to acquire up to 4,302,000
shares of common stock at a price of $0.70 per share on or before April 12, 2005
are currently outstanding. The exercise of common stock purchase warrants and
sale of underlying shares 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.

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HFL Risk Factors

The business of our subsidiary, HFL, 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 the prospectus, the following:

We are dependent on Safeway, Inc. and Cost Plus as major
customers and the reduction or loss of sales to these customers could adversely
affect our revenue and profits.

Approximately 31% of our sales are from a single customer,
Safeway grocery stores and 18% of our sales are from Cost Plus. We do not have
long term contracts with either Safeway or Cost Plus. As a result, our sales to
Safeway and Cost Plus may decline in the future. A halt or even decrease in
Safeway or Cost Plus sales could have a materially adverse effect upon our
business.

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 substantial 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.

HFL 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 HFL.

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

Consumer tastes in gourmet foods are inherently volatile. HFL
is dependent upon its ability to gauge the taste of consumers and provide
products that satisfy that demand. Consumer tastes may change rapidly and HFL
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 HFL 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 HFL
has introduced four new lines of chocolate bars, Mountain Ridge, Peaks, Leoni
and low carbohydrate chocolate bars, and expanded the Kiss Me line. The
financial performance of HFL is also dependent upon its managements ability to
manage the resulting expanded operations. HFL may not increase its sales of
existing products or develop and sell new products on a profitable basis.

A negative outcome of the lawsuit filed against
Hagensborg Foods Ltd. could have serious consequences.

A lawsuit was commenced against Hagensborg Food Ltd.
(Hagensborg) in the Ontario Superior Court of Justice bearing Court
File No. 04-CV-269496CM1 by Kraft Foods Schweiz AG and Kraft Canada Inc.

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(collectively Kraft). Although we intend to vigorously
defend our case and have filed a counterclaim against Kraft, a negative outcome
could seriously hamper the ability of HFL to carry on business, either by the
necessity of having to incur costs related to the redesign of its Mountain Ridge
and Peak chocolate bars and the resultant damage to goodwill or by financial
damages that may be awarded to Kraft. Given the early stage of the action, it is
too early to evaluate the likelihood of success or of an unfavorable outcome and
the possible range of loss.

NPI Risk Factors

The business of NPI 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 the
prospectus, the following:

We are competing against well established sellers of
Chinese herbal medicine in a unique manner.

Traditional sellers of Chinese herbal medicine are typically
ethnic Chinese practitioners who individually prepare formulations for steeping
as a drink. Sales of traditional practitioners are generally repeat customers
and referrals. As a result, entry into this market can be difficult. In
addition, we prepare formulations in gelatin capsules for easier consumption. We
cannot be sure that we will be able to significantly capture market share from
traditional practitioners or that the use of gelatin capsules will be acceptable
to consumers.

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 vary from
country to country and are being changed at an unpredictable rate. The success
of NPI is dependent to a significant degree on its ability to comply with
industry regulations for product labeling, testing, and the like. If NPI 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 more particularly described under Products and Services of
NPI herein. As of January 1st, 2004 the Natural Health Products
Directorate became 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 as more particularly described under
Products and Services of NPI herein.

Item 2.   Description of Properties

Our properties are as follows:

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|Lease Details | Location            | Sq Footage                                                                                                                                                                                                                          | Monthly lease | Leasor                        | Expiry      
|------------- | ------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | ----------------------------- | ------------
|HFL           | 1576 Rand Avenue    |                                                                                                                                                                                                                                     |               | Granville South Business      |             
|              | Vancouver, BC       |                                                                                                                                                                                                                                     |               | Centre Holdings Ltd.          |             
|              | V6P 3G2, Canada     |                                                                                                                                                                                                                                     | C $10,100     | c/o Maple Leaf Property       |             
|              |                     | 12,000                                                                                                                                                                                                                              | or            | Management                    | Mar 31, 2007
|              |                     |                                                                                                                                                                                                                                     | US $7,350     | Third Floor, 100 Park Royal   |             
|              |                     |                                                                                                                                                                                                                                     |               | West Vancouver, BC            |             
|              |                     |                                                                                                                                                                                                                                     |               | V7T 1A2                       |             
|NPI           | 2245 West Broadway, |                                                                                                                                                                                                                                     |               | Oaktree Management 23575-     |             
|              | Suite 102           | 800                                                                                                                                                                                                                                 | C$ 1,400      | 124thAvenue, Maple Ridge, BC. | Mar 31, 2006
|              | Vancouver, BC       |                                                                                                                                                                                                                                     | US $1,019     | V2X 4K3                       |             
|              | V6K 2E4, Canada     |                                                                                                                                                                                                                                     |               |                               |             
|Garuda        | 1978 Vine Street,   | 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. A commercial *office
      space will be leased in due course as needed.*
|              | Suite 502          
|              | Vancouver, BC       |                                                                                                                                                                                                                                     |               |                               |             
|              | V6K 4S1, Canada     |                                                                                                                                                                                                                                     |               |                               |             

Item 3.   Legal Proceedings

A lawsuit was commenced against Hagensborg Food Ltd.
(Hagensborg) in the Ontario Superior Court of Justice bearing Court
File No. 04-CV-269496CM1 by Kraft Foods Schweiz AG and Kraft Canada Inc.
(collectively Kraft).

The statement of claim was issued on May 26, 2004. The claim
alleges trade-mark infringement of various registered trade-marks and
distinguishing guises associated with Krafts Toblerone chocolate bar. Kraft
seeks declaratory and injunctive relief, damages, or alternatively, an
accounting of all revenues received and profits made by Hagensborg on account of
the alleged infringement, as well as punitive and exemplary damages. Hagensborg
filed a statement of defence and counterclaim on July 27, 2004, denying the
allegations in the statement of claim and asserting, amongst other things that
Krafts trade-mark registrations are invalid. In its counterclaim, Hagensborg
seeks declaratory relief, injunctive relief and damages or an accounting of
profits. On August 11, 2004, Kraft delivered its Reply and Defence to
Counterclaim. On August 23, 2004, Hagensborg delivered its Reply to the Defence
to Counterclaim and the pleadings are now closed. There has been no documentary
or oral discovery to date.

Pursuant to the Rules of Civil Procedure in the Ontario
courts, the parties are required to attend a mediation session. At present, the
parties trying to determine a mutually agreeable date for the mediation.

Given the stage of the action, it is too early to evaluate the
likelihood of success or of an unfavorable outcome and the possible range of
loss.

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

No matter was submitted to a vote of our shareholders during
the fourth quarter of the fiscal year covered by this report.

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:

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|                                         | High    | Low   
|---------------------------------------- | ------- | ------
|Period                                   | (Cdn $) | (Cdn$)
|First Quarter September 30,
      2002   | 0.71    | 0.22  
|Second Quarter  December 31, 2003       | 0.51    | 0.21  
|Third Quarter  March 31,
      2003     | 0.40    | 0.21  
|Fourth Quarter  June 30, 2003           | 0.22    | 0.15  
|First Quarter  September 30,
      2003 | 0.22    | 0.07  
|Second Quarter  December 31, 2003       | 0.20    | 0.06  
|Third Quarter  March 31,
      2004     | 0.16    | 0.15  
|Fourth Quarter  June 30, 2004           | 0.15    | 0.08  

As of September 30, 2004, there were 6,373,375 common shares
outstanding, held by approximately 80 shareholders of record.

To date, we have not paid any dividends on its 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.

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

Overview

In April 2002, we acquired HFL, a Vancouver-based manufacturer
and marketer of fine chocolates and other gourmet foods and NPI, a manufacturer
and distributor of natural medicine.

We incorporated two subsidiaries, Garuda Ventures Canada Inc.
and Garuda Gold Corporation. Both companies are incorporated under the laws of
British Columbia, Canada. Garuda Ventures Canada Inc. holds idle working capital
to be invested in marketable securities and has no other assets. Garuda Gold
Corporation is currently inactive and has no assets, but will be activated as
soon as a suitable project has been identified.

Forward Looking Statements

This report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 21e 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, 2004
compared to June 30, 2003

During the fiscal year ended June 30, 2004, we realized total
revenues of $1,236,079 with a net loss for the year of $844,595. During the
fiscal year ended June 30, 2003, we realized total revenues of $2,065,888 with a
net loss of $1,475,086. The 40% decrease in revenues was the result of decreased
sales for HFL and the 43% decrease in net loss for fiscal 2004 was a result of
cost saving measures that were taken for HFLs operations.

Gross profit for the year ended June 30, 2004 was $182,355, compared
  to $496,796 for the same period in 2003.

Our general and administrative costs for the year ended June
30, 2004 were $573,281 compared to $912,947 for the year ended June 30, 2003.
The general and administrative expenses consisted primarily of personnel costs,
professional and legal costs, consulting fees, and general office costs. The
decrease in general and administrative costs in fiscal 2004 is largely the
result of cost saving measures to reduce our overhead for both operations.

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Our premise and equipment leases for both HFL and NPI were
$146,812 and $133,671 for the year ended June 30, 2004 and June 30, 2003,
respectively. Effective March 31st, 2004, we renewed the lease for the premises
for both HFL and NPI; the lease costs have not increased significantly.

We anticipate that we will incur increased sales and marketing
costs, including hiring sales personnel, broker fees and trade show attendance
fees, as we implement our business growth strategies for both HFL and NPI.

Liquidity and Capital Resources for the year ended June 30,
2004 compared to June 30, 2003

We believe that sales from HFL and NPI will not provide
sufficient capital resources to sustain operations and fund product development
for the fiscal year ended June 30, 2005. While we have received a going
concern opinion from our auditors, we expect to raise capital through
equity sales as necessary to fund future growth until we operate above the
break-even point. 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 HFLs operations partly through revenues from
operations and bank credit facilities, and partly through the issuance of equity
shares and convertible debentures. HFL 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 HFLs new product lines will add new
capital resources, but may not be sufficient to sustain operations and fund new
product launches until the fiscal year ended June 30, 2006.

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

During the year ended June 30, 2004, our current assets to current
  liabilities ratio decreased to 0.30 from 0.37 for the same period in 2003. Current
  assets increased $163,684 from $419,478 in 2003 to $583,162 in 2004, primarily
  as a result of increase in marketable securities in 2004. Current liabilities
  increased $823,501 from $1,123,597 in 2003 to $1,947,098 in 2004, primarily
  as a result of the increase in notes payable.

Non-current assets for the year ended June 30, 2004 were $240,178,
  net of depreciation.

Total liabilities increased from $1,128,060 for the year ended
  June 30, 2003 to $1,962,068 for the year ended June 30, 2004. For the year ended
  June 30, 2004, this includes $1,947,098 in current liabilities, including short-term
  loans of $1,324,842.

Our independent accountants, in their report accompanying our
audited financial statements for the year ended June 30, 2004, have stated that
there is substantial doubt about our ability to continue as a going concern. We
will require an additional $500,000 to finance operations for fiscal 2005 and
intend to obtain such financing through sales of its 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 the Company'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

The financial statements and supplementary financial
information required to be filed under this item are presented are incorporated
herein by reference.

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

None

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Item 8A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of June 30, 2004, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures. 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.

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.

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

Our executive officers and directors and their ages are as
follows:

|Name                | Age | Position                
|------------------- | --- | ------------------------
|                    |     |                         
|C. Robin Relph      | 54  | President, CEO, Director
|G. Arnold Armstrong | 77  | Chairman, Director      
|Jurgen Wolf         | 69  | Independent Director    

G. Arnold Armstrong, Chairman and
DirectorSenior partner at the law firm Armstrong & Company
(Vancouver, Canada) from August,1976 to present. President and CEO of
International Cetec Investments Inc. (Vancouver, Canada) from April, 1994 to
present Chairman and CEO of SKN Resources Ltd. (Vancouver, Canada) from
June, 2000 to present.President and Director of International Enexco Limited
(Vancouver, Canada) from March, 1975 to present. President and Director of
Ivory Oils & Minerals Inc. (Vancouver, Canada) from March, 1991 to
present.President and a Director of Gibsons Marina Hotel Inc. (Gibsons,
Canada) from September, 1983 to present.

C. Robin Relph, President and
DirectorPresident and Director of Garuda Capital Corporation from
May 2002 to present. Director of Valerie Gold Resources (Vancouver, Canada)
from 1995 -1997.Director and President of Buckingham Securities Ltd.,
(London England) from 1988 to present. Director of Hagensborg Food
Corporation (Kent, USA) from 1998 to March 2003.Director of Hagensborg Foods
Limited (Vancouver, Canada) from 1998 to present. Director of Natural
Program Ltd. and Natural Program from July 2000 to present.

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Jurgen Wolf, Independent
DirectorDirector of Garuda from October 2002 to present.Director
of Hagensborg (Vancouver, Canada) from 1999 to present.President of US OIL
and Gas Resources Inc. (TSX: USR) (Vancouver, Canada) from 1999 to
present.Director of AccelRate Power Systems Inc. (TSX: APS) (formerly Key
Capital Group Inc.) (Vancouver, Canada) from 1996 to 2000.Director of Tasty
Fries Inc. (OTC BB: TFRY) from 1995 to present.Director of Shoreham
Resources (TSX: SMH) (Vancouver, Canada) from 1991 to present. President of
J.A. Wolf Projects Ltd. (Vancouver, Canada) from 1984 to 2001.

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 Annual Report on Form 10-KSB 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, 2004.

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, 2004, our officers,
directors and 10% shareholders complied with all Section 16(a) filing
requirements applicable to them except as follows:

None

Audit Committee

The Audit Committee assists the Companys Board of Directors in
its oversight of the quality and integrity of the accounting, audit and
reporting practices of the Company. The Audit Committees role includes
discussing with management the Companys processes to manage business and
financial risk and for compliance with significant applicable legal, ethical and
regulatory requirements. The Audit Committee is responsible for the appointment,
replacement, compensation and oversight of the independent auditor engaged to
prepare or issue audit reports on the financial statements of the Company. The
Audit Committee relies on the expertise and knowledge of management and the
independent auditor in carrying out its oversight responsibilities.

The Audit Committee of the Board of Directors consists of Robin
Relph, Arnold Armstrong and Jurgen Wolf. Robin Relph serves as Chairman. The
Board of Directors had 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 SEC rules.

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, 2004, whose salary and bonus for such year
exceeded $100,000 (collectively, the "Named Executive Officers") for the
last three completed fiscal years.

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|                      |                      |           |         |             | Long Term Compensation
|--------------------- | -------------------- | --------- | ------- | ----------- | ----------------------
|                      | Summary Compensation |           |         |             |                       
|                      | Annual Compensation  | Award     | Payouts |            
|                      |                      |           |         | Other       |                       
|Name and              |                      |           |         | **Annual**  | Restricted            
|Principal             | Year                 | Salary    | Bonus   | **Compen-** | Stock                 
|Position              |                      |           |         | **sation**  | Award(s)              
|                      |                      | $         | $       | $           | $                     
|                      |                      |           |         |             |                       
|C. Robin Relph        | 2004                 | (1)72,000 | -0-     | 18,000      | -0-                   
|*President
      and* | 2003                 | (1)72,000 | -0-     | -0-         | -0-                   
|*CEO*                 | 2002                 | (1)6,000  | -0-     | -0-         | -0-                   

|(1) | Represents consulting fees paid to Mr. Relph as President.
|--- | ----------------------------------------------------------

Equity Compensation Plan Information

We have a Stock Option Plan, the "Garuda Capital Corp. 2002
Stock Option Plan" (the "Plan"). The Plan provides that the Board
shall exercise its discretion in awarding options under the Plan, not to exceed
2,000,000 shares. The per share option price for the stock subject to each
option shall be as the Board may determine. All options must be granted within
ten years from the effective date of the Plan. There is no express termination
date for the options, although the Board may vote to terminate the Plan.

The following table sets forth certain information concerning
grants of stock options to the Named Executive Officers during the year ended
December 31, 2003.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

|                  |                         |                                               |           |           | Potential
      Realizable Value at Assumed
|----------------- | ----------------------- | --------------------------------------------- | --------- | --------- | -------------------------------------------
|                  | Individual
      Grants | Annual
      Rate of Stock Price Appreciation
|                  | Number of               | %
      of Total                              |           | Market    | **for Option Term**                        
|                  | Securities              | Options/SARs                                  |           | Price on  |                                            
|                  | Underlying              | Granted to                                    | Exercise  | Date of   |                                            
|                  | Options/SARs            | Employees in                                  | Price     | Grant     | Expiration                                 
|                  | Granted                 | Fiscal Year                                   | ($/Share) | ($/Share) | Date                                       
|Relph, Robin C.   | -0-                     | -0-                                           | -0-       | -0-       | -0-                                        
|Armstrong, Arnold | -0-                     | -0-                                           | -0-       | -0-       | -0-                                        
|Wolf, Jurgen      | -0-                     | -0-                                           | -0-       | -0-       | -0-                                        

|(1) | A total of 0- (zero) stock options were granted
        to employees and consultants during the fiscal year ended June 30, 2004.
        As of the date of this Report, a total of 400,000 stock options are outstanding.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth certain information concerning
exercises of stock options by the Named Executive Officers during the year ended
June 30, 2004 and stock options held at year end.

---

-21-

---

Aggregated Option / SAR Exercises in Last Fiscal Year and
FY-End Option / SAR Values

|                  |              |          | Number of Securities     |                             
|----------------- | ------------ | -------- | ------------------------ | ----------------------------
|                  |              |          | Underlying Unexercised   | **Value of Unexercised In-**
|                  |              |          | Options / SARs at Fiscal | the-Money Options / SARs    
|                  |              |          | year End (#)             | at Fiscal Year End ($)      
|                  | Shares       | Value    |                          |                             
|Name              | Acquired on  | Realized | **Exercisable/**         | Exercisable/ Unexercisable  
|                  | Exercise (#) | ($)      | Unexercisable            |                             
|Relph, C. Robin   | -0-          | -0-      | 0 / 0                    | N/A                         
|Armstrong, Arnold | -0-          | -0-      | 0 / 0                    | N/A                         
|Wolf, Jurgen      | -0-          | -0-      | 0 / 0                    | N/A                         

|(1) | On June 30, 2004, the average of the high and low
        bid prices of the common shares on the OTC BB was $0.08.
|--- | ------------------------------------------------------------------------------------------------------------------

Employment Agreements

We have no written employment agreements with executive
officers at this time. The following consulting fees are or were paid:

Robin
Relph,          
President                                   
US $ 72,000 per 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

The following table sets forth as of September 30, 2004, the
number of our outstanding common shares beneficially owned by (i) each person
known to us to beneficially own more than 5% of its outstanding common shares,
(ii) each director, (iii) each Named Executive Officer, and (iv) all officers
and directors as a group.

---

-22-

---

|Name and                 |            | Common Stock |                                                        | Percentage of
|------------------------ | ---------- | ------------ | ------------------------------------------------------ | -------------
|Address of               | Title      | Ownership    |                                                        | Shares       
|Beneficial Owner         |            |              |                                                        | Outstanding  
|______________           |            |              |                                                        |              
|C. Robin Relph           | President, | 343,574      | Directly owned by Mr. Relph                            | 30.2%        
|#4,
      Arbour Island  | Director   | 435,200      | Owned
      by Buckingham Securities Ltd., Mr.         |              
|Old
      Fort Bay       |            |              | Relph
      is Managing Director and a 60%             |              
|New Providence           |            |              | shareholder.                                           |              
|Bahamas                  |            | 86,000       | Owned by Hagensborg Food Corp., Mr. Relph              |              
|                         |            |              | is a former director and a 13% shareholder in          |              
|                         |            |              | Hagensborg Food Corp.                                  |              
|                         |            | 582,258      | Owned by Garuda Ventures Ltd., Mr. Relph is            |              
|                         |            |              | a director of the company. He disclaims any            |              
|                         |            |              | beneficial ownership in these shares;                  |              
|                         |            | 192,000      | Owned by Rigpa Foundation, a charitable                |              
|                         |            |              | foundation. Mr. Relph is Chairman of the               |              
|                         |            |              | Board of Trustees of Rigpa and disclaims any           |              
|                         |            |              | beneficial ownership in these shares;                  |              
|                         |            | 300,000      | Owned by Zambala Ventures Ltd. Mr. Relph               |              
|                         |            |              | is a director of the company. He disclaims any         |              
|                         |            |              | beneficial ownership in these shares;                  |              
|                         |            | 1,939,032    |                                                        |              
|______________           |            |              |                                                        |              
|Arnold Armstrong         | Director,  | 20,000       | Owned
      by Mr. Armstrong                           | 11.3%        
|480-650 W.               | Chairman   | 600,000      | Owned
      by International Cetec Investments         |              
|Georgia St.              |            |              | Inc.,
      Mr. Armstrong is Chairman of this          |              
|Vancouver, B.C.          |            |              | company.                                               |              
|Canada, V6B 4N9          |            | 100,000      | Owned
      by Sentarn Enterprises. Mr.                |              
|                         |            |              | Armstrong owns 67% of Kelvin Grove Estates             |              
|                         |            |              | Ltd. which
      owns 100% of Sentarn Enterprises Ltd. |              
|                         |            | 720,000      |                                                        |              
|______________           |            |              |                                                        |              
|Jurgen Wolf              | Director   | 60,000       | Owned
      by Mr. Wolf                                | 0.9%         
|666
      Burrard Street |            |              |                                                        |              
|Suite 500                |            |              |                                                        |              
|Vancouver, BC            |            |              |                                                        |              
|V6C
      3P6            |            |              |                                                        |              
|                         |            |              |                                                        |              
|Officers and             |            | 2,719,032    |                                                        | 44.6%        
|Directors as a           |            |              |                                                        |              
|group (3                 |            |              |                                                        |              
|individuals)             |            |              |                                                        |              

Based upon a review of our shareholders list as of June 30,
2003 there are two other registered holders of five percent or more of our
Common Stock.

---

-23-

---

|Name and Address of                                    | Common Stock  | Percentage of  **Shares**
|------------------------------------------------------ | ------------- | -------------------------
|Beneficial Owner                                       | Ownership (1) | Outstanding              
|                                                       |               |                          
|Aran Asset Management SA                               |               |                          
|Alpenstrasse 11/P.O. box 4010                          |               |                          
|CH  6304 Zug, Switzerland                             |               |                          
|                                                       | 390,323       | 5.8%                     
|                                                       |               |                          
|Note: Aran is a holding company and holds
      Garuda |               |                          
|shares for various shareholders.                       |               |                          
|                                                       |               |                          
|Channing Investments Corp.                             |               |                          
|800  1450 Creekside Dr.                               | 600,000       | 9.9%                     
|Vancouver, BC V6J 5B3                                  |               |                          
|Attn: Chrissy Doherty                                  |               |                          

Item 12.   Certain Relationships and Related Transactions

During the fiscal year ended June 30, 2004, we entered into the
following transactions in which certain of our officers or directors have a
direct or indirect material interest.

|- | We incurred consulting fees
        of $72,000 to Robin Relph, our President for his acting as President.                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|- | We paid consulting
        fees of $21,400 to BCG Inc., an entity 50% owned by Joyce Groote, former
        President of Natural Program, for her acting as President of Natural Program.
|

Item 13.   Exhibits and Reports on Form 8-K.

|(a)(1) | Financial Statements
        for the year ended June 30, 2004, Independent Auditors' Reports, Consolidated
        Balance Sheets, Consolidated Statements of Operations, Consolidated Statements
        of Comprehensive Operations, Consolidated Statements of Stockholders'
        Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial
        Statements
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|(a)(2) | All schedules are
        omitted because they are not applicable or the required information is
        shown in the financial statements or the notes thereto included in this
        Report.                                                                                                                                                                                         
|
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|(b)    | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|       | (i)              
        None.                                                                                                                                                                                                                                                                                                                                                          
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|(c)    | Exhibits                                                                                                                                                                                                                                                                                                                                                                                 
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|2.1    | Hagensborg Foods Ltd. Acquisition
        Agreement (1)                                                                                                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|2.2    | Natural Program Inc. Acquisition
        Agreement (1)                                                                                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|2.3    | Hagensborg Food Corporation
        Acquisition Agreement (3)                                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|3.1    | Articles of Incorporation
        (2)                                                                                                                                                                                                                                                                                                                                                    
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|3.2    | Bylaws (1)                                                                                                                                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|3.3    | Articles of Amendment (1)                                                                                                                                                                                                                                                                                                                                                                
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|11     | Statement RE: Computation
        of Per Share Earnings (1)                                                                                                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                                                                          
|21     | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                           

---

-24-

---

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

|31.1 | Certification of the Chief
        Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14
        or 15d- 14 of the Securities Exchange Act Of 1934,as adopted 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                                       

|(1) | Incorporated by reference from Annual Report on Form 10KSB filed on or
      about October 15, 2002                       
|--- | --------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                           
|(2) | Incorporated by reference from Form 10-SB registration statement SEC
      File # filed on or about June 29, 2000         
|    |                                                                                                                           
|(3) | Incorporated by reference from Amendment No. 1 to the Annual Report on
      Form 10KSB filed on or about January 21, 2003

Item 14.   Principal Accountant Fees and
Services

Audit and Non-Audit Fees

The following table presents fees for the professional audit
services rendered by our current auditors, Williams & Webster, P.S.,
Certified Public Accountants for the audit of our annual financial statements
for the year ended June 30, 2004 and fees billed for other services rendered by
Williams & Webster, P.S. during that period. Also set forth below is a table
presenting fees for the professional audit services rendered by our former
auditors, Spicer Jeffries & Co., Certified Public Accountants, for the audit
of our annual financial statements for the year ended June 30, 2003.

|Williams & Webster, P.S., Certified Public
      Accountants
|------------------------------------------------------------
|Year ended June
      30                                    
|Audit fees                                                  
|Audit-related fees (1)                                      
|Tax fees (2)                                                
|All other fees
      (3)                                    
|Total                                                       
|                                                            
|Spicer Jeffries & Co, Certified Public Accountants          
|Year ended June
      30                                    
|Audit fees                                                  
|Audit-related fees (1)                                      
|Tax fees (2)                                                
|All other fees (3)                                          
|Total                                                       

---

-25-

---

|(1) | Audit-related fees consist of assurance and related
        services that are reasonably related to the performance of the audit of
        our financial statements. The category includes fees related to the performance
        of audits and attest services not required by statute or regulation, audits
        of our benefit plans, due diligence related to acquisitions, agreed-upon
        procedures, and accounting consultations regarding the application of
        generally accepted accounting principals to proposed transactions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Tax fees consist of the aggregate fees billed for
        professional service rendered for tax compliance, tax advice, and tax
        planning.                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(3) | Other fees consist primarily of the aggregate fees
        billed for professional services related to a business continuity engagement.                                                                                                                                                                                                                                                                                                                                                                                                                 

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 and non-audit related services in fiscal 2004. The Audit Committee had
concluded that the provision of the non-audit services listed above is
compatible with maintaining the independence of Williams & Webster, P.S.

---

GARUDA CAPITAL CORPORATION 
  Consolidated Financial Statements 
  June 30, 2004



F-1

---

GARUDA CAPITAL CORPORATION

|REPORT OF INDEPENDENT REGISTERED
      ACCOUNTING FIRM | F-3                                                  
|------------------------------------------------------ | -----------------------------------------------------
|                                                       |                                                      
|CONSOLIDATED FINANCIAL STATEMENTS                      |                                                      
|                                                       |                                                      
|                                                       | Balance Sheets                                       
|                                                       |                                                      
|                                                       | Statements of Operations and
      Comprehensive Loss
|                                                       |                                                      
|                                                       | Statement of Stockholders
      Equity (Deficit)    
|                                                       |                                                      
|                                                       | Statements of Cash Flows                             
|                                                       |                                                      
|NOTES TO THE FINANCIAL STATEMENTS                      | F-9                                                  



F-2

---

To the Board of Directors 
  Garuda Capital Corporation 
  Vancouver, B.C.

REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheet of
  Garuda Capital Corporation as of June 30, 2004, and the related consolidated
  statements of operations and comprehensive loss, stockholders' equity (deficit)
  and cash flows for the year then ended. 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. The consolidated financial statements
  of Garuda Capital Corporation as of June 30, 2003 were audited by other auditors
  whose report dated September 29, 2003 except for Notes 2 and 6, as to which
  the date is October 4, 2005 and expressed an unqualified opinion on those statements.

We conducted our audit in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audit provides
  a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
  fairly, in all material respects, the financial position of Garuda Capital Corporation
  as of June 30, 2004, and the results of its operations and its cash flows for
  the year then ended in conformity with accounting principles generally accepted
  in the United States of America.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 2, the
  Company has sustained substantial operating losses in recent years, has limited
  cash resources and negative working capital. These factors raise substantial
  doubt about the Company's ability to continue as a going concern. Management's
  plans regarding those matters also are described in Note 2. The financial statements
  do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 12, to the financial statements, errors
  resulting in an understatement of previously reported net losses as of June
  30, 2004, were discovered by the Company during October 2005. Accordingly, an
  adjustment has been made to the accompanying financial statements as of June
  30, 2004 to correct the error.

Williams & Webster, P.S. 
  Certified Public Accountants 
  Spokane, Washington

October 15, 2004, except for Note 12, which is dated November
  10, 2005.

F-3

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
  Garuda Capital Corp.

We have audited the accompanying consolidated balance sheet of
  Garuda Capital Corp. as of June 30, 2003 and the statements of operations, changes
  in stockholders' equity and cash flows for the year then ended. These consolidated
  financial statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these consolidated financial statements
  based on our audit.

We conducted our audit in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management as well as evaluating
  the overall balance sheet presentation. We believe that our audit provide a
  reasonable basis for our opinion.

In our opinion, these consolidated financial statements present
  fairly, in all material respects, the financial position of Garuda Capital Corp.
  as of June 30, 2003, and the results of its operations and cash flows for the
  year then ended in conformity with accounting principles generally accepted
  in the United States of America.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 1 to
  the financial statements, the Company has suffered recurring losses from operations
  and has a large deficit that raise substantial doubt about its ability to continue
  as a going concern. Management’s plans in this regard to these matters
  are also described in Note 1. These consolidated financial statements do not
  include any adjustments that might result from the outcome of this uncertainty.

As discussed in Notes 2 and 6 to the financial statements, the
  Companys 2003 impairment of goodwill previously reported as $661,524 should
  have been $766,496. This discovery was made subsequent to the issuance of the
  financial statements. The financial statements have been restated to reflect
  this correction.

/s/ SPICER JEFFRIES LLP

Greenwood Village, Colorado
  September 29, 2003, except for Notes 2 and 6, as to which the date is October
  4, 2005

F-4

---

|GARUDA CAPITAL CORPORATION       
|---------------------------------
|CONSOLIDATED BALANCE
      SHEETS

|                                                          |   | June 30,   |   |   | June 30,   |  
|--------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                          |   | 2004       |   |   | 2003       |  
|ASSETS                                                    |   |            |   |   |            |  
|CURRENT ASSETS                                            |   |            |   |   |            |  
|Accounts receivable                                       | $ | 126,970    |   | $ | 100,439    |  
|Marketable Securities                                     |   | 168,655    |   |   |            |  
|Prepaid expenses                                          |   | 15,346     |   |   | 25,817     |  
|Inventory                                                 |   | 272,191    |   |   | 293,222    |  
|TOTAL CURRENT ASSETS                                      |   | 583,162    |   |   | 419,478    |  
|                                                          |   |            |   |   |            |  
|PROPERTY AND EQUIPMENT                                    |   |            |   |   |            |  
|Equipment, net
      of depreciation                      |   | 240,178    |   |   | 266,200    |  
|TOTAL PROPERTY AND EQUIPMENT                              |   | 240,178    |   |   | 266,200    |  
|                                                          |   |            |   |   |            |  
|OTHER ASSETS                                              |   |            |   |   |            |  
|Patents and trademarks,
      net of amortization         |   | 13,671     |   |   | 16,222     |  
|Available for sale
      securities                       |   |            |   |   | 94,644     |  
|TOTAL OTHER ASSETS                                        |   | 13,671     |   |   | 110,866    |  
|                                                          |   |            |   |   |            |  
|TOTAL ASSETS                                              | $ | 837,011    |   | $ | 796,544    |  
|                                                          |   |            |   |   |            |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)            |   |            |   |   |            |  
|CURRENT LIABILITIES                                       |   |            |   |   |            |  
|Bank indebtedness                                         | $ | 206,653    |   | $ | 263,479    |  
|Accounts payable
      and accrued expenses               |   | 413,316    |   |   | 352,325    |  
|Bank Loan                                                 |   | 128,600    |   |   |            |  
|Notes Payable 
      related party                       |   | 1,074,184  |   |   | 335,455    |  
|Notes payable                                             |   | 122,058    |   |   | 169,400    |  
|Capital lease obligation
      - current portion          |   | 2,287      |   |   | 2,938      |  
|TOTAL CURRENT LIABILITIES                                 |   | 1,947,098  |   |   | 1,123,597  |  
|                                                          |   |            |   |   |            |  
|LONG TERM LIABILITIES                                     |   |            |   |   |            |  
|Government Loan                                           |   | 12,212     |   |   | -          |  
|Capital lease obligation                                  |   | 2,758      |   |   | 4,463      |  
|TOTAL LONG TERM LIABILITIES                               |   | 14,970     |   |   | 4,463      |  
|                                                          |   |            |   |   |            |  
|COMMITMENTS AND CONTINGENCIES                             |   | -          |   |   | -          |  
|                                                          |   |            |   |   |            |  
|STOCKHOLDERS' EQUITY (DEFICIT)                            |   |            |   |   |            |  
|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, 6,373,575 and 6,299,575 shares issued         |   |            |   |   |            |  
|and outstanding, respectively                             |   | 6,374      |   |   | 6,300      |  
|Additional paid-in
      capital                          |   | 2,444,715  |   |   | 2,437,389  |  
|Accumulated deficit                                       |   | (2,728,160 | ) |   | (2,728,160 | )
|Current period
      income (loss)                        |   | 844,595    |   |   |            |  
|Other comprehensive
      loss                            |   | (3,391     | ) |   | (47,045    | )
|TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                      |   | (1,125,057 | ) |   | (331,516   | )
|                                                          |   |            |   |   |            |  
|TOTAL LIABILITIES AND                                     |   |            |   |   |            |  
|STOCKHOLDERS' EQUITY
      (DEFICIT)                      | $ | 837,011    |   | $ | 796,544    |  

F-5

---

|GARUDA CAPITAL CORPORATION                                        
|------------------------------------------------------------------
|CONSOLIDATED STATEMENTS
      OF OPERATIONS AND COMPREHENSIVE LOSS

|                                                              |   | Year Ended |   |   | Year Ended |  
|------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                              |   | June 30,   |   |   | June 30,   |  
|                                                              |   | 2004       |   |   | 2003       |  
|                                                              |   |            |   |   |            |  
|REVENUES                                                      | $ | 1,236,079  |   | $ | 2,065,888  |  
|                                                              |   |            |   |   |            |  
|COST OF SALES                                                 |   | 1,053,724  |   |   | 1,569,092  |  
|                                                              |   |            |   |   |            |  
|GROSS PROFIT                                                  |   | 182,355    |   |   | 496,796    |  
|                                                              |   |            |   |   |            |  
|OPERATING EXPENSES                                            |   |            |   |   |            |  
|General and administrative                                    |   | 573,281    |   |   | 912,947    |  
|Depreciation                                                  |   | 7,603      |   |   | 57,309     |  
|Advertising and promotion                                     |   | 84,676     |   |   | 310,827    |  
|Equipment and leases                                          |   | 146,812    |   |   | -          |  
|Total Operating
      Expenses                                |   | 812,372    |   |   | 1,281,083  |  
|                                                              |   |            |   |   |            |  
|LOSS FROM OPERATIONS                                          |   | (630,017   | ) |   | (784,287   | )
|                                                              |   |            |   |   |            |  
|OTHER INCOME (EXPENSE)                                        |   |            |   |   |            |  
|Impairment of goodwill                                        |   | -          |   |   | (766,496   | )
|Foreign currency transaction loss                             |   | (76,744    | ) |   | -          |  
|Gain on sale of asset                                         |   | -          |   |   | 9,813      |  
|Gain (loss) on marketable securities                          |   | (14,821    | ) |   | 65,884     |  
|Interest expense                                              |   | (123,013   | ) |   | -          |  
|Total Other Income
      (Expense)                            |   | (214,758   | ) |   | (690,799   | )
|                                                              |   |            |   |   |            |  
|LOSS BEFORE TAXES                                             |   | (844,595   | ) |   | (1,475,086 | )
|                                                              |   |            |   |   |            |  
|INCOME TAXES                                                  |   | -          |   |   | -          |  
|                                                              |   |            |   |   |            |  
|NET LOSS                                                      |   | (844,595   | ) |   | (1,475,086 | )
|                                                              |   |            |   |   |            |  
|OTHER COMPREHENSIVE INCOME (LOSS)                             |   |            |   |   |            |  
|Gain (loss) on foreign
      currency translation             |   | (8,116     | ) |   | 4,725      |  
|Unrealized gain (loss) on available
      for sale securities |   | 51,770     |   |   | (51,770    | )
|Total
      Other Comprehensive Income (Loss)                 |   | 43,654     |   |   | (47,045    | )
|                                                              |   |            |   |   |            |  
|COMPREHENSIVE NET LOSS                                        | $ | (800,941   | ) | $ | (1,522,131 | )
|                                                              |   |            |   |   |            |  
|NET LOSS PER COMMON SHARE,                                    |   |            |   |   |            |  
|BASIC AND DILUTED                                             | $ | (0.13      | ) | $ | (0.23      | )
|                                                              |   |            |   |   |            |  
|WEIGHTED AVERAGE NUMBER                                       |   |            |   |   |            |  
|OF COMMON SHARES OUTSTANDING,                                 |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|BASIC AND DILUTED                                             |   | 6,355,076  |   |   | 6,299,575  |  

F-6

---

|GARUDA CAPITAL CORPORATION                                    
|--------------------------------------------------------------
|CONSOLIDATED STATEMENT
      OF STOCKHOLDERS' EQUITY (DEFICIT)

|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   | Accumulated       |   |   |                  |  
|------------------------------------------- | ---------------------- |  | - | ----------- |  | - | --------------- |  | - | ----------------- | - | - | ----------------- | - | - | ---------------- | -
|                                            |                        |  |   |             |  |   | Additional      |  |   |                   |   |   | Other             |   |   | Total            |  
|                                            | **Common
      Stock** |  |   | **Paid-in** |  |   | **Accumulated** |  |   | **Comprehensive** |   |   | **Stockholders'** |  
|                                            | Shares                 |  |   | **Amount**  |  |   | Capital         |  |   | Deficit           |   |   | **Income**        |   |   | Equity (Deficit) |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Balance, June 30, 2002                      | 6,049,575              |  | $ | 6,050       |  | $ | 2,359,801       |  | $ | (1,253,074        | ) | $ | -                 |   | $ | 1,112,777        |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Shares issued for debt
      at             |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|$0.37 per share                             | 40,000                 |  |   | 40          |  |   | 14,798          |  |   | -                 |   |   | -                 |   |   | 14,838           |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Shares issued for services at               |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|$0.30
      per share                       | 25,000                 |  |   | 25          |  |   | 7,475           |  |   | -                 |   |   | -                 |   |   | 7,500            |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Shares issued for compensation
      at     |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|$0.30 per share                             | 185,000                |  |   | 185         |  |   | 55,315          |  |   | -                 |   |   | -                 |   |   | 55,500           |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Gain/ loss on foreign currency              |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|translation                                 | -                      |  |   | -           |  |   | -               |  |   | -                 |   |   | 4,725             |   |   | 4,725            |  
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Unrealized loss on available
      for      |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|sale securities                             | -                      |  |   | -           |  |   | -               |  |   | -                 |   |   | (51,770           | ) |   | (51,770          | )
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|Net loss for the year ended,                |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|June
      30, 2003                         | -                      |  |   | -           |  |   | -               |  |   | (1,475,086        | ) |   | -                 |   |   | (1,475,086       | )
|                                            |                        |  |   |             |  |   |                 |  |   |                   |   |   |                   |   |   |                  |  
|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            | ) | $ | (1,125,058       | )

F-7

---

|GARUDA CAPITAL CORPORATION                 
|-------------------------------------------
|CONSOLIDATED STATEMENTS
      OF CASH FLOWS

|                                                                     |   | Year Ended |   |   | Year Ended |  
|-------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                     |   | June 30,   |   |   | June 30,   |  
|                                                                     |   | 2004       |   |   | 2003       |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                |   |            |   |   |            |  
|Net income (loss)                                                    | $ | (844,595   | ) | $ | (1,475,086 | )
|Adjustments to reconcile net loss to
      net cash                  |   |            |   |   |            |  
|Provided
      (used) by operating activities:                       |   |            |   |   |            |  
|Depreciation                                                         |   | 48,402     |   |   | 57,309     |  
|Common
      stock issued for services                               |   | 7,400      |   |   | 63,000     |  
|Impairment of goodwill                                               |   | -          |   |   | 766,496    |  
|(Gain)
      Loss from sale of marketable securities                 |   | 14,821     |   |   | (65,884    | )
|Changes in assets and liabilities:                                   |   |            |   |   |            |  
|Accounts
      receivable                                            |   | (26,531    | ) |   | 110,395    |  
|Prepaid expense                                                      |   | 10,471     |   |   | (5,294     | )
|Inventory                                                            |   | 21,031     |   |   | 72,767     |  
|Unearned revenue                                                     |   | -          |   |   | (35,297    | )
|Accounts payable
      and accrued expense                           |   | 112,328    |   |   | 3,600      |  
|Net cash provided (used) by operating activities                     |   | (656,673   | ) |   | (507,994   | )
|                                                                     |   |            |   |   |            |  
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:                         |   |            |   |   |            |  
|Purchase of equipment                                                |   | (19,830    | ) |   | (33,064    | )
|Loss on sale of equipment                                            |   | -          |   |   | (9,813     | )
|Purchase of Investments                                              |   | (168,655   | ) |   |            |  
|                                                                     |   |            |   |   |            |  
|Proceeds from sale of
      investments                              |   | 114,371    |   |   | 123,656    |  
|Net cash provided
      (used) by investing activities               |   | 74,114     |   |   | 80,779     |  
|                                                                     |   |            |   |   |            |  
|CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:                         |   |            |   |   |            |  
|Proceeds from subscription
      receivable                          |   | -          |   |   | 100,000    |  
|Decrease in Bank indebtedness                                        |   | (56,826    | ) |   | 252,855    |  
|Decrease in capital
      lease obligations                          |   | (2,358     | ) |   |            |  
|Increase in Notes Payable                                            |   | 34,269     |   |   |            |  
|Increase (decrease)
      in bank loan                               |   | (40,800)   |   |   | 65,951     |  
|Proceeds from shareholder loan                                       |   | 838,730    |   |   | -          |  
|Net cash
      provided (used) by financing activities               |   | 773,015    |   |   | 418,806    |  
|                                                                     |   |            |   |   |            |  
|Net increase (decrease)
      in cash and cash equivalents           |   | (42,228    | ) |   | (8,409     | )
|                                                                     |   |            |   |   |            |  
|Other comprehensive
      gain (loss) - foreign currency translation |   | 42,228     |   |   | 8,409      |  
|                                                                     |   |            |   |   | -          |  
|Cash at beginning of period                                          |   | -          |   |   | -          |  
|                                                                     |   |            |   |   |            |  
|Cash at end of period                                                | $ | -          |   | $ | -          |  
|                                                                     |   |            |   |   |            |  
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                  |   |            |   |   |            |  
|Income taxes paid                                                    | $ | -          |   | $ | -          |  
|Interest paid                                                        | $ | -          |   | $ | -          |  
|                                                                     |   |            |   |   |            |  
|NON-CASH FINANCING AND INVESTING ACTIVITIES:                         |   |            |   |   |            |  
|                                                                     |   |            |   |   |            |  
|Common stock issued
      for settlement of a liability              | $ | -          |   | $ | 14,838     |  
|Common stock issued for services                                     | $ | 7,400      |   | $ | 63,000     |  
|Impairment of
      goodwill                                         | $ | -          |   | $ | 766,496    |  

F-8

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Garuda Capital Corporation (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 Corporation.

In April 2002, Garuda acquired Hagensborg Foods Ltd., a manufacturer
  and marketer of fine chocolates and other gourmet foods and its subsidiary Hagensborg
  Seafoods Ltd. and Natural Program Inc., a manufacturer and distributor of nutraceuticals.
  The Company, through these two wholly owned subsidiaries, sells and processes
  specialty food products and herbal medication to wholesale and retail customers
  in North America. The Company also has two inactive subsidiaries, Garuda Ventures
  Canada Inc. and Garuda Gold Corp.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented
  to assist in understanding the financial statements. The financial statements
  and notes are representations of the Company's management, which is responsible
  for their integrity and objectivity. These accounting policies conform to accounting
  principles generally accepted in the U.S. and have been consistently applied
  in the preparation of the financial statements.

Accounting MethodsThe Company's financial statements are prepared using the accrual basis
  of accounting in accordance with accounting principles generally accepted in
  the United States of America.

Recent Accounting PronouncementsIn May 2003, the Financial Accounting Standards Board issued Statement of
  Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments
  with Characteristics of Both Liabilities and Equity" (hereinafter "SFAS No.
  150"). SFAS No. 150 establishes standards for classifying and measuring certain
  financial instruments with characteristics of both liabilities and equity and
  requires that those instruments be classified as liabilities in statements of
  financial position. Previously, many of those instruments were classified as
  equity. SFAS No. 150 is effective for financial instruments entered into or
  modified after May 31, 2003 and otherwise is effective at the beginning of the
  first interim period beginning after June 15, 2003. The Company has determined
  that there was no impact to its financial statements from the adoption of this
  statement.In April 2003, the Financial Accounting Standards Board issued Statement
  of Financial Accounting Standards No. 149, "Amendment of Statement 133 on Derivative
  Instruments and Hedging Activities" (hereinafter "SFAS No. 149"). SFAS No. 149
  amends and clarifies the accounting for derivative instruments, including certain
  derivative instruments embedded in other contracts, and for hedging activities
  under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
  This statement is effective for contracts entered into or modified after June
  30, 2003 and for hedging relationships designated after June 30, 2003. The adoption
  of SFAS No. 149 is not expected to have a material impact on the financial position
  or results of operations of the Company.

F-9

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)In December 2002, the Financial Accounting Standards Board issued Statement
  of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation
  - Transition and Disclosure" (hereinafter "SFAS No. 148"). SFAS No. 148 amends
  SFAS No. 123, "Accounting for Stock-Based Compensation" (hereinafter "SFAS No.
  123") to provide alternative methods of transition for a voluntary change to
  the fair value based method of accounting for stock-based employee compensation.
  In addition, the statement amends the disclosure requirements of SFAS No. 123
  to require prominent disclosure in both annual and interim financial statements
  about the method of accounting for stock-based employee compensation and the
  effect of the method used on reported results. The provisions of the statement
  are effective for financial statements for fiscal years ending after December
  15, 2002. As the Company accounts for stock-based compensation using the intrinsic
  value method prescribed in APB No. 25, "Accounting for Stock Issued to Employees,"
  the adoption of SFAS No. 148 has no material impact on the Company's financial
  condition or results of operations.

Accounts ReceivableThe 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 trade receivables.

Advertising ExpensesAdvertising 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's advertising
  expenses were $84,676 and $310,827, for the years ended June 30, 2004 and 2003,
  respectively.

Bad DebtsThe Company estimates bad debts utilizing the allowance method, based
  upon past experience and current market conditions. At June 30, 2004 and 2003,
  the allowance for doubtful accounts was $9,300, and $9,000, respectively.

Comprehensive IncomeEffective 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.

Cost of SalesCost 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.

F-10

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and Cash EquivalentsFor purposes of the statements of cash flows, the Company considers
  all highly liquid investments (or short-term debt) with original maturities
  of three months or less to be cash equivalents.

Derivative InstrumentsThe Financial Accounting Standards Board issued Statement of Financial
  Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
  Activities" (hereinafter "SFAS No. 133"), as amended by SFAS No. 137, "Accounting
  for Derivative Instruments and Hedging Activities - Deferral of the Effective
  Date of FASB No. 133", and SFAS No. 138, "Accounting for Certain Derivative
  Instruments and Certain Hedging Activities", and SFAS No. 149, "Amendment of
  Statement 133 on Derivative Instruments and Hedging Activities". These statements
  establish accounting and reporting standards for derivative instruments, including
  certain derivative instruments embedded in other contracts, and for hedging
  activities. They require that an entity recognize all derivatives as either
  assets or liabilities in the balance sheet and measure those instruments at
  fair value.

If certain conditions are met, a derivative may be specifically
  designated as a hedge, the objective of which is to match the timing of gain
  or loss recognition on the hedging derivative with the recognition of (i) the
  changes in the fair value of the hedged asset or liability that are attributable
  to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction.
  For a derivative not designated as a hedging instrument, the gain or loss is
  recognized in income in the period of change.

Historically, the Company has not entered into derivatives contracts
  to hedge existing risks or for speculative purposes.

At June 30, 2004 and 2003, the Company has not engaged in any
  transactions that would be considered derivative instruments or hedging activities.

Earnings Per ShareOn 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, 2004 and 2003, they were not included
  in the calculation of earnings per share because they would have been considered
  anti-dilutive.

Fair Value of Financial InstrumentsThe Company's financial instruments as defined by Statement of Financial
  Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
  include accounts receivable, deposits and prepaid expenses, investments, accounts
  payable, accrued liabilities and short-term borrowings. All instruments are
  accounted for on a historical cost basis, which, due to the short maturity of
  these financial instruments, approximates fair value at June 30, 2004 and 2003.

F-11

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation Gains/LossesThe Company has adopted Financial Accounting Standard No. 52. Monetary
  assets and liabilities denominated in foreign currencies are translated into
  United States dollars at rates of exchange in effect at the balance sheet date.
  Gains or losses are included in income for the year, except gains or losses
  relating to long-term debt which are deferred and amortized over the remaining
  term of the debt. Non-monetary assets, liabilities and items recorded in income
  arising from transactions denominated in foreign currencies are translated at
  rates of exchange in effect at the date of the transaction. The Companyメs
  functional currency is the Canadian dollar.

Going Concern 
  As shown in the accompanying financial statements, the Company has incurred
  an accumulated deficit of $3,572,755 through June 30, 2004. The Company has
  negative working capital and limited cash revenues. The Company is currently
  putting sales strategies in place which will, if successful, mitigate these
  factors which raise substantial doubt about the Company's ability to continue
  as a going concern. The financial statements do not include any adjustments
  relating to the recoverability and classification of recorded assets, or the
  amounts and classification of liabilities that might be necessary in the event
  the Company cannot continue in existence.

GoodwillGoodwill represents the excess of the purchase price and related direct
  costs over the fair value of net assets acquired as of the date of the acquisition.
  Under Statement of Financial Accounting Standard No. 142, management reviews,
  on an ongoing basis, the recorded valuation of goodwill, including any events
  and circumstances which may have impaired its fair value. If impairment exists,
  the amount is written off, rather than being amortized as previous standards
  required. The amount of goodwill impairment, if any, is determined by assessing
  recoverability based on projected undiscounted cash flows from operations. Impairments
  are recognized in operating results when a permanent diminution in value occurs.
  For the year ended June 30, 2003, the Company impaired 100% of its recorded
  goodwill for a loss of $766,496.

Investment in SecuritiesPursuant to Statement of Financial Accounting Standards No. 115, the
  Company's investments in securities are classified as either trading, held to
  maturity, or available for sale. At June 30, 2004, the Company owned marketable
  securities classified as available for sale, valued at $168,655.During the year
  ended June 30, 2003, the Company also owned securities classified as available
  for sale valued at $94,644. The Company disposed of these securities in the
  year ended June 30, 2004 at a loss of $14,821.

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.

F-12

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

InventoryInventories are stated at the lower of average cost or market. The cost
  of finished goods includes the cost of raw material, direct and indirect labor,
  and other indirect manufacturing costs. The Company has recorded an allowance
  of $25,000 for inventory obsolescence.

The components of inventory at June 30, 2004 and 2003 are as
  follows:

|                   |   | 2004    |  |   | 2003    | 
|------------------ | - | ------- |  | - | ------- | 
|                   |   |         |  |   |         | 
|Packaging supplies | $ | 173,251 |  | $ | 170,495 | 
|Finished goods     |   | 57,291  |  |   | 74,906  | 
|Raw materials      |   | 36,547  |  |   | 43,580  | 
|Other supplies     |   | 5,102   |  |   | 4,241   | 
|                   | $ | 272,191 |  | $ | 293,222 | 

LeasesLeases 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.

Future minimum payments and the obligations due under the capital
  leases are as follows:

|                     |   | 2004   |   |   | 2003   |  
|-------------------- | - | ------ | - | - | ------ | -
|2004                 | $ | -      |   | $ | 5,164  |  
|2005                 |   | 2,287  |   |   | 2,128  |  
|2006                 |   | 2,758  |   |   | -      |  
|                     |   | 5,045  |   |   | 7,292  |  
|Less current portion |   | (2,287 | ) |   | (2,938 | )
|                     | $ | 2,758  |   | $ | 4,463  |  

Future minimum payments and the obligations due under the operating
  leases are as follows:

|     |   | 2004   |  |   | 2003 | 
|---- | - | ------ |  | - | ---- | 
|2004 | $ | 22,500 |  | $ | -    | 
|2005 |   | 22,708 |  |   | -    | 
|2006 |   | 15,416 |  |   | -    | 
|     | $ | 60,624 |  | $ | -    | 

Rent expense for the years ended June 30, 2004 and 2003 was $151,167
  and $139,765, respectively.

Principles of Consolidation

The consolidated financial statements include the accounts of
  the Company and its subsidiaries, after elimination of the intercompany accounts
  and transactions. Subsidiaries of the Company are listed in Note 1.

F-13

---

|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and EquipmentProperty and equipment are stated at cost. Depreciation is provided
  using the straight-line method over the estimated useful lives of the assets.
  The useful lives of property, plant and equipment for purposes of computing
  depreciation are five to forty years. The following is a summary of property,
  equipment, and accumulated depreciation:

|                              |   | June 30, |   |   | June 30, |  
|----------------------------- | - | -------- | - | - | -------- | -
|                              |   | 2004     |   |   | 2003     |  
|Manufacturing equipment       | $ | 405,820  |   | $ | 400,848  |  
|Manufacturing tools           |   | 45,784   |   |   | 41,741   |  
|Furniture and fixtures        |   | 45,242   |   |   | 44,449   |  
|Leasehold improvements        |   | 91,033   |   |   | 91,033   |  
|Computers                     |   | 76,659   |   |   | 76,202   |  
|Total assets                  |   | 664,538  |   |   | 654,273  |  
|Less accumulated depreciation |   | (424,360 | ) |   | (388,073 | )
|Total                         | $ | 240,178  |   | $ | 266,200  |  

Depreciation and amortization expense for the year ended June
  30, 2004 and 2003 were $48,402 and $57,309, respectively. The Company evaluates
  the recoverability of property and equipment when events and circumstances indicate
  that such assets might be impaired. Maintenance and repairs are expensed as
  incurred. Replacements and betterments are capitalized. The cost and related
  reserves of assets sold or retired are removed from the accounts, and any resulting
  gain or loss is reflected in results of operations.

Provision for TaxesIncome 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.

In the years ended June 30, 2004 and 2003, the Company had a
  Canadian net operating loss carryforward of approximately $2,735,000and $1,935,000,
  respectively, and a United States net operating loss carryforward of $630,017
  and $784,287, respectively. The net operating loss carryforwards for income
  tax purposes were multiplied by an expected US federal tax rate of 34%. As management
  of the Company cannot determine that it is more likely than not that the Company
  will realize the benefit of the net deferred tax asset, a valuation allowance
  equal to the net deferred tax asset has been established at June 30, 2004 and
  2003.

F-14

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Provision for Taxes (continued)The significant components of the deferred tax asset at June 30, 2004
  and 2003 were as follows:

|                                       |   | June 30,   |   |   | June 30, |  
|-------------------------------------- | - | ---------- | - | - | -------- | -
|                                       |   | 2004       |   |   | 2003     |  
|                                       |   |            |   |   |          |  
|Net operating loss carryforward        | $ | 630,017    |   | $ | 784,287  |  
|                                       |   |            |   |   |          |  
|Deferred tax asset                     | $ | 1,163,000  |   | $ | 919,000  |  
|Deferred tax asset valuation allowance | $ | (1,163,000 | ) | $ | (919,000 | )

At June 30, 2004 and 2003, the Company had net operating loss
  carryforwards of approximately $630,000 and $784,287, respectively, which expire
  in the years 2021 through 2023. The change in the allowance account from June
  30, 2004 to 2003 was $244,000, which was due to operating losses and foreign
  currency transactions.

ReclassificationCertain 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.

Revenue RecognitionThe Company ships its products by common carrier and also sells products
  from its wholesale establishment. 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, services have been rendered, the seller's
  price to the buyer is determinable, and collectibility is reasonably assured.

Stock Based CompensationThe 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.

Use of EstimatesThe process of preparing financial statements in conformity with accounting
  principles generally accepted in the United States of America requires the use
  of estimates and assumptions regarding certain types of assets, liabilities,
  revenues, and expenses. Such estimates primarily relate to

F-15

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

unsettled transactions and events as of the date of the financial
  statements. Accordingly, upon settlement, actual results may differ from estimated
  amounts.

Reclassifications and Restatement of Financial Statements 
  In connection with the audit of 2004 financial statements, the Company identified
  errors in amounts previously reported in its financial statements for the year
  ended December 31, 2003. The Company made an error in recording the acquisition
  of assets from a related party (see Note 6). Equipment in the amount of $104,972
  was purchased and recorded as property and equipment when it should have been
  recorded as goodwill as the equipment was sold to offset debt owed by the related
  party. The goodwill was then determined impaired and written-off. The Company
  therefore decided it was appropriate to restate its financial information for
  the year ended December 31, 2003.

The following table sets forth the impact of its restatement
  on certain amounts previously reported in the Consolidated Balance Sheet at
  December 31, 2003 and Consolidated Statements of Operations for the year ended
  December 31, 2003:

|                                  |  | 2003 As    |   |  | 2003 As        |  
|--------------------------------- |  | ---------- | - |  | -------------- | -
|                                  |  | Reported   |   |  | Restated       |  
|                                  |  |            |   |  |                |  
|Balance Sheet                     |  |            |   |  |                |  
|Property and equipment,
      net |  | 387,394    |   |  | 282,422        |  
|Total assets                      |  | 901,516    |   |  | 796,544        |  
|Deficit                           |  | (2,670,233 | ) |  | **(2,775,205** | )
|Total shareholders deficit       |  | (226,544   | ) |  | (331,516       | )
|                                  |  |            |   |  |                |  
|Statement of Operations           |  |            |   |  |                |  
|Impairment of goodwill            |  | 661,524    |   |  | 766,496        |  
|Loss before other income          |  | (1,445,811 | ) |  | (1,550,783     | )

NOTE 3  STOCK OPTIONS AND WARRANTS

On October 10, 2002, the Companys board of directors approved
  the 2002 Non-Qualified Incentive Stock Option Plan. This plan allows the Company
  to distribute up to 2,000,000 shares of the common stock to officers, directors,
  employees and consultants through the authorization of the Companys board
  of directors.

The following is a summary of stock option activity:

|                             |  | Number of |  |   | Weighted | 
|---------------------------- |  | --------- |  | - | -------- | 
|                             |  | Shares    |  |   | Average  | 
|                             |  | Under     |  |   | Exercise | 
|                             |  | Options   |  |   | Price    | 
|Outstanding July 1, 2002     |  | -         |  | $ | 0.00     | 
|Granted                      |  | 675,000   |  |   | 0.15     | 
|Exercised or expired         |  | -         |  |   | -        | 
|Balance, June 30,
      2003 |  | 675,000   |  |   | 0.15     | 

F-16

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

|Granted, exercised or expired          |   | (275,000 | ) |   | -    | 
|-------------------------------------- | - | -------- | - | - | ---- | 
|Outstanding and exercisable,           |   |          |   |   |      | 
|June 30, 2004                          |   | 400,000  |   | $ | 0.15 | 
|                                       |   |          |   |   |      | 
|Weighted average fair value of options |   |          |   |   |      | 
|granted during the year ended June     |   |          |   |   |      | 
|30, 2004                               | $ | 0.00     |   |   |      | 

At June 30, 2004, 1,600,000 share options were available for
  future grant under the plan.

The Company applies APB Opinion No. 25 in accounting for options
  and, accordingly, recognized no compensation cost for its stock options in the
  years ended June 30, 2004 and 2003. 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 at the grant date, as well as
  the related disclosures required by SFAS 148:

|                              |   | Year Ended    |   |   | Year Ended    |  
|----------------------------- | - | ------------- | - | - | ------------- | -
|                              |   | June 30, 2004 |   |   | June 30, 2003 |  
|Net loss as reported          | $ | (800,941      | ) | $ | (1,475,086    | )
|Adjustment required by        |   |               |   |   |               |  
|SFAS 148                      |   | -             |   |   | (150,403      | )
|                              |   |               |   |   |               |  
|Pro forma net loss            | $ | (800,941      | ) | $ | (1,625,489    | )
|                              |   |               |   |   |               |  
|Pro forma net loss per share, |   |               |   |   |               |  
|basic and diluted             | $ | (0.13         | ) | $ | (0.26         | )

F-17

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 3 - STOCK OPTIONS AND WARRANTS (continued)

In accordance with Statement on Financial Accounting Standard
  No. 148, the fair value of the options granted was estimated using the Black-Scholes
  Option Price Calculation. The following assumptions were made to value the stock
  options:

|Risk-free Interest Rate | 1.74%  
|----------------------- | -------
|Expected Life           | 5 years
|Expected Volatility     | 230%   

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.

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.

As at June 30, 2004 there are 4,302,000 warrants outstanding
  that have not been exercised. Any value associated with these warrants is included
  in the original share price and included in the additional paid-in capital.

All options issued have been approved by the Company's board
  of directors but have not been approved by the Company's shareholders.

NOTE 4 - COMMON STOCK

During the year ended June 30, 2004, the Company issued 74,000
  shares of common stock at $0.10 per share to consultants as compensation for
  services rendered.

During the year ended June 30, 2003, the Company issued 210,000
  shares of common stock valued at $63,000 to employees and consultants of the
  Company for services rendered. In addition, the Company issued 40,000 share
  of common stock valued at $14,838 to prior employees of the Company for amounts
  due to them.

NOTE 5 - RELATED PARTY TRANSACTIONS

The Company is indebted to certain shareholders as follows:

F-18

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 5 - RELATED PARTY TRANSACTIONS (continued)

|                                                  |   | 2004    |  |   | 2003    | 
|------------------------------------------------- | - | ------- |  | - | ------- | 
|Shareholder note bearing interest at 30%,         |   |         |  |   |         | 
|due August 1,
      2003, unsecured               | $ | -       |  | $ | 56,000  | 
|Shareholder notes bearing interest at 10%,        |   |         |  |   |         | 
|due September
      1, 2003, secured by all       |   |         |  |   |         | 
|personal property of HFL and
      GGC in default |   | 50,000  |  |   | 100,000 | 
|Shareholder note bearing interest at 10%,         |   |         |  |   |         | 
|due November 1, 2003, secured
      by all        |   |         |  |   |         | 
|personal property
      of HFL and GGC in default |   | 60,000  |  |   | 175,000 | 
|Shareholder note bearing interest at 15%,         |   |         |  |   |         | 
|unspecified due
      date, unsecured             |   | 215,032 |  |   | -       | 
|                                                  |   | 510,000 |  |   | 331,000 | 
|Advances from shareholders, unsecured, interest   |   |         |  |   |         | 
|bearing at 10% with no specific
      due dates   |   | 558,438 |  |   | 4,455   | 

|                                                               |   |           |  |   |         | 
|-------------------------------------------------------------- | - | --------- |  | - | ------- | 
|Shareholder note bearing interest at 12%, due on July 10, 2004 |   | 22,059    |  |   |         | 
|                                                               |   |           |  |   |         | 
|Advances from shareholder, unsecured,                          |   |           |  |   |         | 
|Non-interest bearing with no specific
      due date           |   | 168,655   |  |   |         | 
|                                                               | $ | 1,074,184 |  | $ | 335,455 | 

During the year the Company had the following related party transactions:

| | (a) | During the years ended June 30, 2004 and 2003, the
        Company had product sales of $0 and $456,841, respectively, in the normal
        course of business from HFC.                       
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                 
| | (b) | For the years ended June 30, 2004 and 2003, the Company
        incurred consulting and management fees of $72,000 and $148,500, respectively,
        to officers and directors of the Company.
| |     |                                                                                                                                                                                                 
| | (c) | During the year ended June 30, 2003, the Company
        paid a $18,000 fee to the President of the Company for his personal guarantee
        of a loan received by the Company (see Note 7).  
| |     |                                                                                                                                                                                                 
| | (d) | In the years ended June 30, 2004 and 2003, accounts
        payable includes $0 and $11,408 due to officers and directors of the Company
        for consulting and management fees.            
| |     |                                                                                                                                                                                                 
| | (e) | During the year ended June 30, 2003, Company incurred
        accounting fees of $2,493 to a company owned by a director of the Company.                                                        
| |     |                                                                                                                                                                                                 
| | (f) | During the years ended June 30, 2004 and 2003, the
        Company incurred marketing charges of $0 and $110,223, respectively, to
        HFC.                                                 
| |     |                                                                                                                                                                                                 
| | (g) | During the year ended June 30, 2003, the Company
        incurred bad debts of $167,672 from HFC.                                                                                               

F-19

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 6  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.

Technology licenses and patents 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.

The following is a summary of patents and accumulated amortization:

|                              |   | June 30, |   |   | June 30, |  
|----------------------------- | - | -------- | - | - | -------- | -
|                              |   | 2004     |   |   | 2003     |  
|Patents and trademarks        | $ | 33,023   |   | $ | 31,424   |  
|Less accumulated amortization |   | (19,406  | ) |   | (15,202  | )
|                              | $ | 13,671   |   | $ | 16,222   |  

Amortization expense was $4,204 and $4,507 in the years ended
  June 30, 2004 and 2003, respectively.

NOTE 7 - BANK INDEBTEDNESS AND BANK LOANS

Demand LoanThe Company has a demand loan from a bank in the amount of $200,000,
  which is personally guaranteed by a shareholder of the Company. Outstanding
  advances bear interest at the bank?s base rate plus 2%, payable on demand by
  the bank. The loan is secured by all present and future personal property acquired
  by Hagensborg Foods Ltd.

NOTE 7 - BANK INDEBTEDNESS AND BANK LOANS

Demand Loan (continued)Assuming demand is not made, the annual loan principal payments due
  on June 30 of each year are as follows:

|2005 |  | $ 40,800        | 
|---- |  | --------------- | 
|2006 |  | 40,800          | 
|2007 |  | 47,000          | 
|     |  | $
      128,600 | 

OverdraftThe Company has a bank overdraft facility in the amount of $250,000.
  Outstanding advances bear interest at the bank?s base rate plus 2%. At June
  30, 2004 and 2003, the Company had a net outstanding balance of $206,653 and
  $263,479, respectively, on this overdraft facility. The facility is personally
  guaranteed by a shareholder of the Company and all present and future personal
  property acquired by Hagensborg Foods Ltd.

F-20

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 8 - 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.

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

|                   |   | Year Ended June 30, 2004 |  
|------------------ | - | ------------------------ | -
|                   |   |                          |  
|                   |   | Hagensborg               |  
|                   |   |                          |  
|                   |   | Foods Ltd.               |  
|                   |   |                          |  
|Gross profit       | $ | 71,817                   |  
|Other income(loss) | $ | -                        |  
|Net income (loss)  | $ | (464,845                 | )
|Segment assets     | $ | 1,088,622                |  
|                   |   |                          |  
|                   |   |                          |  
|                   |   | Year Ended June 30, 2003 |  
|                   |   |                          |  
|Gross profit       | $ | 244,982                  |  
|Other income(loss) | $ | 11,961                   |  
|Net income (loss)  | $ | (483,179                 | )
|Segment assets     | $ | 1,284,057                |  

NOTE 9 - MAJOR CUSTOMERS

During the years ended June 30, 2004 and 2003, the Company recognized
  revenue from various unrelated entities which individually comprised greater
  that 10% of total revenues. Revenue recognized form such entities was 31% and
  18% in 2004 and 27% and 23% in 2003.

Major customers accounted for 49% and 0% of total receivables
  at June 30, 2004 and 34% and 18% at June 30, 2003.

F-21

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|GARUDA CAPITAL CORPORATION                    
|----------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|June 30, 2004                                 

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Pursuant to the Company's loan agreement (see Note 7), the Company
  ratio of current assets to current liabilities cannot exceed 1.2 to 1.0. At
  June 30, 2004 and 2003, the Company was in violation of this condition. As of
  the date of this report, the bank has not taken an action related to this violation.

NOTE 11 - LAWSUIT COMMENCED AGAINST HAGENSBORG

On May 26th, 2004 a statement of claim was issued
  the Companys wholly-owned subsidiary Hagensborg Food Ltd. (Hagensborg)
  in the Ontario Superior Court of Justice bearing Court File No. 04-CV-269496CM1
  by Kraft Foods Schweiz AG and Kraft Canada Inc. (collectively Kraft).
  The claim alleges trade-mark infringement of various registered trade-marks
  and distinguishing guises associated with Krafts Toblerone chocolate bar.
  Kraft seeks declaratory and injunctive relief, damages, or alternatively, an
  accounting of all revenues received and profits made by Hagensborg on account
  of the alleged infringement, as well as punitive and exemplary damages. Hagensborg
  filed a statement of defence and counterclaim on July 27, 2004, denying the
  allegations in the statement of claim and asserting, amongst other things that
  Krafts trademark registrations are invalid. In its counterclaim, Hagensborg
  seeks declaratory relief, injunctive relief and damages or an accounting of
  profits. On August 11, 2004, Kraft delivered its Reply and Defence to Counterclaim.
  On August 23, 2004, Hagensborg delivered its Reply to the Defence to Counterclaim
  and the pleadings are now closed. There has been no documentary or oral discovery
  to date.

Pursuant to the Rules of Civil Procedure in the Ontario
  courts, the parties are required to attend a mediation session. At present,
  the parties trying to determine a mutually agreeable date for the mediation.

Given the stage of the action, it is too early to evaluate the
  likelihood of success or of an unfavorable outcome and the possible range of
  loss.

NOTE 12 - CORRECTION OF AN ERROR

The accompanying financial statements for June 30, 2004 have
  been restated to correct an error in the accounting for the sale of a fixed
  asset in a prior year, the accrual of interest on notes payable  related
  parties and the purchase of available-for-sale securities during the year ending
  June 30, 2004, with a note payable. The effect of these restatements was to
  increase total assets by $63.683, total liabilities by $219,992, and to increase
  the net loss and accumulated deficit at June 30, 2004 by $51,337 (0.01 per share).
  See Notes 2 and 5.

F-22

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-26-

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.

GARUDA CAPITAL CORP.

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

Pursuant to the requirements of the Securities Exchange Act
of 1934, 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/ Robin
      Relph |  | President, Chief Executive            | November 10, 2005
|Robin Relph           |  | Officer, Chief Financial Officer,     |                  
|                      |  | Chief Accounting Officer and Director |                  
|                      |  |                                       |                  
|                      |  |                                       |                  
|/s/ Jurgen
      Wolf |  | Director                              | November 10, 2005
|Jurgen Wolf           |  |                                       |                  

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