EX-99.1 2 exhibit99-1.htm INTERIM FINANCIAL STATEMENTS Filed by Automated Filing Services Inc. (604) 609-0244 - Clearly Canadian Beverage Corporation - Exhibit 99.1

 

 

 

 

 

 

Consolidated Financial Statements
(Expressed in thousands of United States dollars, except where indicated)


CLEARLY CANADIAN BEVERAGE CORPORATION


First Quarter Report for the 3 months ended March 31, 2007
(Amended as of July 25, 2007)

 

 

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditor


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except for share and per share amounts)
(Amended as of July 25, 2007)
 

    March 31, 2007     December 31, 2006  
             
    (Unaudited)     (Audited)  
             
Assets            
             
Current assets:            
       Cash and cash equivalents $  6,677   $  5,267  
       Accounts receivable (note 6)   720     634  
       Inventories (note 7)   1,370     427  
       Prepaid expenses and other current assets   697     533  
    9,464     6,861  
             
Property, plant and equipment (note 8)   1,468     1,153  
Prepaid contracts (note 15(a))   984     1,079  
Goodwill   2,066     -  
             
  $  13,982   $  9,093  
             
Liabilities and Shareholders’ Equity            
             
             
       Bank indebtedness (note 5) $  195   $  -  
       Accounts payable and accrued liabilities (note 9)   2,024     1,608  
       Capital lease obligation, current portion (note 11)   49     8  
       Short-term debt (note 10)   1,073     -  
             
    3,341     1,616  
             
Capital lease obligation, net of current portion (note 11)   165     13  
Long-term debt (note 12)   893     -  
    4,399     1,629  
Shareholders’ equity:            
       Capital stock (notes 13 and 14):            
             Authorized:            
             Unlimited common share without par value            
             Unlimited variable multiple voting shares without par value            
             2,000,000 class A preferred shares            
             2,000,000 class B preferred shaes            
             Outstanding –600,000 (2006 – 1,600,000) class B preferred shares   600     1,600  
             Issued – 19,047,545 (2006 – 13,917,153) common shares without par            
                    value            
             Outstanding – 19,010,245 (2005 – 13,879,853) common shares            
                    without par value   79,438     75,730  
             Variable multiple voting shares – 1,120,000 (2006 – 320,000)            
       Contributed surplus   9,777     8,290  
       Cumulative translation account   (996 )   (1,101 )
       Deficit   (79,236 )   (77,055 )
    9,583     7,464  
             
  $  13,982   $  9,093  
             
Going concern (note 3(a))            
Commitments and contingencies (note 15)            
Subsequent events (note 18)            
See accompanying notes to consolidated financial statements.            

Approved on behalf of the Board:

_________________________________________________    Director

_________________________________________________    Director

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditor


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Earnings
(Unaudited)
(Expressed in thousands of United States dollars, except for share and per share amounts)
 
For the three months ended March 31, 2007 and 2006
 

    (Unaudited)     (Unaudited)  
    March 31, 2007     March 31, 2006  
             
             
Sales $  1,467   $  1,702  
             
Cost of sales   1,111     1,342  
             
Gross profit   356     360  
             
Expenses:            
     Selling, general and administration expenses   1,881     1,642  
     Amortization of property, plant and equipment   6     32  
     Royalty revenue   -     (59 )
     Interest income   (63 )   -  
     Other (income) expense   (7 )   (32 )
     Financing costs   -     65  
     Interest on short-term debt   4     91  
     Interest on long-term debt   2     10  
     Interest on acquisition debt   33     -  
     Stock-based compensation (note 14)   714     869  
     Gain on sale of investments   -     (201 )
     Restructuring   -     (13 )
    2,570     2,404  
             
Loss for the period $  (2,214 ) $  (2,044 )
             
Loss per share, basic and diluted $  (0.12 ) $  (0.29 )
             
Weighted average number of shares outstanding   18,836,629     7,072,681  

See accompanying notes to consolidated financial statements.

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditor

1


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
      $     $         $         $     $     $     $     $    
                                                             
Balance, December 31, 2004 996,568     59,035     -   -     -   -     -     1,037     (1,253 )   (62,334 )   (3,515 )
                                                             
                                                             
Private placement issued January                                                            
 14, 2005 at CA$2.50 per unit prior                                                            
 to consolidation 46,500     97     -   -     -   -     -     -     -     -     97  
Class A preferred shares issued on                                                            
 conversion of loan May 5, 2005 -     -     -   1,000,000     1,000   -     -     -     -     -     1,000  
Private placement of class A                                                            
 preferred shares issued May 5,                                                            
 2005 at US$1.00 per share -     -     -   1,000,000     1,000   -     -     -     -     -     1,000  
Private placement issued May 16,                                                            
 2005 at US$1.00 per share 2,260,000     2,260     -   -     -   -     -     -     -     -     2,260  
Private placement issued May 24,                                                            
 2005 at US$1.00 per share 815,000     815     -   -     -   -     -     -     -     -     815  
Finders fees – private placement –                                                            
 May 16, 2005 and May 24, 2005                                                            
 issued at US$1.42 per share 450,000     639     -   -     -   -     -     -     -     -     639  
Share issue cost – private placement       (1,003 )   -   -     -   -     -     -     -     -     (1,003 )
Stock dividend on class A preferred                                                            
 shares issued May 24, 2005 issued                                                            
 at market US$1.50 per share 7,506     11     -   -     -   -     -     -     -     (11 )   -  
Class A preferred shares converted                                                            
   to class B preferred shares -     -     -   (2,000,000 )   (2,000 ) 2,000,000     2,000     -     -     -     -  
Stock dividend on class B preferred                                                            
   shares issued May 24, 2005                                                            
   issued at market US$1.50 per                                                            
   share 200,000     300     -   -     -   -     -     -     -     (300 )   -  
Private placement issued May 27,                                                            
   2005 at US$1.00 per share 635,953     634     -   -     -   -     -     -     -     -     634  
                                                             
Carryforward 5,411,527     62,788     -   -     -   2,000,000     2,000     1,037     (1,253 )   (62,645 )   1,927  

8


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
      $     $         $         $     $     $     $     $    
                                                             
Broughtforward 5,411,527     62,788     -   -     -   2,000,000     2,000     1,037     (1,253 )   (62,645 )   1,927  
                                                             
Shares issued on September 30,                                                            
   2005 at market US$1.17 per                                                            
   share 225,000     263     -   -     -   -     -     -     -     -     263  
Share issued on October 17, 2005 at                                                            
   market US$1.38 per share 25,000     34     -   -     -   -     -     -     -     -     34  
Option exercised at US$1.00 per                                                            
   share 105,000     105     -   -     -   -     -     -     -     -     105  
Shares issued on November 30,                                                            
   2005 at US$2.00 per share 222,825     446     -   -     -   -     -     -     -     -     446  
Shares issued on November 30,                                                            
   2005 at US$2.00 per share 75,000     150     -   -     -   -     -     -     -     -     150  
Private placement issued December                                                            
   28, 2005 at US$1.25 per share 800,000     1,000     -   -     -   -     -     35     -     -     1,035  
Share issue cost – private placement                                                            
   December 28, 2005 -     (30 )   -   -     -   -     -     -     -     -     (30 )
Share subscription receivable -     -     (198 ) -     -   -     -     -     -     -     (198 )
Fair value of stock options issued -     -     -   -     -   -     -     1,612     -     -     1,612  
Fair value of warrants issued for                                                            
   consulting services -     -     -   -     -   -     -     1,904     -     -     1,904  
Restructuring cost -     -     -   -     -   -     -     221     -     -     221  
Loss for the year -     -     -   -     -   -     -     -     -     (6,069 )   (6,069 )
Exchange difference -     -     -   -     -   -     -     -     324     -     324  
                                                             
Balance, December 31, 2005 6,864,352     64,756     (198 ) -     -   2,000,000     2,000     4,809     (929 )   (68,714 )   1,724  
                                                             
Share subscription received in                                                         198  
 January, 2006 -     -     198   -     -   -     -     -     -     -        
Shares issued for settlement of debt                                                            
 on February 27, 2006 at US$2.00                                                            
 per share 100,000     238     -   -     -   -     -     -     -     -     238  
Option exercised at US$1.00 per                                                            
 share 1,122,500     1,122     -   -     -   -     -     -     -     -     1,122  
Shares issued for settlement of                                                            
 services on March 1, 2006 at                                                            
 CA$2.30 per share 28,260     58     -   -     -   -     -     -     -     -     58  
Shares issued for settlement of debt                                                            
 on March 28, 2006 at US$2.62 per                                                            
 share 40,000     102     -   -     -   -     -     -     -     -     102  
Shares issued for settlement of                                                            
 services on March 31, 2006 at                                                            
 US$2.39 per share 2,089     5     -   -     -   -     -     -     -     -     5  
                                                             
Carryforward 8,157,201     66,281     -   -     -   2,000,000     2,000     4,809     (929 )   (68,714 )   3,447  

9


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
      $     $         $         $     $     $     $     $    
                                                             
Broughtforward 8,157,201     66,281     -   -     -   2,000,000     2,000     4,809     (929 )   (68,714 )   3,447  
                                                             
Shares issued for settlement of                                                            
 services on March 31, 2006 at                                                            
 US$2.30 per share 2,175     5     -   -     -   -     -     -     -     -     5  
Shares issued for settlement of                                                            
 services on April 12, 2006 at                                                            
 US$2.56 per share 1,954     5     -   -     -   -     -     -     -     -     5  
Shares issued for settlement of                                                            
 services on April 12, 2006 at                                                            
 US$2.56 per share 29,308     75     -   -     -   -     -     -     -     -     75  
Shares issued for settlement of                                                            
 services on April 17, 2006 at                                                            
 US$2.45 per share 20,442     50     -   -     -   -     -     -     -     -     50  
Shares issued for settlement of                                                            
 services on April 19, 2006 at                                                            
 US$2.35 per share 18,915     44     -   -     -   -     -     -     -     -     44  
Shares issued for settlement of debt                                                            
 on May 2, 2006 at US$2.62 per                                                            
 share 88,885     233     -   -     -   -     -     -     -     -     233  
Option exercised at US$1.00 per                                                            
 share 45,000     45     -   -     -   -     -     -     -     -     45  
Shares issued for settlement of                                                            
 services on May 4, 2006 at                                                            
 US$2.41 per share 8,300     20     -   -     -   -     -     -     -     -     20  
Private placement issued May 10,                                                            
 2006 at US$2.00 per share 1,032,500     2,065     -   -     -   -     -     -     -     -     2,065  
Private placement issued May 12,                                                            
 2006 at US$2.00 per share 275,000     550     -   -     -   -     -     -     -     -     550  
Private placement issued May 15,                                                            
 2006 at US$2.00 per share 5,000     10     -   -     -   -     -     -     -     -     10  
Share issue cost – private placement                                                            
 May 10, 2006 to May 15, 2006       (314 )   -   -     -   -     -     -     -     -     (314 )
Share issue cost – warrant private                                                            
 placement May 10, 2006 to May 15,                                                            
 2006 -     (186 )   -   -     -   -     -     186     -     -     -  
Shares issued for settlement of                                                            
 services on June 7, 2006 at                                                            
 US$2.05 per share 19,630     40     -   -     -   -     -     -     -     -     40  
Shares issued for settlement of                                                            
 services on June 9, 2006 at                                                            
 US$2.80 per share 4,075     11     -   -     -   -     -     -     -     -     11  
                                                             
Carryforward 9,708,385     68,934     -   -     -   2,000,000     2,000     4,995     (929 )   (68,714 )   6,286  

10


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
      $     $         $         $     $     $     $     $    
                                                             
Broughtforward 9,708,385     68,934     -   -     -   2,000,000     2,000     4,995     (929 )   (68,714 )   6,286  
                                                             
Shares issued for settlement of                                                            
 services on June 13, 2006 at                                                            
 US$2.80 per share 10,715     30     -   -     -   -     -     -     -     -     30  
Option exercised at US$1.19 per                                                            
 share 16,106     19     -   -     -   -     -     -     -     -     19  
Warrant exercised at US$1.25 per                                                            
 share 30,000     37     -   -     -   -     -     -     -     -     37  
Shares issued for services on July                                                            
 25, 2006 at US$3.29 per share 9,312     31     -   -     -   -     -     -     -     -     31  
Shares issued for settlement of                                                            
 lawsuits on July 13, 2006 at                                                            
 US$3.69 per share 24,314     89     -   -     -   -     -     -     -     -     89  
Shares issued for settlement of                                                            
 lawsuits on July 13, 2006 at                                                            
 US$2.40 per share 600,000     1,440     -   -     -   -     -     -     -     -     1,440  
Private placement issued on July 6,                                                            
 2006 to July 13, 2006 at US$2.75                                                            
 per share 1,205,000     3,314     -   -     -   -     -     -     -     -     3,314  
Share issue cost – private placement                                                            
 July 6, 2006 to July 13, 2006 -     (397 )   -   -     -   -     -     -     -     -     (397 )
Share issue cost – warrant private                                                            
 placement July 6, 2006 to July 13,                                                            
 2006 -     (162 )   -   -     -   -     -     162     -     -     -  
Shares issued for services on July                                                            
 10, 2006 at US$3.92 per share 4,197     16     -   -     -   -     -     -     -     -     16  
Option exercised at US$2.00 per                                                         150  
 share 75,000     150     -   -     -   -     -     -     -     -        
Option exercised at US$1.00 per                                                            
 share 30,000     30     -   -     -   -     -     -     -     -     30  
Option exercised at US$1.19 per                                                            
 share 16,102     19     -   -     -   -     -     -     -     -     19  
Shares issued for services on August                                                            
 16, 2006 at US$3.28 per share 4,121     13     -   -     -   -     -     -     -     -     13  
Shares issued for services on August                                                            
 1, 2006 at US$2.30 per share 140,000     322     -   -     -   -     -     -     -     -     322  
Private placement completed August                                                            
 31, 2006 at US$3.00 per share 333,334     1,000     -   -     -   -     -     -     -     -     1,000  
Share issue cost – private placement                                                            
 August 31, 2006 -     (120 )   -   -     -   -     -     -     -     -     (120 )
Share issue cost – private placement                                                            
 August 31, 2006 -     (825 )   -   -     -   -     -     825     -     -     -  
                                                             
Carryforward 12,206,586     73,940     -   -     -   2,000,000     2,000     5,982     (929 )   (68,714 )   12,279  

11


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
      $     $         $         $     $     $     $     $    
                                                             
Broughtforward 12,206,586     73,940     -   -     -   2,000,000     2,000     5,982     (929 )   (68,714 )   12,279  
                                                             
Share issued for settlement of                                                            
 services on August 1, 2006 at                                                            
 US$2.30 per share 4,395     14     -   -     -   -     -     -     -     -     14  
Cash dividend on class B preferred                                                            
 paid on October 10, 2006 -     -     -   -     -   -     -     -     -     (94 )   (94 )
Conversion of $150,000 preferred                                                            
 shares to common shares on                                                            
 November 21, 2006 615,000     150     -   -     -   (150,000 )   (150 )   -     -     -     -  
Conversion of $250,000 preferred                                                            
 shares to common shares on                                                            
 November 29, 2006 1,025,000     250     -   -     -   (250,000 )   (250 )   -     -     -     -  
Shares issued for settlement of                                                            
 lawsuits on December 11, 2006 at                                                            
 US$3.28 per share 13,477     44     -   -     -   -     -     -     -     -     44  
Shares issued for services on                                                            
 December 8, 2006 at US$2.38 per                                                            
 share 4,235     10     -   -     -   -     -     -     -     -     10  
Shares issued for services on                                                            
 December 8, 2006 at US2.66 per                                                            
 share 4,498     12     -   -     -   -     -     -     -     -     12  
Shares issued for services on                                                            
 December 8, 2006 at US$2.76 per                                                            
 share 4,162     12     -   -     -   -     -     -     -     -     12  
Option exercised at US$1.00 per                                                            
 share 2,500     3     -   -     -   -     -     -     -     -     3  
Paid-in capital – exercise of stock                                                            
 options -     1,304     -   -     -   -     -     (1,304 )   -     -     -  
Fair value of stock options issued for                                                            
 the 12 months ended December                                                            
 31, 2006 -     -     -   -     -   -     -     3,310     -     -     3,310  
Fair value of warrants issued for the                                                            
 12 months ended December 31,                                                            
 2006 -     -     -   -     -   -     -     302     -     -     302  
Loss for the 12 months ended                                                            
 December 31, 2006 -     -     -   -     -   -     -     -     -     (8,247 )   (8,247 )
Exchange difference -     (9 )   -   -     -   -     -     -     (172 )   -     (181 )
                                                             
Balance, December 31, 2006 13,879,853     75,730     -   -     -   1,600,000     1,600     8,290     (1,101 )   (77,055 )   7,464  

12


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Changes in Shareholders’ Equity, Continued
(Expressed in thousands of United States dollars, except where indicated)
As of March 31, 2007 and December 31, 2006, 2005
 

                  Class A   Class B                          
  Common shares         preferred shares   preferred shares                          
              Share                                              
              subscription                               Cumulative           Shareholders’  
  Number           receivable   Number         Number           Contributed     translation           equity  
  of shares     Amount     (payable)   of shares     Amount   of shares     Amount     surplus     account     Deficit     (deficiency)  
                                             
Broughtforward 13,879,853   $ 75,730   $ -   -   $ -   1,600,000   $ 1,600   $ 8,290   $ (1,101 ) $ (77,055 ) $ 7,464  
Option exercised at US$2.00 per                                                            
 share on January 11, 2007 36,000     72     -   -     -   -     -     -     -     -     72  
Option exercised at US$2.10 per                                                            
 share on January 23, 2007 10,000     21     -   -     -   -     -     -     -     -     21  
                                                             
Shares issued for services on Jan                                                            
 22, 2007 at US2.38 per share 3,874     9     -   -     -   -     -     -     -     -     9  
Conversion of $500,000 preferred                                                            
 shares to common shares on                                                            
 January 7, 2007 2,050,000     500     -   -     -   (500,000 )   (500 )   -     -     -     -  
Conversion of $500,000 preferred                                                            
 shares to common shares on                                                            
 January 12, 2007 2,050,000     500     -   -     -   (500,000 )   (500 )   -     -     -     -  
                                                             
Warrant exercised at US$1.25 per                                                            
 share on February 23, 2007 60,000     75     -   -     -   -     -     -     -     -     75  
                                                             
Option exercised at US$2.00 per                                                            
 share on February 25, 2007 37,500     75     -   -     -   -     -     -     -     -     75  
Shares issued for services on                                                            
 February 25, 2007 at US2.91 per                                                            
 share 4,074     12     -   -     -   -     -     -     -     -     12  
                                                             
Option exercised at US$2.00 per                                                            
 share on March 2, 2007 37,500     75     -   -     -   -     -     -     -     -     75  
Private placement issued on March                                                            
 14, 2007 to March 23, 2007 at                                                            
 US$3.00 per share 833,000     2,499     -   -     -   -     -     -     -     -     2,499  
                                                             
Shares issued for services on March                                                            
 13, 2007 at US3.00 per share 8,444     26     -   -     -   -     -     -     -     -     26  
Paid-in capital – exercise of stock                                                            
 options for the period ended March                                                            
 2007 -     137     -   -     -   -     -     (137 )   -     -     -  
                                                             
Fair value of stock options issued for                                                            
 the period ended March 31, 2007 -     -     -   -     -   -     -     1,331     -     -     1,331  
                                                             
Fair value of warrants issued for the                                                            
 period ended March 31, 2007 -     (293 )   -   -     -   -     -     293     -     -     486  
Loss for the period ended March 31,                                                            
 2007 -     -     -   -     -   -     -     -     -     (2,181 )   (2,181 )
Exchange difference -     -     -   -     -   -     -     -     105     -     105  
Balance, March 31, 2007 19,010,245     79,438     -   -     -   600,000     600     9,777     (996 )   (79,236 )   10,069  

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditor

13


CLEARLY CANADIAN BEVERAGE CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
(Expressed in thousands of United States dollars, except where indicated)
For the three months ended March 31, 2007 and 2006
 

    Unaudited     Unaudited  
    March 31,     March 31,  
    2007     2006  
             
Cash flows from operating activities:            
   Loss for the period $  (2,214 ) $  (2,044 )
   Items not involving cash (note 16(a))   1,414     855  
   Changes in non-cash working capital balances            
        related to operations (note 16(b))   (368 )   554  
    (1,168 )   (635 )
             
Cash flows from financing activities:            
   Proceeds from issuance of capital stock and            
         warrants   2,817     1,376  
   Increase (decrease) in bank indebtedness   26     (90 )
   Repayment of long-term debt   (6 )   -  
    2,837     1,286  
             
Cash flows from investing activities:            
   Cash used in acquisition of DMR Food            
         Corporation   (342 )   -  
   Proceeds from sale of long-term investment   -     230  
    (342 )   230  
             
Effect of exchange rates on cash and cash            
   equivalents   83     12  
             
Increase (decrease) in cash and cash equivalents   1,410     893  
             
Cash and cash equivalents, beginning of period   5,267     520  
             
Cash and cash equivalents, end of period $  6,677   $  1,413  
             
Interest paid $  6   $  101  
Income taxes paid $  -   $  -  

Supplementary cash flow information (note 16(C))

See accompanying notes to consolidated financial statements.

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditor

8


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

1.

Nature of operations:

     

The Company produces, distributes and markets beverage products, flavoured beverages and snack food products. The Company’s products are sold principally in the United States and Canada.

     
2.

Financial statement presentation

     

These unaudited interim financial statements have been prepared in accordance with the accounting principles generally accepted in Canada for interim financial information and follow the same accounting policies and methods of their application as the Company’s most recent annual financial statements. These interim financial statements do not include all of the disclosure included in the annual financial statements, and accordingly, they should be read in conjunction with the annual financial statements for the year ended December 31, 2006. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. The results of operations for the interim periods are not necessarily indicative of the results of operations for the entire year.

     

These interim financial statements have been prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain respects from those accounting principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles and practices generally accepted in the United States.

     

The accompanying Financial Statements for the three months ended March 31, 2007 have not been reviewed or audited by the Company’s Auditors.

     
3.

Significant accounting policies:

     
(a)

Going concern:

     

The accompanying consolidated financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going concern.

     

While these accompanying financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and discharge its liabilities in the normal course of business, certain events and conditions cast substantial doubt on this assumption. The Company had a loss of $2,214,000 for the three months ended March 31, 2007. At March 31, 2007 it has working capital of $6,123,000. Operations for the three months ended March 31, 2007 have been funded primarily from cash reserves raised by the issuance of capital stock.

     

Management has continued to take steps to try to improve the Company’s financial results and cash flows. These steps include liquidation of non-core investments and pursuing equity financing to fund working capital requirements. The Company’s ability to continue operations is contingent on its ability to obtain financing. Management believes that it will be able to secure the necessary financing; however, there is no assurance that management will be successful in achieving these objectives

9


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

3.

Significant accounting policies (continued):


 

These financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications used that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.

     
  (b)

Principles of accounting:

     
 

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP). These principles differ in certain respects from those accounting principles and practices that the Company would have followed had its consolidated financial statements been prepared in accordance with accounting principles generally accepted in the United States (US GAAP).

     
  (c)

Basis of presentation:

     
 

These consolidated financial statements include the accounts of Clearly Canadian Beverage Corporation and its wholly owned subsidiaries, Clearly Canadian Beverage (International) Corporation, CC Beverage (US) Corporation, Blue Mountain Springs Ltd. and DMR Food Corporation (o/a Sweet Selections) effective February 7, 2007.

     
 

In view of the consolidated nature of these financial statements, the term “Company”, as used herein, is sometimes used to refer to all of the consolidated companies collectively and, where the context or specific transactions require, is sometimes used to refer to certain of the consolidated companies individually.

     
  (d)

Foreign currency translation

     
 

The Company uses the United States dollar as its reporting currency while the Company’s functional or “measurement” currency is the Canadian dollar. The assets and liabilities of the Canadian operations are translated into United States dollars at the rates of exchange at the balance sheet dates, and revenue and expenses are translated at the average rates of exchange for the periods of operation. Unrealized gains and losses arising on translation are recorded as a separate component of shareholders’ equity.

     
 

Realized gains and losses on foreign currency transactions are included in the determination of loss for the period.

     
  (e)

Revenue recognition:

     
 

Revenue is recognized at the time that shipment of product to the customer is confirmed by the shipper, which is the point at which the customer takes ownership of the product, provided that collectibility is reasonably assured. Distributors are contractually obligated to the Company for complete payment of products sold to them regardless of their ability to sell to retailers. A provision for returns is recorded in the period management becomes aware that it is probable that the product may be returned. For bill and hold transactions, the Company recognizes revenue at the time production is complete and the sale is invoiced to the customer.

10


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

3.

Significant accounting policies (continued):


 

Royalty revenue is recognized as the Company is notified of the sale of the licensed product and when collectibility is reasonably assured.

     
 

Funds received in advance of revenues being recognized are recorded as customer deposits.

     
 

Effective January 1, 2006 the Company adopted EIC-156 of the Canadian Institute of Chartered Accountants concerning Accounting By A Vendor for Consideration Given to a Customer (Including a Reseller of the Vendors Products). All sales incentives to direct or indirect customers of the Company, including slotting fees, contractual marketing payments, coupons, rebates, free product and similar sales incentives are accounted for as a reduction of revenue when recognized by the Company in its Statement of Operations. Sales and selling expenses for all comparative periods presented have been reclassified to reflect such expenses in accordance with EIC-156.

     
  (f)

Inventories:

     
 

Inventories consist of raw materials and finished goods. Raw materials are valued at the lower of cost and market. Finished goods are valued at the lower of cost and net realizable value. Cost is determined on a first-in first-out basis.

     
  (g)

Property, plant and equipment:

     
 

Property, plant and equipment are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis over the following periods which represent estimated useful life:


Asset Rate
   
Buildings 30 years
Equipment 4 – 15 years
Packaging equipment under capital  
lease Over the term of the lease
Vehicle 30% declining balance
Leasehold improvements Term of the lease

  (h)

Impairment of long-lived assets:

     
 

Long-lived assets, such as property, plant and equipment subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

11


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

3.

Significant accounting policies (continued):

       
(i)

Goodwill

       

Goodwill is the excess of the cost of an acquired business (DMR Food Corporation) over the net of the amount assigned to assets acquired less liabilities assumed. Goodwill is not subject to amortization. The carrying value is tested for impairment at least annually, and any excess over fair value will be charged to operation as impairment loss in the period.

       
(j)

Stock-based compensation plan:

       

The Company has stock-compensation plans, which are described in note 15. The Company accounts for all stock-based payments granted to employees and non-employees on or after January 1, 2002, using the fair value based method as per CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments which requires entities to account for employee stock options using the fair value based method. Under the fair value method, compensation cost is measured at fair value at the date of grant and is expensed over the award’s vesting period. Consideration paid by employees on the exercise of stock options is recorded as capital stock. Stock-based payments to non- employees are measured at the fair value of the consideration received and are recognized as the options are earned.

       

Consideration paid for stock on exercise of stock options is credited to capital stock.

       
(k)

Cash and cash equivalents:

       

Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of 90 days or less at the time of purchase.

       
(l)

Use of estimates:

       

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant areas requiring the use of management estimates relate to the assessment of the fair market value of stock options and the carrying value of land and water sources. Actual results could differ materially from those estimates.

       
(m)

Financial instruments:

       
(i)

Fair value of financial instruments:

       

The fair value of cash and cash equivalents, accounts receivable, bank indebtedness, and accounts payable and accrued liabilities corresponds to their carrying value due to their short-term nature.

       

The carrying value of long-term debt and capital lease obligation approximates their fair value based upon the discount rates applied.

12


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

3.

Significant accounting policies (continued):


  (ii)

Concentration of credit risk:

     
 

The Company grants credit to its customers in the normal course of business. Credit valuations are performed on a regular basis and the financial statements take into account an allowance for bad debts. At March 31, 2007, two customers represented 34% (March 31, 2006 – three customers represented 52%) of total accounts receivable.

     
  (iii)

Interest rate risk:

     
 

The US short-term bank credit facility bears interest at US prime rate plus 4% and the CA$ short term bank credit facility bears interest at CA$ prime rate plus 1.25%.

     
 

The Company does not use derivative instruments to manage its exposure to interest rate risk.

     
  (iv)

Foreign exchange rate risk:

     
 

The majority of the Company’s revenues and selling costs, together with a material portion of its production costs are incurred in United States dollars. General and administration costs are incurred in Canadian dollars and the Company is therefore subject to risk due to fluctuations in exchange rates. The Company does not use derivative instruments to manage its exposure to foreign exchange rate risk.


  (n)

Income taxes:

     
 

Income taxes are calculated using the liability method of accounting. Temporary differences arising from the difference between tax basis of an asset or a liability and its carrying value on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using income tax rates that are expected to apply to taxable income in the periods that the temporary differences are expected to reverse. A valuation allowance is recorded against any future tax asset if it is more likely than not the asset will not be realized.

     
  (o)

Advertising and marketing costs:

     
 

The Company expenses all advertising and marketing costs as incurred. For the three months ended March 31, 2007, the Company incurred marketing costs of $198,105 (2006 - $118,064). These costs are included in selling expenses.

     
  (p)

Loss per share:

     
 

Loss per share is computed by dividing the loss for the period by the weighted average number of common shares outstanding. Diluted loss per share is computed using the treasury method by including other potential common stock from exercise of stock options and warrants in the weighted average number of common shares outstanding for a period, if dilutive.

13


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

3.

Significant accounting policies (continued):

Diluted loss per share is the same as basic loss per share since the exercise of stock options and warrants would be anti-dilutive

4.

Acquisition of DMR Food Corporation :

   

On February 7, 2007, the Company completed the acquisition 100% of the shares of DMR Food Corporation operating under the name of Sweet Selection (“DMR”), a leading seller of organic and natural snack foods in Eastern Canada. The Company acquired the shares of DMR for an initial payment of CA$450,000 (US$380,000) in cash and warrants to purchase 3,000,000 of the Company’s common shares at a purchase price of US$4.00 per share within 3 years. If a gain of CA$2,550,000 is not realized by the holder from the sale of the warrant shares by February 7, 2008, the Company may be required to pay any shortfall up to a maximum of CA$ 2,550,000 (US$2,167,000). The amount of this corporate guarantee has been recorded as a current and long term liability, as applicable, by the Company. Should the Company ultimately not be required to pay any shortfall, the amount of recovery on the reduction of these liabilities will be recorded at that time. The debt is guaranteed by the Company, and discounted on the face value of the acquisition debt ($223,000) and will be accredited on a straight –line basis over 12 months from February 7, 2007. As of March 31, 2007 $33,000 was accredited. The results of operations of DMR Food Corporation have been consolidated from February 7, 2007 forward.

   

The following table summarizes the purchase consideration paid or payable and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price is preliminary and is subject to refinement. The Company may engage a third party for review of the value of goodwill acquired. The result of such review could materially alter the allocation of the purchase price of goodwill.


  Purchase consideration            
   Cash Paid     $ 381  
    Purchase price guarantee            
         Current portion $  1,050        
         Long term portion   893     1,943  
  Business combination expenses         31  
               
  Allocation of purchase consideration         2,355  
  Assets          
         Cash $     49        
           Accounts receivable   642        
           Inventory   378        
           Plant and equipment   284        
           Other current assets   33     1,386  
  Liabilties            
           Accounts payable   726        
           Bank Loan   169        
           Capital lease obligation   202     (1,097 )
  Net identifiable assets         289  
  Excess of purchase consideration over net identifiable            
  assets-Goodwill         2,066  
        $  2,355  

14


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

5.

Bank indebtedness:

   

The Company’s subsidiary, CC Beverage (US) Corporation (“CC Beverage”), has an operating line of credit with an unspecified term available with a United States bank, which bears interest at US prime rate plus 4%. The borrowing facility is collateralized by a first lien on all accounts receivable and inventories of CC Beverage. CC Beverage can borrow up to the lesser of $1,000,000 and 80% of trade accounts receivable outstanding less than 60 days (as at March 31, 2007 - $128,665, March 31, 2006 - $554,300). The weighted average interest rate for the period ended March 31, 2007 was 12.25% (March 31, 2006 – 11.422%); As at March 31, 2007 nil (March 31, 2006 - $271,000) has been drawn on this line of credit. This operating line of credit is also secured by a corporate guarantee from the Company.

   

The Company’s subsidiary, DMR Food Corporation (“o/a Sweet Selection”), has a demand operating loan facility of $250,000 CA$, bearing interest at Royal Bank of Canada prime lending rate plus 1.25% per annum. The facility is secured by a general security agreement covering all assets of Sweet Selection as well as guarantee and postponement of claims in the amount of $455,000 CA$ by Clearly Canadian Beverage Corp. The weighted average interest rate from February 7, 2007 to March 31, 2007 was 7.25% . As of March 31, 2007 $195,000 US$ has been drawn on this line of credit.

   
6.

Accounts receivable:


      March 31,     December 31  
      2007     2006  
               
  Trade accounts receivable, net of allowance of $98,000 $  663   $  597  
     (2006 - $53,000)            
  Other receivables   57     37  
               
    $  720   $  634  
               

7.

Inventories:


      March 31,     December 31  
      2007     2006  
               
  Finished goods $  930   $  280  
  Raw Materials   440     147  
               
    $  1,370   $  427  
               

15


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

8.

Property, plant and equipment and assets held for sale:


            Accumulated           March 31,  
                        2007  
      2007     amortization     Write-down     Net  
                           
  Land and water sources $  1,046   $  -   $        -   $ 1,046  
  Buildings   1,006     1,006     -     -  
  Equipment   1,516     1,101     -     415  
  Leasehold improvements   73     71     -     2  
  Vehicle   21     16     -     5  
      3,662     2,194     -     1,468  

            Accumulated           December 31  
                        2006  
      2006     amortization     Write-down     Net  
                           
  Land and water sources $  1,035   $  -   $ -   $ 1,035  
  Buildings   1,047     996     51     -  
  Equipment   1,157     953     86     118  
  Leasehold improvements   67     67     -     -  
      3,306     2,016     137     1,153  

Included in the table above are changes arising from the fluctuation in the exchange rate between the Canadian and US dollar.

   

Included in equipment are assets under capital lease having a net book value of $208,000 at March 31, 2007

   
9.

Accounts payable and accrued liabilities


      March 31,     December 31  
      2007     2006  
               
  Trade accounts payable $  1,463   $  1,062  
  Marketing fees   290     304  
  Other accrued liabilities   271     242  
               
    $  2,024   $  1,608  

16


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

10.

Short-term debt: (Amended as of July 25, 2007)


      March 31,     December 31  
      2007     2006  
               
  Advance payable to 1068199 Ontario Ltd., bearing            
     interest at 4.25% per annum and are repayable in            
     monthly blended payments of $2,341 CA$   23     -  
  Acquisition debt on the purchase of DMR Food            
  Corporation (Note 4)   1,073     -  
  $ 1,097   $  -  

11.

Capital lease obligation:

   

The Company has entered into lease arrangements to acquire computer equipment. The liability under the capital leases represents the minimum lease payments payable net of imputed interest at an average rate of 18% per annum and is secured by the computer equipment.

   

The Company’s subsidiary has entered into lease arrangements to acquire packaging equipment. The liability under the capital leases represent the minimum lease payments payable net of imputed interest at an average rate of 6.70% to 6.75% per annum and is secured by the packaging equipment.

   

The obligation’s under capital leases consists of:


      March 31,     December 31  
      2007     2006  
               
  Minimum lease payments payable $  252   $  26  
  Portion representing interest to be recorded over the            
     remaining term of the lease   (38 )   (5 )
      214     21  
               
  Current portion   (49 )   (8 )
               
    $  165   $  13  

17


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

11.

Capital lease obligation (continued):

   

Future minimum annual lease payments as at March 31, 2007 under the capital lease are as follows:


  2007 $  47  
  2008   62  
  2009   52  
  2010   50  
  2011   41  
         
    $  252  

12.

Long-term debt:


      March 31     December 31  
      2007     2006  
  Acquistion debt – DMR Food Corp. (Note 4) $  893     -  

13.

Capital stock:

Authorized:

Common shares-limited voting shares, unlimited number, without par value Preferred Shares:

  (a)

2,000,000 class A Preferred Shares with special rights and restrictions:

     
 

The class A Preferred Shares include the right to dividends in the amount of 10% per annum payable quarterly in advance (payable by the issuance of common shares of the Company calculated at a share price equal to the ten day average closing price of the Company’s common shares on the OTC Bulletin Board market preceding the date of issuance of such dividend shares), the right to one vote for each class A Preferred Share on any vote of the common shares of the Company, and the right of conversion into common shares of the Company at a conversion price equal to the ten day average trading price of the Company’s common shares on the OTC Bulletin Board market preceding the date of conversion.

     
  (b)

2,000,000 Class B Preferred Shares with special rights and restrictions:

18


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

13.

Capital stock (continued):


  (b)

(continued):

The Class B Preferred Shares include the right to dividends in the amount of 10% per annum payable, in the first year, in advance, by the issuance of common shares of the Company at a price of US$1.00 per share, and thereafter in advance in monthly cash instalments. Each class B Preferred Share had the right to five votes on any vote of the common shareholders. The class B Preferred Shares were convertible, in whole but not in part, into such number of common shares of the Company as would equal 50% of the number of fully diluted common shares of the Company immediately prior to the conversion of the class B Preferred Shares. With the agreement of the class B shareholder, BG Capital Group Ltd., and the approval of the shareholders on March 16, 2006, the conversion ratio was fixed at 4.1 common shares and 0.8 Variable Multiple Voting Shares for each one class B preferred shares.

Variable Multiple Voting Shares

On March 16, 2006, a special general meeting of shareholders was held, and the shareholders approved (a) the re-designation of the common shares as “Limited Voting Shares” and (b) the creation of a class of “Variable Multiple Voting Shares.” Holders of Variable Multiple Voting Shares are entitled to multiple votes at all meetings of common shareholders, and the number of votes attached to each Variable Multiple Voting Share is equal to the greater of (i) ten and (ii) ten times a fraction the numerator of which is the number of issued common shares and the denominator of which is the number of issued common shares on March 16, 2006. At March 31, 2007, the 1,120,000 issued and outstanding Variable Multiple Voting Shares entitles the holder to 20,614,980 votes of meeting of Shareholders.

On February 27, 2006, March 28, 2006 and May 2, 2006, Global (GMPC) Holdings Inc. converted $200,000 (CA$222,570), $80,000 (CA$89,250) and $177,770 (CA$188,000) of principal amount of loans into common shares at conversion prices ranging from US$2.00 to US$2.62 per share. The Company issued 100,000, 40,000 and 88,885 shares respectively.

On May 12, 2006, the Company entered into an agreement to surrender all of the Series A, B, C and D warrants issued in connection with the December 28, 2005 private placement agreement.

In consideration therefore certain of the investors were granted Series A warrants for the purchase of a total of 4,120,000 shares at a price of US$1.25, exercisable within two years following the effective date on which the warrants are registered pursuant to a registration statement filed with the US Securities and Exchange Commission.

19


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

13.

Capital stock (continued):

   

In May 2006, the Company completed a brokered private placement of 1,312,500 common shares issued at US$2.00 per share raising a total of $2,625,000. The Company paid broker’s fees of $183,050 and granted broker warrants to purchase 91,525 common shares at US$2.25 per share, vesting upon issuance and expiring in May, 2007. The Company paid an additional finders fee of $130,750 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until May 2007 to convert any or all of the finder’ fee into shares at a price of US$2.00 per share (maximum of 65,375 shares).

   

In July 2006, the Company completed a brokered private placement of 1,205,000 common shares issued at US$2.75 per share raising a total of $3,314,000. The Company paid broker’s fees of $259,462 and granted broker warrants to purchase 84,350 common shares at US$3.00 per share, vesting upon issuance and expiring in July, 2007. The Company paid an additional finders fee of $138,187 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until July, 2007 to convert any or all of the finder’s fee into shares at a price of US$2.75 per share (maximum of 50,250 shares).

   

In August 2006, the Company settled litigation with respect to its Blue Mountain Springs subsidiary. The terms of the settlement included the issuance of 624,314 shares with a fair value of $1,529,000.

   

In August 2006, the Company issued 140,000 common shares at US$2.30 per share to BG Capital, a controlling shareholder of the Company, under the terms of a management services contract now expired.

   

In August 2006, the Company completed a brokered private placement of 333,334 common shares issued at $3.00 per share, together with a warrant to purchase 333,334 common shares at $3.25 per share, vesting upon issuance and expiring in September, 2008, raising a total of $1,000,000. The Company paid broker’s fees of $70,000 and granted broker warrants to purchase 23,333 common shares at US$3.25 per share, vesting upon issuance and expiring in August, 2007. The Company paid an additional finders fee of $50,000 to BG Capital, a controlling shareholder of the Company, BG Capital has the right until August, 2007 to convert any or all of the finder’s fee into shares at a price of US$3.00 per share (maximum of 16,666 shares).

   

In October 2006, the Company paid $94,246 to BG Capital in respect of dividends payable on class B Preferred Shares from May 12, 2006 to October 31, 2006.

   

In November 2006, BG Capital converted 400,000 Class B preferred shares for 1,640,000 common shares and 320,000 Multiple voting shares. In January, 2007, BG Capital converted 1,000,000 Class B preferred shares for 4,100,000 common shares and 800,000 multiple voting shares.

20


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

13.

Capital stock (continued):

   

In March, 2007, the Company completed a brokered private placement of 833,000 common shares issued at $3.00 per share, together with a warrant to purchase 833,000 common shares at $3.25 per share, vesting on July, 2007 and expiring in March, 2009, raising a total of $2,499,000. The Company paid broker’s fees of $69,930 and granted broker warrants to purchase 23,333 common shares at US$3.25 per share, vesting on July, 2007 and expiring in March, 2009.

   
14.

Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares:


  (a)

Stock options:

     
 

Under the April 29, 2005 stock plan, the Company may grant options to purchase up to 1,750,000 common shares of the Company, and under the 2006 equity incentive plan, the Company may grant options to purchase up to 10,000,000 common shares of the Company. Options may be issued under the stock option plan as determined at the sole discretion of the Company’s board of directors. Options may be issued for a term of up to 10 years at an exercise price to be determined by the Company’s board of directors, provided that the exercise price is not less than the average closing price of the Company’s shares for the 10 trading days proceeding the date on which the options are granted. All options vest immediately on issuance, or at the discretion of the Board of Directors.

     
 

A summary of stock options granted by the Company is as follows:


            Weighted  
            average exercise  
      Number of options     price  
      (000’s )   US$  
               
               
  Options outstanding at December 31, 2005   1,617     1.77  
       Granted   2,216     1.79  
       Expired   (18 )   3.77  
       Exercised   (1,307 )   1.82  
       Surrendered   -     -  
               
  Options outstanding at December 31, 2006   2,508     1.96  
       Granted   560     1.93  
       Expired   -     -  
       Exercised   (121 )   2.00  
       Surrendered   (10 )   2.75  
               
  Options outstanding at March 31, 2007   2,937     1.96  
               
  Options exercisable at March 31, 2007   1,443   $  2.13  

21


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

14.

Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):


  (a)

Stock options (continued):

     
 

The number of options and their weighted average exercise price has been adjusted to reflect the ten for one consolidation of the common shares on May 2, 2005.

     
 

For the period ended March 31, 2007, the Company granted 560,492 options (March 31, 2006 – 435,500) under its stock option plans, of which options to acquire 520,492 shares (March 31, 2006 – 435,500) were granted to members of its Advisory Board, Directors and management. The fair value of the options granted for the period ended March 31, 2007 is approximately $1.96 per share (March 31, 2006 $1.60). Stock based compensation expense of $714,000 has been recorded for the period (March 31, 2006 - $869,000). Stock based compensation of an additional $576,406 attributed to these grants has been allocated to services to be provided in the future. This amount will be recorded to contributed surplus and charged to operations over a one year period based on the estimated service life inherent in the grants.

     
 

The Company has estimated the fair value of each option on the date of grant using the Black-Scholes Options Pricing model using the following assumptions:


    March 31, 2007 March 31, 2006
  Risk-free interest rate 2.38% to 2.87% 4.38% to 4.82%
  Expected life of options 1 to 5 years 5 years
  Expected volatility in the market price of    
       the shares 49% to 205% 185%
  Expected dividend yield 0.0% 0.0%
       
  Weighted average grant date fair value $2.07 $1.99

  (b)

Warrants:

     
 

The following table summarizes information about common share purchase warrants granted in equity financings and acquistions to date which remain outstanding at March 31, 2007. Each warrant entitles the holder to purchase one common shares at the exercise price indicated.


Exercise   Balance,                       Balance,      
price   December 31,                       March 31,   Expiry  
per share   2006   Cancelled     Granted     Expired   Exercised   2007   date  
US$2.25 (CA$2.59)   91,525   -     -     -   -   91,525   May 2007  
US$3.00 (CA$3.46)   84,350   -     -     -   -   84,350   July 2007  
US$3.25 (CA$3.74)   356,667   -     -     -   -   356,667   September 2008  
US$1.25 (CA$1.44)   4,090,000   -     -     -   (60,000 ) 4,030,000   December 2007  
US$3.25 (CA$3.74)   -   -     856,333     -   -   856,333   July, 2009  
US$4.00 (CA$4.61)   -   -     3,000,000     -   -   3,000,000   February 2010  
US$2.00 (CA$2.31)   1,000,000   -     -     -   -   1,000,000   October 2010  
US$2.00 (CA$2.31)   100,000   -     -     -   -   100,000   July 2011  
                                   
    5,722,542   -     3,856,333     -   (60,000 ) 9,518,875      

22


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

14.

Stock options, warrants, shareholders’ rights plan, and other commitments to issue shares (continued):


 

In the three months ended March 31, 2007, the Company granted warrants to acquire 856,333 shares in a private placement described in note 13. These warrants had a fair value of $293,000, which amount has been charged as a cost of the share capital raised. The Company also granted warrants to acquire 3,000,000 shares at a price of $4.00 per share, having a fair value of nil due to the Company guarantee of the acquisition price, in connection with its acquisition of DMR Food Corporation.

     
  (c)

Shareholders’ rights plan:

     
 

The Company has a Shareholders’ Rights Plan which is contained within a Rights Agreement dated October 1, 1990, and a Supermajority Amendment, which forms part of the Company’s articles. The Rights Plan expires on December 31, 2009.

     
 

In general terms, the rights issuable under the Rights Plan permit shareholders to purchase the Company’s shares at 50% of the market price at the time of the occurrence of certain Triggering Events. Generally, a Triggering Event is where a party (Acquiring Person) endeavours to merge, amalgamate, acquire assets or acquire greater than 20% of the voting shares of the Company without the approval of the Company’s directors. An Acquiring Person who causes the Triggering Event to occur is specifically excluded from acquiring shares under the adjustment formula provided for in the Rights Agreement. The rights adjustment does not occur where an offer to acquire shares is determined to be a Qualified Offer. A Qualified Offer is an offer for all outstanding shares on terms determined by a majority of the Company’s directors as being in the best interest of the Company and its shareholders.


15.

Commitments and contingencies:

     
(a)

Consulting contracts:

     

On November 1, 2005, the Company entered into a consulting agreement with a term of five years. The Company issued a warrant to purchase 1,000,000 common shares of the Company at $2.00 per share as consideration. The fair value of the warrant as determined using the Black-Scholes method was $1,904,000. The Company is recognizing the expense related to the agreement over the five year term of the agreement. During the period ended March 31, 2007, the Company expensed $95,000 (March 31, 2006 - $95,000) with respect to this warrant. At March 31, 2007 it has recorded $380,400 as a current prepaid asset and $984,000 as a long-term prepaid asset with respect to this warrant.

23


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

15.

Commitments and contingencies (continued):


 

On June 5, 2006, the Company entered into marketing and consulting agreement with a term of three years. The Company issued options to purchase 1,075,000 common shares of the Company at $1.75 per share as consideration. The fair value of the option as determined using the Black-Scholes method was $2,988,000. The Company is recognizing the expense related to the agreement over the three year term of the agreement. During the period ended March 31, 2007, the Company expensed $617,000 with respect to these options.

     
  (b)

Dispute with D. Bruce Horton and Continental Consulting Ltd.:

     
 

In August 1999, a claim was filed against the Company in the Supreme Court of British Columbia by D. Bruce Horton and his company, Continental Consulting Ltd. (Continental). Mr. Horton is claiming compensation from the Company for allegedly constructively dismissing him as an officer of the Company. Continental is claiming compensation from the Company alleging that the Company terminated its management agreement without cause. Mr. Horton and Continental are claiming an aggregate of $2,060,000 (CA$2,400,000) plus interest and costs. The Company does not accept Mr. Horton’s and Continental’s allegations, and has filed statements of defence and has further filed counterclaims against Mr. Horton and Continental for monies owed and damages. The Company has recorded an accrual based on its expected costs.

     
  (c)

Ordinary course business proceedings:

     
 

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. Management is of the opinion that such claims will not have a material adverse effect on the Company’s future operations or financial position.

     
  (d)

With respect to the long-term indebtedness assumed by the purchaser of the private label co-pack bottling business during the year ended December 31, 2001, the Company’s subsidiary, CC Beverage, still remains as the primary borrower; however, the purchaser is under an obligation to obtain a release of such indebtedness. The purchaser holds a letter of credit with a United States bank to secure the long-term indebtedness. The Company has assessed its liability under this guarantee and determined the fair value to be nil.

24


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

16.

Supplementary cash flow information:


        March 31, 2007     March 31, 2006  
                 
  (a) Items not involving cash:            
    Amortization of property, plant and            
       equipment $  4   $  32  
    Gain on sale of investment         (201 )
    Services paid in stock   46     -  
    Stock-based compensation   1,331     869  
    Loss on settlement of debt   -     65  
    Interest accretion on convertible            
       debenture and short-term debt   -     90  
    Interest accretion on acquisition debt   33     -  
                 
      $  1,414   $  855  
                 
                 
  (b) Changes in non-cash working capital            
    balances related to operations:            
    Accounts receivable, net of lawsuit   555     (254 )
       settlement $     $    
    Inventories   (565 )   118  
    Prepaid expenses and other current            
       assets   (131 )   30  
    Prepaid contracts   95     113  
    Accounts payable and accrued            
       liabilities   (322 )   547  
                 
        (368 )   554  
  (c) Non-cash investing and financing            
    activities:            
    Conversion of class B preferred            
       shares to common shares $  1,000   $  -  
    Repayment of short-term debt from            
       issuance of stock   -     340  
    Warrants granted in connection with            
       private placement financing   293     -  
    Liabilities recorded in connection            
       with DMR Food Corporation            
       acquisition   2,167     -  
    Common shares issued for            
       settlement of services debt   -     68  

25


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

17.

Segmented information:

   

The presentation of the segmented information is based on the way that management organizes the business for making operating decisions and assessing performance. The Company operates solely as a beverage and snack food business, selling flavoured water, carbonated beverages and natural and organic snack foods. Management uses geographic areas to monitor the business. The “other” segment represents sales outside North America. Management evaluates the performance of each segment based on the earnings (loss) from operations before the write-down of property, plant and equipment.

   

The transactions between segments are measured at the exchange value, which is the amount of consideration established and agreed to by each segment.


      March 31, 2007     March 31, 2006  
               
  Sales:            
       Canada:            
               Total sales $  781   $  216  
               
       United States:            
               Total sales   686     1,486  
               Sales to other segments   (13 )   (46 )
               
               Sales to external customers   1,454     1,656  
               
       Other            
               Sales to external customers   13     46  
               
  Total sales to external customers $  1,467   $  1,702  
               
  Sales to external customers by product            
     line:            
       Carbonated product $  665   $  1,032  
       Non-carbonated product   254     670  
       Snack product   548     -  
               
      1,467     1,702  
               
  Interest and financing cost on short-term            
     and long-term debt            
       Canada $  4   $  91  
       United States   2     10  
               
      6     101  
               
  Amortization:            
       Canada $  6   $  32  
       United States   -     -  
               
      6     32  

26


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

17.

Segmented information (continued):


      March 31, 2007     March 31, 2006  
               
  Loss before income taxes            
       Canada $  (1,989 ) $  (1,817 )
       United States   (192 )   (227 )
      (2,181 )   (2,044 )
               
  Loss for the year before income taxes $  (2,181 ) $  (2,044 )

      March 31,     March 31,  
      2007     2006  
               
  Assets:            
       Canada $  14,280   $  5,989  
       United States   384     633  
       Other   28     28  
      14,692     6,650  
               
  Assets held for sale:            
       Canada   -     343  
               
  Total assets $  14,692   $  6,993  
               
  Property, plant and equipment additions:            
       Canada $  -   $  -  

With respect to third parties, the Company has one customer (March 31, 2006 - two customers) that represent more than 10% of sales as noted below. Sales are on an unsecured open account basis under specific credit terms. The agreements allow the Company to make alternative distribution arrangements within the relevant territories under certain conditions, including a business failure of a distributor.

      March 31,     March 31,  
      2007     2006  
               
  Customer A   -     36.0%  
  Customer B   -     18.7%  
  Customer C   11.5%     -  


CLEARLY CANADIAN BEVERAGE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
(Tabular amounts expressed in thousands of United States dollars, except where indicated)
Three months ended March 31, 2007
 

18.

Subsequent events:


  (a)

Private Placement :

     
 

Subsequent to March 31, 2007, the Company completed a brokered private placement of 333,333 common shares issued at $3.00 per share raising a total of $1,000,000. The Company issued warrant to purchase 333,333 common shares at $3.35 per share, vested on July, 2007 and expiring in March, 2009.

     
  (b)

Acquisition of My Organic Baby Inc.

     
 

On May 24, 2007, the Company acquired all of the outstanding shares of My Organic Baby Inc., an Ontario corporation which markets Canada’s first full nation wide line of organic baby food. The purchase price paid or payable comprises $400,000 CDN and 215,000 common shares of Clearly Canadian on closing, and additional consideration comprising common shares having a market value of $600,000, and warrants to acquire 3,750,000 common shares at a purchase price of $4.00 US per share for a three year period. The company may be required to pay up to CDN $4,350,000 to the vendor for any shortfall realized by the vendor on the sale of the common shares issued as additional consideration and to the extent that the vendor has not realized a gain on the sale of shares acquired on exercise of the warrants. The amount of the guarantee would be a maximum of CDN $4,050,000 within 13 months, and a further CDN $300,000 within 25 months. In addition, the Company has entered into a 3 year agreement to retain the services of the founders of My Organic Baby, David Reingold and Orlee Muroff. Mr Reingold was also the majority owner of DMR Food Corporation prior to its acquisition by the Company in February, 2007.

     
 

My Organic Baby, Inc. completed its first fiscal year on January 31, 2007 and recorded sales of approximately CDN$ 1,300,000 and net income before tax of CDN $30,000. Its total assets at January 31, 2007 were approximately CDN $250,000 and its liabilities were approximately CDN $200,000. Substantially all of the purchase consideration is to be allocated to goodwill

     
     

28