-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TUWEs8noBba/YfpY/ALKcLfoGO0o7XsT8+Ep3VDnH3JlbJnvRO26b6TPm/fW9LU9 njOyPx4nEt11n6I27A3jXg== 0001016843-00-000398.txt : 20000511 0001016843-00-000398.hdr.sgml : 20000511 ACCESSION NUMBER: 0001016843-00-000398 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AQUA CLARA BOTTLING & DISTRIBUTION INC CENTRAL INDEX KEY: 0001020477 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 333-44315 FILM NUMBER: 624998 BUSINESS ADDRESS: STREET 1: 1315 CLEVELAND STREET CITY: CLEARWATER STATE: FL ZIP: 33755 BUSINESS PHONE: 8135487105 MAIL ADDRESS: STREET 1: 1315 CLEVELAND STREET CITY: CLEARWATER STATE: FL ZIP: 33755 10QSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 1, 2000 OR [ ] TRANSITION REPORT PURSUAN TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 AQUA CLARA BOTTLING AND DISTRIBUTION, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) COLORADO 84-1352529 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 1315 Cleveland Street, Clearwater, Florida 33755-5102 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (727) 446-2999 Company's internet address: www.aquaclara.com Indicate by check mark whether the Registrant (1) has filed all report required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of January 3, 2000, the registrant had 42,495,405 shares of common stock outstanding at no par value. Part I Financial Information (Item 1) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Consolidated Balance Sheets (unaudited)
ASSETS January 1, 2000 April 3, 1999 --------------- ------------- Current Assets Cash and cash equivalents $ 20,217 $ 9,960 Accounts receivable less allowance for doubtful accounts 1,938 48,085 Inventories 101,118 62,729 Prepaid expenses 418,467 Deposits and other current assets 4,806 26,586 ----------- ----------- Total Current Assets 546,546 147,360 Property, plant and equipment net of accumulated 1,857,814 1,898,287 depreciation Other assets 1,506 ----------- ----------- Total Assets $ 2,404,360 $ 2,047,153 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 89,776 $ 426,483 Accrued Expenses 22,760 248,348 Notes Payable and accrued interest 122,410 370,066 Deferred Revenue 3,000 Current portion of long term debt 5,372 18,149 Current obligation under capital lease 3,702 3,526 Other current liabilities 26,692 ----------- ----------- Total Current Liabilities 247,020 1,093,264 Series B Debenture 375,000 Long Term debt less current maturities 141,511 261,976 Obligation under capital lease less current portion 9,266 12,065 ----------- ----------- Total Long Term Liabilities 525,777 274,041 Total Liabilities 772,797 1,367,305 STOCKHOLDERS' EQUITY Preferred Stock, no par value, 5,000,000 shares authorized, 469,233 1,250,284 629 shares issued and outstanding Common Stock, no par value, 50,000,000 shares authorized; 7,061,684 3,670,870 42,495,405 shares issued and outstanding Additional Paid In Capital 1,833,391 1,417,391 Accumulated Deficit (7,732,745) (5,658,697) ----------- ----------- Total Stockholders' Equity 1,631,563 679,848 ----------- ----------- Total Liabilities and Stockholders' Equity $ 2,404,360 $ 2,047,153 =========== ===========
Financial Information (Item 3) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Consolidated Statements of Operations (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED Jan 1,2000 Jan 2, 1999 Jan 1,2000 Jan 2, 1999 ---------- ----------- ---------- ----------- Sales $ 29,755 $ 21,669 $ 207,663 $ 116,491 Cost of Sales 87,457 8,158 187,660 111,814 ----------- ----------- ----------- ----------- Gross profit / (loss) (57,702) 13,511 20,003 4,677 General and administrative, and sales expenses 567,543 809,883 1,814,523 1,331,178 ----------- ----------- ----------- ----------- Operating (loss) (625,245) (796,372) (1,794,520) (1,326,501) Other income and (expenses) Interest expense (151,335) (11,663) (159,400) (20,956) Interest and other income 1,070 1,070 (6,889) Gain (loss) on sales of assets (10,415) Other expenses (110,525) (110,782) ----------- ----------- ----------- ----------- Net other income (expense) (260,790) (11,663) (279,527) (27,845) Net loss (886,035) (808,035) (2,074,047) (1,354,346) Dividends on preferred stock 142,565 253,238 Net loss applicable to common stock (1,028,600) (808,035) (2,327,285) (1,354,346) Basic loss per share (.03) (.10) (.08) (.19) Weighted average common shares outstanding 39,461,824 8,279,493 29,100,937 6,980,024
Part 1 Financial Information (Item 4) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Consolidated Statements of Stockholders' Equity (unaudited)
ADDITIONAL PREFERRED STOCK COMMON STOCK PAID IN ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ------ --------- ---------- --------- ---------- ----------- Balances - April 3, 1999 1,676 1,250,284 16,160,523 3,670,870 1,417,391 (5,658,697) Conversion of preferred stock (1,047) (781,051) 11,855,760 781,052 Conversion of debentures 7,931,397 775,000 Common stock issuance for services 6,547,725 1,834,762 Stock options issued 416,000 Net loss for period (2,074,047) Balances - January 1, 2000 629 469,233 42,495,405 7,061,684 1,833,391 (7,732,744)
Part I Financial Information (Item 5) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Consolidated Statements of Cash Flows (unaudited)
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED JANUARY 1, 2000 JANUARY 2, 1999 ------------------------- ------------------------- OPERATING ACTIVITIES Net income / (loss) (2,074,047) $(1,354,346) Provided by Operations: Depreciation 83,510 18,794 Stock based compensation 416,000 (Gain) Loss on disposal of assets 10,415 Change in Assets and Liabilities (Increase) Decrease in accounts receivable 46,147 (32,802) (Increase) Decrease in inventories (38,389) (22,002) (Increase) Decrease in prepaid expenses (418,467) 397,948 (Increase) Decrease other assets 23,286 Increase (Decrease) in accounts payable (336,707) 262,068 Increase (Decrease) in accrued expenses (225,588) 261,120 Increase (Decrease) in other liabilities (39,293) 56,447 Increase (Decrease) shareholder accrual (247,656) ----------- ----------- Total Adjustments (726,742) 941,573 Net cash provided (used) by operations (2,800,789) (412,773) INVESTING ACTIVITIES Acquisition of equipment (40,472) (580,176) Proceeds from sales of equipment Increase (Decrease) in other assets (1,506) ----------- ----------- Net cash provided (Used) in investing activities (40,472) (581,682) FINANCING ACTIVITIES Proceeds from Stock Issues 1,834,762 250,000 Proceeds from Debt 1,225,000 11,616 Payments on Debt (208,244) 10,949 ----------- ----------- Net cash provided (Used) in financing activities 2,851,518 272,565 Net Increase (Decrease) in Cash and Cash Equivalents 10,257 (721,890) Cash and Cash Equivalents at Beginning of Year 9,960 723,618 Cash and Cash Equivalents at End of Year $ 20,217 $ 1,728 =========== ===========
During the year ended April 3, 1999, the Company converted 824 shares of preferred stock into 9,388,901 shares of common stock. During the year ended April 4, 1999, the Company incurred a capital lease obligation of $18,900 when it acquired new equipment. For the nine months ended January 1, 2000, the Company converted 1,047 shares of preferred stock into 11,855,760 shares of common stock. For the nine months ended January 1, 2000, the Company converted 775 shares of the convertible debenture into 7,931,397 shares of common stock. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Notes To The Unaudited Consolidated Financial Statements Interim Consolidated Financial Statements The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for reporting on Form 10-QSB. Accordingly, certain principles for complete financial statement are not applied within these statements. They have been prepared on a consistent basis including normal recurring adjustments and should be read in conjunction with the consolidated financial statements and related notes contained in the Annual Report for the fiscal year ended April 3, 1999. The results of operations for the nine month period ended January 1, 2000 are not necessarily indicative of those to be expected for the entire year. Organization, Background, Sale of Assets, and Going Concern On August 17, 1995, Pocotopaug Investment, Inc. (hereinafter referred to as "Pocotopaug") was incorporated under the laws of Florida for the purpose of raising capital to fund the development of products for subsequent entry into the bottled water market. On July 29, 1996, Aqua Clara Bottling & Distribution, Inc. (hereinafter referred to as "Aqua Clara" or the "Company") was incorporated under the laws of Colorado for the purpose of raising capital to fund the development of products for subsequent entry into the bottled water industry. In December 1996, the stockholders of Pocotopaug gained control of Aqua Clara and Aqua Clara acquired Pocotopaug in a business combination accounted for as a reorganization of Pocotopaug. Pocotopaug became a wholly owned subsidiary of Aqua Clara through the exchange of 1,690,122 shares of Aqua Clara's common stock for all 1,000,000 shares of the outstanding stock of Pocotopaug. The accompanying consolidated financial statements are based on the assumption that the Companies were combined for all periods presented. During the year ended April 3, 1999 the Company began producing 20oz bottles of oxygenated water. The Company will need to generate additional sales or obtain additional financing to fund its operations. These factors, combined with the fact that the Company has not generated any positive cash flows from operations, 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 amounts and classifications of liabilities that might be necessary in the event the Company cannot continue in existence. In March 1999 the Company entered into an agreement with a major distributor in the northeast United States for distribution of the 20oz. bottles of oxygenated water. The terms and conditions of the Company's agreement with this distributor have been revised to reflect new marketing approaches of both companies. Effective January 1, 2000 the distributor will no longer have exclusive sales rights to the following states: PA, MD, DE, VA, NJ, NY, CT, VT, MA, RI, ME, NH, and the District of Columbia, however the distributor will continue to purchase from the Company and distribute the Aqua Clara brand throughout the U. S. as they deem appropriate. Subsequent to April 3, 1999 the Company raised $1,150,000 through the issuance of a Secured 8% Series B Convertible Debenture. The proceeds from the debenture were used to retire the building's mortgage and the 90-day note to stockholders. The remainder of the proceeds were used to fund operations. Significant Accounting Policies The consolidated financial statements include the accounts of Aqua Clara Bottling & Distribution, Inc. and its wholly owned subsidiary, Pocotopaug Investments, Inc. All significant intercompany accounts and transactions have been eliminated. The financial statements for previous years reflect the Company in a developmental stage. The financial statements for the current period no longer present the Company in this developmental stage. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. During the quarter ended January 1, 2000, the Company implemented a change in the closing dates of its accounting periods whereby its fiscal quarter terms will vary in length in two four week terms followed by one five week term, commonly known as "4-4-5." The Company adopted this policy to facilitate a higher degree of consistency with its operational processes. The projected year-end of April 1, 2000 remains unchanged. The results of this impact are discussed later. Cash equivalents consist of all highly liquid debt instruments purchased with a maturity of three months or less. Inventories are stated at the lower of cost (first-in, first-out) or market. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that included the enactment date. The Company charges to retained earnings and credits its additional paid-in capital for the amortization of the intrinsic value of the conversion feature of its preferred stock in accordance with the statements issued by the Securities and Exchange Commission. Shares of common stock issued for other than cash have been assigned amounts equivalent to the estimated fair value of the service received until the time the Company's stock began trading. At that time, the Company valued the transactions based on quoted prices. The Company records shares as outstanding at the time the Company becomes contractually obligated to issue shares. Property, plant, and equipment are recorded at cost. Depreciation is calculated by the straight-line methods over the estimated useful lives of the assets. Property under capital leases is amortized over the shorter of the lease terms or the estimated economic life of the property. Fair value estimates discussed in these notes are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain financial instruments on the balance sheet approximate their fair values. These financial instruments include cash, investment securities, accounts payable, and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short-term in nature or they are receivable or payable on demand. The fair value of the Company's long-term debt is estimated based upon the quoted market prices for the same or similar issues or the current rates offered to the Company for debt of the same remaining maturities. Basic loss per share is based on the weighted average number of common shares outstanding during each period. The Company implemented SFAS No. 128 "Earnings Per Share" during the year ended April 4, 1998. The Company applies APB Opinion 25 in accounting for its stock options. Because the exercise price of these options is below the fair value of the underlying stock, there is an additional compensation cost to the Company included in these financial statements. In computing dilutive earnings per share, the following were excluded because their effects were antidilutive. Year ended April 3, 1999 - Preferred shares convertible into common stock and 2,173,382 contingently issuable shares. The Company has reviewed its long-lived assets for impairment and has determined that no adjustments to the carrying value of long-lived assets is required. Prepaid expenses consist primarily of stock issued in lieu of cash compensation for the performance of professional services including marketing and advertising of the Company, public relations, and as compensation to members of the board of directors. Due to stockholders consists of notes payable and due upon demand. Interest on these notes accrues at rates between 5% to 8%. Long-term debt at January 1, 2000 consists of: Note payable: Secured 8% Series B Convertible Debenture was raised in June 1999. The note will be converted into common stock.
Series B Convertible Debentures $ 375,000 Note payable: interest at 10%, secured by building 135,797 Installment note payable; interest at 10.5%; payments $461 per month including interest; collateralized by a vehicle 11,086 -------------- Long-term debt $ 521,883 Less current installments 5,372 -------------- Long-term debt, less current installments $ 516,511 ==============
The components of deferred tax assets consist of the following at April 3, 1999: Deferred tax assets: Start up costs $ 530,000 Net operating loss carryforwards 785,000 Gross deferred tax assets 1,315,000 Valuation allowance 1,315,000 --------- Total deferred tax assets $ - Commitments and Contingencies Both of the Company's preferred stock and debentures offer conversion options at the election of the shareholder or debenture holder. At January 1, 2000, the Company had received conversion requests from both its Preferred A shareholders and Series B Debenture holders in excess of the available shares required to execute these conversions. The Company is therefore unable to fulfill the requests because it has exhausted all authorized common shares. Likewise, the Company has received notices of the exercise of options that the Company is unable to fulfill for the same reasons. A special meeting of the shareholders of record on January 18, 2000 has been called for on March 7, 2000 to consider proposals to raise the Company's authorized capitalization from 50,000,000 to 100,000,000 common shares, and to amend the articles of incorporation to modify the indemnification of directors, officers, and others. The Board of Directors has recommended approval of both proposals. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Management's Discussion and Analysis Of Financial Condition and Results of Operations RESULTS OF OPERATIONS The Company's sales commenced in April 1997, with the introduction of its 5-gallon bottled water service. In the year ended April 4, 1998, the Company had $135,710 in sales from this business. Revenues were comprised of cooler rentals and water sales, which terminated in March, 1998. With the proceeds from its offering of Series A Preferred Stock, the Company entered the PET bottled water market. The sales for the fiscal year ending April 3, 1999, are $184,952. The lower than expected sales amount is the result of the Company's inability to find major retailers and distributors to purchase large quantities of product. The Company's sales comparisons to previous years will not be an indicator of any future growth patterns because the Company was still in the development stage of launching its new product. As discussed earlier, the Company instituted a change in its monthly accounting periods with no corresponding change in the projected year end date. However, as a result of this change there were certain impacts on the quarterly financial statements presented in this report which do not lend themselves to comparisons with previous periods. A revision of estimated costs of both general and administrative expenses and operational costs were adopted and may disproportionately burden the current quarter because of the cumulative effect of this change. Prospectively, the Company does not expect to incur similar adjustments. The gross loss for the quarterly period ended January 1, 2000 was $57,702 with general and administrative, and selling expenses period totaling $489,543. The gross profit for the nine month period ended January 1, 2000 was $20,003, with corresponding general and administrative, and selling expenses of $1,398,523. Non-recurring expenses and credits for reductions in expenses for the fiscal year ended April 1, 2000 include $200,000 for generation of funding for the Series B Debenture; the mortgage payoff of $264,097; settlements of certain claims against the Company of $118,102; registration and interest penalties associated with the Series B Debenture in the amount of $104,463; and the write off of certain notes payable recorded by the Company of $108,818 for which the Company has determined it is not liable. The Company wrote off an asset of $9,195 associated with the sale of its five-gallon water business. In 1999 the Company entered into employment agreements with certain officers of the Company. Under the provisions of these agreements, the officers will receive stock options in addition to salary. The exercise price of each option is $0.01 and vest at a rate of 20% per year over a five year term starting on August 31, 1999 - the execution date of the agreement. The number of shares available at the exercise price increments based upon targeted ownership percentages in relation to the number of the Company's outstanding shares. The combined target ownership for the officers is 30%. The price of the option adjusts inversely and proportionally to any changes in the outstanding shares resulting in a constant and unchanging total purchase price for all options purchased by the officers. An amount has been accrued which represents noncash expenses for the first year vesting ($312,000) plus the pro rata portion of the second year's liability ($104,000). Based upon the exercise price and other factors used to determine the fair value of the stock options as provided for under SFAS 123, the Company has determined that the intrinsic value of the stock options under APB Opinion 25 closely approximates the fair value under SFAS 123. Accordingly, the pro forma effects of the application of SFAS 123 are not presented. Additionally, the Company will be liable to compensate these officers for any tax liability resulting from the exercise of any options. An accrual for this provision is not included in the accompanying financial statements. The Company intends to increase spending over the next six months in advertising, marketing and distribution prior to the receipt of significant revenues. There can be no assurance as to when, if ever, the Company will realize significant operating revenues or attain profitability. LIQUIDITY AND CAPITAL RESOURCES In the current fiscal year, the Company raised $1,150,000 through the issuance of a Class B Preferred Debenture. The proceeds of this raise were used to retire the first mortgage on the plant and real estate and the demand note described in the above paragraph. The remainder of the funds raise will be used to finance continued operation of the Company. The Company established two revolving lines of credit, each in the amount of $150,000, one from a shareholder and the other from an officer of the Company. The Company also received a $75,000 demand note from the same corporate officer. The Company has no plans or arrangements in place with respect to additional capital sources at this time. The Company has no significant lines of credit available to it at this time. There are no assurances that additional capital will be available to the Company when or if required. Although the Company expects to have continued losses in the 4th quarter of fiscal year 2000, management believes that the losses will continue to decrease and a break-even point could be reached in the near term. Inflation has not had a significant impact on the Company's results of operations. BUSINESS AND PLAN OF OPERATION GENERAL Prior information pertaining to Aqua Clara Bottling & Distribution, Inc. can be found in the Annual Report for the fiscal year ended April 3, 1999. During the year ended April 4, 1998, the Company began its five-gallon water business. In February, 1998, the Company sold this portion of the business. The assets disposed of consist of certain receivables, a vehicle, and various equipment used in the Company's bottled water business. The total sales price was approximately $352,394, which included the assumption of installment notes payable of approximately $149,782 by the acquiring company. During the year ending April 3, 1999, the Company began producing 20-oz. bottles of oxygenated water packaged in a PET container. The Company's oxygen enriched water contains approximately 24 parts per million of oxygen. Normal tap water contains approximately 3 parts per million of dissolved oxygen. As such, the company's oxygen enriched bottled water contains approximately 800% more oxygen. INDUSTRY OVERVIEW Oxygen is currently in the public view as an additive to a range of consumer products. There are currently oxygen bars in Toronto, New York City and the Los Angeles area. Oxygen in beverages has received recent widespread media coverage through television, radio and print media. PRODUCTS Oxygen Enriched Bottled Water. The Company's primary focus will be the production/distribution of oxygen enriched bottled water in small package, PET, containers ranging in size from .5 liter to 1.5 liters. The points of purchase will include super markets, convenience stores, mass merchants, health food stores and spas and hotel resorts. The Company's oxygen enriched bottled water is made by combining super purified water and oxygen. Through water purification processing the source water will be reduced to 1-2 parts per million of total dissolved solids and then oxygen is introduced through a unique, proprietary process. As a point of reference, the Food and Drug Administration's (FDA) definition of distilled water is 5 parts per million or less of total dissolved solids. As such, the base water is of distilled quality, although the distillation process is not used. The Company's market research, undertaken by a non-affiliated research firm, has indicated that no specific medical claims have to be made to consumers with regard to its product. According to this market research the public will readily accept the necessity and benefits of both highly purified water and oxygen. Oxygen is literally the breath of life; oxygen is a natural energizer and body purifier. Oxygen is odorless and tasteless, as well as non-carbonated. As such, the Company's water tastes like a fine premium bottled water - light and crisp. Oxygen does not produce the unhealthy "jolt" associated with caffeine products. Rather, it is believed to create a feeling of physical well being and mental clarity. There is one significant competitor, Clearly Canadian, producing oxygen enriched bottled water. The Company also knows of eight other entities that are attempting to produce and distribute oxygen enriched bottled water. Except for Clearly Canadian, none of the well-established traditional bottled water producers has an oxygen enriched bottled water product. There can be no assurance that the Company's products will achieve consumer acceptance. Consumer preferences are inherently subjective and subject to change. Initially, the Company will not carbonate or flavor its water. After the successful introduction of the Company's oxygen enriched bottled water product, the introduction of a new product with natural flavoring or carbonation will be considered. Likewise, the Company will consider the infusion of beneficial herbs. The Company will also consider the production of super oxygen enriched sports drinks, providing even higher levels of oxygen, to be marketed at a higher price. The Company utilizes a distinctive bottle and label for its water products. STRATEGY The company's objective is to build product markets in Florida and then expand nationally. To that end, the Company has appointed Crossmark one of the nations largest consumer packaged goods sales and marketing companies to represent their product throughout the state of Florida. Crossmark currently impacts three billion retail transactions and generates $12 billion dollars in annual sales. They currently have over 6,300 sales, merchandising and marketing professionals throughout the United States focused on building the brands they represent. Crossmark will be marketing and distributing Aqua Clara Oxygen Enriched Purified premium bottled water to some of the largest retail food stores, wholesale suppliers, and drugstore chains throughout Florida including Publix, Winn Dixie, Albertson's, Kash N' Karry, Associated Grocers, Fleming, Eckerd's and Walgreens. A sample of some of the brand names Crossmark currently represents include Nabisco Foods, Pillsbury Company, Reynolds Metals, Inc., L'Oreal, Royal Oak Charcoal, and now Aqua Clara. Crossmark offers Aqua Clara the opportunity to build strong brand recognition through Crossmark's superior market presentation and support. Through their category management plans, local event marketing plans and effective merchandising plans, Aqua Clara expects to achieve stronger retail distribution that will lead to building their brand and category. On December 13, 1999 the Company announced the launch of Aqua Clara/FLA USA branded bottled water in a first-of-its-kind marketing partnership. The Company, VISIT FLORIDA and Florida Media Inc. have teamed up to jointly and exclusively market a new bottled water brand. Aqua Clara - FLAUSA. This brand will be primarily sold in Florida and will add the hospitality market as a new sales target for the Company. VISIT FLORIDA, the state of Florida's official tourism marketing organization, has endorsed the product with its FLA USA logo which is displayed on the front of every Aqua Clara/FLA USA water bottle. The Company has already begun its distribution into the Florida market with the annual Florida Strawberry Festival as the event's official water provider. The Festival, is a Florida is one of the largest festivals in the South and will be held March 2 - 12,2000. PRODUCTION The Company currently operates out of a facility with approximately 14,000 sq. ft. under roof with an exposed four-bay loading dock sitting on 2.1 acres in Clearwater, Florida. Approximately 2,400 sq. ft. is utilized for office facilities, with the balance predominantly used for bottling and warehouse operations. The remodeling of the building was completed in fiscal year 1999 for approximately $600,000. The Company finished installation and startup of a medium-sized bottling facility during the fiscal year ended April 3, 1999, at a total cost of approximately $750,000. The bottling line is rated at 160 bottles/min., or, practically, 1,080 24-bottle cases of 20-oz. bottled water each shift. Upon delivery to the Company's facilities, the source water is passed through a number of filtration, ion exchange, and reverse osmosis processes by which it is reduced to a very pure 1 - 2 parts per million of dissolved solids. Water is oxygenated using the purest oxygen commercially available in a proprietary process. The water is then treated with ultraviolet light, which effectively kills bacteria and other micro- organisms before delivery to the bottling area where the various products are filled and capped. The filling room is supplied with pressurized air from high-capacity, high-efficiency particulate filters, resulting in a clean filling and capping environment. The manufacturing process is designed to be highly automated. Bottles are mechanically de-palletized, cleaned, filled and capped. The filled bottles are automatically coded, labeled, tamper-banded (if applicable), and packed in cases. After palletizing and stretch-wrapping, the product is either loaded directly onto a truck for immediate shipment or is stored in the warehouse facility for future shipment. The Company maintains exacting internal quality control standards. Each shift's production is tested in Company laboratory facilities according to FDA and IBWA standards, and random samples are submitted regularly to an independent laboratory for confirmation testing WATER SOURCES Under FDA guidelines, bottled water must contain fewer than 500 parts per million (ppm) of total dissolved solids. Varying amounts and types of dissolved solids provide different tastes to water. The Company uses FDA and International Bottled Water Association approved water sources. COMPETITION The bottled water industry is highly competitive. According to "Beverage Marketing", there are approximately 350 bottled water filling locations in the United States with sales increasingly concentrated among the larger firms. According to "Beverage Marketing", the ten largest bottled water companies accounted for approximately 58.4% of wholesale dollar sales in 1996. Nearly all of the Company's competitors are more experienced, have greater financial and management resources and have more established proprietary trademarks and distribution networks than the Company. On a national basis, the Company competes with bottled water companies such as The Perrier Group of America, Inc. (which includes Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring Water, Zephyrhills Natural Spring Water, Deer Park, Great Bear and Ice Mountain) and Great Brands of Europe (which includes Evian Natural Spring Water and Dannon Natural Spring Water). The Company also competes with numerous regional bottled water companies located in the United States and Canada. Aqua Clara has chosen to compete by focusing on a higher quality oxygen enriched purified drinking water, innovative packaging and customer service. SEASONALITY The market for bottled water is seasonal, with approximately 70% of sales taking place in the seven months of April through October. As a result of seasonality, the Company's staffing and working capital requirements will vary during the year. TRADEMARKS The Company has registrations in the U.S. Patent and Trademark Office for the trademarks that it uses, including Aqua Clara. The Company believes that its common law and registered trademarks have significant value and goodwill and that some of these trademarks are instrumental in its ability to create demand for and market its products. There can be no assurance that the Company's common law or registered trademarks do not or will not violate the proprietary rights of others, that they would be upheld if challenged or that the Company would, in such an event, not be prevented from using the trademarks, any of which could have an adverse effect on the Company. REGULATION The Company's operations are subject to numerous federal, state and local laws and regulations relating to its bottling operations, including the identity, quality, packaging and labeling of its bottled water. The Company's bottled water must satisfy FDA standards, which may be periodically revised, for chemical and biological purity. The Company's bottling operations must meet FDA "good manufacturing practices" and the labels affixed to the Company's products are subject to FDA restrictions on health and nutritional claims. In addition, bottled water must originate from an "approved source" in accordance with federal and state standards. State health and environmental agencies, such as the Florida Department of Agriculture and Consumer Services also regulate water quality and the manufacturing practices of producers. The Company's products satisfy all federal and state requirements and the Company is proceeding with applications to obtain distribution permits in all 50 states. These laws and regulations are subject to change, however, and there can be no assurance that additional or more stringent requirements will not be imposed on the Company's operations in the future. Although the Company believes that its water supply, products and bottling facilities are and will be in substantial compliance with all applicable governmental regulations, failure to comply with such laws and regulations could have a material adverse effect on the Company. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 1 Legal Proceedings LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings except as set forth below. Civil litigation in the Circuit Court of the Sixth Judicial Circuit, in and for Pinellas County, Florida, was filed by John S. McAvoy, Plaintiff vs. Aqua Clara Bottling & Distribution, Inc., Olde Monmouth Stock Transfers, a New Jersey Corporation, John. C. Plunkett, Rand L. Gray and Robert Guthrie, Defendant, Case No. 99-004394-CI-011. The complaint is multi-part claiming Declaratory Relief; Injunctive Relief; Breach of Fiduciary and Statutory Duties; Breach of Contract Unpaid Promissory Notes; Breach of Contract Unpaid Accrued Salary. The Plaintiff seeks removal of the restrictive legends on stock held and $67,973.79 in payment of Notes and Accrued Salary. The matter is pending mediation. The Company's former director and officer, Rand Gray, has asserted a claim that the Company committed to certain stock payments as compensation. The Company has denied the claim. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 2 Changes In Securities Secured 8% Series B Convertible Debenture The Company issued 43 Secured 8% Series B Convertible Debenture shares. The B Convertible Debenture is convertible at the option of the holder at any time prior to payment in full of the principal balance of the Debenture, to convert the Debenture in whole only, into fully paid and non-assessable shares of Common Stock, no par value, of the Company (the Common Stock) at a conversion price equal to 65% of the three day average closing bid price prior to the date of conversion. At the Company's option, the amount of accrued and unpaid interest due as of the Conversion Date shall not be subject to conversion but instead may be paid in cash as of the Conversion Date. If the Corporation elects to convert the amount of accrued and unpaid interest at the Conversion Date into Common Stock, the Common Stock issued to the Holder shall be valued at the Conversion Price. The number of shares of Common Stock due upon conversion shall be (i) the face amount of the Debenture divided by (ii) the applicable Conversion Price. Preferred A stock The Company's Board of Directors has authority, without action by the shareholders, to issue all or any portion of the authorized but unissued preferred stock in one or more series and to determine the voting rights, preferences as to dividends and liquidation, conversion rights, and other rights of such series. The Company considers it desirable to have preferred stock available to provide increased flexibility in structuring possible future acquisitions and financing and in meeting corporate needs which may arise. If opportunities arise that would make desirable the issuance of preferred stock through either public offering or private placements, the provisions for preferred stock in the Company's Articles of Incorporation would avoid the possible delay and expense of a shareholder's meeting, except as may be required by law or regulatory authorities. Issuance of the preferred stock could result, however, in a series of securities outstanding that will have certain preferences with respect to dividends and liquidation over the Common Stock which would result in dilution of the income per share and net book value of the Common Stock. Issuance of additional Common Stock pursuant to any conversion right, which may be attached to the terms of any series of preferred stock, may also result in dilution of the net income per share and the net book value of the Common Stock. The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. Therefore, it is not possible at this time to determine in what respect a particular series of preferred stock will be superior to the Company's Common Stock or any other series of preferred stock, which the Company may issue. The Board of Directors may issue additional preferred tock in future financing, but has no current plans to do so at this time. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 3 Defaults Upon Senior Securities (NONE) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 4 Submission of Matter to a Vote of Security Holders (NONE) Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 5 Other Information Management The following table sets forth the names, offices held with the Company, and age of its directors and executive officers as of January 13, 2000:
NAME POSITION DIRECTOR SINCE AGE - ---- -------- -------------- --- Carl Evans Director 2000 47 Robert F. Guthrie Secretary, Director 1997 65 Renato P. Mariani Director 1999 48 Emanuel J. Mersis Chairman and Chief Executive Officer 1999 55 John C. Plunkett President and Chief Operations Officer 1997 51 Michael Potapow Director 2000 56 John Thomas Director 1999 44
All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. The Company has compensated its directors, for service on the Board of Directors through the end of fiscal year 2000 by the awarding of 50,000 shares of registered common stock to each director. Any non-employee director of the Company is reimbursed for reasonable expenses incurred for attendance at meetings of the Board of Directors and any committee of the Board of Directors. The Executive Committee of the Board of Directors, to the extent permitted under Colorado law, exercises all of the power and authority of the Board of Directors in the management of the business and affairs of the Company between meetings of the Board of Directors. Each executive officer serves at the discretion of the Board of Directors. The business experience of each of the persons listed above during the past five years is as follows: Mr. Evans is Executive Vice President of Evatone, an audio CD-ROM replicating, packaging and fulfillment company. Mr. Guthrie has served as Director of the Company since May, 1997 and became the Secretary in December 1998. Mr. Guthrie is an attorney licensed to practice in Florida with affairs in Seminole, Florida. Mr. Mariani has served as Director of the Company since May, 1999. Mr. Mariani is the President of Eagle Diversified, Inc., a wholesale food, candy and tobacco company. Mr. Mersis is the Chairman, and Chief Executive Officer of the Company. Mr. Mersis has over 27 years experience as a top performing CEO and senior executive with strong domestic and international expertise in consumer packaged goods. He served Westvaco Corporation, a $3 billion dollar Fortune 500 paper, consumer packaging and chemical company since 1998. Mr. Mersis was the President and CEO of Signature Brands LLC (a joint venture of McCormick and Co., Inc. and Pioneer Products, Inc.) from 1987 to 1998. Mr. Plunkett is the President and Chief Operations Officer of the Company. Mr. Plunkett has over 20 years experience in the engineering consulting industry and 10 years experience in real estate management. Mr. Plunkett has been associated with the Company as an officer and director since its inception and became President in 1998. Mr. Plunkett is a graduate of the U.S. Naval Academy with a degree in Naval Engineering. Mr. Potapow is President and CEO of TMP Management Corporation which owns and operates a chain of McDonald's restaurants. Mr. John Thomas has served as Director of the Company since June, 1999. Mr. Thomas is the President of FloTech, Inc., a fluid controls specialty chemicals and water purification company. The Company does not have a bonus, profit sharing, or deferred compensation plan for the benefit of its employees, officers or directors. Beginning with the fiscal year ending April 1, 2000, the Company began compensating its directors. CERTAIN TRANSACTIONS On February 11, 1999, the Company received a loan from a group of the Company's shareholders who are neither officers nor directors. Under the loan terms $250,000 was made available over ninety days. The interest which accrued at a rate of 10% is payable in cash or stock. On June 25, 1999, the Company paid off the loan described above, retiring the note. Subsequent to the closing date of the financial statements, the Company established a $150,000 revolving line of credit and a $75,000 demand note with one of its officers. Both are secured by assets of the Company and accrue 8% interest. Aqua Clara Bottling & Distribution, Inc. And Subsidiary Part II Other Information Item 6 Exhibits and Reports Exhibits and Reports on Form 8-K (a) Exhibits 3.1 Articles of Incorporation (1) 3.2 Articles of Amendment for Series A Preferred Stock (1) 3.3 Bylaws (1) 4.1 Class B Debenture (7) 10.1 Amended Employment Agreement with John McAvoy (1) 10.2 Amended Employment Agreement with John C. Plunkett (2) 10.3 Amended Employment Agreement with Rand L. Gray (3) 10.4 Lead Generation/Corporate Relations Agreement dated May 24, 1999 with Corporate Relations Group, Inc. (7) 10.5 Installment secured promissory notes (1) 10.6 Modification of Installment secured promissory notes (4) 16.1 Letter from BDO Seidman (3) 21.1 Subsidiaries 23.1 Letters from Pender Newkirk & Company (5) 23.2 Letters from Tedder, James, Worden & Associates, P.A. (5) 27 Financial Data Schedules (b) Reports on Form 8-K: 5.0 Opinion Regarding Legality, dated May 13, 1999 (6) 23.0 Letter on Audited Financial Information, dated June 11, 1999 (6) (1) Incorporated by reference to the original filing of the Registration Statement on Form SB-2, File No. 333-44315 (the "Registration Statement") (2) Incorporated by reference to Amendment Number 1 of the Registration Statement (3) Incorporated by reference to Amendment Number 2 of the Registration Statement (4) Incorporated by reference to Amendment Number 4 of the Registration Statement (5) Incorporated by reference to Annual Report Form 10-KSB April 3, 1999 (6) Incorporated by reference to S-8 Filed June 11, 1999 (7) Incorporated by reference to 10QSB Filed September 24, 1999 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 15, 2000 AQUA CLARA BOTTLING & DISTRIBUTION, INC. By: /s/ EMANUEL J. MERSIS --------------------------------- Emanuel J. Mersis Chairman, Chief Executive Officer EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ------- ----------- 21.1 Subsidiaries 27 Financial Data Schedules EX-21.1 2 EXHIBIT 21.1 SUBSIDIARIES OF AQUA CLARA BOTTLING & DISTRIBUTION, INC. The following is a subsidiary of Aqua Clara Bottling & Distribution, Inc., a Colorado corporation: 1. Pocotopaug Investments, Inc., a Florida corporation, 100% owned by Aqua Clara Bottling & Distribution, Inc. EX-27 3
5 9-MOS APR-01-2000 APR-04-1999 JAN-01-2000 20,217 0 1,938 0 101,118 423,273 2,046,951 189,137 2,404,360 247,020 0 0 469,233 7,061,684 (5,899,354) 2,404,360 207,663 1,070 187,660 2,002,183 121,197 0 159,400 (2,074,047) 0 (2,074,047) 0 0 0 (2,074,047) (.08) (.08)
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